Monday, June 11, 2012

the marginal revolution

I'm at the Duke Center for the History of Political Economy's Summer Institute on "The Emergence of Modern Economics". There is a very interesting group of about 30 participants, and of course excellent faculty. The topic is one that I'm interested in but know very little about (history and philosophy of economic thought), and it's a much more diverse group of scholars than I interact with on a daily basis, so altogether this adds up to an intellectually exciting two weeks.

That also adds up to many blog posts. Normally if I'm in an unusual(ly stimulating) seminar or something, I write a bunch of blog posts and schedule them to post over several days, but that won't work so well over a full two weeks, so a relative deluge is likely. Sorry!

The first is just an interesting fact. I didn't realize that the establishment of marginalist thinking / theory of value at the turn of the last century was actually referred to as the "marginal revolution". I'd therefore been missing out on the pun for who-knows-how-many-years-I've-been-reading-MR.* That is, if it's an intentional double entendre. I would assume so, unless that's not actually a common term for the movement.

Note for the non-economists: marginalist thinking is one of the most important central tenets of economic theory. It's so fundamental that I'd forgotten it was ever a point of contention (prior to the rigorous mathematization of basic economic laws). The marginalist theory of value, first proposed by the likes of Menger, Walras, and Jevons in the 1870s, basically says that the value of an item is the value of the marginal unit of that item produced/consumed. In equilibrium, the price is equal to the marginal value to the consumer, which is also equal to the marginal cost of producing the same marginal unit. This is in contrast to, say, the labor theory of value of the Marxists, which says that the value of an item is tied to the labor used to produce it. While perhaps less intuitive, marginal utility is vastly more useful for explaining economic phenomena, and with a little explaining of the law of supply and demand, it becomes quickly much more intuitive.

*It is in fact intentional. I think I like the original "think marginally" meaning better than "small steps towards a much better world", which sounds like the other meaning of marginal and suggests to me "change your showerhead to save the world" type steps :)

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