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Date: 2015-10-07; view: 846.

Unit_3_Text 2

NEOCLASSICAL ECONOMICS

The most remarkable feature of neoclassical economics is that it reduces many broad categories of market phenomena to considerations of individual choice and, in this way, suggests that the science of economics can be firmly grounded on the basic individual act of subjectively choosing among alternatives.

Neoclassical economics began with the so-called marginalist revolution in value theory that emerged toward the end of the nineteenth century. Strictly speaking, neoclassical economics is not a school of thought (in the sense of a well-defined group of economists following a single great master) but more a loose amal­gam of subschools of thought, each revolving around such acknowledged masters as Alfred Marshall in England, Leon Walras in France, and Carl Menger in Austria. What these subschools have in common is the importance they attach to explaining the coordinating features of market processes in terms of plans and subjective evaluations carried out by individuals in the market subject to the constraints of technological knowledge, social custom and practice, and scarcity of resources.

The Subschools

In England, Marshall's appointment to the chair of political economy at Cambridge University in 1885 marked the start of the Cambridge school — a variant of neoclassical economics that stressed continuity with the past achievements of the classical school, especially the economics of David Ricardo and John Stuart Mill. In 1890 Marshall published his Principles of Economics, which demonstrated how the forces that determine the normal prices of commodities can be explained by means of supply and demand in the context of firms struggling to survive within industries. Marshall's disciples included A. C. Pigou, D. H. Robertson, Ralph Hawtrey, and to some extent the controversial John Maynard Keynes. (During the 1930s, Keynes turned against his old master by explaining how subjective evaluations can lead to discoordinating market processes and the unemployment of labor and disuse of capital.)

In France, Walras founded the general equilibrium school with the publication of his Elements of Pure Economics (1874). This school would eventually take root in Lausanne, Switzerland, through the contributions of Vilfredo Pareto, especially in his Cours d'economie politique (1896—1897). Some of Walras's teaching reached England by way of A. L. Bowley's Mathematical Groundwork of Economics(1924). Like Marshall, Walras and his followers were concerned with a supply and demand account of market pricing, but Walras went somewhat beyond Marshall and investigated the mathematical conditions under which all markets could be in equilibrium simultaneously.

In Austria, Carl Menger founded the Austrian school with the publication'of his Principles of Economics (1871).

Subsequent professors at the University of Vienna, such as Friedrich von Wieser, Eugen von Bohm-Bawerk, and later Ludwig von Mises and Friedrich A. von Hayek, focused on the essential problems of economic organization by starting with Monger's insights about the importance of economizing action in shaping economic institutions in the market. Among Austrians, the important task of economic reasoning is to disaggregate economic pheno­mena so that the events can be made intelligible in terms of basic market forces of supply and demand operating through the decisions of individuals.

General understanding:

1. What is the most remarkable feature of the neoclassical economics?

2. When did neoclassical economics begin?

3. How does the author refer to the neoclassical economics and neoclassical economists?

4. What subschools and names are mentioned in the text?

5. What economists worked in:

a) England b) France c) Austria