Chapter7 PDF

William Stanley Jevons
William Stanley Jevons FRS (/ˈdʒɛvənz/;[2] 1 September

William Stanley Jevons
1835 – 13 August 1882) was an English economist and logician.
Irving Fisher described Jevons's book A General Mathematical

Theory of Political Economy (1862) as the start of the
mathematical method in economics.[3] It made the case that
economics as a science concerned with quantities is necessarily
mathematical.[4] In so doing, it expounded upon the "final"
(marginal) utility theory of value. Jevons' work, along with
similar discoveries made by Carl Menger in Vienna (1871) and
by Léon Walras in Switzerland (1874), marked the opening of a
new period in the history of economic thought. Jevons's
contribution to the marginal revolution in economics in the late
19th century established his reputation as a leading political
economist and logician of the time.
Jevons broke off his studies of the natural sciences in London in

1854 to work as an assayer in Sydney, where he acquired an Born William Stanley
interest in political economy. Returning to the UK in 1859, he Jevons
published General Mathematical Theory of Political Economy in 1 September 1835
1862, outlining the marginal utility theory of value, and A Serious Liverpool, Lancashire,
Fall in the Value of Gold in 1863. For Jevons, the utility or value England
to a consumer of an additional unit of a product is inversely Died 13 August 1882
related to the number of units of that product he already owns, at (aged 46)
least beyond some critical quantity. Bexhill-on-Sea,
Sussex, England
Jevons received public recognition for his work on The Coal
Cause of Drowning
Question (1865), in which he called attention to the gradual
death
exhaustion of Britain's coal supplies and also put forth the view
that increases in energy production efficiency leads to more, not Nationality British
less, consumption.[5]:7f, 161f This view is known today as the Alma mater University College
Jevons paradox, named after him. Due to this particular work, London
Jevons is regarded today as the first economist of some standing Known for Marginal utility theory
to develop an 'ecological' perspective on the economy.[6]:295f Jevons paradox
[7]:147 [5]:2
Scientific career
The most important of his works on logic and scientific methods Fields Economics
is his Principles of Science (1874),[8] as well as The Theory of Logic
Political Economy (1871) and The State in Relation to Labour Institutions University College
(1882). Among his inventions was the logic piano, a mechanical London (1876–1880)
computer. Owens College (now
University of
Manchester) (1863–
Contents
1875)
Background Academic Augustus De Morgan
Theory of utility advisors
Practical economics Influences Jeremy Bentham
Logic Influenced Frank Fetter
Jevons's number Irving Fisher
Henry Hazlitt
Geometry
Alfred Marshall
Personal life Karl Popper
Legacy Lionel Robbins
Works Philip Wicksteed
Articles Signature
Miscellany
Further reading
Notes
Notes
While not a formal advisor (Jevons
References
never acquired a PhD), De Morgan
External links was his most influential professor.[1]
Background
Jevons was born in Liverpool, Lancashire, England. His father, Thomas Jevons, was an iron merchant
who wrote about legal and economic subjects as well. His mother Mary Anne Jevons was the daughter of
William Roscoe. At the age of fifteen he was sent to London to attend the University College School.
Around this time, he seemed to have formed the belief that he was capable of important achievements as
a thinker. Towards the end of 1853, after having spent two years at University College, where his
favourite subjects were chemistry and botany, he received an offer as metallurgical assayer for the new
mint in Australia. The idea of leaving the UK was distasteful, but pecuniary considerations had, in
consequence of the failure of his father's firm in 1847, become of vital importance, and he accepted the
post.
Jevons left the UK for Sydney in June 1854 to take up a role as an Assayer at the Mint. Jevons lived with
his colleague and his wife first at Church Hill, then in Annangrove at Petersham and at Double Bay
before returning to England. In letters to his family he described his life, took photographs and produced
a social map of Sydney. Jevons returned to England via America five years later.[9]
He resigned his appointment, and in the autumn of 1859 re-entered the University College London as a
student. He was granted B.A. and M.A. degrees from the University of London. He now gave his
principal attention to the moral sciences, but his interest in natural science was by no means exhausted:
throughout his life he continued to write occasional papers on scientific subjects, and his knowledge of
the physical sciences greatly contributed to the success of his chief logical work, The Principles of
Science. Not long after taking his M.A. degree, Jevons obtained a post as tutor at Owens College,
Manchester.
In 1866, he was elected professor of logic and mental and moral philosophy and Cobden professor of
political economy at Owens College.
Theory of utility
Jevons arrived quite early in his career at the doctrines that
constituted his most characteristic and original contributions to
economics and logic. The theory of utility, which became the
keynote of his general theory of political economy, was
practically formulated in a letter written in 1860; and the germ of
his logical principles of the substitution of similars may be found
in the view which he propounded in another letter written in
1861, that "philosophy would be found to consist solely in
pointing out the likeness of things." The theory of utility above
referred to, namely, that the degree of utility of a commodity is
some continuous mathematical function of the quantity of the
commodity available, together with the implied doctrine that
economics is essentially a mathematical science, took more
Portrait of W. Stanley Jevons at 42,
by G. F. Stodart
definite form in a paper on "A General Mathematical Theory of
Political Economy", written for the British Association in 1862.
This paper does not appear to have attracted much attention either
in 1862 or on its publication four years later in the Journal of the Statistical Society; and it was not till
1871, when the Theory of Political Economy appeared, that Jevons set forth his doctrines in a fully
developed form.
It was not until after the publication of this work that Jevons became acquainted with the applications of
mathematics to political economy made by earlier writers, notably Antoine Augustin Cournot and H.H.
Gossen. The theory of utility was at about 1870 being independently developed on somewhat similar
lines by Carl Menger in Austria and Léon Walras in Switzerland. As regards the discovery of the
connection between value in exchange and final (or marginal) utility, the priority belongs to Gossen, but
this in no way detracts from the great importance of the service which Jevons rendered to British
economics by his fresh discovery of the principle, and by the way in which he ultimately forced it into
notice. In his reaction from the prevailing view he sometimes expressed himself without due
qualification: the declaration, for instance, made at the commencement of the Theory of Political
Economy, that value depends entirely upon utility, lent itself to misinterpretation. But a certain
exaggeration of emphasis may be pardoned in a writer seeking to attract the attention of an indifferent
public. The Neoclassical Revolution, which would reshape economics, had been started.
Jevons did not explicitly distinguish between the concepts of ordinal and cardinal utility. Cardinal utility
allows the relative magnitude of utilities to be discussed, while ordinal utility only implies that goods can
be compared and ranked according to which good provided the most utility. Although Jevons predated
the debate about ordinality or cardinality of utility, his mathematics required the use of cardinal utility
functions. For example, in "The Theory of Political Economy", Chapter II, the subsection on "Theory of
Dimensions of Economic Quantities", Jevons makes the statement that "In the first place, pleasure and
pain must be regarded as measured upon the same scale, and as having, therefore, the same dimensions,
being quantities of the same kind, which can be added and subtracted...." Speaking of measurement,
addition and subtraction requires cardinality, as does Jevons's heavy use of integral calculus. Note that
cardinality does not imply direct measurability, in which Jevons did not believe.
