The neoclassical economics theory has proven to be durable and the most popularly taught school of modern-day economics. The theories stressed in neoclassical economic teachings fit like a custom-made glove in a world that is increasingly globalized and democratized. Neoclassical economics theory focuses on the micro and individual level of the market, rather than the broader and macro system of economics. As a result, the classic chicken-or-the-egg riddle is asked when looking at the relationship between neoclassical economics theory and individualism in a society: Is it the principles of free market individualism and independent economic influence that shapes the democratization and focus on the individual in a society, or is it open political institutions as well as shifts in cultural attitudes that breed neoclassical economics?
Neoclassical economists invert what has long been assumed by economists and sociologists: while other economists argue that individual behavior is influenced by surrounding economic institutions and social norms, neoclassical economists conclude that to understand a country’s economy requires an understanding of its people. The dimension of individualism attached to the studies by neoclassical economists has created a backlash by sociologists and rival economists who accuse neoclassical economics theory of gross simplification and societal reductionism. The approach adopted by neoclassical economics has enjoyed longevity and respect because of its use of mathematics and stress on the practical, yet its unswerving conclusion that humans are rational which undermines the importance of institutionalism has earned it criticism for being aloof and misguided.
Neoclassical approach to economics was developed in the 19th century as the world had power housed its way past the Industrial Revolution. The influence of capitalism was sparking a new wave of intellectualism, from political theorists to mathematicians, who tried to explain the profound impact the capitalistic system would have on societal values. Among the early proponents of neoclassical economics theory was William Stanley Jevons, an English economist and logician. In his 1862 paper A General Mathematical Theory of Political Economy, he stressed that economics should be rooted in a mathematical science, not a social one. Among his most prominent early neoclassical economics theories was his marginal utility theory of value that explored the relationship between the individual and the utility of commodities in the market. He emphasized on the importance of the individual consumer to the utility or value of a product by exploring the inverse relationship between the number of units of a product an individual owns and the product’s value. Other prominent early neoclassical economists included Carl Menger and Leon Walras who explored the way society worked as a basis for their neoclassical economic theories.
What are the assumptions that underlie neoclassical economist’s beliefs? First, neoclassical economics stresses the vitality of individualism. Their methodology views individual tastes and utility as agents of influence on broader economic institutions. Criticism of neoclassical economics school is that its theories are self-limiting by creating a contradictory image of societies that are both inflexible, yet always changing. To neoclassical economists, economies and markets are enslaved to change, based on simple empirical analysis of various popular trends at different periods of time. Yet, the same characteristics that make the market redefine and reshape itself are also the cause of its permanence and fixed nature, according to neoclassical economists. An early neoclassical economist, Alfred Marshall was the first to include the concepts of supply and demand and cost-of-production into the discussion of economics. The durability and universal application of such models – which are still taught today in economics courses – displays that neoclassical theorists are not misguided in observing definitive patterns in human behavior in the markets. Neoclassical economics theory employs mathematics and statistics as a means to prove that the reason it is important to focus on microeconomics and the individual is because, regardless of what institutions surround them, individual behavior will remain the same. The game changes, but the rules remain fixed.