Routledge Dictionary of Economics, Second Edition
neoclassical economics (B1)
The school of economics emerging in the UK and the USA in the late nineteenth century, after ‘the Marginal Revolution’, MARSHALL, EDGEWORTH, PARETO, WICKSELL and WALRAS being its most prominent founders. Building on marginal analysis, it dominates much of US economics today, especially at Chicago University. It takes the view that an economy’s equilibrium will occur after a disturbance because of a tâtonnement process with flexible wages and prices. As prices disseminate information and provide incentives for economic agents, economic plans and activities are co-ordinated.
This school of economics, emphasizing the roles of consumers, producers and savers, has shifted from a study of market allocation to the science of individual and institutional choices about resources in markets and other economic institutions.
It provides little macroeconomic analysis, except in its aggregation of individuals’ choices. HICKS and SAMUELSON have been the most brilliant theorists of the school in the twentieth century Critics of neoclassicism reject the view of economic agents as being concerned with maximization of utility, profit or net income and want to dethrone the central principles of diminishing MARGINAL UTILITY and diminishing MARGINAL RATES OF SUBSTITUTION. However, the neoclassicals continue to show the usefulness of the principles of maximization, equilibrium and substitution at the margin in their study of a host of modern problems, including job search, crime, time, marriage and housing, and the elegance of their theorizing.
See also: continuity thesis; marginalists
References
Boland, L. (1982) Foundations of Economic Method, London: Allen & Unwin.
Henry, L.E. (1990) The Making of Neoclassical Economics, London: Unwin Hyman.
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