Century School Of Economic The Marginalist School

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The Marginalist School
Marginalist is a mid-nineteenth century school of economic thought credited to among others, British Philosophers, Karl Max. In the mid-nineteenth century, it began to dominate economics and to large extent still reigns. This school of thought posits that it is necessary in economics to view the market in a different angle with a different lens. The angle and lens is, fully exploring the process of rational decision making process on both sides of the market, that is, the demand side and supply side. The marginalist school argued that economic decisions were typically made at the margin. They also criticize and discredit the classical school and its place in the realm of economics. This research will discuss in depth the key innovations of the marginalist school compared to the classical school, its criticisms of the classical school and lastly, the ideas Marx borrowed from the classical school.
There is no doubt that the marginalist work dominated economics particularly on analyses of demand and supply, the theory of value and other topics related to decision making by market participants. Key innovations which are to a large extent hinged on these topics are among the reasons for the dominance.Key Innovations of the Marginalist School Compared to the Classical School
The major innovation is “the view of economic growth.” They discussed economic growth in light of the market and the aspects of demand and supply. With respect to the aspect of demand, was the concept of utility and how its changes affect the price the consumers are willing to pay for the good and services. In market, the commodities are demanded or required by the consumer for various reasons. One of the reasons is the usefulness or the satisfaction a consumer derives from the consumption of the commodity. It is this satisfaction or usefulness that is referred to as “utility.”
This innovation is pegged on the behavior of consumers and how the satisfaction derived from the consumption of that commodity influences his choice of buying more or additional unit of the same item thereby contributing to economic growth. From the concept of utility came the economic law of “diminishing marginal utility.” This law states that marginal utility falls as consumer buys additional unit of the same item in a given period of time (Study Moose, n.p). As regards the supply side, the marginalist built on the classical school to fully examine the value of resource used in production. Marginalists school provide insight on how the economy should be analyzed in the context of demand and supply side of the market. It is no doubt that market behaviour can sometime as confusing as it is fluctuating. Economic growth can therefore be accurately from studying the behaviour of the market based on demand and supply.
Still on the view of economic growth, they created an economic theory of the relations between change in technology and economic growth. They contributed exogenous innovation relative to the public good features of technological progress dealing with externalities and increasing marginal returns (Study Moose, n.p). Classical school on the other hand fails to provide adequate innovations as far as economic growth is concerned. The analysis of the marginalists makes up much of neoclassical economics and creates the popular economic tenet of “rational decisions are made on the margin” (Kenton, n.p). It is noteworthy that it was the consistent application of the popular economic tenet that marked the clear distinction between classical theory and modern economics.
This school’s view of economic growth compares to the classical school which identified the major economic problem as predicting the effects of changes in the quantity of capital and labour on the rate of growth of national output. The focus of marginal approach is on the conditions under the factors of capital and labour is allocated with the highest possible results among uses which are themselves competing. The important note of distinction is drawn from the fact that classical school does not deal with the forces of growth but rather with the market behavior. Classical concentrates on the functioning of markets as a mechanism of resource allocation where the functions of demand interacts with those of the supply to determine prices that balance supply and demand to sustain market equilibrium (Connor and David, 316 ). Their view of economic growth is essential both to rational consumer decision making and pricing decisions by businesses.
The second innovation is the analysis of economic forces. Marginalist developed a working analysis of economic forces using a relatively simple mathematical statement the unlike classical whose work is based on historical analysis. The marginalists theory of the relations of between a technological change and economic growth makes more sense on the modern economics and the general behaviour of market. Technology viewed as a tool for economic growth points to the possibility that its continued use in a way brings an alteration in production process. This alteration is often a positive one that increases production. It is this particular innovation that the marginalist school is credited for being more concerned with human welfare as opposed to their classical counterparts who are said to be more concerned with wealth.
Both school of economic have various contributions to the economy. However, marginalist school cares about the human welfare, while classical school cares more about wealth. Another innovation of the former school is the proposal of trade unions with limits as little as possible.
The Marginalist Criticisms of the Classical School
Despite Marx considerable respect for the classicalists, he still saw in them a series of weaknesses. His critical study of these weaknesses and their inevitable fatalities is part of what is known as marginalist criticism of classical school. The criticisms of classical school are based on methodological grounds such as the concept of long run equilibrium, unfitness of the concept of free competition to the modern society and deficient stability features of the classical adjustment process. The first criticism of long run equilibrium is founded on the premise of the impossibility of determining equilibrium position from using a given system of data. This is based on the understanding that such steps will alter the condition of equilibrium.
Habit of thought engendered by equilibrium economics has become a major obstacle to the development of economics as a science (Dale W, 320). This is because it is believed this idea complicates rather simplify the analysis of market and economy. This criticism advocates for the abandonment of the idea of long run equilibrium. It is not compatible or realistic to the real world which ...