Practical economics
It was not, however, as a theorist dealing with the fundamental
data of economic science, but as a writer on practical economic
questions, that Jevons first received general recognition. A
Serious Fall in the Value of Gold (1863) and The Coal Question
(1865) placed him in the front rank as a writer on applied
economics and statistics; and he would be remembered as one of
the leading economists of the 19th century even had his Theory of
Political Economy never been written. His economic works
include Money and the Mechanism of Exchange (1875) written in
a popular style, and descriptive rather than theoretical; a Primer
on Political Economy (1878); The State in Relation to Labour
(1882), and two works published after his death, Methods of
Social Reform" and "Investigations in Currency and Finance,
containing papers that had appeared separately during his
lifetime. The last-named volume contains Jevons's speculations
on the connection between commercial crises and sunspots. He
was engaged at the time of his death upon the preparation of a
large treatise on economics and had drawn up a table of contents
and completed some chapters and parts of chapters. This Principles of economics, 1905
fragment was published in 1905 under the title of The Principles
of Economics: a fragment of a treatise on the industrial
mechanism of society, and other papers.
In The Coal Question, Jevons covered a breadth of concepts on

energy depletion that have recently been revisited by writers
covering the subject of peak oil. For example, Jevons explained
that improving energy efficiency typically reduced energy costs
and thereby increased rather than decreased energy use, an effect
now known as the Jevons paradox. The Coal Question remains a
paradigmatic study of resource depletion theory. Jevons's son, H.
Stanley Jevons, published an 800-page follow-up study in 1915
in which the difficulties of estimating recoverable reserves of a
theoretically finite resource are discussed in detail.[10]
In 1875, Jevons read a paper On the influence of the sun-spot

period upon the price of corn at a meeting of the British
Portrait of Jevons published in the
Association for the Advancement of Science. This captured the
Popular Science Monthly in 1877
attention of the media and led to the coining of the word
sunspottery for claims of links between various cyclic events and
sun-spots. In a later work, "Commercial Crises and Sun-Spots",[11] Jevons analyzed business cycles,
proposing that crises in the economy might not be random events, but might be based on discernible prior
causes. To clarify the concept, he presented a statistical study relating business cycles with sunspots. His
reasoning was that sunspots affected the weather, which, in turn, affected crops. Crop changes could then
be expected to cause economic changes. Subsequent studies have found that sunny weather has a small
but significant positive impact on stock returns, probably due to its impact on traders' moods.[12]
Logic
In 1864 Jevons published a Pure Logic; or, the Logic of Quality apart from Quantity, which was based on
Boole's system of logic, but freed from what he considered the false mathematical dress of that system. In
the years immediately following he devoted considerable attention to the construction of a logical
machine, exhibited before the Royal Society in 1870, by means of which the conclusion derivable from
any given set of premises could be mechanically obtained. In 1866 what he regarded as the great and
universal principle of all reasoning dawned upon him; and in 1869 he published a sketch of this
fundamental doctrine under the title of The Substitution of Similars.[13] He expressed the principle in its
simplest form as follows: "Whatever is true of a thing is true of its like", and he worked out in detail its
various applications including the logical abacus (a cross between logical abacus and a piano – "Logic
Piano"),[14] a mechanical computer he designed and had built in 1866.[15][16]
In the following year appeared the Elementary Lessons on Logic,

which soon became the most widely read elementary textbook on
logic in the English language. In the meantime he was engaged
upon a much more important logical treatise, which appeared in
1874 under the title of The Principles of Science. In this work
Jevons embodied the substance of his earlier works on pure logic
and the substitution of similars; he also enunciated and developed
the view that induction is simply an inverse employment of
The Logic Piano keyboard
deduction; he treated in a luminous manner the general theory of
probability, and the relation between probability and induction;
and his knowledge of the various natural sciences enabled him throughout to relieve the abstract
character of logical doctrine by concrete scientific illustrations, often worked out in great detail. An
example is his discussion of the use of one-way functions in cryptography, including remarks on the
integer factorization problem that foreshadowed its use in public-key cryptography. Jevons's general
theory of induction was a revival of the theory laid down by Whewell and criticised by John Stuart Mill;
but it was put in a new form, and was free from some of the non-essential adjuncts which rendered
Whewell's exposition open to attack. The work as a whole was one of the most notable contributions to
logical doctrine that appeared in the UK in the 19th century. "Though less attractively written than Mill's
System of Logic, Principles of Science is a book that keeps much closer to the facts of scientific
practice."[17] His Studies in Deductive Logic, consisting mainly of exercises and problems for the use of
students, was published in 1880. In 1877 and the following years Jevons contributed to the
Contemporary Review some articles on Mill, which he had intended to supplement by further articles,
and eventually publish in a volume as a criticism of Mill's philosophy. These articles and one other were
republished after Jevons's death, together with his earlier logical treatises, in a volume, entitled Pure
Logic, and other Minor Works.[18] The criticisms on Mill contain much that is ingenious and much that is
forcible, but on the whole they cannot be regarded as taking rank with Jevons's other work. His strength
lay in his power as an original thinker rather than as a critic; and he will be remembered by his
constructive work as logician, economist and statistician.
On Jevons as logician, see Grattan-Guinness (2000).
Jevons's number
Jevons wrote in his 1874 book Principles of Science: "Can the reader say what two numbers multiplied
together will produce the number 8,616,460,799? I think it unlikely that anyone but myself will ever
know."[19] This became known as Jevons's number and was factored by Charles J. Busk in 1889[20],
Derrick Norman Lehmer in 1903,[21] and later on a pocket calculator by Solomon W. Golomb.[22][23] It
is the product of two prime numbers, 89,681 and 96,079.
Geometry
One of Jevons's contemporaries, Hermann von Helmholtz, who was interested in non-Euclidean
geometry,[24] discussed two groups of two-dimensional creatures with one group living in the plane
while the other living in the surface of a sphere. He asserted that since these creatures were embedded in
two dimensions, they would develop a planar version of Euclidean geometry, but that since the nature of
these surfaces were different, they would arrive at very different versions of this geometry. He then
extended this argument into three dimensions, noting that this raises fundamental questions of the
relationship of spatial perception to mathematical truth.[25][26][27]
Jevons made an almost immediate response to this article. While Helmholtz focused on how humans
perceived space, Jevons focused on the question of truth in geometry. Jevons agreed that while
Helmholtz's argument was compelling in constructing a situation where the Euclidean axioms of
geometry would not apply, he believed that they had no effect on the truth of these axioms. Jevons hence
makes the distinction between truth and applicability or perception, suggesting that these concepts were
independent in the domain of geometry.
