RE: Marginal Revolution
Economics is once again getting taken to the cleaners by politics.
This is a response to Marginal Revolution by Sebastian Galiani.
The most successful economics blog in the world is called Marginal Revolution.
That is not an accident.It could have been called Markets and Power, or Inequality Today, or Political Economy. It could even have been called Capitalism Explained. Instead, it is named after a nineteenth-century intellectual earthquake: the marginal revolution. A quiet reminder that modern economics begins not with slogans or moral postures, but with a way of thinking.
That reminder matters today more than we like to admit.
Admitted.
In the 1870s, almost simultaneously and largely independently, three economists overturned classical political economy. William Stanley Jevons, Carl Menger, and Léon Walras broke with the Ricardian tradition that explained value through labor, costs, or embedded substance. Value, they argued, does not come from the total amount of work put into something. It comes from the last unit—from what economists would soon call marginal valuation.
It’s also not an accident that this thinking emerged in the 1870s – a decade that historians know heralded the beginning of the first Gilded Age. It was violently suppressed during both World Wars and nonviolently suppressed by the New Deal, which was exported to the rest of the world after 1945. The New Deal would collapse as the fervour of postmodern relativism became too great a temptation in the 1960s, causing the political economy to change. Naturally, the real economy had to follow suit, or else economists would be out of a job.
This was not a semantic tweak. It was a change in how economic reasoning itself works. Decisions are not made by comparing wholes; they are made at the margin. Not “is water useful?” but “how useful is one more glass of water, given how much I already have?” Not “is labor important?” but “is the next worker worth hiring at this wage, given current output and technology?”
This change in thinking was fleetingly useful because the information climate of the 20th century was so comparatively poor compared to the innate complexity at hand in the reality of the economy. It was essentially a heuristic that was usually true, not unlike setting one’s polynomials to zero to find their roots. Since the advent of air travel and the Worldwide Web, it has stopped being so useful, as we can now directly acquire the necessary information about the whole to make decisions quickly and effectively. Now, it only persists as it is demanded so by the political climate of complacency, complicity and aggregated theft of public goods by private gangs. Margins are a great excuse to justify half-truths: doing things that you know are bad in the long run for others even as you’ve guarded your own long run using the information that is now readily available.
Once you take the marginal perspective seriously, the world looks different.
Firms hire workers up to the point where the value of the marginal product equals the wage. Consumers trade off goods until their willingness to substitute at the margin aligns with the market’s trade-off—relative prices. Investment flows to activities where the expected marginal return is highest. Growth happens because resources—labor, capital, ideas—move from low-value uses to higher-value ones.
Without marginal analysis, you cannot explain prices. You cannot explain allocation. You cannot explain why reallocation—sometimes painful, often disruptive—is the engine of productivity growth. You cannot explain why protecting existing structures, however well-intentioned, so often leads to stagnation.
The marginal revolution is why economics stopped being an exercise in moral arithmetic and became a discipline focused on mechanisms.
The political failure here is in the assumption that anyone really wants to hear an explanation of prices, allocation or other marginal decisions. Think about it in reality: what is the marginal analysis explaining the absurd prices of graphics cards right now? You’ll get some vague and thoroughly unconvincing hand-waving about supply and demand, as if it suffices to say “consumers want this because if they didn’t it wouldn’t be selling.” It ignores the more basic problem that these things have vastly little utility to those members of the general public that are buying them, and don’t actually justify themselves in any rational sense at all. A typical failure mode of economics, isn’t it?
Meanwhile, the mob has understood the whole more directly than any marginal economists ever cared to, and they are conspiring to corner markets like these so they can monopolise them permanently. You can explain all of the prices and allocation with much more respect to Occam’s razor by dropping the pretensions of this so-called ‘marginal revolution’: they are dictated by the threshold between stakeholders’ capital accumulation and consumer tolerance for financial pain. It has nothing to do with the product or its value in any larger economic system, being only incidentally related to it via manipulated consumer psychology.
What is striking is how often public debate slips back into pre-marginal reasoning—especially when moral intuitions are strong.
We see microeconomics arguments based on levels instead of changes, on identities instead of incentives, on stocks instead of flows. We see decisions justified by who someone is rather than by what happens at the margin. We see calls to preserve structures because they exist, to freeze allocations because change feels uncomfortable, to judge outcomes by averages rather than by trade-offs.
From a marginalist perspective, these arguments are not just wrong; they are incoherent.
Consider a few common mistakes that reappear whenever marginal thinking is abandoned:
Treating the owner’s biography—wealth, identity, status—as if it entered the firm’s marginal conditions. It does not.
