Concluding remarks

Summary

This concludes our brief survey of the history of marginalism. I hope that this short exploration contributes to a more intuitive understanding of economic theory, which may complement the analytical understanding that is fostered by textbooks in (any subfield of) economics.

Thinking about the margin emerges on the supply side, where the scarcity of certain resources, particularly fertile land, implies diminishing marginal returns. Thinking about the margin also emerges on the demand side, where continued consumption implies diminishing marginal utility. These lines of thought examine the forces that underlie supply and demand, and lead up to a theory of exchange. This theory gave rise to a model of general equilibrium, which represents the interdependency between all markets, assuming that perfectly competitive conditions prevail. But marginalism is also relevant for the study of imperfect competition, which examines the consequences of substantial market power, usually exercised by a small number of large firms.

Marginalism can also be seen as a theory of economic decision-making, with a “process-oriented” and “subjective” approach. Marginalism is everywhere in modern economic theory, especially in microeconomics. But it is also relevant for macroeconomics, for welfare economics, for environmental economics – indeed, it would be hard, if not impossible, to imagine the field of economics without the central notions about the “margin”.

Marginalism should probably not be seen as an economic “theory” as such, but rather as a “tool” that is visible in all fields and subfields of modern economics. And it should be seen as a “positive” tool, used to examine conditions of efficiency, and not as a “normative” tool, used to argue in favour of or against a certain distribution of income.