Marginal Revolution

Abstract

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).