89
producers and consumers in the
new capitalist society. Taking their
lead from the moral philosophers
of the previous generation, they
began to see the value of goods
in terms of their utility (the
satisfaction they would give),
rather than the labor that added
value to raw materials. The idea
of marginal utility—the gain
brought about by the consumption
of a particular product—was
explained in mathematical terms
by William Jevons (p.115).Marx’s theory of value
The theory that the value of a
product is determined by the labor
involved in producing it still had
some adherents, particularly as
it concerned not the producers
or consumers so much as the
workforce producing the goodsfor capitalist employers. Looking
at value in this light, Karl Marx
argued that the inequalities of a
market economy amounted to an
exploitation of the working class
by the owners of capital. In the
Communist Manifesto and his
analysis of capitalism Capital,
Marx argued for a proletarian
revolution to replace capitalism
with what he saw as the next
stage in economic development:
a socialist state in which the
means of production are owned
by the workers, and an eventual
abolition of private property.
Although Marx’s ideas were
subsequently adopted in many
parts of the world, market
economies continued to operate
elsewhere. Generally, economists
continued to defend capitalism
as the best means of ensuringprosperity—although tempered
to some extent with measures to
compensate for its injustices.
Following a mathematical approach
to economics that focused on
supply and demand, and as a
reaction against the ideas of
socialism, an Austrian School
of economic thought emerged,
stressing the creative power of
the capitalist system.
The free market economy was
soon to receive some hard knocks
after the Wall Street Crash of- However, the theories
of neoclassical economists, and
the Austrian School in particular,
later resurfaced as the model
for economies in the Western
world in the late 20th century
and even came to replace
most of the world’s communist
planned economies. ■
INDUSTRIAL AND ECONOMIC REVOLUTIONS
1870 S 1894
1890 1899
1906 1920 1927
1914 1922
Robert Giffen
introduces the
concept of Giffen
goods, for which
consumption
rises with price.
Social campaigners
Beatrice and
Sidney Webb
publish their
landmark History
of Trade Unionism.Alfred Marshall
publishes his Principles
of Economics, bringing
new mathematical
approaches
to economics.In The Theory of the
Leisure Class, Thorstein
Veblen describes the
conspicuous
consumption
of the rich.Vilfredo Pareto formulates
Pareto efficiency,
a state in which no
individual can become
better off without making
another worse off.Arthur Pigou
argues that
companies should
be taxed for
the pollution
they make.Joseph Schumpeter
describes the vital
role of the entrepreneur
as an innovator
who moves
industry forward.Friedrich von
Wieser describes
opportunity cost,
which measures the
value of choices that
have been rejected.Ludwig von Mises
criticizes communist
planned economies in
Socialism: An
Economic and
Sociological Analysis.