Unleashing the Power of Marginal Utility: Rediscovering Philip Wicksteed’s “The Common Sense of Political Economy”

The Importance of Philip Wicksteed’s “The Common Sense of Political Economy”

Introduction:
Philip Wicksteed’s “The Common Sense of Political Economy” is a forgotten gem in the field of economics. Despite being overshadowed by Adam Smith’s “The Wealth of Nations,” Wicksteed’s book offers unique insights and clarity on the principle of marginal utility. This article explores the significance of Wicksteed’s work and how it can shape our understanding of economics today.

Revisiting Wicksteed’s Ideas:
Wicksteed’s book stands as the most elaborate and detailed exposition of marginal utility ever written. His passion for the subject is evident in his prose, making it a joy to read. By delving into his argument from start to finish, readers can permanently alter their way of thinking, seeing marginal utility in every economic action.

Understanding Marginalism:
Marginalism is the concept that economic value extends from the incremental choice of one unit at a time. To illustrate this, consider the example of purchasing a cup of coffee. While a Keurig cup may seem expensive compared to buying a can of coffee, the choice is made at the margin. Individuals evaluate the value of the cup of coffee in front of them, not the entire stock of coffee available. This principle applies to various goods and services, such as restaurants, where people pay for the experience and the specific item they desire at the moment.

Explaining Price Discrepancies:
Marginal utility theory sheds light on the mystery of why certain goods are priced higher than others. For instance, diamonds are more valuable in the market than water, even though water is essential for life. Marginalism explains that the choice between the two is made based on the incremental unit, not the overall value of the entire class of goods. Since water is usually more abundant than diamonds, the latter has a higher value per unit.

Applying Marginalism to Various Economic Concepts:
Marginalism offers insights into different economic concepts, such as opportunity cost, subjective value, diminishing marginal utility, and the relationship between cost and price. It helps us understand wage disparities between professions and why individuals are willing to pay more for certain goods and services. By focusing on the incremental choice of the acting person, marginalism provides a comprehensive understanding of human behavior and economic decision-making.

The Pitfalls of Taxing Unrealized Gains:
Wicksteed’s work also sheds light on misguided policy ideas, such as taxing unrealized gains in capital. Such taxes require placing value on assets that are not actively traded, leading to meaningless valuations. Imposing taxes on unrealized gains would have detrimental effects on capital value and discourage investment. It goes against the principles of marginal utility and would result in mass capital losses.

The Enduring Relevance of Wicksteed’s Book:
Despite being written over a century ago, Wicksteed’s book remains incredibly relevant. His enthusiasm and love for the subject shine through, making his work both informative and enjoyable to read. By immersing oneself in Wicksteed’s tour of economic reality, marginalism becomes a common-sense way of viewing the world.

Conclusion:
Philip Wicksteed’s “The Common Sense of Political Economy” is a remarkable book that deserves recognition. It offers a comprehensive understanding of marginal utility and its impact on economic decision-making. By revisiting Wicksteed’s ideas, readers can gain valuable insights into various economic concepts and policies. Wicksteed’s work continues to resonate today, providing a timeless perspective on economics that is both informative and engaging.