Jevons did not claim that geometry was developed without any consideration for spatial reality. Instead,
he suggested that his geometric systems were representations of reality but in a more fundamental way
that transcends what one can perceive about reality.[28] Jevons claimed that there was a flaw in
Helmholtz's argument relating to the concept of infinitesimally small. This concept involves how these
creatures reason about geometry and space at a very small scale, which is not necessarily the same as the
reasoning that Helmholtz assumed on a more global scale. Jevons claimed that the Euclidean relations
could be reduced locally in the different scenarios that Helmholtz created and hence the creatures should
have been able to experience the Euclidean properties, just in a different representation. For example,
Jevons claimed that the two-dimensional creatures living on the surface of a sphere should be able to
construct the plane and even construct systems of higher dimensions and that although they may not be
able to perceive such situations in reality, it would reveal fundamental mathematical truths in their
theoretical existence.[29]
In 1872, Helmholtz gave a response to Jevons, who claimed that Helmholtz failed to show why
geometric truth should be separate from the reality of spatial perception. Helmholtz criticized Jevons's
definition of truth and in particular, experiential truth. Helmholtz asserts that there should be a difference
between experiential truth and mathematical truth and that these versions of truth are not necessarily
consistent. This conversation between Helmholtz and Jevons was a microcosm of an ongoing debate
between truth and perception in the wake of the introduction of non-Euclidean geometry in the late 19th
century.[30]
Personal life
In 1867, Jevons married Harriet Ann Taylor, whose father, John Edward Taylor, had been the founder
and proprietor of the Manchester Guardian. Jevons suffered from ill health and sleeplessness, and found
the delivery of lectures covering so wide a range of subjects very burdensome. In 1876, he was glad to
exchange the Owens professorship for the professorship of political economy in University College,
London. Travelling and music were the principal recreations of his life; but his health continued to be
bad, and he suffered from depression. He found his professorial duties increasingly irksome, and feeling
that the pressure of literary work left him no spare energy, he decided in 1880 to resign the post. On 13
August 1882 he drowned whilst bathing near Hastings.
Jevons was brought up a Christian Unitarian.[31] Excerpts from his journals indicate he remained
committed to his Christian beliefs until death. He is buried in the Hampstead Cemetery.[32]
Legacy
Jevons was a prolific writer, and at the time of his death was a leader in the UK both as a logician and as
an economist. Alfred Marshall said of his work in economics that it "will probably be found to have more
constructive force than any, save that of Ricardo, that has been done during the last hundred years."
Jevons's theory of induction has continued to be influential: "Jevons's general view of induction has
received a powerful and original formulation in the work of a modern-day philosopher, Professor K. R.
Popper."[33]
Works
1862. A General Mathematical Theory of Political Economy
1863. A Serious Fall in the Value of Gold (https://archive.org/stream/aseriousfallinv00jevogo
og), Edward Stanford.
1864. Pure Logic; or, the Logic of Quality apart from Quantity (https://archive.org/details/pur
elogicorlogi00jevogoog), Edward Stanford, London
1865. The Coal Question, Macmillan and Co.[34]
1869. The Substitution of Similars, The True Principle of Reasoning (https://archive.org/deta
ils/substitutionofsi00jevorich), Macmillan & Co.[13]
1870. Elementary Lessons on Logic (https://archive.org/details/elementarylesso00goog),
Macmillan & Co., London
1871. The Match Tax: A Problem in Finance, Edward Stanford.
1871. The Theory of Political Economy (https://archive.org/details/theoryofpolitica00jevouof
t), Macmillan & Co.[35]
"Theory of Political Economy" (http://www.unz.com/print/NewmanJames-1957v02-0121
7/). In James R. Newman, ed., The World of Mathematics, Vol. 2, Part IV, 1956.
1874. Principles of Science, Macmillan & Co.
1875. Money and the Mechanism of Exchange, D. Appleton and Co.
1878. A Primer on Political Economy (https://www.gutenberg.org/files/33219/33219-h/33219
-h.htm)
1880. Studies in Deductive Logic – 1884 edition (https://archive.org/details/studiesindeduct0
0jevouoft) (Macmillan & Co., London)
1882. The State in Relation to Labour
1883. Methods of Social Reform and Other Papers, Macmillan and Co.
Methods of Social Reform, and Other Papers, Kelley, 1965.
1884. Investigations in Currency and Finance (https://catalog.hathitrust.org/Record/0011261
15), Macmillan and Co. 1884.[36]
1886. Letters and Journal of W. Stanley Jevons (https://archive.org/stream/lettersjournalof0
0jevoiala#page/n7/mode/2up), Ed. by Harriet A. Jevons, Macmillan & Co.
1972–81. Papers and Correspondence, edited by R. D. Collison Black, Macmillan & the
Royal Economic Society (7 vol.)
Articles
"On the Variation of Prices and the Value of the Currency since 1782" (https://www.jstor.org/
stable/2338419), Journal of the Statistical Society of London, Vol. 28, No. 2, Jun., 1865.
"On the Frequent Autumnal Pressure in the Money Market, and the Action of the Bank of
England" (https://www.jstor.org/stable/2338585), Journal of the Statistical Society of
London, Vol. 29, No. 2, Jun., 1866.
"On the Condition of the Metallic Currency of the United Kingdom, with Reference to the
Question of International Coinage" (https://www.jstor.org/stable/2338797), Journal of the
Statistical Society of London, Vol. 31, No. 4, Dec., 1868.
"Who Discovered the Quantification of the Predicate?" (https://archive.org/stream/contempo
raryrev45unkngoog#page/n830/mode/2up), The Contemporary Review, Vol. XXI, December
1872/May 1873.
"The Philosophy of Inductive Inference" (https://babel.hathitrust.org/cgi/pt?id=umn.3195100
2150405y;view=1up;seq=467), Fortnightly Review, Vol. XIV, New Series, 1873.
"The Use of Hypothesis" (https://babel.hathitrust.org/cgi/pt?id=umn.31951002150405y&vie
w=1up&seq=788), Fortnightly Review, Vol. XIV, New Series, 1873.
"The Railways and the State" (https://archive.org/stream/essaysaddresses00oweniala#pag
e/464/mode/2up). In: Essays and Addresses, Macmillan & Co., 1874.
"The Future of Political Economy" (https://archive.org/stream/fortnightly03unkngoog#page/n
628/mode/2up), Fortnightly Review, Vol. XX, New Series, 1876.
"Cruelty to Animals: A Study in Sociology" (https://archive.org/stream/fortnightly00unkngoog
#page/n678/mode/2up), Fortnightly Review, Vol. XIX, New Series, 1876.
"The Silver Question" (https://archive.org/stream/journalsocialsc03russgoog#page/n38/mod
e/2up), Journal of Social Science, No. IX, January 1878.
"John Stuart Mill's Philosophy Tested" (https://archive.org/stream/contemporaryrev00unkng
oog#page/n186/mode/2up), Part II (https://archive.org/stream/contemporaryrev00unkngoog
#page/n276/mode/2up), The Contemporary Review, Vol. XXXI, December 1877/January
1878; Part III
(https://archive.org/stream/contemporaryrev33unkngoog#page/n98/mode/2up), Vol. XXXII,
April 1878.[37][38]
"Methods of Social Reform, I: Amusements of the People" (https://archive.org/stream/conte
mporaryrev36unkngoog#page/n510/mode/2up), The Contemporary Review, Vol. XXXIII,
October 1878.
"Methods of Social Reform, II: A State Parcel Post" (https://archive.org/stream/contemporar
yrev56unkngoog#page/n218/mode/2up), The Contemporary Review, Vol. XXXIV, January
1879.
"The Periodicity of Commercial Crises, and its Physical Explanation,” (http://www.tara.tcd.ie/
bitstream/handle/2262/8261/jssisiVolVIIPartLIV_334342.pdf) Journal of The Statistical and
Social Inquiry Society of Ireland, Vol. VII, Part 54, 1878/1879.
"Experimental Legislation and the Drink Traffic" (https://archive.org/stream/contemporaryrev
24unkngoog#page/n188/mode/2up), The Contemporary Review, Vol. XXXVII, January/June
1880.
"Recent Mathematico-Logical Memoirs" (https://archive.org/stream/nature01grougoog#pag
e/n640/mode/2up), Nature, Vol. XXIII, March 24, 1881.
