THINKERS OF

NEOCLASSICAL SCHOOL OF THOUGHT :

JOHN BATES CLARK

VILFREDO PARETO

FRANCIS YSIDRO EDGEWORTH

JEWEL JOSY
Roll no:60
UID:221385
SILVY MATHEW
Roll no :72
UID:221576
JOVITTA JACOB
Roll no:54
UID:221282
 INDEX

1.INTRODUCTION

2. JOHN BATES CLARK

CONTRIBUTIONS
CRITICISMS

3. VILFREDO PARETO
CONTRIBUTIONS
CRITICISMS

4.FRANCIS YSIDRO EDGEWORTH

CONTRIBUTIONS
CRITICISMS

5.COMPARISON

6.BIBLIOGRAPHY
INTRODUCTION
Introduction to New Classical School and Its Key Contributors
The New Classical School materialized during the 1970s as a response to the noxious effects of
Keynesian economics. It lays a great deal of emphasis on rational expectation and market
efficiency, determining what comes about in economic matters. The important contributors to
this school are Vilfredo Pareto, John Bates Clark, and Marshall Edgeworth, whose work was a
foundation for the New Classical approach. Their contribution to welfare economics, marginal
productivity theory, and general equilibrium analysis set a high standard for modern economic
thinking.

JOHN BATES CLARK

John Bates Clark was born in Providence, Rhode Island, and attended Brown University and
Amherst College for his education. After earning his B.A. from Amherst in 1872, Clark traveled
to Germany and studied under Karl Knies at the University of Heidelberg for three years. It was
there that Clark absorbed the spirit of the German Historical School, which he carried back to the
United States. Clark was among the "new generation" of American economists with German
training who challenged the more traditional American economists of the day. Clark respected
the "historical" perspective and accepted the associated "Christian Socialism" and statist policies,
even if he was never a dogmatic practitioner of the method.
Following his study in Germany, Clark returned to the United States and worked as a college
teacher at Carleton College. After receiving a position at Smith College in 1881, Clark moved to
Amherst College in 1893 to follow Seelye.John Bates Clark spent the entirety of his career as a
faculty member at New York City's Columbia University, where he was hired in 1895. Clark
established the "Social Value" school of marginalist economics at Columbia.
As the first vice-president of the American Economic Association, John Bates Clark assisted in
its founding in 1885. He then served as the organization's third president from 1894 to 1895.
The "John Bates Clark medal" was established by the AEA in 1947 and has been given to the
best talented young economist under forty years old every two years.

