Neoclassical theory

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Under neoclassical theory or neoclassical an economics direction that was established in the second half of the 19th century and the classical economics replaced, understood. Neoclassicism is not characterized by certain theorems, but by its method, in particular the marginal principle , which is expressed in terms such as marginal costs or marginal revenue . The economists Alfred Marshall , William Stanley Jevons and Léon Walras played a key role in its creationcontributed. The neoclassical dominates economics - with interruption by Keynesianism - to this day. It is criticized in approaches from the heterodox economy .

Historical development

The starting point of the neoclassical was the marginal utility school and the marginal principle it established. These teachings were developed roughly simultaneously and independently of one another around 1870 by William Stanley Jevons in England, Carl Menger in Austria, and Léon Walras in Switzerland. This added a subjective component to the classical theory of value and price, which explained values ​​and prices mainly in terms of production costs. At the same time, the marginal principle also changed the cost of production theory itself, by replacing constant production coefficients with variable marginal costs.

In addition to the marginal principle, another characteristic of neoclassical music is the emphasis on markets, which are viewed as a generally more sensible and superior allocation mechanism. In this point the neoclassic ties in with the classical and their idea of ​​an "invisible hand" and specifies its teachings.

During and after the Great Depression , the macroeconomic implications of neoclassicism were criticized because they are neither a satisfactory explanation provided for such a serious crisis, gave even more promising economic policy recommendations. John Maynard Keynes and the Keynesianism based on it tried to close these gaps . However, this in no way meant the end of neoclassicism: on the one hand, microeconomics remained untouched by criticism; on the other hand, neoclassical thinking also experienced a renaissance in macroeconomics after Keynesianism suffered a credibility crisis in the wake of the stagflation of the 1970s.

Since the 1950s, the neoclassical has had a predominant position, especially in the choice of methods, but it always coexists with competing currents.

Basic assumptions and models

Neoclassicism is not a uniform trend; In particular, “routine research” within neoclassics must be distinguished from the essential building blocks of today's neoclassical “mainstream”. With reference to Michael Fritsch , Ulrich Hampicke names the following five constitutive features of the “naive” “textbook” neoclassical:

  • Methodical and normative-political individualism ;
  • Utilitarianism in the sense of a teleological-consequentialist ethic, the separation of value judgments and instruments, the orientation towards human benefit creation and the balancing calculation;
  • Assumption of individually rational behavior (i.e. existence of a complete order of preferences , transitivity of preferences);
  • Exchange paradigm, consistent thinking in opportunity costs ;
  • Belief in the invisible hand and the substitution paradigm.

However, these five axioms could be modified if the empirical assumptions behind them prove grossly inaccurate. Hampicke names important areas of restrictions and additions

  • the possibility of voluntary contracts by which individuals restrict their freedom of action in favor of cooperative or coordinated behavior;
  • the possibility of a “Government-Assisted Invisible Hand” which enables market-like allocations where these cannot be reached spontaneously due to prohibitive transaction costs ;
  • Introduction of institutional economic analysis approaches (strategic behavior, incomplete information, "power" in exchange relationships, etc.).

Even with the use of “collective” behavior as an explanation, however, the soil of methodical individualism is never abandoned.

Homo oeconomicus

The central illustration of the assumption of the neoclassical theory is the model of " Homo oeconomicus ". This is a fictitious economic subject who has fixed preferences and acts rationally in the sense that, among given alternatives, he always chooses the one that maximizes his own benefit . It should be noted here that “benefit” is empirically reconstructed from the analysis of observed decisions between alternatives, without these decisions having to be assumed to have self-serving motives in the ethical sense.

The principle of rational behavior has been transferred to two institutions:

  • The households that choose the utility-maximizing alternative (the household optimum ) within the scope of their possibilities (determined by given prices, wages and other income) .
  • The companies which, under the respective conditions such as complete competition , oligopoly , monopoly etc. and the given technology, select the production that best corresponds to the company's goal (often, but not necessarily, profit maximization).

