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PART I.
CHAP 7.
MARGINALIST REVOLUTION: FROM
POLITICAL ECONOMY TO NEOCLASSICAL
ECONOMICS
Hüsnü BİLİR* 1

Introduction
The “Marginalist Revolution” which took place in the late 1800’s represents a critical shift in
the history of economic thought. Because economy was embedded in a broader social, po-
litical, historical and institutional setting in classical political economy, however this concep-
tion was replaced by a new one which approached economy in terms of market exchange and
choice between ends and scarce means. In this way, the subject matter which was production,
wealth and its distribution, development, division of labor, accumulation and growth in clas-
sical political economy, changed to individual choice and maximising behavior. Consequently
economics as a separate science disconnected his social ties and tended to natural sciences es-
pecially physics and mechanics, while political economy was closely related with other social
sciences like history, ethic, sociology and psychology.

The aim of this study is to reveal the transition process from classical political economy to neo-
classical economics with regard to “Marginalist Revolution.” In this respect the general historical
development and the methodological evolution of economics as a social science will be traced,
and the and these particular schools of economic thought and their basic assumptions will not
be investigated comprehensively. The study is organized as follows. The second section presents a
brief overview of classical political economy as a social science. In this section it’s not discussed all
clasical economist in detail and emphasised that economy was ragarded as a part of much broader
social, historical, political and institutional context in works of particularly Adam Smith and Karl
Marx. The third section presents some important consequences of the transition from classical po-
litical economy to neoclassical economics in terms of the subject matter, analytical method and
the relationship between economy and society.

Classical Political Economy as a Social Science

“Classical economics” or “classical political economy” as Marx (1859/1904) denoted refers to
a school of economic thought that developed in the middle of the eighteenth century and was
* Asst. Prof., Aksaray University Faculty of Sport Sciences Department of Sport Management husnubilir@aksaray.edu.tr

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elaborated in the first half of the nineteenth century especially in Britain and France. The main
thinkers of classical political economy are Adam Smith, David Ricardo, Karl Marx, John Stu-
art Mill, Thomas Malthus, John Baptiste Say and Nassau Senior. Of course, the emergence of
classical political economy was a long process, in other words the formation of political econ-
omy as a science was largely the result of the advances brought about by the Mercantilists and
the Physiocrats in the sixteenth and seventeenth centuries and the first half of the eighteenth
century (Cardoso 2004, p. 3; Landreth & Colander, 2002, p. 76).

And it was Smith who collected and organized the ideas and concepts which already existed
in the works of Mercantilists and Physiocrats into a broad and coherent system (Barber, 1967;
Mills, 2002; Rothschild, 2002; Schumpeter, 1954; Vaggi and Groenewegen, 2003) which he
called “political economy1”. In this context it’s commonly regarded that the beginning of clas-
sical political economy is Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations
(hereinafter referrred to as the Wealth of Nations) in 1776 (Barber, 1967) and also he is consid-
ered as the founder of classical economic thought2 (Drakopoulos, 2016, p. 22). The other ma-
jor treatises which describe this tradition of thought were Ricardo’s (1772-1823) on the Prin-
ciples of Political Economy and Taxation (1817) and Mill’s (1806- 1873) Principles of Political
Economy, with Some of their Applications to Social Philosophy (1848) (hereinafter referred to as
Principles of Political Economy) in the nineteenth century.

