neoclassical economics

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neoclassical economics

the approach to economic analysis, arising especially from the work of Alfred Marshall (1842-1924) and Leon Walras (1834-1910). This dominated ECONOMICS between 1870 and 1930. It replaced the explicitly sociopolitical analysis, in terms of land, capital and labour, which characterized the work of CLASSICAL ECONOMISTS, including MARX (see also POLITICAL ECONOMY), with a more formal analysis of the conditions for the optimal allocation of scarce resources. The approach can be described as ‘subjectivist’, since its central concept, utility, defined as the ‘individual’ satisfaction obtained from the consumption of a good or service, cannot be measured directly but can only be inferred from market behaviour. The approach is also known as marginal analysis, since its central assumption is that economic returns will be maximized whenever equilibria are reached in competitive markets, the point at which ‘marginal utilities’ or ‘marginal revenues’ cease (i.e. where no more of a good or service will be purchased, or where one more unit of production would yield a negative return). While earlier theories of VALUE based on the ‘costs of production’ found room for notions such as EXPLOITATION, no place exists for these in neoclassical theory. Thus it has been suggested that neoclassical economics be seen as involving special pleading on behalf of CAPITALISM AND CAPITALIST MODE OF PRODUCTION. Others, however, argue that the ‘marginal revolution’ in economics can be accounted for by the inherent superiority of this mode of analysis.