ECONOMIC  Systems

The beginnings of neoclassicism

The Beginnings of Neoclassicism

The term "neoclassics" given to the generations of theorists who advocated for the modern market economy in the last third of the 19th century and the first decades of the 20th century had a double significance: it highlighted, on one hand, elements of continuity, and on the other hand, particularities in relation to the Classical School.

Like the early liberals, neoclassics were advocates of individualism and hedonism, as well as defenders of a market economy based on private property, which they considered compatible with economic equilibrium and general welfare. Furthermore, they spoke out against state intervention in the economic activities of private agents, supporting a policy of free competition.

Unlike classical liberals, they changed the substance of economic investigations, shifting attention from objects (goods, material wealth) to subjects (people), especially the psychology of economic agents. In other words, neoclassics changed the angle of examination of economic problems, in that they did not start from production, but rather from consumption towards the other spheres of economic activity.

The central element of the "break" between neoclassics and their predecessors was the categorical rejection of the objective theory of value based on labor and its replacement with the subjective theory of marginal utility.

By examining the works of Stanley Jevons (1831-1882), Carl Menger (1840-1921), or Léon Walras (1834-1910), we can observe that the specificity of the neoclassical paradigm is linked to two innovations: the first refers to scarcity as a distinct feature of all economic goods and as a primary factor in appreciating the mechanism of the market economy, and the second relates to moving the center of gravity of explaining economic life from the objective plane to the subjective plane, by researching the inclinations and preferences of individuals, the motivations for their actions and behaviors, and the attitudes and reactions derived from factors related to their internal drives.

These two innovations were closely tied to the historical conditions at the end of the 19th century (the intensification of competition among economic agents concerning the supply of factors of production, the development of sales markets and the placement of available capitals, as well as the evolution of the general state of science, influenced by the amplification of research in physiology and psychology, which favored the examination of the subjective appraisals of agents regarding the acts and economic processes in which they participated).

Neoclassics exploited both hedonism and abstraction (they were proponents of the deductive method), contributed to the "mathematization" of economic science, and laid the foundations for marginal economic calculation by applying differential and integral techniques to certain issues regarding the motivation of choices, under conditions of resource constraints. For this reason, neoclassics were also referred to as marginalists.

[see: Alexandru Tașnadi, Claudiu Doltu – “The Mirage of Neoclassicism” (Bucharest, Economica Publishing House, 2000, p. 14 and following)]