Classical economists have some common ground about the nature and process of economy.
First of all, as O’Brien (2003, p. 113) stated most classical economists had intellectual inter-
ests besides economics such as journalism, the law, and business -especially banking- and few
had academic employment. Secondly they recognized the complexity of human societies and
regarded economy as a embedded part of society. In this regard, as Boettke, Leeson and Smith
(2008, p. 15) noted, their object of investigation was a part of a much broader social science
inquiry that included and drew heavily upon other disciplines such as history, politics, sociol-
ogy, philosophy and psychology3. Thirdly political economy as a social science had historical,
political, social and institutional dimensions. They focused institutional structures of any soci-
ety because institutions “not only shaped social outcomes, but also because they were shaped
by social outcomes. The classical economists were thus first and foremost concerned with these
institutions and the features of man’s reality that give rise to them” (Boettke et al., 2008, p.
15). Fourtly, the main issues focused in classical economic thought was big questions such as
the process of economic growth, distribution of income, value, balance of payments and the
price level (Barber, 1967; O’Brien, 2003).
1 Smith (1776/1827, p. 282) defined political economy as treating of the "nature and causes of the wealth of nations.”
2 Smith is also considered as the first truly academic economist (Roll, 1973), while Barber (1967) regarded Malthus as the
world's first professional economist.
3 On the other hand, the Newtonian physics had great influence in the occurance of classical political economy. Because
most of the main contributors to the classical tradition viewed the “economic order as analogous to the physical universe
depicted by Newtonian mechanics. Economic affairs were regarded as governed by laws which, though ascertainable by
man, lay beyond his direct control” (Barber, 1967).

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This situation perhaps is most clearly seen in Smith’s analysis. Because Smith investigated the
causes of the national wealth, forces of economic growth and policies that promote economic
growth in his magnum opus the Wealth of Nations and provided a comprehensive and inte-
grated view of the economic process. He is widely notable for his “invisible hand” which refers
to a natural process leads to a harmony between self-interests in the economy and his famous
passage reflects his thoughts about the relationship between self-interest and public interest:

“As every individual, therefore, endeavours as much as he can both to employ his capital in
the support of domestic industry, and so to direct that industry that its produce may be of the
greatest value; every individual necessarily labours to render the annual revenue of the society
as great as he can. He generally, indeed, neither intends to promote the public interest, nor
knows how much he is promoting it. By preferring the support of domestic to that of foreign
industry, he intends only his own security; and by directing that industry in such a manner as
its produce may be of the greatest value, he intends only his own gain, and he is in this, as in
many other cases, led by an invisible hand to promote an end which was no part of his inten-
tion. Nor is it always the worse for the society that it was no part of it. By pursuing his own
interest he frequently promotes interest of the society more effectually than when he really in-
tends to promote it. I have never known much good done by those who affected to trade for
the public good“ (Smith, 1776/1827, p. 184).

However he tried to explain economic relationships within the context of a society embed-
ded in moral and legal system, when he developed his process of market mechanism, in other
words, he saw his theory of the market mechanism and the invisible hand as an integral part
of a much broader social, historical, legal and institutional framework. So, as O’Brien (2003,
p. 113) stated, individual pursues self-interest that constrained by a framework of law, religion,
and custom, and an inherent moral sense (sympathy), and this brings about a coincidence of
private and public satisfaction4. And Smith revealed his moral philosophy when stated the ba-
sic of his system: “Every man, as long as he does not violate the laws of justice is left perfectly
free to pursue his own interest in his own way” (1776/1827, p. 286).

In this respect Smith did not treat human nature as a “natural” fact, an exogenous datum. In-
stead, he endeavoured to identify the processes by which the social context influences the for-
mation of the person (Screpanti & Zamagni, 2005, p. 79). So we could say that Smith showed
that the economic system can be seen under a more general aspect and economic ends take
place within a social context; in this framework there is a continuous interaction between so-
cial norms, legal system, institutional structure, historical process and individual behaviour5
(Alvey, 2000; Rothschild, 2002; Skinner, 2003).
4 And institutional framework included well-defined and secure property rights, diffusion of agricultural property through
control over the concentration of inheritance, and the provision of an infrastructurewas also important in Smith (O’Brien,
2003, p. 122).
5 Similarly Malthus saw economics as a moral and political science, and explicitly followed in the tradition of Smith. Malthus
stated that “the science of political economy bears a nearer resemblance to the science of morals and politics than to that of

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Marx used the “modes or techniques of production” to explain the historical stages of soci-
ety and the dynamics of capitalist system and combined economic analysis with philosophi-
cal and sociological elements (Reuten, 2003, p. 152). And for Marx, each society is character-
ised by some general economic features: production, exchange, distribution and consumption.
But they find their concrete expression at a specific time and place in history (Vaggi & Groe-
newegen, 2003, p. 160). While criticising Pierre-Joseph Proudhan, he emphasised the impor-
tance of historical process:

“He (Proudhan) fails to see that economic categories are but abstractions of those real relations,
that they are truths only in so far as those relations continue to exist. Thus he falls into the er-
ror of bourgeois economists who regard those economic categories as eternal laws and not as
historical laws which are laws only for a given historical development, a specific development
of the productive forces” (Marx & Engels, 2010, p. 100).

