Many have heard of such a thing as marginalism. In short, this is a scientific field within which the principle of decreasing marginal utility is recognized as fundamental. The word itself has Latin roots and comes from the term margo (marginis), which means "edge". Let us further consider what constitutes marginalism in economic theory.
General information
In the 70s of the 19th century a new scientific direction arose - marginalism. Representatives of this school are Walras, Jevons, Menger. However, some approaches can be found in the writings of other figures. For example, they are present in the early works of Gossin, Dupuis, Cournot and others. The main reason why marginalism arose was, according to many scientists, the need to find conditions in which specific productive services could be optimally distributed between competing areas for their use. This trend, in turn, was due to the intensive formation of applied sciences and industry. The development of marginalism can be divided into 2 stages. The first took place in the 70-80s. 19th century At that time, the works of Walras, Menger and Jevons were popular. The second stage took place from the mid-80s to the end of the 90s. of the same century. During this period, the ideas of marginalism were formulated by such figures as Pareto, Clark, Marshall.
Stage Characterization
If we describe marginalism briefly, we can derive the following aspects:
- First step. At this stage, the concept of value was maintained as the initial category. However, at the same time, her theory itself was changed . The cost was determined not by labor costs, but by marginal utility of products.
- Second phase. This period has become a new level for direction. The provisions of marginalism were based on the refusal to consider value as the initial category. In this case, the concept of price was used. It was determined by supply and demand (equally). Thus, the principles on which marginalism was based have changed. Representatives of the direction did not consider the initial category. They focused on balance - the interconnectedness of the elements of management.
Marginalism: Key Points
This direction is based on completely different, in contrast to the classical, methods of analysis. These techniques make it possible to determine the limiting indicators by which changes occurring in economic phenomena are characterized. The concept on which marginalism is based is the connection between pricing and the consumption of goods. In other words, it takes into account how much the need for the evaluated product changes with an increase in this benefit by one. The entire management system was considered as a system of interdependent entities that manage the corresponding benefits. Thus, the theory of marginalism determined the inclusion in the analysis of problems of a stable state and problems of equilibrium. In the framework of the field, mathematical methods are widely used, including differential calculations. They are used not only in the analysis of limit indicators, but also to justify certain decisions in the process of choosing their possible number of states the best option. Marginalism is a direction in which preference is given to causal approaches for the functional transformation of the economic sphere into an exact science, which has become an important analytical tool. This discipline is fundamentally different from the classical school. Marginalism, the main ideas of which are focused on the study of limit values, considers indicators as interrelated phenomena of the system at the scale of the enterprise, industry, home and state economy.
The first stage: subjective orientation
Menger, the founder of the Austrian concept of economic analysis, combined the system of marginal concepts with economic liberalism. The starting point is the needs that exist in people. Events or objects that satisfy human needs are called benefits. The most pressing are consumer things or phenomena. The goods of the second and following orders are used for their production. Due to this, the resources spent on manufacturing products are endowed with value. Usefulness is a characteristic that a person ascribes to benefits, taking into account the relationship between the volume of their offer and the level of satisfaction of needs. In this regard, each new unit of the product receives less value. When Menger formulated the basic ideas in mathematical language, it became clear that any economic activity can be reduced to the task of finding the maximum (output, income) or minimum (expenses) with the current limited amount of resources.
Jevons concept
This economist formulated a theorem, which later received his name. He deduced the following: with rational consumption, the level of utility of the acquired products is proportional to their prices. Jevons said that labor has an indirect effect on exchange proportions. An increase in the application of labor increases the amount of a specific good, while reducing its maximum usefulness. Jevons refers the latter concept to labor not only as a production factor, but also as a process. When labor costs increase, activity becomes painful. She gets a negative utility. And while it is less in absolute terms of product usefulness, labor will be carried out. When equality is reached between these elements, the production of the good ceases.
General Walras equilibrium
This French economist believed that the concept of labor was wrong. Walras divided all subjects into two categories: entrepreneurs and owners of production services (capital, land and labor). He believed that the state is obliged to guarantee the stability of the financial system, ensure the safety of the population, and allow all citizens to receive education. The authorities should also create conditions for the existence of effective competition, to provide everyone with equal opportunities. At the same time, land resources must be nationalized, which will give the state the required funds through rent. The main focus of Walras's work was the theory of microeconomic equilibrium. It was considered as a condition in which an effective supply of production services is equal to demand, where the price in the market is constantly stable, the selling price equals costs. According to Walras, marginalism is a concept of statics. She does not know uncertainty, time, innovations, improvement, underemployment, cyclical fluctuations. Together with this, it makes it possible to proceed to the study of deeper models of reality.
