Marginalism

Marginalism is an economic theory that explains value, price, and choice in terms of marginal changes—how much more or less is gained or sacrificed by an additional unit. It developed in the late 19th century during the marginal revolution, with independent contributions from William Stanley Jevons in Britain, Carl Menger in Austria, and Léon Walras in France. The central claim is that the value of a good arises from its marginal usefulness relative to its scarcity, rather than from total usefulness or labor input alone.

Core ideas: rational agents optimize by comparing marginal benefits and marginal costs. For consumers, marginal utility typically declines as more units are consumed; for producers, marginal cost is the extra cost of the next unit produced. In competitive markets, prices tend to reflect the equality of marginal willingness to pay and marginal cost, leading to efficient allocation in equilibrium. Marginal productivity theory explains how factors of production are compensated according to the marginal output they contribute.

Impact and reception: marginalism helped establish neoclassical economics, the theory of demand and supply, and formal tools such as indifference curves and marginal analysis. It also reframed price formation around marginal costs and marginal utilities rather than total value. The approach has been extended to intertemporal and game-theoretic contexts.

Criticisms and limitations: some critics argue marginalism neglects distributional and macro factors, power relations, and historical processes. Alternatives from Marxian, institutional, or post-Keynesian traditions challenge its assumptions about rational choice, information, and equilibrium.

Legacy: today marginal analysis remains central to microeconomics, welfare analysis, and cost-benefit evaluation, influencing how economists model consumer behavior, firm decisions, and market outcomes.