Marginal analysis

In the introduction to his theory of value in the first volume of the Lectures (1901 [1934]: 14), Wicksell emphasized that:

[m]odern investigations in the theory of value have led to the setting up of a principle - or rather to the generalization and establishment of a principle already known and applied - called the marginal principle, whose application extends far beyond the actual province of the exchange of goods into the fields of production, distribution, and capital.

It is a well-known result of neoclassical economics that, in the general equilibrium of a market system with perfect competition, the prices of goods are fully determined by the marginal utility of their consumption and the marginal productivity of the factors used in their fabrication. This is standard fare in modern textbooks. In the 1890s, neoclassical economics was not yet a coherent framework of analysis. Different schools were forming at Lausanne, Vienna, Cambridge and elsewhere, and dividing lines were drawn between their concepts of value, markets, equilibrium and the methods of reasoning in general. Wicksell attempted to transform the diverse constructs of Walras, Bohm-Bawerk, Jevons and Alfred Marshall into a unified body of theory, and to add a few missing parts. He took, moreover, frequent recourse to the classical theories of Ricardo and Johann Heinrich von Thunen, systematically proceeding from the history of economic thought to the logical steps in his own analysis. In marked contrast to his arch-rival Cassel, Wicksell never forgot to acknowledge the contributions of others. He sported an extreme form of Swedish understatement, often hiding his light under a bushel. Conspicuous examples of such modesty can be found in Wicksell’s contributions to the neoclassical theory of income distribution.