Evolution of Economic Theory in the Late 19th Century

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In the late 19th century, the field of economics transitioned from stories and rhetoric to mathematical equations. Economists like Marshall, Walras, and Jevons were instrumental in this shift, with Marshall continuing this work until the 1920s. The first attempt at an aggregate production function in the neoclassical school was the Cobb Douglas production function. Marshall and Jevons introduced the concept of inputs having marginal productivity, influencing neoclassical theory. J.B. Clark further developed the marginal productivity theory of income distribution, stating that workers and capitalists receive their marginal product, which became a foundational concept in neoclassical economics.

On this episode, economist Steve Keen offers a deep forensic history of why modern economic theory has neglected the role of energy in productivity - and why this “Energy Blindness” is now a major blindspot in how our culture views the present - and the future. The massive, temporary carbon surplus we’ve extracted over the last few centuries has resulted in an exponential increase in the standard of living for many. This explosion of global economic growth also happened to coincide with the development of all modern economic theories and formulas, leading to a core misunderstanding in the way our economies are powered. How have technology and innovation been used to cover up the role of a growing energy supply in the last century of rising prosperity? In the midst of discussions between value and labor, where does energy really fit into the equation? Where do we go once we understand the true role of energy in our economy - and will we have the ability to reshape economic policies to be in line with our energy realities?

About Steve Keen

Steve Keen is an economist, author of Debunking Economics and The New Economics: A Manifesto. His new book, Rebuilding Economics from the Top Down, will be released in 2024. He is a Research Fellow at the Institute for Strategy, Resilience, and Security at University College in London. Steve was one of the handful of economists to realize that a serious economic crisis was imminent, and to publicly warn of it from as early as December 2005. This, and his pioneering work on modeling debt-deflation, resulted in him winning the Revere Award from the Real World Economics Review.

Watch on YouTube: https://youtu.be/lrMWSkzrMYg

Show notes, and more info: https://www.thegreatsimplification.com/episode/108-steve-keen