Neoclassical Economics

Modern economics would look nothing like what they do without neoclassical economics which, for instance, implemented rigorous mathematical analysis into economics. Most of what we absolutely take for granted was discovered by the great economists of the time, and they are also responsible for providing enough of a framework to raise a century long controversy with the other great school of the 20th century.

Neoclassical economics is really the birth of mathematics as an inescapable tool for constructing theories that are internally coherent (that is, explained in and of themselves without requiring casuistic examples), escaping the slightly lackadaisical approach of many classical economists like the great Ricardo. This allowed Economics to develop at a much faster pace, and provided the basis for how Economics is studied and investigated today.

Neoclassical economics also sees the first clear distinctions between branches of Economics, previously grouped together in the ever present “Principles of Economics” manuals. It sees the basis of the modern didactic framework that we still classify Economics under, and is, in short, the first time that Economics looks like something we might recognise today: consistent theories built upon a solid mathematical framework that aim to underpin the casuistics of what goes on around us.
Marginalism:

Marginal Revolution, around 1870, brought the prevailing classical view of value theory to an end.

William S. Jevons, who devised the concept of marginal utility.

Carl Menger, one of the founders of the Austrian school.

Léon Walras and his concept of “tâtonnement” revolutionized the study of general equilibrium.

Main neoclassical economists:

Alfred Marsall, the true founder of the neoclassical school of economics.

Francis Y. Edgeworth, whose mathematical contributions to economics are of great importance.

Arthur C. Pigou, precursor of welfare economics.

Vilfredo Pareto, who specially focused on allocation and efficiency matters.

Irving Fisher, the main American neoclassical economist.

Main neoclassical schools:

Although not included in this Learning Path (in order not to overwhelm you!), it is interesting to learn about the three main schools at the time: Cambridge school, Lausanne school and the Austrian school. Reading about these will help you put into context everything you’ve learned during this Learning Path.

 

The first defining trait of this new wave was the solid use of mathematics as more than an exemplary tool: it became a way to construct internally consistent theories. This helped set aside Economics as a science in itself (albeit a social science). Marginalism revolutionised the way we study agent behaviour, and although the theory may be outdated, the precepts it introduced are still the solid foundation of modern microeconomics.