CONTRIBUTIONS
1. Marginal Productivity Theory
Probably the most remembered contribution of Clark is the marginal productivity theory of
distribution he formulated, which states that each factor of production-labor and capital, for
instance-receives an income based on its marginal product. The marginal product refers to the
added output of employing an additional unit of a certain factor. For instance, if the addition of
one more worker to a production line raises the output produced by a certain quantity, that
additional quantity will be the marginal product of labor.
The contention of Clark was that, in a competitive market, each one of the factors of production
would get a return quite in accord with what their respective contribution to production would
be. What this seems to suggest is that wages relate to the productivity of labor, not being an
arbitrary construct. He believed the distribution of income within a society was governed by the
"natural law" of income distribution, which, in the absence of friction, would reward each agent
of production with the wealth he or she created. That provided a conceptual framework for
understanding income distribution in an economy and underlined the importance of individual
contributions to production.
2. Distribution of Wealth
In the seminal work "The Distribution of Wealth" (1899), Clark developed further his marginal
productivity theory, stating that a just distribution of wealth obtains when each factor of
production is paid its marginal productivity. According to him, under conditions of perfect
competition, without monopolies or other market distortions, markets would work out an
appropriate distribution of income. Clark's view: The natural law of distribution would make
certain that the several agents of production received what they produced, hence there was
fairness in the economic resultants.
In these and other ways, Clark's theory of distribution had a moral dimension as well. He
believed that the distribution of wealth had to be just, that economic justice exists only when the
reward received by an individual equaled the value of his contribution to production. This view
was particularly important during this period when inequality in wealth and income was
emerging as a popular concern and gave theoretical fodder for discussion of the equitability of
the distribution of income.
3. Legal Minimum Wages and Labor Economics
Clark addressed current labor problems and, among them, the question of legal minimum wages.
Though well aware of the theoretical basis, via marginal productivity, for determining wages, he
felt that the circumstances of the real world made minimum wage legislation a justifiable
exception to the rule to prevent the exploitation of labor. He did so by merely indicating that
such legislation should be an exception rather than a rule and should apply only where conditions
do not accord with the assumptions of his theory.
In his analysis, Clark made great stress on one important factor that the wage payable must be
determined by the marginal productivity of labor. He felt that setting wages above the marginal
product brought the certain danger of unemployment, as employers could not afford to hire
workers. Thus, though ideologically sympathetic to the protection of workers, he was quick to
warn of the dangers of the policies of shock that alter the natural processes in the labor market.
He also referred to labor arbitration as one of the ways in which controversies are settled
between employers and employees. He only advocated for the correct mechanism to achieve
what he referred to as symmetrical outcomes from the labor relations, by negotiating and
compromising to a just result.
4. Market Structures and Regulation
Clark was ambivalent about market structure. On the one hand, he conceded that real markets are
frequently far from the state of perfect competition that is the implicit ideal in his marginal
productivity theory; yet on the other hand, he viewed the role of regulation as preventing market
failure and promoting competition, rather than directly regulating the economy.
Clark did not think that monopolies and other forms of market power could distort the natural
law of distribution and thus lead to inequitable outcomes. He insisted that regulation should
focus on making competitive conditions available that allow the workings of efficiency in
markets. This placed him as a forerunner of the later neoclassical emphasis on efficiency and the
virtues of competitive markets.
5. Critique of Progressive Economics
While sharing these concerns with Progressive economists, above all on social justice and labor
rights, Clark parted ways on the belief in the virtues of competitive markets. He criticized the
Progressive approach as overly focussed on state intervention and social activism, arguing
instead for reliance on the market mechanism to achieve economic justice. Clark believed that
the best results for society as a whole lay with the efficiency of competitive markets.
He saw the economist's role as one of understanding how the market worked, and advocating
policies promoting further competition and efficiency. Indeed, he felt that extensive government
intervention could only lead to inefficiencies and other unintended consequences.
CRITICISMS
1. Naive Productivity Ethics: Critics like George Stigler have referred to Clark's theory as "naive
productivity ethics." From that angle, it would be implied that this theory-legitimized the present
economic order with shallow reasons. That would, in turn, suggest from this point of view that
the theories of Clark said that workers should get a wage equal to their marginal product and that
is a justification of income inequality.
2. Association with Capital Apologetics: In this regard, the marginalist thinking of Clark has also
been criticized by the likes of Joseph Schumpeter and others on grounds of its association with
"capital apologetics." This is essentially a criticism that such theories may be used to justify the
structures and practices of capitalism in general, something that detracts from what might
otherwise be a more equal system.
3. Abstraction in the Theoretical Nature of the Marginalists: The reality of Clark's marginal
productivity theory was critiqued by several economists, including J. Laurence Laughlin,
Taussig, Frank Fetter, and Thorstein Veblen. To them, it is too abstract, wholly cut off from facts
of labour markets, economic circumstances, and real situations in which laborers apply
themselves.
4. Rejection of Competitive Markets: Progressive economists rebuffed Clark's idealization of
competitive markets, demonstrating that his view on competitiveness in these markets was quite
far from being socially optimal. In fact, many Progressives rejected the idea of competitive
markets being able to handle social problems well, which separated Clark's views from those of
his contemporaries who wanted more radical reforms.
5. Inconsistency in Views: Some insist that his early Christian socialist sentiments in The
Philosophy of Wealth have something inconsistent with the strong defense later accorded to
marginal productivity theory and the proposition that a Clarkian distribution is of necessity just.
This is inconsistent in light of his thought's unfolding and the implications there are for the
general philosophy.
6. Limited Engagement with Labor Issues: Some critics indicate that Clark's preoccupation with
efficiency and competitive markets perhaps led him to neglect the more complex issues of labor
relations and laborers' needs. This seriously makes his theoretical framework not take into
consideration the labor struggles and the role of unions, which is considered by many a serious
drawback in his theoretical structure.