"Richard Cantillon and the Nationality of Political Economy" (https://archive.org/stream/cont
emporaryrev58unkngoog#page/n62/mode/2up), The Contemporary Review, Vol. XXXIX,
January/June 1881.
"The Rationale of Free Public Libraries" (https://archive.org/stream/contemporaryrev58unkn
goog#page/n384/mode/2up), The Contemporary Review, Vol. XXXIX, January/June 1881.
"Bimetallism" (https://archive.org/stream/contemporaryrev58unkngoog#page/n750/mode/2u
p), The Contemporary Review, Vol. XXXIX, January/June 1881.
"Married Women in Factories" (https://archive.org/stream/contemporaryrev15unkngoog#pag
e/n46/mode/2up), The Contemporary Review, Vol. XLI, January/June 1882.
Miscellany
Luigi Cossa, Guide to the Study of Political Economy (https://archive.org/stream/guidetostud
yofpo00cossuoft#page/n5/mode/2up), with a Preface by W. Stanley Jevons, Macmillan &
Co., 1880.
Further reading
Bam, Vincent, et al. "Hypothetical Fallibilism in Peirce and Jevons", Transactions of the
Charles S. Peirce Society, Vol. 15, No. 2, Spring, 1979.
Barrett, Lindsay and Connell, Matthew. "Jevons and the Logic ‘Piano’" (http://www.rutherfor
djournal.org/article010103.html), The Rutherford Journal, Vol. 1, Issue 1, 2006.
Collison Black, R. D. "Jevons and Cairnes", Economica, New Series, Vol. 27, No. 107, Aug.,
1960.
Collison Black, R. D. "Jevons, Bentham and De Morgan", Economica, New Series, Vol. 39,
No. 154, May, 1972.
De Marchi, N. B. "The Noxious Influence of Authority: A Correction of Jevons' Charge",
Journal of Law and Economics, Vol. 16, No. 1, Apr., 1973.
Grattan-Guinness, I. "'In Some Parts Rather Rough': A Recently Discovered Manuscript
Version of William Stanley Jevons's 'General Mathematical Theory of Political Economy'
(1862)", History of Political Economy, Vol. 34, Number 4, Winter 2002.
Jevons, H. Winefrid. "William Stanley Jevons: His Life", Econometrica, Vol. 2, No. 3, Jul.,
1934.
Keynes, J. M. "William Stanley Jevons 1835–1882: A Centenary Allocation on his Life and
Work as Economist and Statistician", Journal of the Royal Statistical Society, Vol. 99, No. 3,
1936.
Könekamp, Rosamund. "William Stanley Jevons (1835–1882). Some Biographical Notes",
Manchester School of Economic and Social Studies, Vol. 30, No. 3, Sept. 1962.
Konvitz, Milton R. "An Empirical Theory of the Labor Movement: W. Stanley Jevons", The
Philosophical Review, Vol. 57, No. 1, Jan., 1948.
La Nauze, J. A. "The Conception of Jevon's Utility Theory", Economica, New Series, Vol.
20, No. 80, Nov., 1953.
Maas, Harro. William Stanley Jevons and the Making of Modern Economics, Cambridge
University Press, 2005.
Madureira, Nuno Luis. "The Anxiety of Abundance: William Stanley Jevons and Coal
Scarcity in the Nineteenth Century", Environment and History, Volume 18, Number 3,
August 2012.
Mays, W. and Henry, D. P. "Jevons and Logic", Mind, New Series, Vol. 62, No. 248, Oct.,
1953.
Mosselmans, Bert. "William Stanley Jevons and the Extent of Meaning in Logic and
Economics" (http://www.eshet.net/public//-1_mosselmans.pdf), History and Philosophy of
Logic, Volume 19, Issue 2, 1998.
Mosselmans, Bert. William Stanley Jevons and the Cutting Edge of Economics, Routledge,
2007.
Noller, Carl W. "Jevons on Cost", Southern Economic Journal, Vol. 39, No. 1, Jul., 1972.
Paul, Ellen Frankel. "W. Stanley Jevons: Economic Revolutionary, Political Utilitarian",
Journal of the History of Ideas, Vol. 40, No. 2, Apr./Jun., 1979.
Peart, Sandra. "'Disturbing Causes', 'Noxious Errors', and the Theory-Practice Distinction in
the Economics of J.S. Mill and W.S. Jevons", The Canadian Journal of Economics, Vol. 28,
No. 4b, Nov., 1995.
Peart, Sandra. The Economics of W. S. Jevons, Routledge, 1996.
Peart, Sandra. "Jevons and Menger Re-Homogenized?: Jaffé after 20 Years", The
American Journal of Economics and Sociology, Vol. 57, No. 3, Jul., 1998.
Peart, Sandra. "Facts Carefully Marshalled' in the Empirical Studies of William Stanley
Jevons", History of Political Economy, Vol. 33, Annual Supplement, 2001.
Robertson, Ross M. "Jevons and His Precursors", Econometrica, Vol. 19, No. 3, Jul., 1951.
Schabas, Margaret. "The 'Worldly Philosophy' of William Stanley Jevons", Victorian Studies,
Vol. 28, No. 1, Autumn, 1984.
Schabas, Margaret. "Alfred Marshall, W. Stanley Jevons, and the Mathematization of
Economics", Isis, Vol. 80, No. 1, Mar., 1989.
Schabas, Margaret. A World Ruled by Number: William Stanley Jevons and the Rise of
Mathematical Economics, Princeton University Press, 1990.
Strong, John V. "The Infinite Ballot Box of Nature: De Morgan, Boole, and Jevons on
Probability and the Logic of Induction", PSA: Proceedings of the Biennial Meeting of the
Philosophy of Science Association, Vol. 1976, Volume One: Contributed Papers, 1976.
Wood, John C. William Stanley Jevons: Critical Assessments, 2 vol., Routledge, 1988.
York, Richard. "Ecological Paradoxes: William Stanley Jevons and the Paperless Office" (htt
p://www.humanecologyreview.org/pastissues/her132/york.pdf), Human Ecology Review,
Vol. 13, No. 2, 2006.
Young, Allyn A. "Jevons' 'Theory of Political Economy'" (https://www.jstor.org/stable/180459
3), The American Economic Review, Vol. 2, No. 3, Sep., 1912.
Shepherdson, John C. "W. S. Jevons: his Logical Machine and Work Induction and Boolean
Algebra" Machine Intelligence 15. eds. K. Furukawa; D. Michie; S. Muggleton. OUP, 1998.
p. 489–505.
Notes
This article incorporates text from a publication now in the public domain: Chisholm,
Hugh, ed. (1911). "Jevons, William Stanley". Encyclopædia Britannica (11th ed.).
Cambridge University Press.
R.D. Collison Black (1987). "Jevons, William Stanley", The New Palgrave: A Dictionary of
Economics, v. 2, pp. 1008–14.
Ivor Grattan-Guinness, 2000. The Search for Mathematical Roots 1870–1940. Princeton
University Press.
Terry Peach (1987). "Jevons as an economic theorist", The New Palgrave: A Dictionary of
The first part of this article was based on an article in the Encyclopedia of Marxism at
www.marxists.org (https://www.marxists.org/).
References
1. R. D. Collison Black (1972). "Jevons, Bentham and De Morgan", Economica, New Series,
Vol. 39, No. 154, pp. 119–34
2. Daniel Jones, Everyman's English Pronouncing Dictionary (Dent, Dutton: 13th ed., 1967), p.
266.
