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290 Economics
IV. Next, the marginalist, or subjectivist school.5
Marginalist refers to the marginal calculus, the fundamental analytical in-
strument employed by the school ; subjectivist refers to the subjective character
of the school’s central category: utility.
This theory was so widespread (it had almost a monopoly in the English-
speaking countries) that some economists identify it with contemporary eco-
nomic thought in general. It is still true that the overwhelming majority of con-
temporary economic thinkers in the West grew up under its influence. It cannot
be set aside as a closed chapter in history, although it has undergone fundamen-
tal changes in recent decades, particularly in the changing interpretation of the
idea of utility.
Extremely wide in scope, the school lacked uniformity from the beginning.
The most coherent system of subjective economics was that created by the
Austrian psychological school (Carl Menger, Friedrich von Wieser and Eugen
von Bohen-Bawerk), and by the psychometric and neo-classic William S. Jevons
in Britain. For Jevons, economic science, which he paradoxically calls political
economy, is concerned with the study of the economic activity of individuals in
their endeavour to obtain maximum pleasure, as provided by the possession of
goods, in relation to the efforts expended to gain them.
The extreme emphasis on psychology and the individual kept the marginalists
from the really practical economic problems. Economic theory was reduced to
an aspect of psychology, dealing with the economic individual, primarily a con-
sumer; he provided the fundamental source of economic knowledge, and any
objective testing of the resulting generalizations was out of the question. The
hedonistic principle of the maximization of utility (as a surplus of pleasure over
pain) was made to refer not only to household activities but also to those of the
capitalist entrepreneur. Applied to the capitalist enterprise, whose principal
aim is to maximize profit, this intricate construction proved to be futile. The
theory of marginal utility was therefore dependent on the assumption of subjec-
tivist economics that household activities are of a rational nature, i.e. that they
aim at maximizing utility (preferences).
The great effort made in the post-war years to verify this assumption statis-
tically gave no positive results. J. R. Hicks, who worked on the problem, con-
cluded that ‘there is no direct possibility to verify the hypothesis of the existence
of preferences in practice’ (A Revision of Demand Theory, p. 58). The frequently-
stated opposite view that the multiplicity of aims in the household does not con-
stitute an integrated system withone chief aim would thus seemequally plausible.
Moreover, in the customary and traditional conditions of household activity (on
which capitalist advertising has a derationalizing effect), the rational economy
principle which governs the operation of the capitalist enterprise does not apply.6
Hence the increasing number of theorists brought up on subjectivist economics
who reject the hypothesis of maximization of utility (preferences) in the house-
hold as false and unverifiable. The marginal utility theory of value has accord-
ingly been relegated to the less important chapters of academic textbooks.
Walras and Marshall also advanced hedonistic definitions of utility but at the
same time sought objective foundations (in production costs) for their theory of