ABSTRACT
This chapter explains how the classical political economy approach, and its labour theory of value in particular (which the French political economists never adopted), was supplanted by a new paradigm rooted in the concept of marginal utility. This “marginalist revolution” was led by three pioneers: Stanley Jevons, Carl Menger and Leon Walras. Three schools of thought were to emerge from their work: the Cambridge school, which was really founded by Alfred Marshall who perfected the concept of partial equilibrium (i.e. corresponding to specific markets as opposed to the market economy as a whole); the Austrian school which never gave much credence to the concept of equilibrium and the Lausanne school which was centred on the notion of a general equilibrium. While the Cambridge and Lausanne schools advocated the use of mathematics, the Austrians have always been sceptical of mathematical formalism. With some exceptions (notably Philip Wicksteed), all the economists who pursued these various research programmes insisted on separating their normative from their positive/scientific works. They did not refrain from discussing practical and ethical issues but at least pretended that their scientific works stood on their own merits and did not stem from their political preferences.
Also, this chapter discusses the contribution to economic thought made by the institutionalist school whose members rejected both the commitment to mathematical methods and the idea that economic theorizing should be neutral with respect to the problem of justice.