VILFREDO PARETO
Neoclassical economics is an approach in economics whereby the production, consumption, and
valuation of goods and services are observed to be driven by the supply and demand model. The
evolution of neoclassical economics can be divided into three phases: initial forming, second half
of the nineteenth century. The second phase is dated between 1940 and the half of 1970s. The
third phase began in the 1970s, when Keynesian economics was in crisis. The whole neoclassical
era can be divided into 3 general eras: the Restoration period, the Augustan period, and the Age
of Johnson. The second generation of the neoclassical revolution is said to have included Vilfred
Pareto.
Vilfredo Federico Damaso Pareto was a polymath from Italy, and his field of subjects includes
sociology, civil engineering, economics, political science, and philosophy. He has given various
significant contributions to economics, particularly the major contributions in the area of 'Income
Distribution'. He has popularized the term 'Elite' in social analysis. His field of concern used to
be microeconomics and socioeconomics. His parents named him Wilfried Fritz; he became
Vilfredo Federico when his family moved back to Italy in 1858. In 1869 he took a doctorate in
engineering with a dissertation entitled "The fundamental principles of equilibrium in solid
bodies" from the Polytechnic University of Turin. In fact, his interest in the analysis of
equilibrium in economics and sociology goes back to that dissertation. It was here that, in 1893,
he succeeded Leon Walras to the chair of political economy at the University of Lausanne in
Switzerland. He spent the rest of his life there. He also published a book containing Pareto
distribution of how wealth is distributed. In 1906, he made the famous observation that 20% of
the population owned 80% of the property in Italy and later it was known as 'Pareto Principle'.
Evidence can be found that Vilfredo Pareto was frequently considered a predecessor of fascism.
In contrast to this, he was a criticiser of fascism too. Pareto's predecessor in the neoclassical
school of thought was Alfred Marshall - a great economist of the late 19th and early 20th
century. He made immense contribution to microeconomics, which included concepts related to
supply and demand, elasticity, and consumer surplus. His work was a preparation for the
neoclassical framework that Pareto and others were to tidy up.
CONTRIBUTIONS
1.THE 80/20 RULE
The Pareto principle, also known as the 80-20 rule, was the principle on which Pareto analysis
was based. It was first applied in macroeconomics to describe the distribution of wealth in Italy
in the early part of the 20th century. First introduced in 1906, it was by Italian economist
Vilfredo Pareto-who is also known for his theories on Pareto efficiency. It says that for every
occurring event, 20% of the causes or inputs generate 80% of the outcomes or outputs. In his
garden, Pareto discovered that 20% of the pea pods contained 80% of the peas. To apply this
concept to the world of macroeconomics, Pareto demonstrated that 20% of the Italian population
held 80% of the wealth of the country. A mathematical translation of the 80/20 rule for whatever
parameters can be thought of is a power law distribution-a Pareto distribution. Power law
statistics describe many natural events. It has also been said that in company management, 20%
of the clients account for 80% of sales. This runs from productivity to managing and economic
principles. The 80/20 rule simply brings out the importance of identifying and focusing on the
vital few variables which determine the majority of results. Accordingly, in these high-impact
areas, individuals and organizations can maximize efficacy, efficiency, and make the most out of
their resources by focusing their efforts. Some criticisms from the theory include: The 80/20 rule
is antiquated in that it fails to capture the complexity of real-world situations, some claim.
2.CIRCULATION OF ELITES
In politics, sociology, and economics, the "circulation of elites" hypothesis, as developed by
Vilfredo Pareto, describes the processes of influence and power across various social groupings.
According to Pareto, societies always change in regard to who holds positions of ascendancy. He
argued that the elite-the ruling, power-wielding, resource-managing stratum-should be treated as
an essentially dynamic entity that is never the same. Elites rise and fall due to a lot of reasons;
their capability to adapt themselves to the changing circumstances, to make use of resources, and
also to meet social demands. Pareto had identified two kinds of elites: "residual elites" are
traditional and less flexible, whereas "derivational elites" are educated and innovative. The shift
in power depends on either kind. He felt that the general structure of power and society remained
mostly stable, with only a new elite arising to replace the old as faces in elite groups changed. In
effect, Pareto's theory on the circulation of elites attempts to give meaning to how shifts in power
and leadership come about in societies. It stresses that while the particular individuals composing
a ruling group may change over time, the process whereby leadership is changed constitutes a
basic and ongoing feature of society structure.
3.PARETO EFFICIENCY
Pareto efficiency refers to the situation where resources are allocated in a way that no one can be
better off without making someone else worse off. It is one of the concepts in economics and
social sciences. In this situation of ideal allocation of resources, improvements for one occur at
the price of another. Pareto efficiency is developed on Pareto's study of utility theory that deals
with the way people derive pleasure from goods and services. He was interested in what impact
changes in resource allocation would have on people's wellbeing. Some areas of application of
