The triumph of capitalism and the free market society was altogether unsurprising for neoclassical economists. The reason for this is because the individualistic and independent element of the free market best complements their views on human nature. On the whole, individuals are rational in always viewing situations with self-interest. As a result, humans are continuously looking for ways to maximize their profits or satisfaction in their daily life, while minimizing their losses. This competitive and maximum utility characteristic in people makes a market that stresses the importance of advantage and individualism the most effective way in channeling their nature while insuring the opportunity of satisfying this human need. However, in addition to individuals and institutions attempting to maximize their self-interest in absolute terms, neoclassical economists view a large part of the equation is maximizing individual self-interest in relative terms too. Neoclassical economics sought to make economics a more grounded study by incorporating elements of mathematics, biology, politics, and social science to make it more relatable to the common worker engaged in the market. When looking at relative advantage in the market,
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The creators of neoclassical economics differentiated from other schools of economics in their understanding of what determines the utility of a commodity in the market. At the height of the Industrial Revolution, the market place was understood in terms of classical economic theory. In his text The Wealth of Nations, Adam Smith explained that the labour theory of value ruled that the value of a product was linked to the “the toil and trouble of acquiring it.” The value of an item was determined by the costs and effort invested in producing it. As the intensification of industrialization started settling down, a new breed of economists began to interpret what influenced value from a different perspective. Neoclassical economists started moving away from classical economists views of the market from the macro-level, and diverted more attention to the micro-level. For the creators of neoclassical economics, the most important determiner of utility of a product was not in any concrete value in and of itself, but value was mainly determined by consumer’s own perception. |
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