Accordingly economic, sociological, political and cultural factors are interdependently related
and subjected to continuous historical change in Marx. So it’s the history and social context
that forms human beings, not “nature”: “the development of an individual is determined by
the development of all the others with whom he is directly or indirectly associated” (Marx &
Engels, 1976, p. 463). In this regard ahistorical and universal categories cannot capture the es-
sential features of a specific socio-economic system (Hodgson, 2001, p. 46). From this point
of view, he conceived any society as political, legal, cultural, historical and economic domains
and discussed it in terms of “infrastructure” and “superstructure”:

“In the social production of their existence, men inevitably enter into definite relations, which
are independent of their will, namely relations of production appropriate to a given stage in the
development of the material forces of production. The totality of these relations of production
constitutes the economic structure of society, the real foundation, on which arises a legal and
political superstructure and to which correspond definite forms of social consciousness. The
mode of production of material life conditions the general process of social, political and in-
tellectual life. It is not the consciousness of men that determines their existence, but their so-
cial existence that determines their consciousness” (Marx, 1859/1904, p. 11-12).

On the other hand, the other main classical economists such as Ricardo and Mill have adopted
different approaches about the nature of economy. For example, Ricardo saw economics as a
technical rather than a moral subject and stated that the principal problem in political econ-
omy was to determine the laws which regulate the distribution of income (Ricardo, 1817, pp.
iii-iv). Ricardo, contrary to Smith and Marx, transformed both the scope and the method of
economics. First, he switched from contextual analysis to more abstract deductive analysis,

mathematics” (1820/1836, p. 1). In this regard, Malthus criticised the over-emphasis on deduction and generalisation. He
wrote “the principal cause of error, and of the differences which prevail at present among the scientific writers on political
economy, appears to me to be a precipitate attempt to simplify and generalize” (Malthus, 1820/1836, p. 4).

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emphasizing the importance of internal logical consistency in abstract models. In doing so, he
provided the methodological basis for neoclassical economics (Landreth & Colander, 2002, p.
232). In this direction, Hutchison (1978) argued that the Ricardian influence in economics pro-
duced a “methodological revolution” and moved the discipline away from the Smithian position.

Mill is an interesting figure among the classical economists, bacause he recognized the deter-
minant role of social context in economic outcome like Smith and Marx on the one hand, he
adopted deductive method for economic analysis like Ricardo on the other hand. For exam-
ple, he noted that the social outcome was subject to human control and also he did not be-
lieve that all actions were motivated by self-interest. He believed only that most people whose
personalities were molded by a competitive capitalist culture acted out of self-interest in their
economic behavior (Hunt & Lautzenheiser, 2011, p. 187).

However Mill claimed universality for the laws of production and argued that political econ-
omy as a science is an abstract science of prediction and control, and used some mathematics
in his analysis (Alvey, 2000, p. 1240). For Mill, as Landreth and Colander (2002, p. 173) em-
phasised, the economist makes certain assumptions and then deduces conclusions from these
assumptions. Because the experimental method is not available to economists, they must rely on
the deductive technique and cannot use the inductive techniques that have been so fruitful in
the natural sciences. Mill is, however, careful to point out that the conclusions that economists
derive from their deductive models should be verified by a comparison with the facts of life6.

In this regard, Mill is considered as a transitional figure between classical political economy
and neoclassical economics because of his influence on Jevons (largely negative) and on Mar-
shall (positive) (Vaggi & Groenewegen, 2003) and as the precursor of the much more moder-
ate Marshallian school of neoclassical economics (Hunt & Lautzenheiser, 2011).