this concept include welfare economics, game theory, and economics. There are criticisms
against this theory, stating that: the theory may result in inequity. It does not consider the
distribution of benefits and costs. It is difficult to determine who is better off or worse off.
Though pareto optimality serves as a useful concept in balancing outcomes in decision-making
processes, it too has its flaws.
CRITICISMS
Only two of the numerous contributions to economics and sociology made by Vilfredo Pareto, an
eminent Italian economist and sociologist, are the Pareto principle and the concept of Pareto
efficiency. Nevertheless, his work has been criticized and has encountered certain failures. Over-
emphasis on Economic Efficiency: It has been said that Pareto's emphasis on Pareto efficiency,
or the best use of resources in a situation whereby no person can become better off without
making another worse off, loses sight of other essential aspects of welfare and equity. Pareto's
theory on social stratification has incurred severe criticism for its diabolical reduction of the
complex structures of societies into a non-elite majority and an elite minority. Empirical Rigour
Lack: Pareto's work, especially the sociological theories, was criticized on the counts of not
being scientifically sound and lacking empirical validation. In most instances, his theories were
borrowed from general observations rather than any actual collection and processing of data.
Ideological Bias: Some critics believe that Pareto's own political and ideological orientation-
especially his conservative and elitist point of view-influenced his theory. This perceived bias
could then impact his findings and judgments in terms of perceived fairness.
Pareto had proved other theories that are the Pareto Distribution and critiques of Marxism. The
contribution of Vilfredo Pareto built a solid foundation of understanding numerous social and
economic features. Today, his theory of efficiency and distribution is still widely followed in
both theoretical and applied economics, while his sociological insights into the elites give a view
of power and governance in a rather somber tone. John Hicks was a leading economist of the
20th century and the immediate successor to Vilfredo Pareto in the Neoclassical School. His
work on general equilibrium theory and welfare economics advanced Neoclassical Economics
even further.
FRANCIS YSIDRO EDGEWORTH
Francis Ysidro Edgeworth (1845–1926) was born at Edgeworthstown, County Longford,
Ireland. His background was influenced by the 'larger than life' figure of his grandfather Richard
Lovell Edgeworth (1744-1817), whose life was recorded in a two-volume autobiography (1820)
by his oldest daughter, the great author Maria Edgeworth (1767-1849).
Edgeworth was taught in Edgeworthstown until he was 17, when he enrolled at Trinity College
Dublin to study languages in 1862. Edgeworth entered in Exeter College, Oxford, in 1867, but
changed to Magdalen Hall after one term. He transferred to Balliol in 1868 and graduated with a
first in Literae Humaniares on Michaelmas 1869. In 1877, he was called in to the bar. The same
year that his debut book, New and Old Methods of Ethics, was released. Edgeworth applied
unsuccessfully for a Grock Professorship at Bedford College in London in 1875, although he did
lecture there briefly on English language and literature from late 1877 to mid-1878.
In addition to his work in economics, Edgeworth launched a series of statistical articles in 1883
and served as secretary for the British Association Report on Index Numbers (1887, 1888, and
1889). His significant contributions to statistics include work on inference and the law of error,
the correlation coefficient, transformations were called ‘methods of translation', and the
'Edgeworth expansion.
CONTRIBUTIONS
APPROACH TO ECONOMICS
Despite his lack of formal economics training, Edgeworth approached the subject with a very
mathematical mindset. He began with moral philosophy and then moved on to economics,
emphasising distributive fairness rather than simply applying mathematics. Edgeworth believed
that mathematics enhanced reasoning and could justify results obtained through other methods.
Edgeworth believed that mathematics improved reasoning and could justify results reached using
other approaches. He emphasised the significance of applying mathematics to evaluate and
disseminate economic conclusions. This approach contrasted with that of his contemporaries,
Alfred Marshall, who preferred to disguise his analytical methods and employ biological
comparisons instead of theorems and mechanical parallels, as Edgeworth did. Despite attacks of
the deductive approach in the 1880s and 1890s, particularly from the historical school of
economists, Edgeworth defended it by demonstrating how other economists supported its usage.
Edgeworth's work changed considerably in 1879, after he was introduced to Jevons by James
Sully. Edgeworth encountered Marshall through Jevons, and his work on the "Economics of
Industry" piqued his interest in the volatility of currency rates, particularly when there are few
transactions. This interest led to his landmark book, Mathematical Psychics (1881), which he
wrote with tremendous zeal. Unlike Jevons, who thought that equilibrium pricing was
universally accepted and outside individual influence, Edgeworth investigated the issue of
indeterminacy, a topic that Jevons had briefly addressed in circumstances such as house sales,
where the discrete nature of items results in ambiguous outcomes. Edgeworth also drew on
Marshall's work on wage negotiation to emphasize the importance of indeterminacy in economic
research.
1.THE PROBLEM OF INTERDETERMINACY
Edgeworth's analysis of indifference and contract curves highlights the idea of a succession of
efficient trades among persons rather than a single point of settlement. This range makes the