Second stage: marginalism in the economy according to Marshall
The result of the second stage of the revolution was the emergence of a neoclassical school. Adherents of this concept adopted from the representatives of the classical theory the priority of the principles of liberalism, the preference for pure conclusions without psychological, subjectivist and other layers. Marshall is considered the most synthetic figure in all of science. His concept organically combines the achievements of the classics (Mill, Smith, Ricardo) and the marginalists. A key element of research is the issue of free pricing. The market price is considered by Marshall as the result of the intersection of the demand indicator determined by maximum utility and the value of supply proceeding from marginal costs.
The laws
In his work, exploring marginalism in the economy, Marshall brought the concept of increasing and constant returns. According to the first law, an increase in labor costs and capital leads to improved production. This, in turn, increases the efficiency of the activity and gives high returns. In accordance with the second law, an increase in labor and other costs leads to a proportional increase in the number of products. Marshall believed that in a competitive environment, unit costs when consolidating production either decrease or go in parallel. But they are not ahead of the pace of increase in output. After a while, on the basis of these judgments, more reliable solutions to the issue of optimizing production and the size of enterprises were put forward in microeconomic theory. Marshall, in his research, divided costs into variables and fixed. He showed that in the long run the latter become the first. Marshall believed that the main reason why a company leaves the market is the excess of costs over the level of market prices.
Clark concept
This scientist is considered the leader of American marginalism, which emerged at the end of the last century. His main work, The Distribution of Wealth, was published in 1899. In his work, Clark wrote that society was accused of exploiting labor. He set the task to eliminate this opinion. Clark sought to prove that in America there are no contradictions, and the distribution of social income is carried out fairly. The scientist based his concept on the principle of private property. He replaced the communist slogan "from each person according to his ability, to each subject - according to his needs" to another - "for each factor - a specific share in the product, each - a corresponding reward." It was in this form that Clark saw the law of distribution. Moreover, by "everyone" he meant the concept of three production factors: land, capital and labor.
Study Features
Clark introduces the theory into a static field, that is, into that state of society in which there is peace and balance and no development. He believed that it was in such conditions that the assignment to each factor of the corresponding share should be studied. This approach is used in determining salary, rent and interest. Remuneration, according to Clark, is expressed in the marginal productivity of workers. With constant volumes of capital and a technical level, an increase in the staff of the enterprise will lead to a decrease in the efficiency of each new worker. An entrepreneur can increase the number of employees until the onset of the “zone of indifference” - such a period when the last worker will not be able to ensure the production of even the volume of products that he appropriates as a whole. Performance at this point is called marginal. With a subsequent increase in staff outside this zone, this will cause losses to capital as a production factor. Based on this, Clark concluded that the size of the salary depends on:
- From labor productivity.
- From the degree of employment of employees.
Thus, the more workers, the lower the productivity and, consequently, less pay. In addition, Clark said that the stability of the state of society depends, first of all, on whether the amount that workers receive (regardless of size) is equal to what they release. If the workers create a small amount and have it in full, then the social revolution is inexpedient.
Imperfect competition
This model was based on the following theoretical premises:
- The business sector is mobile and flexible.
- Economic power does not exist.
Many figures understood the conventions of these aspects. In this regard, by the beginning of the 20th century, works appeared whose authors tried to take into account the influence of monopolies on the market structure. So, for example, E. Chamberlin tried to solve the following problems:
- To adapt the neoclassical concept of pricing to the facts of violation of free competition by monopolies.
- To propose a non-standard solution to the problem of underemployment, non-standard for the neoclassical, while not abandoning the principle of non-interference in the economy.
In the scientific field, competition and monopoly were regarded as phenomena mutually exclusive of each other. E. Chamberlin pointed out that their synthesis actually exists. That is, monopolistic competition is typical for the real state of affairs.
Distribution costs
Chamberlin used this concept instead of production costs. Sales costs, in his opinion, are aimed at adapting demand to products. The market structure in the framework of monopolistic competition is determined by three factors:
- Product prices.
- Product Features.
- Marketing costs.
Differential consumption is paid for by unemployment, underloading of production capacities, and price increases. These factors are not the result of a lack of aggregate demand.
Public good
Its determination is carried out using two approaches. The first allows you to formulate the concept of socio-economic management. It involves knowledge of the social objective function and methods for its optimization. One of the methods is voting and decision-making by the majority. But this option does not guarantee the identification of preferences in the general case. The second approach is developed by Pareto. This scientist based his research on the assertion that maximum welfare is ensured with perfect competition.