3. Irving Fisher, 1892. Mathematical Investigations in the Theory of Value and Prices,
Appendix III, "The Utility and History of Mathematical Method in Economics", p. 109 (https://
books.google.com/books?id=zMNGyKoJxv8C&pg=PA109)
4. W. Stanley Jevons, 1871.The Principles of Political Economy, p. 4.
5. Martínez-Alier, Juan (1987). Ecological Economics: Energy, Environment and Society (http
s://archive.org/details/ecologicaleconom0000mart). Oxford: Basil Blackwell. ISBN 978-
0631171461.
6. Georgescu-Roegen, Nicholas (1971). The Entropy Law and the Economic Process (https://
archive.org/details/entropylawe00nich) (Full book accessible at Scribd). Cambridge,
Massachusetts: Harvard University Press. ISBN 978-0674257801.
7. Boulding, Kenneth E. (1981). Evolutionary Economics (https://archive.org/details/evolutionar
yecon0000boul). Beverly Hills: Sage Publications. ISBN 978-0803916487.
8. Jevons, William Stanley, The Principles of Science: A Treatise on Logic and Scientific
Method, Macmillan & Co., London, 1874, 2nd ed. 1877, 3rd ed. 1879. Reprinted with a
foreword by Ernst Nagel, Dover Publications, New York, 1958.
9. William Stanley Jevons, Letters and Journal [1886] (viewed 3 Sep. 2016),
https://oll.libertyfund.org/titles/jevons-letters-and-journal#lf1357_head_007 ; Scan Journal,
http://scan.net.au/scan/journal/display.php?journal_id=62 ; WM Jevons Album, Rylands
Collection, University of Manchester, http://enriqueta.man.ac.uk:8180/luna/servlet/s/2mh2g8
10. Jevons, H. Stanley Jevons, (1915) The British Coal Trade. London: Kegan Paul, Trench and
Trübner; (complete text available at Google Books) see especially pp. 718 ff.
11. Jevons, William Stanley (14 November 1878). "Commercial crises and sun-spots", Nature
xix, pp. 33–37.
12. Hirshleifer, David and Tyler Shumway (2003). "Good day sunshine: stock returns and the
weather", Journal of Finance 58 (3), pp. 1009–32.
13. Jevons, William Stanley (1869). The Substitution of Similars: The True Principle of
Reasoning, Derived from a Modification of Aristotle's Dictum (https://archive.org/details/subs
titutionsim02jevogoog). Macmillan. p. 55 (https://archive.org/details/substitutionsim02jevogo
og/page/n67). Archived (https://archive.org/details/substitutionofsi00jevorich) from the
original on 15 July 2008. "logical abacus."
14. Maxfield, Clive (1998). Designus Maximus Unleashed! (https://books.google.com/?id=eQP-
0_ZQxdsC&lpg=PA359&dq=%22logic%20piano%22&pg=PA359#v=onepage&q=%22logi
c%20piano%22&f=false). Newnes. p. 359. ISBN 9780750690898.
15. In The substitution of similars, he gives a description of his "logical abacus" on pp. 55ff,
which "is extracted from the Proceedings of the Society for 3d April, 1866, p. 161."
16. Proceedings of the Manchester Literary and Philosophical Society (https://books.google.co
m/?id=kxI6AQAAMAAJ&dq=proceedings%20of%20the%20society%201866%20mancheste
r%20literary&pg=PA161#v=onepage&q=logical%20abacus&f=false). 1866. p. 161.
17. "Jevons, William Stanley", in The Concise Encyclopedia of Western Philosophy and
Philosophers (1960), New York: Hawthorn.
18. William Stanley Jevons (1890). Robert Adamson; Harriet A. Jevons (eds.). Pure logic and
other minor works (https://archive.org/details/purelogicandothe00jevouoft). London:
MacMillan.
19. Principles of Science (https://archive.org/stream/principlesofscie00jevorich#page/n165/mod
e/2up), Macmillan & Co., 1874, p. 141.
20. Busk, Charles J. (1889). "To Find the Factors of any Proposed Number" (https://archive.org/
stream/naturejournal39londuoft#page/412/mode/2up). Nature. 39: 413–415.
doi:10.1038/039413c0 (https://doi.org/10.1038%2F039413c0).
21. Lehmer, D.N., "A Theorem in the Theory of Numbers" (https://projecteuclid.org/euclid.bams/
1183419373), read before the San Francisco Section of the American Mathematical
Society, 19 December 1903.
22. Golomb, Solomon. "On Factoring Jevons' Number", Cryptologia, vol. XX, no. 3, July 1996,
pp. 243–44.
23. Weisstein, Eric W. "Jevons' Number" (http://mathworld.wolfram.com/JevonsNumber.html).
MathWorld.
24. Richards, Joan. Mathematical Visions: The Pursuit of Geometry in Victorian England.
Academic Press. p. 77.
25. Helmholtz Axioms of Geometry
Academic Press. pp. 86–87.
31. Mosselmans, Bert, "William Stanley Jevons" (https://plato.stanford.edu/entries/william-jevon
s/), The Stanford Encyclopedia of Philosophy
32. UVic.ca – University of Victoria (http://web.uvic.ca/~rutherfo/mr_grvs1.html)
33. "Jevons, William Stanley", in The Concise Encyclopedia of Western Philosophy and
Philosophers (1960), New York: Hawthorn.
34. Missemer, Antoine. "William Stanley Jevons' The Coal Question (1865), Beyond the
Rebound Effect", Ecological Economics, Volume 82, October 2012.
35. "Review of A Survey of Political Economy by John Macdonell and The Theory of Political
Economy by Prof. Stanley Jevons" (https://babel.hathitrust.org/cgi/pt?id=iau.318580292679
23;view=1up;seq=603). The Athenaeum (2297): 589–590. 4 November 1871.
36. "Review of Investigations in Currency and Finance by W. Stanley Jevons" (https://babel.hat
hitrust.org/cgi/pt?id=uc1.c3470751;view=1up;seq=831). The Athenaeum (2957): 817. 28
June 1884.
37. "J. S. Mill's Philosophy Tested by Prof. Jevons", Mind, Vol. 3, No. 10, Apr., 1878.
38. Jackson, Reginald. "Mill's Treatment of Geometry: A Reply to Jevons", Mind, New Series,
Vol. 50, No. 197, Jan., 1941.
External links
O'Connor, John J.; Robertson, Edmund F., "William Stanley Jevons" (http://www-history.mc
s.st-andrews.ac.uk/Biographies/Jevons.html), MacTutor History of Mathematics archive,
University of St Andrews.
New School: William Stanley Jevons (https://web.archive.org/web/20050826044625/http://c
epa.newschool.edu/het/profiles/jevons.htm)
Royal Society certificate of election 1872 (http://www.royalsoc.ac.uk/DServe/dserve.exe?ds
qIni=Dserve.ini&dsqApp=Archive&dsqCmd=Show.tcl&dsqSearch=RefNo=='EC/1872/01'&d
sqDb=Catalog)
Jevons and the Logic 'Piano' (http://www.rutherfordjournal.org/article010103.html) at The
Rutherford Journal
The Coal Question – Encyclopedia of Earth (https://editors.eol.org/eoearth/wiki/The_Coal_Q
uestion_(e-book))
Letters and Journal of W. Stanley Jevons (https://oll.libertyfund.org/titles/jevons-letters-and-j
ournal), edited by his wife (1886). This work contains a bibliography of Jevons's writings.
