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The marginal revolution (sometimes called the marginal utility revolution) refers to the introduction into economics, in 1870–1, of the concept of marginal utility by William Stanley Jevons, Léon Walras and Carl Menger and which has widely been seen as involving a revolutionary break with the ‘classical’ economics of David Ricardo, John Stuart Mill and many of their contemporaries (see Blaug 1996, ch. 8). The value of a commodity was no longer explained in terms of its cost of production (possibly reducible to the labour required to produce it) but in terms of its value to the consumer. The concept of utility was used to explain consumer choices, marginal utility being seen by some (though not all) authors as replacing cost of production as the foundation on which the theory of value rested. In the 1890s marginal techniques were then applied systematically to the problem of income distribution. This change, it is argued, revolutionized economics, laying the foundations on which modern economic theory is built. Its many dimensions – viewing behaviour as optimization, using utility to describe individual behaviour, focusing on individual agents, the use of mathematics – attest to its importance (Hutchison 1978, provides a longer list; Maas 2005, ch. 1, sketches more recent attempts to choose between them). There is disagreement over the extent to which the change should be described as a revolutionary or as an evolutionary change going back many decades, and over its exact significance; but the marginal revolution is firmly established in histories of economic thought. However, while it describes certain developments in economic theory, to understand the changes that took place in economics around this time one should place it in a broader historical context.

Varieties of Marginalism

The most important qualification to the idea of a marginal revolution is the heterogeneity of economics during this period. Classical ideas were dominant in Britain, but even within classical economics there was great variety, and it has even been argued that marginalist ideas can be traced back as far as Steuart (see English School of Political Economy). At some time, virtually every element in the classical system outlined above had been challenged, many of these challenges leaving their mark. Much of this variety was captured within Mill’s Principles of Political Economy, which went through seven editions between 1848 and 1873, and was undoubtedly the leading treatment of the subject: he worked with a very broad supply and demand theory of value and had accommodated many modifications to the Ricardian theory of income distribution. From Mill, the jump to marginalist theories was much easier than from Ricardo. Indeed, Alfred Marshall, though unfairly praising Ricardo at the expense of Mill (see O’Brien 1990), derived his theory of value by translating Mill into mathematics during the 1860s; when he encountered Jevons’s work, it was a simple matter to graft marginal utility on to a mathematical treatment of supply and demand (Whitaker 1975).

There was also great variety across countries. In Ireland, it has been argued that an independent tradition of subjective value theory had been established at Trinity College Dublin, by successive holders of the Whately Chair (Black 1945). Ireland also produced two leading exponents of a historical approach to economics, T.E. Cliffe Leslie and John Kells Ingram. Leslie’s assault on deductive theorizing was a significant factor in the shaking of confidence in classical economics in Britain in the 1870s (see Hutchison 1953). In Germany, supply and demand theories had a long history, a supply and demand diagram having been used in a textbook as early as 1843 by Heinrich Rau (see Streissler 1990). In France, Smithian political economy had been mediated not through Ricardo but through Jean-Baptiste Say. The work of Augustin Cournot and the engineers of the École des ponts et chaussées, whose analysis rested on the concept of a demand curve, created an intellectual background very different from that prevailing in Britain.

These differences, together with profound differences in their personal backgrounds, meant that the work of Jevons, Walras and Menger, though often bracketed together, was far from homogeneous (see Jaffe 1975). Though Jevons and Walras both advocated the importance of mathematical argument, their emphases differed. Walras, closer to French rationalism, saw his general equilibrium equations as an abstract system that could solve the same problem that was solved in the real world by other means. Jevons focused on mechanical analogies and the notion that the same methods could be applied to physical and social sciences (Maas 2005). The contrast was even more marked in their applied work, where Jevons was a pioneer in the use of statistics but Walras was not. Menger, in contrast with both of them, rejected the use of mathematics, seeing the use of simultaneous equations as incompatible with identifying the causal relations between human needs and the value of commodities.

The varieties of marginalism increase further when later marginalists are brought into the account. Jevons, Walras and Menger did have disciples, most of them took their analysis in new directions and many are in many ways originals, the best examples being Marshall, Joseph Alois Schumpeter (Austrian, geographically and intellectually, yet an admirer of Walras), Knut Wicksell (whose Swedish synthesis of Austrian and Walrasian ideas bore little resemblance to Schumpeter’s) and John Bates Clark (who constructed a non-mathematical American version of marginalism). Given this variety, it is not surprising that the marginal revolution can also be portrayed as a very slow process. Even in the 1880s and 1890s, some economists were still writing textbooks organized on classical lines, marginalist ways of thinking co-existing with other lines of enquiry.

