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The Marginalist School

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1 The Marginalist School
- Jevons, Menger, von Wieser and Bohm-Bawerk

2 Marginalist School The paradox of water and diamonds
Value comes from people’s demand and scarceness of goods. Marginal utility should be the value of goods. Founders: Jevons in England, Menger in Austria, and Walras in Switzerland Second generation: Friedrich Freihere von Wieser, Bawerk Eugen Böhm von Bawerk in Austria.

3 William Stanley Jevons 杰文斯
Presenter: 王鹿鸣

4 William Stanley Jevons
William Stanley Jevons( — ), was born in Liverpool. He is a theorist dealing with the fundamental data of economic science, but as a brilliant writer on practical economic questions.

5 William Stanley Jevons
He expounded in his book The Theory of Political Economy the marginal utility theory of value. Jevons' work, along with similar discoveries made by Carl Menger and by Léon Walras ,marked the opening of a new period in the history of economic thought.

6 the Marginal Utility Theory
the utility or value to a consumer of an additional unit of a product is inversely related to the number of units of that product he already owns

7 the Marginal Utility Theory
The theory of utility is that the degree of utility of a commodity is some continuous mathematical function of the quantity of the commodity available. 效用理论,指的是商品的效用的度量是商品数量的连续函数,也就是表达出经济学也是一门数学科学的观点 1871年,杰文斯在他的《政治经济学理论》中进一步发展了他的学说,这时受到了人们的关注。

8 The Coal Question His aforementioned the coming shortage of coal has gathered recent attention due to similarities to the peak oil concept. It was for The Coal Question (1865), in which he called attention to the gradual exhaustion of Britain's coal supplies, that he received public recognition.

9 practical economic questions
A Serious Fall in the Value of Gold (1863) The Coal Question (1865) Mechanism of Exchange (1875) a Primer on Political Economy (1878) The State in Relation to Labour (1882) Methods of Social Reform Investigations in Currency and Finance

10 As a logician 杰文斯在逻辑学上的成就和他在政治经济学学不相上下,对概率的一般原理和概率与归纳之间的关系作了出色的改造。他在各种自然科学上的造诣此时发挥了巨大作用,使他可以利用图形来处理抽象的逻辑学概念,从而获得了成功。

11 John Maynard Keynes called Jevons's book "the first modern book on economics" .
His strength lay in his power as an original thinker rather than as a critic; and he will be remembered by his constructive work as logician, economist and statistician.

12 Carl Menger 门格尔 Presenter: 张香园

13 Carl Menger Austrian economist who contributed to the development of the marginal utility theory and to the formulation of a subjective theory of value. Began the modern period of economic thought. Widely known as the founder of the Austrian school of economics.

14 Carl Menger Principles of Economics (1871)
Theory of marginality: price is determined at the margin. Investigations into the Method of the Social Science with Special Reference to Economics (1883)

15 Carl Menger Aristotelian philosophy was the root of Menger’s framework. The laws governing phenomena of thought processes and the natural and social world were all related as parts of the natural order. For Menger, the German historicists’ main error was to confuse theory with history.

16 Carl Menger Realist: We could know what the world is like through both common sense and scientific method. Based on the direct analysis of concrete phenomena that can be observed and characterized with precision. The advantages of verbal language over mathematical language

17 Carl Menger Value theory: A theory of human action that involves a theory of human knowledge. He believed that men can understand the workings of the economy. Social development is constructed from individual action.

18 Carl Menger Human beings have needs and wants embedded in their nature. These needs and wants are reflected in the actions of human agents to satisfy them. A given person's needs and wants are determined for each economic agent by his human nature and his individuality.

19 Carl Menger The purpose of economic activity as the satisfaction of human needs. The foundations of economics were concerned with phenomena generated by the plans and actions of individuals in satisfying their material and other essential needs and wants. Economic phenomena are products of individual human action.

20 Carl Menger Life is ultimate standard of value.
Human life is a process in which a person, given his needs and the command of the means to satisfy them, is himself the specific point where human economic life both originates and ends.

21 Carl Menger Goods acquire their value, not because of the amount of labor used in producing them, but because of their ability to satisfy people’s wants. The value of labour derives from the value of the goods it produces.

22 Carl Menger Subjective theory of value
In exchange, people will give up what they value less in return for what they value more, which is why both sides can gain from an exchange. Goods are valuable because they serve various uses whose importance differs.

23 Carl Menger Development of money(transactional medium) : Barter→ Money
Language developed for the same reason money developed—to facilitate interactions between people. Neither language nor money was developed by government.