Powerhouse Museum, Sydney. "The curious economist: William Stanley Jevons in Sydney"
(http://www.powerhousemuseum.com/exhibitions/jevons.asp). Retrieved 9 May 2007.
William Stanley Jevons (1835–1833). The Concise Encyclopedia of Economics. Library of
Economics and Liberty (2nd ed.). Liberty Fund. 2008.
Jevons Family Archive (https://archiveshub.jisc.ac.uk/manchesteruniversity/data/gb133-ja)
at John Rylands Library, Manchester.
Works available online
Works by William Stanley Jevons (https://www.gutenberg.org/author/Jevons,+W.+Stanley)

at Project Gutenberg
Works by or about William Stanley Jevons (https://archive.org/search.php?query=%28%28s
ubject%3A%22Jevons%2C%20William%20Stanley%22%20OR%20subject%3A%22Jevon
s%2C%20William%20S%2E%22%20OR%20subject%3A%22Jevons%2C%20W%2E%20
S%2E%22%20OR%20subject%3A%22William%20Stanley%20Jevons%22%20OR%20subj
ect%3A%22William%20S%2E%20Jevons%22%20OR%20subject%3A%22W%2E%20S%2
E%20Jevons%22%20OR%20subject%3A%22Jevons%2C%20William%22%20OR%20subj
ect%3A%22William%20Jevons%22%20OR%20creator%3A%22William%20Stanley%20Jev
ons%22%20OR%20creator%3A%22William%20S%2E%20Jevons%22%20OR%20creato
r%3A%22W%2E%20S%2E%20Jevons%22%20OR%20creator%3A%22W%2E%20Stanle
y%20Jevons%22%20OR%20creator%3A%22Jevons%2C%20William%20Stanley%22%20
OR%20creator%3A%22Jevons%2C%20William%20S%2E%22%20OR%20creator%3A%2
2Jevons%2C%20W%2E%20S%2E%22%20OR%20creator%3A%22Jevons%2C%20W%2
E%20Stanley%22%20OR%20creator%3A%22William%20Jevons%22%20OR%20creator%
3A%22Jevons%2C%20William%22%20OR%20title%3A%22William%20Stanley%20Jevon
s%22%20OR%20title%3A%22William%20S%2E%20Jevons%22%20OR%20title%3A%22
W%2E%20S%2E%20Jevons%22%20OR%20title%3A%22William%20Jevons%22%20O
R%20description%3A%22William%20Stanley%20Jevons%22%20OR%20description%3
A%22William%20S%2E%20Jevons%22%20OR%20description%3A%22W%2E%20S%2
E%20Jevons%22%20OR%20description%3A%22Jevons%2C%20William%20Stanley%2
2%20OR%20description%3A%22Jevons%2C%20William%20S%2E%22%20OR%20descri
ption%3A%22William%20Jevons%22%20OR%20description%3A%22Jevons%2C%20Willi
am%22%29%20OR%20%28%221835-1882%22%20AND%20Jevons%29%29%20AND%2
0%28-mediatype:software%29) at Internet Archive
The Coal Question (https://archive.org/details/bub_gb_gAAKAAAAIAAJ) (also available
here (https://web.archive.org/web/20070430125822/http://oll.libertyfund.org/Home3/Book.ph
p?recordID=0546))
The Theory of Political Economy (https://archive.org/details/theoryofpolitica00jevouoft)
Money and the Mechanism of Exchange (https://archive.org/details/moneymechanism00jev
o)
Elementary Lessons in Logic (https://mises.org/books/lessons_in_logic_jevons.pdf)
Money and the Mechanism of Exchange (https://mises.org/books/money_mechanism_jevon
s.pdf)
The Theory of Political Economy (https://mises.org/books/political_economy_jevons.pdf)
William Stanley Jevons (https://socialsciences.mcmaster.ca/~econ/ugcm/3ll3/jevons/index.h
tml)
Brief Account of a General Mathematical Theory of Political Economy (https://www.marxists.
org/reference/subject/economics/jevons/mathem.htm)
The Principles of Political Economy (https://archive.org/details/theorypolitical00jevogoog),
1871,
The Theory of Political Economy (https://archive.org/details/theorypolitical00jevogoog),
1879, 2nd ed.
The Theory of Political Economy (https://archive.org/details/theoryofpolitica00jevo_0), 1888,
3rd ed. (1879 ed. + 3rd Preface by Harriet A. Jevons & adds to bibliographic 1st Appendix).
Retrieved from "https://en.wikipedia.org/w/index.php?title=William_Stanley_Jevons&oldid=943035087"
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Carl Menger
Carl Menger (/ˈmɛŋɡər/; German: [ˈmɛŋɐ]; February 23, 1840 –
Carl Menger
February 26, 1921) was an Austrian economist and the founder of
the Austrian School of economics. Menger contributed to the
development of the theory of marginalism (marginal utility),[2]
which rejected the cost-of-production theories of value, such as
were developed by the classical economists such as Adam Smith
and David Ricardo. As a departure from such, he would go on to
call his resultant perspective, the "Subjective Theory of Value".[3]
Contents
Biography
Economics
Works
See also
References
Carl Menger, founder of the Austrian
Further reading School
External links Born February 23, 1840
Neu Sandez,
Galicia, Austrian
Biography Empire
Menger was born in the city of Neu-Sandez in Galicia, Austrian (now Nowy Sącz,
Empire, which is now Nowy Sącz in Poland. He was the son of a Poland)
wealthy family of minor nobility; his father, Anton, was a lawyer. Died February 26, 1921
His mother, Caroline, was the daughter of a wealthy Bohemian (aged 81)
merchant. He had two brothers, Anton and Max, both prominent Vienna, Austria
as lawyers. His son, Karl Menger, was a mathematician who Nationality Austrian
taught for many years at Illinois Institute of Technology.[4]
Field Economics
After attending Gymnasium he studied law at the Universities of School or Austrian School
Prague and Vienna and later received a doctorate in jurisprudence tradition
from the Jagiellonian University in Kraków. In the 1860s Menger Alma mater University of
left school and enjoyed a stint as a journalist reporting and Prague
analyzing market news, first at the Lemberger Zeitung in University of Vienna
Lemberg, Austrian Galicia (now Lviv, Ukraine) and later at the Jagiellonian
Wiener Zeitung in Vienna.[5] University
Influences Étienne Bonnot de
Condillac
During the course of his newspaper work he noticed a Adam Smith
discrepancy between what the classical economics he was taught Franz Brentano[1]
in school said about price determination and what real world Contributions Marginal utility
market participants believed. In 1867 Menger began a study of
political economy which culminated in 1871 with the publication of his Principles of Economics
(Grundsätze der Volkswirtschaftslehre), thus becoming the father of the Austrian School of economic
thought. It was in this work that he challenged classical cost-based theories of value with his theory of
marginality – that price is determined at the margin.
In 1872 Menger was enrolled into the law faculty at the University of Vienna and spent the next several
years teaching finance and political economy both in seminars and lectures to a growing number of
students. In 1873 he received the university's chair of economic theory at the very young age of 33.
