ECN 3111. History of Economic Thought THE MARGINALIST SCHOOL. Introduction. Marginalist school began in 1871, The year that Javons and Menger published their influential book of “Marginal Utility Theory”.
History of Economic Thought
THE MARGINALIST SCHOOL
1. The principle of diminishing marginal utility.
2. Equimarginal principle.
1. Focus on the margin – attention on the point of change when decisions are made – on the margin. Extended the work of Ricardo in the theory of rent.
2. Rational economic behavior. – they assume people act rationally in weighing out pleasure and pain, measuring marginal utility of different goods and weighing out current and future needs. Random abnormalities will cancel each other out. (the work rooted from Benthem” human’s dominant drive is to seek utility and avoid disutility)
3. Macroeconomic theory. Individual person and firms are the focus of attention. Marginlist considered individual decision making, market conditions for single type of goods, the output of specific firms, etc.
4. The use of abstract, deductive methods. Rejected historical method in favor of analytical, abstract approach, pioneered by Ricardo and other classicalists. –the use of mathematic , demonstrated the power of this method, leading eventually to the widespread use and dominance of mathematical model in the economic analysis.
5. The pure competition emphasis. –based their assumption on pure competition – the world of small individualistic, independent entrepreneurs; numerous buyers; many sellers; homogenous products; uniform prices; and no advertising. Not any individual is significant enough to influence the market and actions are adapted to market mechanisms.
6. Demand oriented price theory. Unlike the classicalist, (who emphasized cost of production - supply) as the significant determinant of exchange value the marginalist took demand as the primary force in price determination.
7. Emphasis on subjective utility. According to the marginalist demand depends on marginal utility.
8. Equilibrium approach. They believe economic forces generally tend toward equilibrium.
9. Merger of land and capital goods. They lumped land and capital resources together and in their analysis on interest, rent and profits were treated as return to property resources.
10. Minimal government involvement as the most desirable policy
“Isolated State”,- a series of concentric rings, each devote to a particular type of agricultural use, develop around the central city.
Growth of Cereals
The farther the ring from the city, the less intensive is the production, the less perishable is the produce, and the greater is the ability of the commodity to bear costs of transportation.
Market Gardening and Horticulture
Rotation of Crops
Planted Land /Pasture
Planted Land / Fallow Land