---
title: "History of economic thought"
chunk: 9/18
source: "https://en.wikipedia.org/wiki/History_of_economic_thought"
category: "reference"
tags: "science, encyclopedia"
date_saved: "2026-05-05T03:59:30.681827+00:00"
instance: "kb-cron"
---

American economist John Bates Clark (1847–1938) promoted the marginalist revolution, publishing The Distribution of Wealth (1899), which proposed Clark's Law of Capitalism: "Given competition and homogeneous factors of production labor and capital, the repartition of the social product will be according to the productivity of the last physical input of units of labor and capital", also expressed as "What a social class gets is, under natural law, what it contributes to the general output of industry."  In 1947 the John Bates Clark Medal was established in his honor.

==== William Stanley Jevons ====

In 1871 Menger's English counterpart Stanley Jevons (1835–1882) independently published Theory of Political Economy (1871), stating that at the margin the satisfaction of goods and services decreases. An example of the Theory of Diminishing Marginal Utility is that for every orange one eats, one gets less pleasure until one stops eating oranges completely.

==== Alfred Marshall ====

Alfred Marshall (1842–1924) is also credited with an attempt to put economics on a more mathematical footing.  The first professor of economics at the University of Cambridge, his 1890 work Principles of Economics abandoned the term "political economy" for his favorite "economics". He viewed math as a way to simplify economic reasoning, although he had reservations as revealed in a letter to his student Arthur Cecil Pigou:

(1) Use mathematics as shorthand language, rather than as an engine of inquiry. (2) Keep to them till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life. (5) Burn the mathematics. (6) If you can't succeed in 4, burn 3. This I do often.

==== New institutional schools ====

In 1972 American economists Harold Demsetz (1930–2019) and Armen Alchian (1914–2013) published Production, Information Costs and Economic Organization, founding New Institutional Economics, an updating of the works of Ronald Coase (1910–2013) with mainstream economics.

=== Continental neoclassical ===

==== Lausanne School ====
The Lausanne School is named after University of Lausanne where Léon Walras and Vilfredo Pareto held professorships.
In 1874 working independently, French economist Léon Walras (1834–1910) generalized marginal theory across the economy in Elements of Pure Economics: Small changes in people's preferences, for instance shifting from beef to mushrooms, would lead to a mushroom price rise, and beef price fall; this stimulates producers to shift production, increasing mushrooming investment, which would increase market supply and a new price equilibrium between the products, e.g. lowering the price of mushrooms to a level between the two first levels. For many products across the economy the same would happen if one assumes markets are competitive, people choose on the basis of self-interest, and there is no cost for shifting production.
Similar to Walras, Vilfredo Pareto tried to sketch the mathematical description of economics in analogy to mechanics, explicitly linking pure (and applied) economics to pure (and applied) mechanics. Similar approaches were put forward by Irving Fisher in the United States in his 1892 dissertation.

==== The Austrian school of economics ====

While economics at the end of the nineteenth century and the beginning of the twentieth was dominated increasingly by mathematical analysis, the followers of Carl Menger (1840–1921) and his disciples Eugen von Böhm-Bawerk (1851–1914) and Friedrich von Wieser (1851–1926) (coiner of the term "marginal utility") followed a different route, advocating the use of deductive logic instead.  This group became known as the Austrian School of Economics, reflecting the Austrian origin of many of the early adherents. Thorstein Veblen in The Preconceptions of Economic Science (1900) contrasted neoclassical marginalists in the tradition of Alfred Marshall with the philosophies of the Austrian School.

===== Carl Menger =====
In 1871 Austrian School economist Carl Menger (1840–1921) restated the basic principles of marginal utility in Grundsätze der Volkswirtschaftslehre (Principles of Economics): Consumers act rationally by seeking to maximize satisfaction of all their preferences; people allocate their spending so that the last unit of a commodity bought creates no more satisfaction than a last unit bought of something else.

==== Francis Ysidro Edgeworth ====

In 1881 Irish economist Francis Ysidro Edgeworth (1845–1926) published Mathematical Psychics: An Essay on the Application of Mathematics to the Moral Sciences, which introduced indifference curves and the generalized utility function, along with Edgeworth's Limit Theorem, extending the Bertrand Model to handle capacity constraints, and proposing Edgeworth's Paradox for when there is no limit to what the firms can sell.

==== Friedrich Hayek ====

In echoes of Smith's "system of natural liberty", Hayek argued that the market is a "spontaneous order" and actively disparaged the concept of "social justice". Ludwig von Mises's outspoken criticisms of socialism had a large influence on the economic thinking of Austrian School economist Friedrich Hayek (1899–1992), who, while initially sympathetic, became one of the leading academic critics of collectivism in the 20th century. Hayek believed that all forms of collectivism (even those theoretically based on voluntary cooperation) could only be maintained by a central authority. But he argued that centralizing economic decision-making would lead not only to infringements of liberty but also to depressed standards of living because centralized experts could not gather and assess the knowledge required to allocate scarce resources efficiently or productively. In his book, The Road to Serfdom (1944) and in subsequent works, Hayek claimed that socialism required central economic planning and that such planning in turn would lead towards totalitarianism. Hayek attributed the birth of civilization to private property in his book The Fatal Conceit (1988). According to him, price signals are the only means of enabling each economic decision maker to communicate tacit knowledge or dispersed knowledge to each other, to solve the economic calculation problem. Along with his Socialist Swedish contemporary and opponent Gunnar Myrdal (1898–1987), Hayek was awarded the Nobel Prize in Economics in 1974.

== Alternative schools (19th century) ==

=== Business cycle theory ===