Editing Marginalism (section)

=== Marginal Revolution ===
Marginalism as a formal theory can be attributed to the work of three economists, [[William Stanley Jevons|Jevons]] in England, [[Carl Menger|Menger]] in Austria, and [[Léon Walras|Walras]] in Switzerland.{{citation needed|date=July 2012}} [[William Stanley Jevons]] first proposed the theory in an article in 1862 and a book in 1871.<ref>[http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/jevons/mathem.txt “A General Mathematical Theory of Political Economy”] {{Webarchive|url=https://web.archive.org/web/20061215140931/http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/jevons/mathem.txt |date=15 December 2006 }} ([http://www.eco.utexas.edu/~hmcleave/jevonsmath.pdf PDF]{{Dead link|date=October 2022 |bot=InternetArchiveBot |fix-attempted=yes }}), ''The Theory of Political Economy'' (1871).</ref> Similarly, [[Carl Menger]] presented the theory in 1871.<ref>''Grundsätze der Volkswirtschaftslehre'' (translated as [https://mises.org/document/595 ''Principles of Economics'' PDF])</ref> Menger explained why individuals use marginal utility to decide amongst trade-offs, but while his illustrative examples present utility as quantified, his essential assumptions do not.{{vague|date=July 2012}}<ref name="georgescu-rogen"/> [[Léon Walras]] introduced the theory in ''Éléments d'économie politique pure'', the first part of which was published in 1874. The American [[John Bates Clark]] is also associated with the origins of Marginalism, but did little to advance the theory.{{citation needed|date=July 2012}} This new way of thinking was a very drastic shift in thinking from the classical school of economics, founded in part by Adam Smith, David Ricardo and Thomas Malthus. The classical school of economics believed in a concept called the labor theory of value which emphasized the idea that the amount of time it took to produce a good determined the value of that good. This concept's rival, marginal utility on the other hand, focused on the value that the consumer received from the good when determining its value.<ref>{{cite book |last1=Backhouse |first1=Roger |title=The New Palgrave Dictionary of Economics |chapter=Marginal Revolution |date=17 August 2017 |pages=3886–3888 |publisher=Palgrave Macmillan UK |doi=10.1007/978-1-349-58802-2_1023 |doi-broken-date=1 November 2024 |isbn=9781349588022 |chapter-url=https://link.springer.com/referenceworkentry/10.1007/978-1-349-58802-2_1023}}</ref> What the marginalists understood was that the exchange value of goods can be used to describe the use value of goods. Meghnad Desai puts it this way, "Individuals in their daily activity so managed their resources that they balanced the marginal utility - the utility (use value) derived from an extra unit of a commodity they consumed - with the price (exchange value) they paid for it".<ref>{{cite book |last1=Desai |first1=Meghnad |title=Marx's Revenge: The Resurgence of Capitalism and the Death of Statist Socialism |publisher=Verso Books}}</ref> Thus, when consumption of a good goes up, the utility of that good decreases as it is consumed. Each person would continue to consume until the marginal utility would be equal to the price. Jevons also wanted to formulate a price theory that accounted for this marginal utility and discovered the following: cost production determines supply; supply determines final degree of utility; and final degree of utility determines value.<ref>{{cite book |last1=Sandmo |first1=Agnar |title=Economics Evolving: A History of Economic Thought |publisher=Princeton University Press}}</ref> Walras was able to articulate the utility maximization of the consumer far better than Jevons and Menger by assuming that utility was linked to the consumption of each good.

==== Second generation ====
{{Austrian School sidebar |expanded=theory}}
Although the Marginal Revolution flowed from the work of Jevons, Menger, and Walras, their work might have failed to enter the mainstream were it not for a second generation of economists. In England, the second generation were exemplified by [[Philip Wicksteed]], by [[William Smart (economist)|William Smart]], and by [[Alfred Marshall]]; in Austria by [[Eugen Böhm von Bawerk]] and by [[Friedrich von Wieser]]; in Switzerland by [[Vilfredo Pareto]]; and in America by [[Herbert Joseph Davenport]] and by [[Frank Fetter|Frank A. Fetter]].

There were significant, distinguishing features amongst the approaches of Jevons, Menger, and Walras, but the second generation did not maintain distinctions along national or linguistic lines. The work of von Wieser was heavily influenced by that of Walras.  Wicksteed was heavily influenced by Menger. Fetter referred to himself and Davenport as part of "the American Psychological School", named in imitation of the [[Austrian School|Austrian "Psychological School"]]. Clark's work from this period onward similarly shows heavy influence by Menger. William Smart began as a conveyor of Austrian School theory to English-language readers, though he fell increasingly under the influence of Marshall.<ref name="salerno">Salerno, Joseph T. 1999; "The Place of Mises's Human Action in the Development of Modern Economic Thought". ''Quarterly Journal of Economic Thought'' v. 2 (1).</ref>