Neoclassics as the theory of optimization decisions

Taken together, with the help of marginal analysis, the neoclassical traces all economic events back to individual optimization decisions: companies maximize their profit, from which the factor demand curves and goods supply curves result. Households maximize their utility, from which the factor supply curves and consumer goods demand curves emerge.

Based on this basic principle developed by Leon Walras , the neoclassical theory uses mathematical methods that are often referred to as " marginalism ". When Carl Menger , Friedrich Wieser and Eugen Böhm-Bawerk introduced the limit calculus, they rediscovered differential calculus, so to speak, two hundred years after Newton and Leibniz .

From the basic principle of Walras it follows that the neoclassical theory can basically be set up as a system of optimization tasks under constraints and analyzed with the mathematical methods of maximization (e.g. the Lagrangian method ). This results in optimization conditions such as Gossen's second law or the marginal product rule .

In the course of development, this basic principle was refined by considering behavior within the household (economic theory of the family by Gary Becker ) and within the company ( principal-agent theory ) as an optimization. In addition, the approach is extended to other areas such as politics ( new political economy ) or the legal system.

Perfect market

Many models of neoclassical theory assume perfect markets , both for studying real markets and as a reference in comparison to models of incomplete competition. It is assumed that the market dictates the prices and the entrepreneur reacts as a quantity adjustor.

However, models of incomplete competition are also analyzed:

  • Monopoly : There is only one supplier (or buyer) for the considered good. The price is determined by the quantity offered (or requested) by the producer.
  • Duopoly , oligopoly : there are two or more providers. To analyze this case, further assumptions have to be made about the strategic behavior of the companies.

Other standard assumptions

  • Information and information acquisition: Basic models of the neoclassical are based on complete information . In many models, however, this assumption is replaced by limited information. In addition, information acquisition can be integrated by taking search costs and transaction costs into account.
  • No externalities : an entrepreneur's production decisions only affect the consumption or production of other individuals via the market. The environmental economics can be referred to as that field of Neoklassik that systematically omitted with respect to environmental externalities in this default setting.
  • Private goods : The goods under consideration are only useful for the benefit they have (principle of rivalry). All other individuals can be excluded from consumption by legal and / or technical measures (exclusion principle). The model can, however , be extended to include public goods (collective goods ).

Some of the additional assumptions are also canceled for the analysis of institutional conditions such as contracts, private property, companies, electoral systems and constitutions within the framework of the new institutional economics .

Central theses

With its marginalistic view, neoclassical theory provided the theoretical basis for resolving the paradox of values in classical economics . The value (expressed as price ) of a good results from its marginal utility (demand) and its marginal costs (supply).

The neoclassical differed from classical economics, among other things, through the shifted question: The paradigm of the classical was production : it asked about the origin, growth and distribution of economic wealth in society . The paradigm of the neoclassical is the exchange (trade) between rational individuals: It asks about the optimal distribution ( allocation ) of given scarce resources to different uses and individuals with fixed interests and given equipment of goods and capabilities.

The distribution theory follows the marginal productivity and not the labor theory of value .

In neoclassicism there is a sharp distinction between the real sector of an economy, in which the relative prices of all goods and production factors, the production quantities of the various consumer goods and the distribution (allocation) of the production factors to the production of various goods are determined, and the monetary sector , which ultimately only determines the price of money and which has no (long-term) effects on the real sector. This real economic “ neutrality of money ” finds its theoretical explanation in the quantity theory of money .

balance

Another central element of the neoclassical is the equilibrium analysis. Economic analysis is essentially understood as the analysis of markets in the equilibrium of supply and demand : be it (with Léon Walras ) in the sense of an instantaneous general equilibrium on all markets (determined by solving a system of equations), or be it (with Alfred Marshall ) in the sense of partial equilibria on the markets under consideration in different time horizons (e.g. very short-term to determine market prices , or long-term to determine normal prices).

