Introduction: the Coming of Marginalism and Macro-economics

The second half of this history of economics is called modern developments because it covers the period during which the foundations were laid for much of the contemporary mainstream theory of economics, both in its micro-, and in its macro-parts. The essentials of modern micro-economics can be said to have emerged from the theoretical developments which took place during the ‘marginal revolution’ of the 1870s, which were consolidated and expanded during the closing decades of the nineteenth century. Sections I and II are specifically devoted to describing the highlights of this process by way of looking at some of the major contributions in Europe and across the Atlantic from the early 1870s onwards. Macro-economics, the theory of aggregates such as output and employment as a whole, the price level, rather than the individual decision-making which is the focus of micro-economics, was developed as a specific and direct consequence of the Keynesian revolution of the 1930s. The history of economics to be covered in Part II is therefore clustered around two major ‘revolutions’ in economic thought, the so-called ‘marginal’ and ‘Keynesian’ revolutions. This introduction briefly explores the meaning of these terms.