Economics as a Science of Choice

Classical economists especially Smith and Marx regarded economy as a part of broader social,
political, historical and institutional domain and discussed economic process within this con-
text. But this approached turned to a narrower and formalist one which is called “neoclassi-
cal economics” in the end of the nineteenth century. And along with this critical change, the
name of the discipline changed from “political economy” which called by classical economists
to “economics”. And this change is identified with “Marginalist Revolution” in the history eco-
nomic thought. This term firstly was used by Mist (1946) and it’s commonly regarded that
the “Marginalist Revolution” has began with the publication of three books7: William Stanley
6 Also Mill is considered as the first to articulate the notion of an “economic man” who is assumed in the science of political
economy to be a wealth maximizer (Alvey, 2000; Morgan, 2006).
7 By the way it’s argued that the “Marginalist Revolution” didn’t arise suddenly, but rather it was a process (Blaug, 1973;
Hodgson, 2005). In this regard, for studies discussed the “Marginalist Revolution” in the history of economic thought

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Jevons's Theory of Political Economy (1871), Carl Menger's Grundsdtze der Volkswirtschaftslehre
(Principles of Economics) (1871), and Leon Walras's Elements d'économie pure, ou théorie de la
richesse sociale (The Elements of Pure Economics or the Theory of Social Wealth) (1874).

The term “Marginalist Revolution” is commonly used to indicate a sudden change of direc-
tion in economic science, with the abandonment of the classical approach, and the shift to a
new approach based on a subjective theory of value and the analytical notion of marginal util-
ity (Roncaglia, 2005, p. 278). In this respect, it’s safe to say that the “Marginalist Revolution”
was based on the concept of “marginal utility” which was firstly formulated by Jevons, Walras
and Menger and then elaborated by other economists between the period of 1870-1890. In
this period, as Screpanti and Zamagni (2005, p. 164) stated, Marshall, Edgeworth, and Wick-
steed in England, Wieser and Böhm-Bawerk in Austria, Pantaleoni in Italy, and Cassel and
Wicksell in Sweden published fundamental works within the context of new approach. In this
context, Rima (2009) described Walras, Jevons and Menger as “first-generation marginalists”
and Francis Edgeworth, Philip Wicksteed, Alfred Marshall, Friedrich von Wieser and Eugen
Böhm-Bawerk, Knut Wicksell, John Bates Clark and Irving Fisher as “second-generation mar-
ginalists”, while Landreth and Colander (2002) characterised Jevons, Menger and Walras as the
first generation of marginal utility theorists, while he described Austrians Friedrich von Wieser,
Eugen von Böhm-Bawerk, J. B. Clark, Knut Wicksell, E H. Wicksteed and F. Y. Edgeworth as
the second generation of marginalists8. There is a consensus among the historians of economic
thought about that economists who adopted marginal analysis is regarded as neoclassicals (Col-
ander, 2000; Milonakis & Fine, 2009a, 2009b; Schumpeter, 1954; Pressman, 2006). The term
of “neoclassical economics” was originally coined by Thorstein B. Veblen (1900) to charactar-
ise Marshall and Marshallian economics, and later Hicks and Stigler extended the meaning of
this term to embrace all marginalists (Colander, 2000).

So neoclassical economics refers to a critical shift in economic thought and this transition from
classical political economy to neoclassical economics (or marginalist approach) has some im-
portant implication:

1. There’s been a transition from political economy to economics, first of all, and the most
important figure in this process was Marshall. It’s accepted that the term of economics came
into use in economic litarature by Principles of Economics (1890) (Mullberg, 1995; Milonakis
and Fine, 2009b). The change occured in the name of discipline reflected the titles of im-
portant works such as Walras’s The Elements of Pure Economics or the Theory of Social Wealth
(1874), Menger’s Principles of Economics (1871) and Marshall’s Principles of Economics (1890).

see. Black, 1973; Blaug, 1972; Bronfenbrenner, 1971; Coats, 1993; Ekelund and Hébert, 2002; Hodgson, 2005; Meek, 1977;
Screpanti and Zamagni, 2005.
8 Milonakis and Fine (2009b) qualified Jevons, Walras and Menger as “early marginalists”, and Marshall and his followers as
“old marginalists”.