The neoclassical theory is basically based on the functionality and stability of market economy systems. In all markets there is a balance between supply and demand, which also determines the prices of all consumer goods and production factors. Disturbances and crises are attributed to imperfections in the market, the market finds itself in equilibrium once this imperfection has been eliminated (see also general equilibrium theory ).

One consequence of this combination of individual optimization and equilibrium thinking is the impossibility of involuntary unemployment and overproduction as long as competitive markets are not hindered in their function by state intervention or other distortions (e.g. excessive wages enforced by trade unions). The neoclassical thus sees Saysche's theorem always fulfilled, which excludes general (macroeconomic) and longer-term imbalances, since every (macroeconomic) supply creates its demand. With regard to the capital market, this presupposes that savings and investment are in equilibrium via interest as the price of capital.

Pareto optimum

A Pareto optimum , named after Vilfredo Pareto (1848–1923), is a state of the economy as a whole in which no one can be better off without another being worse off. The Pareto optimum is the normative key concept of neoclassical theory and the counterpart to the positive concept of equilibrium. The first welfare theorem connects these two: According to this, an equilibrium in perfect competition is always a Pareto optimum. This sentence can be proven mathematically and the further development of the intuitive notion of an "invisible hand": Under idealizing assumptions, the market economy does not lead to chaos, but to a socially desirable state.

University teaching

Today, almost exclusively neoclassical, consistently market-based economists are represented in university teaching. Punctually come game theory and experimental economics before. In May 2014, this dominance was criticized by an alliance of 40 student associations from 19 countries and instead called for a plurality of theories in economic teaching. In universities, for example, contradicting economic theories would not be represented on an equal footing and other schools would not be included in teaching. The resulting methodological one-sidedness (especially quantitative studies) can therefore answer many questions such as B. Financial market stability and climate change fail to find suitable answers. The initiators received support from Thomas Piketty, among others . Already in 2012 over 1000 researchers and students had written a memorandum to point out "undesirable developments within the discipline".

criticism

John Maynard Keynes criticized the macroeconomic aspects of neoclassical theory.

In the new institutional economics , for example in the transaction cost theory or the principal-agent theory , factors such as asymmetrical information and opportunism are taken into account. In addition, limited rationality is often a more realistic assumption than that of the fully rational Homo oeconomicus .

Economists such as Joan Robinson and Edward Hastings Chamberlin tried to paint a more accurate picture of reality with the model of incomplete competition.

Representatives of environmental economics accuse the neoclassic of tending to ignore the classical production factor of soil , which reflects the ecological limitations of human economic activity. With a more fundamental criticism of the neglect of nature, power and justice in neoclassics, ecological economics endeavors to develop an economic theory of sustainable development .

Joseph Schumpeter and others rejected the static way of looking at neoclassicism, as it could only insufficiently explain the dynamics of economic processes.

In the capital controversy or in neo-Cardian theory , the price, distribution, growth and capital theoretical statements of the neoclassical are called into question. A basis for this criticism is Piero Sraffa's work "The Law of Returns under Competitive Conditions" (1926), in which Sraffa criticizes above all the assumption of a falling marginal product of labor , which has far-reaching consequences for all further assumptions of the neoclassical. In the 1960s, Sraffa and other researchers also criticized the neoclassical assumption of a unitary capital, without which the coverage of the interest rate with an assumed marginal product of capital cannot be asserted.

Steve Keen has presented a comprehensive criticism of neoclassics with the book "Debunking Economics", in which, in addition to the above, prominent, neoclassical authors against neoclassicism are listed, whose publications are therefore ignored in current neoclassical textbooks.

In addition to these internal controversies, there is also criticism from external sources, more precisely: the philosophy of science . In the German-speaking area, v. a. the criticism of Hans Albert became known, who described the way neoclassical modeling was "model Platonism" . Albert primarily criticizes the fact that the modeling is often placed under comprehensive ceteris paribus reservations, whereby there is often no knowledge of all the relevant boundary and initial conditions that precisely characterize an under-otherwise-equals-conditions situation owns. These ceteris paribus reservations, however, enable a theory to be completely immunized against experience: If a theory proves to be empirically refuted, one can always withdraw to the point of view that the theory is correct, only the relevant boundary and initial conditions in the special case would not have existed. The science theorist Alexander Rosenberg comes to the opinion that neoclassics often do not present any empirically substantive theories, i.e. do not carry out solid empirical research, but only complex mathematics that have little to do with reality.

