What Were the Key Innovations of the Marginalist School Compared to the Classical School?

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Classical economics started of Adam Smith's the Wealth of Nations in 1776. The central idea of classical theories is on the ability of the market to be self-correcting as well as being the most superior institution in allocating resources. The central assumption of classical theories implied that if all individuals maximize their economic activity. On the other hand, marginal revolution that occurred in Europe in the 19th Century, led by Carl Menger, William Stanley Jevons, and Léon Walras, gave rise to what is known as neoclassical economics. This neoclassical formulation had also been formalized by Alfred Marshall. However, it was the general equilibrium of Walras that helped solidify the research in economic science as a mathematical and deductive enterprise, the essence of which is still neoclassical and makes up what is currently found in mainstream economics to this day. The classical school investigated two central economic questions that the causes of economic growth and the determinants of the income distribution such as the accumulation and allocation of surplus output, and therefore their emphasis was on production and on the factors that influence the supply of goods. Unlike its classical school, marginalist school focuses on individual choices, which unavoidably reflect subjective preferences and beliefs, and the allocation of given resources among alternative uses. In other words, Classical theory paid comparatively less attention to choices of individuals whereas marginalist presented more on human welfare. Indeed, the marginalist revolution is a shift in focus from capital accumulation and growth to utility maximization and production efficiency as the aims of economic policy. This shift from classical to neoclassical economics brought about numerous changes in the way people thought about wealth. Based on their different views on economic issues, their innovations towards economy are different as well. The first different innovation between them is the view of economic growth. Marginalists contributed exogenous innovation relative to the public good features of technological progress dealing with the externalities and increasing marginal returns whereas classicalists does not have many innovations on economic growth. The second different innovations are the ways they use to analyze the economics forces. Marinalists illustrate the distributive share lends itself to a relatively simple mathematical statement and classicalists based more on historical analysis. The similar innovations of them are they both suggest of free trade union. Veblen critique that marginalists’ economics do not relate to evolutionary science of economics and evolve in the society politically and morally. Some other economists also critique that marginalists have normative bias, instability, relying too heavily on complex mathematical models and its overly unrealistic assumptions. First of all, they have different innovation towards economic growth. The central innovation explaining economic growth in marginalists’ growth theory is exogenous innovation. In order to exogenous innovation, these theories have to deal with the public good features of technological progress, and the problems this poses with regard to appropriability of innovation. Marginalists assuming that there are important externalities concerned with the development of technical knowledge. In most cases, these externalities take the form of general technological knowledge which can be used to develop new methods of production and is available to all firms. This externality is closely connected to scale in the aggregate production function increasing returns. Which is, Marginalists analysis makes up much of neoclassical economics and create the popular economic tenet, called “rational decisions are made on the margin.” Besides, Marginalists created an economic theory of the relation between technological change and economic growth. Marginalists replace the labor theory...
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