24 Friedrich Freihere von Wieser 维塞尔
Presenter: 俞丹蕾

25 Friedrich Freihere von Wieser
Born: July 10, Vienna, Austria. Died: July 22, 1926. Nationality: Austrian. Alma mater: University of Vienna. Influences: Carl Menger, Eugen Böhm von Bawerk Influenced: Ludwig von Mises, Friedrich von Hayek, Joseph Schumpeter.

26 Main Contributions Value theory of marginal utility
Exchange value and natural value Imputation theory Alternative cost theory

27 Value theory of marginal utility
Value originates from utility, not cost of production. Scarceness is the prerequisite of value. Gossen’s first law: the desire for food decreases as the want is gradually satisfied, until, finally, when what we may call the "satiation point" is reached. (Diminishing marginal utility) Marginal utility: The smallest utility obtainable in the ‘scarce supply’ circumstances, assuming the most thorough possible utilization of the goods

28 Exchange Value Exchange value: price or objective value.
Subjective value is the basis of objective value. Objective value depends on marginal utility, which is decided by the quantity of the goods. Confusion of subjective value.

29 Natural Value Natural value is the social relationship between demand and utility. The relationship between natural value and exchange value: exchange value is like a cartoon of natural value. Value is a neutral phenomenon. Land rent and capital interest are natural phenomena of value. Criticism on the Marxist socialist theory.

30 Imputation Theory Theory on value distribution among production factors. Value theory of production factors is the same as the value theory of consumer goods Value of production goods can be estimated by the value of products they produce. Land, labor, and other factors jointly create a product and the value of the product should be distributed on to every factor.

31 Alternative cost theory
Cost was a result of demand, as this would determine the level of production, depending on the willingness of buyers to pay that cost. Demand is dependent upon the action of buyers, utility would determine a thing's cost rather than technology. The opportunity cost would be that which the purchaser would willingly forgo in agreeing to pay the cost of the option chosen

32 Bawerk Eugen Böhm von Bawerk 庞巴维克
Presenter: 张喆

33 Biography 1872: study law at the Vienna university, interested in Economics Good friends with Friedrich von Wieser, who later became Boehm-Bawerk‘s brother-in-law. 1884: professor of economics, published the first two (out of three) volumes of his magnum opus, Capital and Interest. 1895:Austrian minister of finance

34 Three identities of him
1. Austrian economist 2. Critic of Marxism 3. The Austrian Minister of Finance

35 Capital An independent part, theory premise of other parts
methods of production: Without capital First produce capital capital: Production capital Interest-bearing capital

36 Value theory of marginal utility
Similar with Wieser: Desire and satisfaction are the essence of economic activities in human society Decrease as satisfaction increases Different levels Subjective

37 Value theory of marginal utility
Different from Wieser: Wieser – obtain Bawerk - lose

38 Example A pioneer farmer had five sacks of grain, with no way of selling them or buying more. He had five possible uses—as basic feed for himself, food to build strength, food for his chickens for dietary variation, an ingredient for making whisky and feed for his parrots to amuse him. Then the farmer lost one sack of grain. Instead of reducing every activity by a fifth, the farmer simply starved the parrots as they were of less utility than the other four uses, in other words they were on the margin. And it is on the margin, and not with a view to the big picture, that we make economic decisions.

39 Value theory of marginal utility
marginal utility depends on value and the relationship between supply and demand. Example: Diamond and water

40 Time preference theory
Current products-more valuable Future products Three reason: 1. people in difficulties 2. people has limited life 3. people need tools to improve efficiency

41 Time preference theory
Explain: Loan interest Corporate profit Durable products All the interests are the value added when future products mature and become current products.

42 Critic of Marxism He wrote extensive critiques of Karl Marx's economics in the 1880s and 1890s Capitalists do not exploit their workers; they actually help employees by providing them with an income well in advance of the revenue from the goods they produced, stating "Labor cannot increase its share at the expense of capital."

43 Critic of Marxism From this criticism it follows that, according to Böhm-Bawerk, the whole value of a product is not produced by the worker, but that labor can only be paid at the present value of any foreseeable output.

44 The Austrian Minister of Finance
In 1889, councillor in the ministry of finance in Vienna, and represented the government in the lower house on all questions of taxation. Drafted a proposal for direct-tax reform, called for a modern income tax, which was soon approved and met with a great deal of success in the next few years.

45 Comments Joseph Schumpeter praised his efforts toward "the financial stability of the country." His image was on the one-hundred schilling banknote between 1984 and 2002, when the euro was introduced.

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