The Austrian economist Stephan Schulmeister also criticizes the fact that the neoclassical equilibrium theory is not an empirical-realistic, but an abstract-idealistic economic theory that gives mathematics the “semblance of objectivity”. But the supply and demand curves are not empirically observable, but only individual acts of exchange, of which one does not know whether they took place at equilibrium prices. Since “product differentiations are important and decisive in the competition between providers , the logic of the market diagram must not be applied.” The use of terms such as the labor market is completely pointless , since here the different dominates over the common. “The only markets on which the item being traded is completely homogeneous are the financial markets.” But it is precisely these markets that do not produce equilibrium prices.

See also

literature

  • Bernhard Felderer, Stefan Homburg: Macroeconomics and New Macroeconomics . Berlin 2003, ISBN 3-540-25020-4 .
  • Jürgen Kromphardt : Economics II: Methods and Theory Development in Economics. In: HdWW. 9: 904-936 (1982).
  • Joseph Schumpeter : History of Economic Analysis. 2 volumes . Ed .: Fritz Mann. 2007, ISBN 3-525-10526-6 .
  • Arnis Vilks : Neoclassical, Balance and Reality. An investigation into the foundations of economic theory . Heidelberg 1991, ISBN 3-7908-0569-6 .
  • Steve Keen : Debunking Economics: The Naked Emperor of the Social Sciences . London & New York 2011, ISBN 1-84813-992-6 .
  • Arne Heise u. a. (Ed.): The end of heterodoxy? - Development of economics in Germany. Wiesbaden 2017

Individual evidence

  1. U. Hampicke (1992) Ecological Economy, Individual and Nature in Neoclassics. Nature in economic theory: Part 4, pp. 20–38.
  2. St. Franz: Basics of the economic approach: The explanatory concept of Homo Oeconomicus. In: W. Fuhrmann (Ed.): Working Paper. In: International Economics. Issue 2, 2004, No. 2004-02, University of Potsdam
  3. a b Gebhard Kirchgässner: Homo oeconomicus. Mohr Siebeck, Tübingen 2008, p. 13.
  4. Hartmut Kiehling , Economic and Social History Compact , Oldenbourg 2009, p. 105.
  5. "Intellectual Monoculture". Business students denounce one-sided teaching . In: Frankfurter Allgemeine Zeitung , May 6, 2014. Retrieved May 6, 2014.
  6. Michael Heine, Hansjörg Herr: Volkswirtschaftslehre - Paradigm-Oriented Introduction to Micro- and Macroeconomics. Munich / Vienna 2003, p. 233ff.
  7. Cf. Christian Christen: Political Economy of Old Age Insurance - Critique of the reform debate about intergenerational equity, demography and funded financing. Marburg 2011, ISBN 978-3-89518-872-5 , p. 321ff.
  8. Hans Albert: Model Platonism: The neoclassical style of economic thinking in critical lighting. In: Heinz Maus, Friedrich Fürstenberg (ed.): Market sociology and decision logic. Economic problems from a sociological perspective. Neuwied / Berlin 1967, pp. 331–367.
  9. Alexander Rosenberg: Economics: Mathematical Politics or Science of Diminishing Returns. University of Chicago Press, 1992.
  10. Alexander Rosenberg: The Cognitive Status of Economic Theory. In: Backhouse, Nature of Economic Method. Routledge, London 1994, pp. 216-235.
  11. Stephan Schulmeister: The path to prosperity , Ecowin, Munich 2018. P. 18.
  12. Stephan Schulmeister: The way to prosperity , Ecowin, Munich 2018. P. 369.