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For example, Marshall explained the necessity of the replacement of political economy by eco-
nomics in terms of political interests:

“Political economy examines the Production, the Distribution and the Consumption of wealth.
It seeks for the cause which determine wages, profits, and rent; it inquires how far these causes
are fixed by unchangeable natural laws, and how far they can be modified by human effort
(...) The nation used to be called ‘the Body Politic.’ So long as this phrase was in common use,
men thought of the interests of the whole nation when they used the word ‘Political’; and then
‘Political Economy’ served well enough as a name for the science. But now ‘political interests’
generally mean the interests of only some part or parts of the nation; so that it seems best to
drop the name ‘Political Economy,’ and to speak simply of Economic Science, or more shortly,
Economics” (A. Marshall and M. P. Marshall, 1879, p. 2).

Similarly Jevons argued that it was proper to use the term “economics” rather than “political
economy” in the preface of the second edition of Theory of Political Economy:

“I cannot help thinking that it would be well to discard, as quickly as possible, the old trou-
blesome double-worded name of our Science. Several authors have tried to introduce totally
new names, such as Plutology, Chrematistics, Catallactics, etc. But why do we need anything
better than Economics This term, besides being more familiar and closely related to the old
term, is perfectly analogous in form to Mathematics, Ethics, Alsthetics, and the names of vari-
ous other branches of knowledge, and it has moreover the authority of usage from the time of
Aristotle (...) It is thus to be hoped that Economics will become the recognised name of a sci-
ence, which nearly a century ago was known to the French Economists as la science economi-
que ” (Jevons, 1879, p. xiv-xv, italics belong to Jevons).

And by the end of this process, as Alvey (2000, p. 1242) noted, the name change for the dis-
cipline eventually followed and has come to be almost universally accepted.

2. The late 1800’s witnessed at the same time a rapid development of the economic profession
(De Vroey, 1975, p. 425). Before that, political economy did not have any particulary high
academic standing (Groenewegen, 1988; Maloney, 1976; Kadish, 1989): “The study of eco-
nomic phenomena was not yet a full-time job and few people were economists and nothing
else: many were businessmen, or public servants, or journalists, and even the academic teach-
ers of economics, in many if not in most cases, also taught cognate-or even completely differ-
ent-subjects” (Schumpeter, 1954, p. 384).

As a separate academic domain of investigation, economics was first established at Cambridge

University in the last decades of the nineteenth century under the influence of Alfred Mar-
shall. Of course the investigation of economic life long preceded Marshall’s efforts, but the

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academic professionalization of economics served to recharacterize economics as a science (Da-

vis, 2008, p. 7).

3. Along with this professionalization went a gradual narrowing in the scope of the discipline
and political economy became economics (Alvey, 2000, p. 1237). This process led to detach
economics from historical, philosophical, institutional and psychological elements that were
not readily analysed using marginal utility theory. In this way, as Boettke et al. (2008, p. 16)
stated, economics which required formal testable propositions, and increasingly actually test-
ing these propositions began to pull away from other social sciences in contrast to the histori-
cal or philosophical dimensions of political economy that were not readily amenable to the ap-
plication of such methods. Milonakis and Fine (2009b, p. 2) described this process as follows:

“Prior to the marginalist revolution, and with classical political economy, theory was concerned
with explaining the capitalist economy, drawing upon whatever historical and social factors were
considered to be relevant. From Adam Smith to John Stuart Mill and Karl Marx, the economy
was treated as part of its wider social and historical milieu, with political economy as a sort
of a unified social science to cover this wide terrain. To the extent that political economy did
stake out a field of study, it was not one that was artificially separated from other disciplines
or fields of study, which in any case were still to emerge (…) This all changed with the mar-
ginalist revolution out of which economics was established as a discipline.”

In other words, the social and collective categories such as class and distribution of income in
classical political economy in which was acknowledged that the economic system was a indis-
pensible part of broader political, historical, moral, institutional and social systems replaced by
concepts such as individual consumer and marginal product of labor in neoclassical econom-
ics (Alvey, 2000; Drakopoulos, 1997; Rothschild, 1993).