Böhm-Bawerk was perhaps the most able expositor of Menger's conception.<ref name="salerno" /><ref>Böhm-Bawerk, Eugen Ritter von. "Grundzüge der Theorie des wirtschaftlichen Güterwerthes", ''Jahrbüche für Nationalökonomie und Statistik'' v 13 (1886).  Translated as ''Basic Principles of Economic Value''.</ref> He was further noted for producing a theory of interest and of profit in equilibrium based upon the interaction of diminishing marginal utility with diminishing [[marginal product]]ivity of time and with [[time preference]].<ref name="bawerk_capital"/> (This theory was adopted in full and then further developed by [[Knut Wicksell]]<ref>Wicksell, Johan Gustaf Knut; ''Über Wert, Kapital unde Rente'' (1893). Translated as [https://mises.org/books/valuecapital.pdf ''Value, Capital and Rent''.]</ref> and with modifications including formal disregard for time-preference by Wicksell's American rival [[Irving Fisher]].<ref>Fisher, Irving; ''Theory of Interest'' (1930).</ref>)

Marshall was the second-generation marginalist whose work on marginal utility came most to inform the mainstream of neoclassical economics, especially by way of his ''Principles of Economics'', the first volume of which was published in 1890. Marshall constructed the demand curve with the aid of assumptions that utility was quantified, and that the marginal utility of money was constant, or nearly so. Like Jevons, Marshall did not see an explanation for supply in the theory of marginal utility, so he paired a marginal explanation of demand with a more [[Classical economics|classical]] explanation of supply, wherein costs were taken to be objectively determined. Marshall later actively mischaracterized the criticism that these costs were themselves ultimately determined by marginal utilities.<ref name="schumMarshScis" />

==== Marginal Revolution as a response to socialism ====
The doctrines of marginalism and the Marginal Revolution are often interpreted as a response to the rise of the worker's movement, [[Marxian economics]] and the earlier [[Ricardian socialism|(Ricardian) socialist]] theories of the [[exploitation of labour]]. The first volume of ''[[Das Kapital]]'' was not published until July 1867, when marginalism was already developing, but before the advent of Marxian economics, proto-marginalist ideas such as those of Gossen had largely fallen on deaf ears. It was only in the 1880s, when Marxism had come to the fore as the main economic theory of the workers' movement, that Gossen found (posthumous) recognition.<ref name=":0">{{cite book|title=An Outline of the History of Economic Theory |author-last1=Screpanti |author-first1=Ernesto |author-link1=Ernesto Screpanti |author-last2=Zamagni |author-first2=Stefano |author-link2=Stefano Zamagni |publisher=[[Oxford University Press]] |year=2005 |pages=170–173}}</ref>

Aside from the rise of Marxism, [[Ernesto Screpanti|E. Screpanti]] and [[Stefano Zamagni|S. Zamagni]] point to a different 'external' reason for marginalism's success, which is its successful response to the [[Long Depression]] and the resurgence of [[class conflict]] in all developed capitalist economies after the 1848–1870 period of social peace. Marginalism, Screpanti and Zamagni argue, offered a theory of the [[Perfect competition|free market as perfect]], as performing optimal allocation of resources, while it allowed economists to blame any adverse effects of laissez-faire economics on the interference of workers' coalitions in the proper functioning of the market.<ref name=":0" />

Scholars have suggested that the success of the generation who followed the preceptors of the Revolution was their ability to formulate straightforward responses to [[Marxist economic theory]].<ref name="screpanti">{{cite book|author-last1=Screpanti |author-first1=Ernesto |author-link1=Ernesto Screpanti |author-last2=Zamagni |author-first2=Stefano |author-link2=Stefano Zamagni |title=An Outline of the History of Economic Thought |date=1994}}</ref> The most famous of these was that of Böhm-Bawerk, "{{lang|de|Zum Abschluss des Marxschen Systems}}" (1896),<ref>{{cite book|author-last=Böhm-Bawerk |author-first=Eugen Ritter von |author-link=Eugen von Böhm-Bawerk |title=Zum Abschluss des Marxschen Systems |language=de |trans-title=On the Closure of the Marxist System |publisher=Staatswiss. Arbeiten. Festgabe für [[Karl Knies|K. Knies]] |date=1896}}</ref> but the first was Wicksteed's "The Marxian Theory of Value. ''Das Kapital'': A Criticism" (1884,<ref>{{cite magazine|author-last=Wicksteed |author-first=Philip Henry |author-link=Philip Wicksteed |title=Das Kapital: A Criticism |magazine=To-day |number=2 |date=1884 |pages=388–409}}</ref> followed by "The Jevonian Criticism of Marx: A Rejoinder" in 1885).<ref>{{cite magazine|author-last=Wicksteed |author-first=Philip Henry |author-link=Philip Wicksteed |title=The Jevonian criticism of Marx: a rejoinder |magazine=To-day |number=3 |date=1885 |pages=177–179}}</ref> The most famous early Marxist responses were [[Rudolf Hilferding]]'s {{lang|de|Böhm-Bawerks Marx-Kritik}} (1904)<ref name="hilferding">{{cite book|author-last=Hilferding |author-first=Rudolf |author-link=Rudolf Hilferding |title=Böhm-Bawerks Marx-Kritik |language=de |date=1904 |trans-title=Böhm-Bawerk's Criticism of Marx}}</ref> and ''The Economic Theory of the Leisure Class'' (1914) by [[Nikolai Bukharin]].<ref name="bukharin">{{cite book|author-first=Nikolai |author-last=Bukharin |author-link=Nikolai Bukharin |title=Политической экономии рантье |date=1914 |url=http://www.marxists.org/archive/bukharin/works/1927/leisure-economics/ |trans-title=The Economic Theory of the Leisure Class}}</ref>