Confusing redistribution with allocation. Redistribution is a legitimate political choice, but it should not be smuggled into production decisions where it distorts incentives and blocks reallocation.
Ignoring opportunity cost. Resources used to sustain one activity are resources not used elsewhere. The relevant question is always: what is the next best alternative?
Believing that efficiency is static. In reality, efficiency is dynamic, and depends precisely on the ability of resources to move when margins change.
It’s news to me that this is the enlightened norm anywhere in the industries we live by. Maybe once upon a time, it was; I wouldn’t know because I wasn’t alive then (classic mistake young people make these days). But I can absolutely guarantee you that who someone is matters more than anything now – I have seen this time and again firsthand. You can call this analytically incoherent, but I think that says less about the world and more about the limits of your framework.
One of the most uncomfortable implications of marginal analysis is that reallocation is essential. Labor and capital must sometimes leave declining uses so they can enter expanding ones. That process is rarely smooth, and never painless. But blocking it does not make an economy more humane; it makes it poorer.
The twentieth century gave this insight a name. Joseph Schumpeter called it creative destruction. János Kornai warned that when losses are systematically covered—when budget constraints are soft—adjustment never happens, inefficiency becomes chronic, and stagnation follows.
Marginal analysis explains why. If losses have no consequences, margins lose meaning. Prices stop signaling scarcity. Productivity differences stop guiding allocation. The economy becomes a museum of preserved structures rather than a system that adapts.
I understand what phenomenon they are getting at here. A really good example of it is post-studio Hollywood: since the collapse of the studio system in the 1980s, Hollywood movies have overwhelmingly been independent ventures, with IP neatly encapsulated into a project-specific LLC and buttressed by the political goodwill to keep the ability to write off box office failures. That is the best case example of ‘creative destruction’.
The problem arises when you remember that the rest of the world economy does not work that way. America’s stock markets are notoriously brittle and sticky, and this has caused them to become an object of gamification which you see now in the form of tech stocks dominating the charts and using their financial leverage to bully the rest of the world into doing their bidding. The rest of the world works much more like New York than Los Angeles, and so the logic against marginal thinking still holds. And well, wouldn’t you know it? Inefficiency is chronic and stagnation abounds. But you didn’t need a Gilded economic analytical framework to figure that out.
It is tempting, especially in polarized times, to replace mechanism with morality. To judge economic decisions by intentions rather than by incentives. To treat outcomes as expressions of virtue or vice.
But that temptation is precisely what the marginal revolution was meant to overcome.
Marginalism does not deny morality. It simply insists that morality cannot substitute for analysis. If we care about employment, innovation, growth, or even redistribution itself, we need to understand how choices respond at the margin. Otherwise, well-intentioned interventions end up doing the opposite of what they promise.
This is why the name Marginal Revolution still resonates. It is not nostalgia. It is a warning.
I’m going to borrow a phrase I befriended in my more recent court filings: this argument fails by its own construction. It lacks the credibility on its own face to purport the warnings or explanations it declaratively espouses. It isn’t explaining prices. It’s purporting to predict or provide the power to prevent stagnation as if it’s the 1980s and we aren’t living waist-deep in it right now. How can it possibly warn me of anything?
Yea, let me give you the explanation for that which fails to explain: the ‘marginal revolution’ is what the dog trafficked in when neoliberals took power in the late 1960s. It’s been the economic stooge of neoliberal public policy for decades and there is a lot of good stuff from more educated people than I on what the problem is with that. It’s led us to a very predictable and antisocial conclusion: people, in general, are marginal. Comprising the economy, the marginal framework subordinates them to balance sheet efficiency and creates incalculable amounts of needless human suffering while whitewashing it with vague gestures to Hollywood accounting and vestiges of systems it helped to destroy.
The author can try to parry his shield about it with disclaimers that it doesn’t substitute morality, but this is just a veiled admission of what it has already failed to survive: its weaponisation by liars and thieves.
In many discussions, the distinction between allocation and redistribution, between constraints and intentions, quietly disappears once marginal analysis is set aside.
The marginal revolution was not a technical curiosity. It was the moment economics learned how to think.
Let’s not forget that.
***If this essay resonated with you, you can subscribe to my Substack for regular reflections on economics, politics, geopolitics, AI, and literature.
*** Disclaimer: I used ChatGPT-5.2. as an editorial and language-refinement tool. The ideas and arguments are entirely my own, and I take full responsibility for them.
Well then. Birds of a feather.
I rest my case.