4. The detachment of economics from political, historical, moral, institutional and social con-
cerns restricted the scope of economic subject and economics turned into a science which ex-
amined the relationship between given ends and scarce means. In this direction, economics in-
clined to the natural sciences diverging from economic history and sociology (Milonakis and
Fine, 2009b, p. 2) and the basic determinant of economic decision became individual choice
and maximising behavior. For example, Jevons (1879, p. 23) said that “the object of Economics
is to maximise happiness by purchasing pleasure, as it were, at the lowest cost of pain.” Hereby
the area of investigation shifted from macroeconomic issues such as the capitalist economy and
its growth to microeconomic issues “exchange”, “individual choice”, “marginal utility”, “mar-
ginal costs” and “production functions” (Wolff & Resnick, 1987, pp. 27-8).

5. The other main change was the treatment of value. Because, the main determinant of value
became “utility” contrary to “labor” in classical economic thought in this process. In classical
thinkers the value analysis manifested their conception of economy, so that the determination

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of value was explained in terms of the divisin of labor and production within society, for they
regarded economy as a social system. But after the “Marginalist Revolution” it occured a change
in conception of value and it began to be analysed with regard to exchange and utility. It means
that a value of a given product is determined by its buyer marginal utility. And this change in
the theory of value involves, as De Vroey (1975, p. 429) addressed, a radical transformation
in the vision of the economic process. In the classical paradigm, economic action was, before
all, viewed as a social process. Value was analyzed within the framework of production, viewed
itself as a social process whose features are the result of a specific social system. But after the
“Marginalist Revolution” the origin of value is searched for in a mental process. Value depends
upon the consumer's desires.

6. This shift also established the use of formal methods -mathematics in particular- as the only
way of analyzing economic problems scientifically and economists began to apply the meth-
ods of natural sciences in economics by emulating the success of natural sciences in the nine-
teenth century. In this respect, the mathematical method was regarded as “scientific” method
For example, while the classical economists used very little mathematics, Jevons insisted that
“Economics, if it is to be a science at all, must be a mathematical science” (Jevons, 1879, p. 3)
because “in economics, we have to deal with quantities and complicated relations of quanti-
ties” so “we must reason mathematically” (ibid., p. 5). Similarly Walras argued that economics
should use mathematic: “the pure theory of economics is a science which resembles the phys-
ico-mathematical sciences in every respect” (Walras, 1874/1954, p. 181).

Concluding Remarks
In political economy economy was analysed within the social, historical, political and institu-
tional context. The object of economic study was to determine the causes of wealth and the
laws governing its distribution. Social classes such as capitalists, workers and landlords were the
main categories of analysis and growth, development, accumulation, division of labor, distribu-
tion of income were the big questions which political economists asked.

But this picture started to change by the end of the nineteenth century. “Marginalist Revolu-
tion” took place with simultaneous discoveries of Walras, Jevons and Menger’s in France, Eng-
land and Germany at 1870’s led to a shift in economic thought and the dominance of classical
political economy was replaced by neoclassical economics. In neoclassical economics, the sub-
ject matter became the optimal utilisation of scarce available resources to satisfy the needs and
desires of individual agents. So the focus of analyse was directed to the market exchange and
maximisation of utility or profit. And with the change in the focus of analysis, economics de-
tached from social, historical, political and institutional ties and started to emulate the natu-
ral sciences especially physics and mechanics. In this process mathematics became the analytic
tool of neoclassical economics.

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Hüsnü BİLİR

In brief, with the “Marginalist Revolution” the discipline witnessed a crucial shift. Economists
began to ask different questions (from growth, development, division of labour, disrtibution of
income to market exchange, choice, marginal utility) and the treatment of the relationship be-
tween economy and society has changed. There occured a shift in economic thought from the
approach that the economy was an an inherent part to society to the view that economy was
analysed independently from social context with the transition from classical political econ-
omy to neoclassical economics.

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