exchange rate unclear, based mostly on bargaining strength. Edgeworth stressed that ambiguity
could lead to unethical negotiation tactics. He also broadened his research to include trade unions
and employer organizations, claiming that such combinations raise uncertainty. Finally,
Edgeworth stressed the underlying unity of contract across many contexts, regardless of the
complexity of individual examples.
2.RECIPROCAL DEMAND CURVES
Edgeworth featured each individual's reciprocal demand curve, or offer curve, albeit such curves
were originally referred to as "demand-and-supply curves”. Edgeworth's contribution was to
define the basic 'analytics' of the offer curve in terms of indifference curves, defining it as 'the
locus of the point where lines from the origin touch curves of indifference'. When there is a lack
of rivalry, giving birth to indeterminacy, there is nothing to ensure that individuals will trade on
their offer curves, and, as Edgeworth noted, "the notions of demand and supply at a price are no
longer appropriate”.
3.THE UTILITARIAN CALCULUS
Edgeworth investigated how arbitration may be used to resolve disputes between traders in an
uncertain world, with a focus on the utility principle. Initially, he established that utility
maximization positions people on the contract curve, where various settlements provide the most
total utility. However, he argued that utilitarianism as a concept of justice is more convincing
when considering the uncertainty that parties face during negotiations. Edgeworth felt that
parties unable to forecast events would reach a utilitarian agreement. This argument linked
egoism with pure utilitarianism, offering a fresh explanation for utilitarianism, although it went
mostly undetected until later scholars addressed related concepts. Edgeworth went on to say that
the utilitarian solution should not disadvantage either party as compared to a no-trade condition,
which is determined by the individuals' original endowments.
4.DEMAND AND EXCHANGE
Marshall's Principles of Economics addressed Edgeworth's research of barter and introduced the
contract curve. Edgeworth later chastised Marshall for failing to handle the issue of
indeterminacy effectively. Marshall believed that through a series of trades at disequilibrium
prices, the market would eventually achieve equilibrium. His model assumed Pareto-efficient
trades at each stage, with changes that resulted in a stable equilibrium on the contract curve.
However, Edgeworth pointed out that, while Marshall's model predicted the exchange rate, it did
not predict the total amount spent on things. They also had a minor disagreement about the
concept of the Giffen good. Edgeworth later contributed to the idea of complementarity, which
was further improved by others, leading to the contemporary notion of "net" complements based
on compensated price change.
5.MONOPOLY AND OLIGOPOLY
Edgeworth's 1897 article, which was later translated in 1925, investigated monopolistic issues,
particularly duopoly. Edgeworth used Cournot's example of two monopolists with similar
resources to demonstrate that the economic equilibrium in such instances is indeterminate, as
opposed to Cournot's determinate price and output solution. Edgeworth hypothesised that one
monopolist may have a motive to raise the price, resulting in indeterminacy. He also looked into
complementary demand under a bilateral monopoly, in which two items are sought in set
quantities. Edgeworth proposed the concept of reaction curves, which show how one
monopolist's prices may shift in response to the activities of another, as well as the concept of the
"saddle point" (or "Hog's Back"), which indicates its importance for market stability
6.THE NO – PROFIT ENTREPRENEUR
Walras proposed the concept of a breakeven entrepreneur, who generates no profit or loss and is
only applicable in competitive equilibrium where new entrepreneurs have no reason to enter a
market. This does not indicate a loss of earnings in accounting terms, as the costs include the
entrepreneur's regular income. Edgeworth criticised this concept, accepting its rationality under
Walras' assumptions but claiming that it ignores the possibility of significant remuneration as
part of general business expenses.
7.INTERNATIONAL TRADE
Edgeworth's examination of the pure theory of international values, while not offering many new
ideas, had a considerable impact on the approach to trade theory. He emphasised that trade
theory is an application of the general theory of exchange, comparing the benefits of trade to
those of simple barter. Edgeworth employed community indifference curves without stating how
they should be aggregated, and he chastised Mill for conflating "final" with integral utility.
Although Edgeworth recognised the potential benefits of optimal tariffs, he did not favor their
actual application, citing moral problems, and instead focus on the theoretical elements.
CRITICISMS
Among other disciplines, Francis Ysidro Edgeworth was particularly well-versed in the
economic theories of utility, in the theory of probability and also in mathematical economics.
Still, his contributions were often regarded as high thinking, high mathematics and high on
abstract nature due to which its usefulness was weak. Simplistic views on people and a goal of
maximum utility were considered persistent flaws of this Theory, and specially, tools invented,
such as Edgeworth Box, received the reproach of having limited practical relevance. Moreover,
sufficient evidence was absent for his theories regarding emphasis on the importance of given
theoretical constructs, for instance, marginal utility. In addition, comparisons of value among
people were not proven to be appropriate and healthy ideas in science. All in all, and in spite of
these objections, the substantive contributions by Edgeworth in the study of economics remains a
key basis for the latter.