In 1876 Menger began tutoring Archduke Rudolf von Habsburg, the Crown Prince of Austria in political
economy and statistics. For two years Menger accompanied the prince in his travels, first through
continental Europe and then later through the British Isles.[6] He is also thought to have assisted the
crown prince in the composition of a pamphlet, published anonymously in 1878, which was highly
critical of the higher Austrian aristocracy. His association with the prince would last until Rudolf's
suicide in 1889 (see the Mayerling Affair).
In 1878 Rudolf's father, Emperor Franz Josef, appointed Menger to the chair of political economy at
Vienna. The title of Hofrat was conferred on him, and he was appointed to the Austrian Herrenhaus in
1900.
Ensconced in his professorship, he set about refining and defending the positions he took and methods he
utilized in Principles, the result of which was the 1883 publication of Investigations into the Method of
the Social Sciences with Special Reference to Economics (Untersuchungen über die Methode der
Socialwissenschaften und der politischen Oekonomie insbesondere). The book caused a firestorm of
debate, during which members of the Historical school of economics began to derisively call Menger and
his students the "Austrian School" to emphasize their departure from mainstream economic thought in
(Germany) – the term was specifically used in an unfavorable review by Gustav von Schmoller.
In 1884 Menger responded with the pamphlet The Errors of Historicism in German Economics and
launched the infamous Methodenstreit, or methodological debate, between the Historical School and the
Austrian School. During this time Menger began to attract like-minded disciples who would go on to
make their own mark on the field of economics, most notably Eugen von Böhm-Bawerk, and Friedrich
von Wieser.
In the late 1880s Menger was appointed to head a commission to reform the Austrian monetary system.
Over the course of the next decade he authored a plethora of articles which would revolutionize monetary
theory, including "The Theory of Capital" (1888) and "Money" (1892).[7] Largely due to his pessimism
about the state of German scholarship, Menger resigned his professorship in 1903 to concentrate on
study.
Economics
Menger used his subjective theory of value to arrive at what he considered one of the most powerful
insights in economics: "both sides gain from exchange'. Unlike William Jevons, Menger did not believe
that goods provide "utils," or units of utility. Rather, he wrote, goods are valuable because they serve
various uses whose importance differs. Menger also came up
with an explanation of how money develops that is still accepted
by some schools of thought today.[8]
Works
1871 – Principles of Economics
1883 – Investigations into the Method of the Social
Sciences with Special Reference to Economics
1884 – The Errors of Historicism in German Economics
1888 – The Theory of Capital
1892 – On the Origins of Money
See also
Methodenstreit
History of macroeconomic thought
Menger space
Untersuchungen über die Methode
der Socialwissenschaften, und der
References Politischen Oekonomie
insbesondere, 1933
1. Barry Smith, "Aristotle, Menger, Mises:An Essay in the
Metaphysics of Economics" (http://ontology.buffalo.edu/
smith/articles/menger.html), History of Political
Economy, Annual Supplement to vol. 22 (1990), 263–288.
2. "Carl Menger facts, information, pictures | Encyclopedia.com articles about Carl Menger" (ht
tp://www.encyclopedia.com/people/social-sciences-and-law/economics-biographies/carl-me
nger). www.encyclopedia.com. Retrieved June 30, 2017.
3. "Carl Menger | Austrian economist" (https://www.britannica.com/biography/Carl-Menger).
Encyclopædia Britannica. Retrieved June 30, 2017.
4. "Remembering Karl Menger" (https://web.archive.org/web/20090402052624/http://www.iit.e
du/csl/events/archive/remembering_menger.shtml). Illinois Institute of Technology. Archived
from the original (http://www.iit.edu/csl/events/archive/remembering_menger.shtml) on April
2, 2009. Retrieved March 26, 2009.
5. kanopiadmin (August 18, 2014). "Biography of Carl Menger: The Founder of the Austrian
School (1840–1921)" (https://mises.org/library/biography-carl-menger-founder-austrian-scho
ol-1840-1921). Mises Institute. Retrieved June 30, 2017.
6. The History of Economic Thought: A Reader
7. "On the Origin of Money" (English translation by Caroline A. Foley), Economic Journal,
Volume 2 (1892), pp. 239–55.
8. Carl Menger (1840–1921) (http://www.econlib.org/library/Enc/bios/Menger.html). The
Concise Encyclopedia of Economics. Library of Economics and Liberty (2nd ed.). Liberty
Fund. 2008.
Further reading
White, Lawrence H. (2008). "Menger, Carl (1840–1921)" (https://books.google.com/books?i
d=yxNgXs3TkJYC). In Hamowy, Ronald (ed.). The Encyclopedia of Libertarianism.
Thousand Oaks, CA: SAGE; Cato Institute. pp. 325–26. doi:10.4135/9781412965811.n130
(https://doi.org/10.4135%2F9781412965811.n130). ISBN 978-1-4129-6580-4.
LCCN 2008009151 (https://lccn.loc.gov/2008009151). OCLC 750831024 (https://www.world
cat.org/oclc/750831024).
Senechal, Marjorie; Golland, Louise; Sigmund, Karl (2000). "Exact thought in a demented
time: Karl menger and his viennese mathematical colloquium". The Mathematical
Intelligencer. 22: 34–45. doi:10.1007/BF03024445 (https://doi.org/10.1007%2FBF0302444
5).
External links
The Epistemological Import of Carl Menger's Theory of the Origin of Money (http://www.eco
nlib.org/library/Mises/HmA/msHmA17.html) Ludwig von Mises in Human Action on Menger's
Theory of the Origins of Money
Profile on Carl Menger (https://web.archive.org/web/20051220040945/http://cepa.newschoo
l.edu/het/profiles/menger.htm) at the History of Economic Thought Website
Principles of Economics (http://library.freecapitalists.org/books/Carl%20Menger/Principles%
20of%20Economics.pdf), online version provided by the Ludwig von Mises Institute.
Grundsätze der Volkswirtschaftslehre (Principles of Economics) (https://web.archive.org/we
b/20080528063159/http://docs.mises.de/Menger/Menger_Grundsaetze.pdf)
Principles of Economics (PDF Spanish) (http://www.hacer.org/pdf/Menger00.pdf)
On the Origin of Money (English Translation) (http://www.monadnock.net/menger/money.ht
ml), online version provided by the Monadnock Press
Carl Menger Papers, 1857–1985 (https://web.archive.org/web/20120630172959/http://librar
y.duke.edu/rubenstein/findingaids/menger/), Rubenstein Library, Duke University
Retrieved from "https://en.wikipedia.org/w/index.php?title=Carl_Menger&oldid=942628843"
Léon Walras
Marie-Esprit-Léon Walras (French: [valʁas];[1] 16 December
Léon Walras
1834 – 5 January 1910) was a French mathematical economist
and Georgist.[2] He formulated the marginal theory of value
(independently of William Stanley Jevons and Carl Menger) and
pioneered the development of general equilibrium theory.
