I am tempted to comment on what’s seen and what’s unseen in this glad recollection of the so-called Marginal Revolution.
It would be one of the most profound turnings toward (not away from) dogmatic ignorance in human intellectual history, a feature of the Marginal Revolution that is naturally not acknowledged by its fanboys. The Neoclassical Economics originally conceived in the Marginal Revolution would grow up as a theory of markets, a theoretical analysis that imagines political economies as systems organized by and around markets in which allocational efficiency is achieved by means of market price.
The irony is that the Marginal Revolution happened at the exact historical moment in the 1870s and 1880s when the technological innovations of the Second Industrial Revolution initiated the organization at unprecedented scale by money finance and bureaucratic enterprise of the pursuit of technical and managerial efficiency. What observably emerged all around the economists of the Marginal Revolution was not “the market economy” of their academic imaginings but rather an economic system built of and by giant administrative enterprise, guided by money finance and pursuing technical, not allocational, efficiency.
Allow me to do the unthinkable: reject the marginal revolution.
Let us just look at the first two paragraphs in the second section. You write that the early marginalists talked about the "last unit." This is correct. Theirs was an attempt at a causal theory of value, deriving from existing stocks and the last unit that defined the value of each unit.
However, in the next paragraph you turn to decision-making and in effect abandon the notion of "last unit," embracing instead the "next unit." This is not a subtle change.
While usually glossed over in economic history, this change was not a natural evolution. It came from the brick wall that the early marginalists hit with the "last unit" idea. Originally, "the marginal" referred the marginal unit. A position within a given stock. But economists learned very fast that you couldn't do anything with this. Does value derive from the last unit or the whole stock? With complementary or heterogeneous units, does the value of coffee derive from the coffee or the added sugar? In a market context, which unit is actually the last one? A causal relationship COULD NOT BE ESTABLISHED.
This is why Pareto and subsequent marginalists abandoned the positional meaning of marginality and embraced the "next unit" meaning, which is a differential conception, i.e., the difference between two states—not a position within a given stock. This fundamental shift pulled back from units in reality and focused exclusively on the mind, i.e., the choice of the agent. Because the next unit depends on choice, existing stocks were no longer important. Scarcity was fully subjective now and marginal utility did not try to explain value but to describe decisions, given already established values.
Thus the meaning of marginality changed, with a value-centered theory abandoned, and economics pivoted to a choice-centered theory. The marginal revolution actually died not long after it emerged. The one thing that remained was the idea of *declining* utility. This is the key in modern economics. That whatever we do, we must choose the best option within a stationary state of scarce means against a declining ranking of preferences (without this, marginalism would die). The notion of building, growing, expanding, *increasing* our means and thus our utility across time has no room in modern economics. Life is a series of isolated snapshots, not an integrated arc.
Just one example before I go. Imagine a student who has a modest income to sustain himself. Instead of eating outside, he only eats at home and purchases the most basic, cheapest staples. Does this mean that he prefers rice over meat? No. Does it mean that he values rice over meat? No. But he's saving a portion of his income toward a greater value. He's saving to launch his own startup after college. Were his consumption decisions made "at the margin"? To me it seems that his decisions derived from a *central purpose* that dictated his choices. Did he choose the cheaper bag of rice over one that costs $1 more? Well, okay, I suppose that's a decision "at the margin," but why didn't he add the meat? That is not a marginal decision. If anything, it's a complementary, holistic decision.
If you want to see where marginalism has been lost, come to France.
Excelellent thank you Sebastian!
I love this
I am tempted to comment on what’s seen and what’s unseen in this glad recollection of the so-called Marginal Revolution.
It would be one of the most profound turnings toward (not away from) dogmatic ignorance in human intellectual history, a feature of the Marginal Revolution that is naturally not acknowledged by its fanboys. The Neoclassical Economics originally conceived in the Marginal Revolution would grow up as a theory of markets, a theoretical analysis that imagines political economies as systems organized by and around markets in which allocational efficiency is achieved by means of market price.
The irony is that the Marginal Revolution happened at the exact historical moment in the 1870s and 1880s when the technological innovations of the Second Industrial Revolution initiated the organization at unprecedented scale by money finance and bureaucratic enterprise of the pursuit of technical and managerial efficiency. What observably emerged all around the economists of the Marginal Revolution was not “the market economy” of their academic imaginings but rather an economic system built of and by giant administrative enterprise, guided by money finance and pursuing technical, not allocational, efficiency.
Mary Paley Marshall should get quite a bit more credit for Alfred's insights
Allow me to do the unthinkable: reject the marginal revolution.
Let us just look at the first two paragraphs in the second section. You write that the early marginalists talked about the "last unit." This is correct. Theirs was an attempt at a causal theory of value, deriving from existing stocks and the last unit that defined the value of each unit.
However, in the next paragraph you turn to decision-making and in effect abandon the notion of "last unit," embracing instead the "next unit." This is not a subtle change.
While usually glossed over in economic history, this change was not a natural evolution. It came from the brick wall that the early marginalists hit with the "last unit" idea. Originally, "the marginal" referred the marginal unit. A position within a given stock. But economists learned very fast that you couldn't do anything with this. Does value derive from the last unit or the whole stock? With complementary or heterogeneous units, does the value of coffee derive from the coffee or the added sugar? In a market context, which unit is actually the last one? A causal relationship COULD NOT BE ESTABLISHED.
This is why Pareto and subsequent marginalists abandoned the positional meaning of marginality and embraced the "next unit" meaning, which is a differential conception, i.e., the difference between two states—not a position within a given stock. This fundamental shift pulled back from units in reality and focused exclusively on the mind, i.e., the choice of the agent. Because the next unit depends on choice, existing stocks were no longer important. Scarcity was fully subjective now and marginal utility did not try to explain value but to describe decisions, given already established values.
Thus the meaning of marginality changed, with a value-centered theory abandoned, and economics pivoted to a choice-centered theory. The marginal revolution actually died not long after it emerged. The one thing that remained was the idea of *declining* utility. This is the key in modern economics. That whatever we do, we must choose the best option within a stationary state of scarce means against a declining ranking of preferences (without this, marginalism would die). The notion of building, growing, expanding, *increasing* our means and thus our utility across time has no room in modern economics. Life is a series of isolated snapshots, not an integrated arc.
Just one example before I go. Imagine a student who has a modest income to sustain himself. Instead of eating outside, he only eats at home and purchases the most basic, cheapest staples. Does this mean that he prefers rice over meat? No. Does it mean that he values rice over meat? No. But he's saving a portion of his income toward a greater value. He's saving to launch his own startup after college. Were his consumption decisions made "at the margin"? To me it seems that his decisions derived from a *central purpose* that dictated his choices. Did he choose the cheaper bag of rice over one that costs $1 more? Well, okay, I suppose that's a decision "at the margin," but why didn't he add the meat? That is not a marginal decision. If anything, it's a complementary, holistic decision.
Free Market Fundamentalism -- the Almighty Dollar the only value, morality is the enemy.
It's beautifully written economics, but I hope there is a more catholic perspective.
There is a mention of economic distribution, is that relevant?