The Marginal Revolution and the Birth of the Austrian School

In the Marginal Revolution, economics abandoned the cost‐​of‐​production theory of value used by the classical economists in favor of the modern, marginal theory of value.

Steven Horwitz

Steven Horwitz is Economics Editor at Lib​er​tar​i​an​ism​.org and Distinguished Professor of Free Enterprise at Ball State University. Horwitz has written extensively on Austrian economics, Hayekian political economy, monetary theory and history, and macroeconomics.

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Summary:

In the Marginal Revolution, economics abandoned the cost‐​of‐​production theory of value used by the classical economists in favor of the modern, marginal theory of value. This new theory said that value, and prices, depend on the usefulness to an individual consumer of an additional unit of a good, as opposed to the usefulness of the entire stock of the good. One of the three economists who independently arrived at the marginal theory of value was Carl Menger. Menger is the first Austrian School economist, and his emphasis on the subjectivity of economic value remains a big part of Austrian economics today.