COMPARISON
Name JOHN BATES VILFREDO FRANCIS YSIRDO
CLARK PARETO EDGEWORTH

Lifetime January 26, 1847 – 15 July 1848 – 19 February 8, 1845-

March 21, 1938 August 1923 February 13, 1926

Theoretical Best known for the Introduced the Developed the

Contributions marginal productivity Pareto efficiency Edgeworth Box, a
theory, which concept, which states tool for understanding
explains the that a resource the efficiency of
distribution of income allocation is efficient if resource allocation
in terms of the no one can be made through bargaining,
productivity of labor better off without and introduced
and capital. making someone else concepts like the
worse off, and the indifference curve in
Pareto distribution, a microeconomics.
principle that
describes the
distribution of wealth.

Impact on Policy His marginal The concept of His work laid the
productivity theory Pareto efficiency has groundwork for
influenced wage and had a profound modern welfare
labor market policies, influence on economics,
particularly in economic policy, influencing later
justifying income particularly in economists in the
distribution based on resource allocation formulation of
productivity. and welfare economic policies
economics. regarding efficiency
and distribution.

Methodology Emphasized Applied mathematical Pioneered the use of

empirical observation rigor to economics, mathematics and
and the application of particularly in his statistical methods in
marginal analysis to analysis of income economics,
economics. distribution and emphasizing
welfare, and probability and utility.
contributed to the
development of
modern sociology
through his study of
societal elites.
BIBLIOGRAPHY

HET Website. (n.d.). Clark, John Bates. *HET Website*.

https://www.hetwebsite.net/het/profiles/clark.htm

HET Website. (n.d.). Edgeworth, Francis Ysidro. HET Website*.

https://www.hetwebsite.net/het/profiles/edgeworth.htm**

Britannica money. (2024, August 14). https://www.britannica.com/money/Vilfredo-

Pareto

HET:Vilfredo Pareto. (n.d.). https://www.hetwebsite.net/het/profiles/pareto.htm

Wikipedia contributors. (2024, September 1). Vilfredo Pareto. Wikipedia.

https://en.m.wikipedia.org/wiki/Vilfredo_Pareto

Wikipedia contributors. (2024a, June 23). John Bates Clark.

Wikipedia.https://en.wikipedia.org/wiki/John_Bates_Clark

(2024, June 18). Vilfredo Pareto 1923–2023: a special issue [Review of Vilfredo

Pareto 1923–2023: a special issue]. Springer Link.

https://link.springer.com/article/10.1007/s12232-024-00468-5