The Wider Context

While scholars might, at one time, have been content to explain the advent of marginalist ideas in terms of economists coming to see the truth about consumers and value, historians are no longer satisfied with such explanations, arguing that economic ideas have to be explained in terms of the context out of which they arose. One context is that of 19th-century science. The most widely discussed explanation has been Mirowski’s (1984, 1989) argument that marginalist economics reflects developments in physics (see De Marchi 1993). The 1860s saw the rise of energetics – the attempt to reduce all physical phenomena to energy. If physical phenomena could be reduced to energy, then so should social phenomena. More than that, adopting the methods of physical scientists and the mathematics of maximization and energy conservation offered economists the possibility of acquiring the status of physicists, adopting similar standards of rigour. Mirowski directed historians’ attention to the many passages where Jevons, Walras and others stated explicitly that this was what they were doing. Though Mirowski drew normative conclusions about which many historians have been sceptical, and though his interpretation clearly does not fit some of the most important marginalists (notably Menger and Marshall), historians have taken up the idea that a major dimension to the marginal revolution was seeing economics as amenable to the methods of the physical sciences rather than as something radically different (see Maas 2005; Schabas 2005).

Moreover, at this period, physics was not the only prestigious natural science: controversies over evolution were at their height, following the publication of Charles Darwin’s Origin of Species and the application of evolutionary arguments to human society by Herbert Spencer. This cannot explain the advent of marginalism, but it represents an important additional connection between economics and contemporary science and helps explain why economics looked very different at the end of the 19th century from the way it looked in the 1860s. Raffaelli (2003) has pointed out that Marshall, perhaps the most significant figure in late-19th century marginalist economics, based his economics, not on the Benthamite utilitarianism used by Jevons, but on evolutionary psychology. Human nature was moulded by experience. Evolutionary ideas thus reinforced the notion that human beings had to be seen as different from one another and that they could be changed. This way of thinking could lead into eugenics, a widely entertained body of ideas that developed towards the end of the century (see Peart and Levy 2005). But such ideas also served to undermine the Malthusian bogey that had provided an argument against much social reform throughout the century (Stedman Jones 1984). Marshall, for example, though he used the static, mechanical apparatus of supply and demand, used it to discuss dynamic processes. He saw industries evolving as biological species, and human character changing in response to human activities, a process that was too complicated to be represented mathematically, and as a result never worked with formal dynamic models: they would have been too mechanical. Against such arguments that evolution became influential at that time, Schabas (2005), though stressing that neoclassical economists were very interested in psychology, has recently questioned whether Darwin has as much influence as has been claimed.

The significance of evolutionary ideas points to another aspect of the context against which the advent of marginalist ideas needs to be set: the political climate. The late 19th century has been called the liberal age, when Europe moved towards freer trade and the franchise became more democratic. The progress of liberal ideas and policies varied greatly from country to country, but everywhere there was debate over the merits of liberalism and collectivism, with the latter taking many forms, ranging from Fabian ‘municipal socialism’ to Marxian socialism. In Britain, the mid-century radicals, amongst whom Mill was pre-eminent, were liberals who wanted to reform the institutions of society in ways consistent with their liberalism. But, by the end of the century, following the extension of the franchise to much of the working class in 1867 and 1884, radicalism became increasingly collectivist. Against Social Darwinist arguments for individualism were ranged ethical arguments for reform, from the American Social Gospel movement to the variety of movements for social reform inspired in Britain by the Oxford philosopher T.H. Green (see Richter 1964). In the same way that the Great Depression motivated many who came into economics in the 1930s and 1940s, the problem of poverty affected this earlier generation. Economists’ attitudes towards policy changed (see Hutchison 1978), as did the way they developed their theories, the most noticeable example being the development of welfare economics by the Cambridge School, J.A. Hobson, and others.

Though it was again a process the speed of which varied greatly from country to country, a further element of the context in which the marginal revolution took place was the professionalization of economics. By the middle of the 19th century, economics was being developed by a mixture of academics and members of a broader educated elite; those recognized as economists might be politicians or businessmen. Specialist journals existed in some countries, but original work in the subject was also published in journals read by non-specialists. By the end of the century economics, like many other disciplines, had changed, becoming an academic discipline in which the main communication was between specialists. This made possible a different type of discourse, more technical and addressing issues that might seem more tenuously related to issues of concern to lay people.

Conclusions

The marginal revolution, like other revolutions in economics, is associated with changes in economic theory that undoubtedly altered the way economics was conceived. However, picking out a single theoretical or methodological innovation that explains why the marginal revolution was apparently so important has proved difficult. The reason may be that, as in the case of the Keynesian Revolution, though economics changed profoundly in the closing decades of the 19th century, these changes owed as much, if not more, to deeper changes in the social, political and intellectual context in which economists were working as to any specific innovation in economic theory.

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