The Marginalist revolution in economics related to the formal aspect of the analysis and not to any new vision of solving man's economic problems. All objects of desire were reduced to a common denominator, utility, which allowed for increase or decrease in infinitesimally small amounts to permit the application of differential calculus. Consumption goods were, of course, available only in units of a given size and value but the demands of the method were supreme, hence the assumption of perfect divisibility. Later the same method was applied to factors of production whose employment was assumed capable of being increased or decreased in small amounts and substitutable one for other, on the margin. The rational consumer had all the knowledge he required for a choice among the myriad options so as to equate utility on the margin and, thence, maximize it. The same applied to the producer who substituted one factor for another till the marginal productivities were equal all along the line. All the real world hurdles of indivisibility, heterogeneity, rigidity in production functions and basic qualitative differences between various units of labor, and between labor and capital, etc., were brushed aside to perfect a technique which afforded the rational manimizer unhindered operation in a perfectly competitive world where all concerned had all the knowledge. The results were wonderful indeed: Maximum satisfaction to the consumers, maximum profits for the producers, optimum allocation of social resources. As regards distribution, the system ensured for each a reward equal to his contribution to the joint product, factor prices being equal to marginal productivities.
More than half a century following J.S. Mill (1816-1873) – whose Principles of Political Economy was the last of the classical contributions which still had deep roots in the complex reality that was the economy of man – was required to achieve the perfection of this methodology. Jevons, Menger, Wieser, Walras, Bhoem Bawerk and Clark were thus able to dethrone the cost of production theory and enthrone the subjective theory of value and distribution. Henceforth it was clear, in the words of Wieser that "The theory takes its point of departure from within, from the minds of the economic man”. What mattered was the method. All that defied this method was simply abstracted away. Since the system itself ensured perfection, there was simply no room for policy. The only policy prescription that could emerge was to let things have their way unhindered by any interference.
Source: Dr. Muhammad Nejatullah Siddiqi, Economics An Islamic Approach. Republished with permission.
Search our Resources or Dictionary