ILRLE 3440 Lecture Notes - Lecture 19: Class Conflict, Marginalism, Classical Economics
8 May 2018
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12 April 2018
ECON 3300 - Lecture 19!
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Q: What is marginalism (now called neoclassical economics)?!
Classical economists cared about the causes and consequences of economic growth!•
Are we headed towards a stationary state?!◦
How is wealth distributed?!◦
What happens to wages over time?!◦
Dynamic analysis !◦
The motive is growth!◦
Marginalists (W.S. Jevons) ask different questions!•
How do we allocate limited resources given unlimited wants at a specific point in time?!◦
Static analysis!◦
The motivation is the satisfaction of human wants (maximising utility)!◦
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Q: Why does the line of thought come up in the 1870s?!
The economy is just beginning to grow (1848-1873), not just in Britain but in most of Europe and 1.
the United States. !
This period is known as the Great Victorian Boom!•
Wages are rising!◦
Profits are not falling!◦
Population growth is slowing!◦
People start thinking that the economy is not headed towards a stationary state and the Iron Law •
of wages doesn’t hold!
2. It is simply a response to Karl Marx!
Marx reveals in Das Kapital the theory of class struggle, bringing to the fore that wages and •
profits are always inversely related!
Marginalism does away with class conflict, wages and capital are not necessarily inversely related •
and labour and capital are paid according to their marginal contribution to output!
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William Stanley Jevons!
Jevons and “The Coal Question”!•
The key to economic success is cheap coal because the source of economic growth is ◦
power!
But at some time in the future we are going to run out of coal; in the meantime it will get ◦
more and more expensive to extract it from greater depths!
This will eventually choke of economic growth (Malthusian of natural resources)!◦
In particular he developed a new theory of value!•
Classicals say the value of a commodity was its cost of production!◦
Jevons said value depends entirely upon utility!◦
Theory of value based on Jeremy Bentham’s “Pleasure/Pain Calculus”!•
Nature has placed man under the governance of two sovereign masters, Pain and Pleasure!◦
To maximise utility is to maximise pleasure and minimise pain!◦
This is known as Utilitarianism!◦
A commodity gives pleasure or wards off pain!•
An object is a commodity if and only if it yields utility!◦
People can value commodities differently among themselves and can value them different at ◦
different times (cardinal utility)!
Utility must be looked at in two different ways!•
Total utility!◦
Marginal utility!◦
Document Summary
Classical economists cared about the causes and consequences of economic growth. The motivation is the satisfaction of human wants (maximising utility) The economy is just beginning to grow (1848-1873), not just in britain but in most of europe and the united states. This period is known as the great victorian boom. People start thinking that the economy is not headed towards a stationary state and the iron law of wages doesn"t hold: it is simply a response to karl marx. Marx reveals in das kapital the theory of class struggle, bringing to the fore that wages and pro ts are always inversely related. Marginalism does away with class con ict, wages and capital are not necessarily inversely related and labour and capital are paid according to their marginal contribution to output. The key to economic success is cheap coal because the source of economic growth is power.
