Neo-classic school

History

Events founders

Works founders of the neo-classic current by the three founding fathers of the movement are:

- Carl Menger, Principles of economy (Vienna, 1871) - William Stanley Jevons, Theory of the political economy (Manchester, 1871) - Leon Walras, Elements of pure political economy (Lausanne, 1874).

There is appearance in a simultaneous way of three schools known as “originating” (Schools of Cambridge, Lausanne and Vienna), although the various economists apparently never met, and did not exchange any element of their respective research.

There exist nevertheless important differences between these three approaches. Carl Menger was in particular opposed vigorously to Leon Walras as for the design even of the economic discipline and in particular the use of mathematics, so much so that it is somewhat abusive to include the Austrian tradition in the neo-classic school.

The historical framework

The context is thus that of the turning of the Industrial revolution (one speaks sometimes about second industrial revolution) but also of the triumph of the Scientisme. The historical prospect is to build the political economy on new bases.

First of all, it is a question of adapting to economic reality (Jevons uses marginal calculation to study the tariffing of the Railroads). “Work, once he was spent, does not have of influence on the future value of an object: it disappeared and is lost for always”. The theory is thus comprehensible within the framework of the recurring crises to the XIX°.

There is a questioning of the theories of distribution of the classical economics founded on the existence of classes and the position of these classes the ones compared to the others. Leon Walras wants to build a science able to distinguish in the human activity what is the result of the properly economic activities (Concurrence) and what concerns morals. The Economic scene (≠ political economy) should be occupied only of what makes it possible to include/understand the human activity to build a “pure economy” whose gasoline is that the exchange value takes the character of a natural fact. It evacuates thus the problems of social justice (object of another combat).

The neo-classic thought is based on an analysis Marginaliste and thus seeks to give a scientific legitimacy to the economy, to base it on new bases. It thus leaves a microeconomic analysis and incorporates the individual behaviors, unlike the traditional and of Marx. This mathematical Formalisme raises the scientific and political stake mathematics in economy. Moreover, the partisans of the aforesaid the theory often prefer to speak in this connection about “the” economic Théorie, like one says “the” Physique or “the” Biologie, because for them the neo-classic theory is the only one to have a scientific statute in economy (in particular because of the intensive use which it makes of mathematics).

Marginalism

The neo-classic ones will introduce a strong mathematisation into their theories, and in particular a massive use of derived (marginal Utilité, marginal productivity…). This use is strongly criticized by Carl Menger and the Austrian, for which the economy can be only qualitative. At the moment when this step meets critics, Leon Walras written in one of its correspondences: “the introduction of mathematics into the political economy is a scientific revolution… ”.
The derivative approximate the variations “to the margin” of the economic sizes. This is why one will speak sometimes about Marginalisme. The marginalism redefines the value of a good and modifies the evaluation of sound Utilité. Let us take celebrates it example of the water diamond and glass. The value of a diamond is quite higher than the value of water glass, although its utility is debatable. However, if one reasons in term of marginal value, one realizes that last diamond will undoubtedly be worth much less than last water glass available on Earth. One sees thus that the marginalism makes it possible to better apprehend the value of the goods and services.

This methodological innovation, according to J. Schumpeter, does not characterize the essence of the neo-classic step. He writes by the way: “ One does not come from there soon to consider that the marginalism was the distinctive feature of a particular school: better still one claims to him a political connotation… In good logic, it does not have there nothing which justifies this interpretation. The marginal principle is, in oneself, a tool for analysis; one cannot avoid using it since occurs the time to use it. Marx would have had recourse without the least hesitation if it had been born fifty years later. It cannot be more used to characterize a school of economists whom the use of calculation does not make it possible to characterize a school or a group of the scientists in mathematics or physics ”.

Liberals?

The neo-classic school is frequently regarded as primarily Libérale. However, its Libéralisme is moderated by a will to frame competition to impose the conditions of the competition known as “pure and perfect”. Certain authors as Oskar Lange even used the neo-classic theses to preach an official control of the economy, where the play of the Marché would be replaced by the centralized Planification resting on a calculation of Optimization.

Neo-classic analysis

The Economic scene is the behavioral science calculated. All the ages of the life can be the object of an economic calculation. The analysis is made in terms of market. The prices are information by report/ratio at which the individuals fix their behavior (“signals”). The prices must thus be established without skew to be most effective possible in the adjustment: all is price. The role of the currency is discussed:

The first neo-classic authors adopt the idea of the neutrality of the currency (the currency does not affect the production, the real income, the relative investment, saving or prices). Fisher recognizes that it makes “only bring one restoration and an amplification of the hurdy-gurdy quantity theory of money” with its equation (1911): MV = Pt (M = supply money, V = speed of circulation of the currency, P = general level of the prices, T = volume of the transactions).

The neo-classic analysis also shows (starting from the postulates founders) that the mechanisms of the market play a regulating part which leads to an optimal balance of the economic system. For the neo-classic ones, the economic crises are related to external events which disturb the good performance of the market (public interventions, oil crises…), these crises being solved themselves in situation of Competition pure and perfect. The growth seems acquired, but there is a rise of insatiability from where concept of balance. One is not any more within one dynamic framework as at the traditional ones.

Among the principal representatives of the neo-classic school, let us quote: William Jevons, Leon Walras, Vilfredo Pareto and Alfred Marshall.

The contemporary schools having continued work of neo-classic include/understand the monetarists (of which Milton Friedman) and the “Nouvelle classical economics” (of which Robert Lucas Jr), and the neo-classic Synthèse.

See too

References and notes

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