Contents
Biography
Life and career
General equilibrium theory
Economic value definition of utility
Legacy
Major works Léon Walras
See also Born 16 December 1834

Évreux, Upper
References
Normandy, France
Note
Died 5 January 1910
Further reading (aged 75)
External links Clarens, now
Montreux,
Switzerland
Biography Nationality French
Walras was the son of a French school administrator Auguste Field Economics,
Walras. His father was not a professional economist, yet his marginalism
economic thinking had a profound effect on his son. He found the School or Lausanne School
value of goods by setting their scarcity relative to human wants. tradition
Walras enrolled in the École des Mines de Paris, but grew tired of Alma mater École des Mines de
engineering. He worked as a bank manager, journalist, romantic Paris
novelist and railway clerk before turning to economics.[3] Walras Influences Augustin Cournot
received an appointment as the professor of political economy at French rationalism
the University of Lausanne. Contributions Walras's law
General equilibrium
Walras also inherited his father's interest in social reform. Much
like the Fabians, Walras called for the nationalization of land,
believing that land's productivity would always increase and that rents from that land would be sufficient
to support the nation without taxes. He also asserts that all other taxes (i.e. on goods, labor, capital)
eventually realize effects exactly identical to a consumption tax, [4] so they can hurt the economy (unlike
a land tax).
Another of Walras's influences was Augustin Cournot, a former
schoolmate of his father. Through Cournot, Walras came under
the influence of French rationalism and was introduced to the use
of mathematics in economics.
As Professor of Political Economy at the University of Lausanne,

Walras is credited with founding the Lausanne school of
economics, along with his successor Vilfredo Pareto.[5]
Because most of Walras's publications were only available in

French, many economists were unfamiliar with his work. This
changed in 1954 with the publication of William Jaffé's English
translation of Walras's Éléments d'économie politique pure.[6]
Walras's work was also too mathematically complex for many
contemporary readers of his time. On the other hand, it has a
great insight into the market process under idealized conditions
so it has been far more read in the modern era.
Théorie mathématique de la richesse
sociale, 1883
Although Walras came to be regarded as one of the three leaders
of the marginalist revolution,[7] he was not familiar with the two
other leading figures of marginalism, William Stanley Jevons and Carl Menger, and developed his
theories independently. Elements has Walras disagreeing with Jevons on the applicability, while the
findings adopted by Carl Menger, he says, are completely in alignment with the ideas present in the book
(even though expressed non-mathematically).[8]
Life and career
General equilibrium theory

In 1874 and 1877 Walras published Éléments d'économie politique pure (1899, 4th ed.; 1926, éd.
définitive), in English, Elements of Pure Economics (1954), trans. William Jaffé.
That work that led him to be considered the father of the general equilibrium theory. The problem that
Walras set out to solve was one presented by A. A. Cournot, that even though it could be demonstrated
that prices would equate supply and demand to clear individual markets, it was unclear that an
equilibrium existed for all markets simultaneously. Walras's law implies that the sum of the values of
excess demands across all markets must equal zero, whether or not the economy is in a general
equilibrium. This implies that if positive excess demand exists in one market, negative excess demand
must exist in some other market. Thus, if all markets but one are in equilibrium, then that last market
must also be in equilibrium.
Walras constructed his basic theory of general equilibrium by beginning with simple equations and then
increasing the complexity in the next equations. He began with a two-person bartering system, then
moved on to the derivation of downward-sloping consumer demands. Next he moved on to exchanges
involving multiple parties, and finally ended with credit and money.
Walras wrote down four sets of equations—one representing the quantity of goods demanded, one
relating the prices of goods to their costs of production, one for the quantities of inputs supplied, and one
showing the quantities of inputs demanded. There are four sets of variables to solve for, namely, the price
of each good, the quantity of each good sold, the price of each factor of production, and the quantity of
each of those factor bought by businesses. To simplify matters, Walras added one further equation to his
model, requiring that all the money received must be spent, one way or the other. But there are now more
equations than unknowns. From the theory of equations, one learns that a necessary but insufficient
condition for the existence of a unique solution to a system of equations is that the number of equations
must equal the number of variables. Walras tackled this problem by selecting an arbitrary good, G1,
whose price is designated as the standard against which the prices of the other goods shall be compared.
The system of equations can now be solved for the prices of all goods in terms of G1, though not for the
absolute price levels.[9]
The crucial step in the argument was Walras's law which states that any particular market must be in
equilibrium, if all other markets in an economy are also in equilibrium. Walras's law hinges on the
mathematical notion that excess market demands (or, inversely, excess market supplies) must sum to
zero. This means that, in an economy with n markets, it is sufficient to solve n-1 simultaneous equations
for market clearing. Taking one good as the numéraire in terms of which prices are specified, the
economy has n-1 prices that can be determined by the equation, so an equilibrium should exist. Although
Walras set out the framework for thinking about the existence of equilibrium clearly and precisely his
attempt to demonstrate existence by counting the number of equations and variables was severely flawed:
it is easy to see that not all pairs of equations in two variables have solutions. A more rigorous version of
the argument was developed independently by Lionel McKenzie and the pair Kenneth Arrow and Gérard
Debreu in the 1950s.
A significant part of the general equilibrium theory as introduced by Walras has become known as the
Walrasian auction which is a type of simultaneous auction where each agent calculates its demand for the
good at every possible price and submits this to an auctioneer. The price is then set so that the total
demand across all agents equals the total amount of the good. Thus, a Walrasian auction perfectly
matches the supply and the demand. Walras suggests that equilibrium will be achieved through a process
of tâtonnement (French for "trial and error"), a form of incremental hill climbing.
Economic value definition of utility

Léon Walras provides a definition of economic utility based on economic value as opposed to an ethical
theory of value:
I state that things are useful as soon as they may serve whatever usage, as soon as they
match whatever need and allow its fulfillment. Thus, there is here no point to deal with
'nuances' by way of which one classes, in the language of everyday conversation, utility
beside what is pleasant and between the necessary and the superfluous. Necessary, useful,
pleasant and superfluous, all of this is, for us, more or less useful. There is here as well no
need to take into account the morality or immorality of the need that the useful things
matches and permits to fulfill. Whether a substance is searched for by a doctor to heal an ill
person, or by a assassin to poison his family, this is an important question from other points
of view, albeit totally indifferent from ours. The substance is useful, for us, in both cases,
and may well be more useful in the second case than in the first one.[1]
In economic theories of value, the term "value" is unrelated to any notions of value used in ethics, they
are homonyms.
Legacy
In 1941 George Stigler[10] wrote about Walras:
There is no general history of economic thought in English which devotes more than passing
reference to his work. … This sort of empty fame in English-speaking countries is of course
attributable in large part to Walras's use of his mother tongue, French, and his depressing
array of mathematical formulas.
What caused the re-appraisal of Walras's consideration in the US, was the influx of German-speaking
scientists – the German version of the Éléments was published in 1881. According to Schumpeter:[11]
Walras is … greatest of all economists. His system of economic equilibrium, uniting, as it

does, the quality of 'revolutionary' creativeness with the quality of classic synthesis, is the
only work by an economist that will stand comparison with the achievements of theoretical
physics.
Major works
Leon Walras (1899). Éléments d'économie politique pure (1899, 4th ed.; 1926, éd.
définitive), in English, Elements of Pure Economics (1954), trans. William Jaffé.
Francis Saveur, 1858.
"De la propriété intellectuelle", 1859, Journal des économistes.
Walras, Léon (1860). L'économie politique et la justiL'économie Politique Et La Justice:
Examen Critique Et Réfutation Des Doctrines Économiques De P.j. Proudhon, Précédés
D'un Introduction À L'étude De La Question Sociale (https://archive.org/details/lconomiepolit
iq00walrgoog) (in French). Paris: Guillaumin. Retrieved 17 August 2018.
"Paradoxes économiques I", 1860, Journal des économistes.
"Théorie critique de l'impôt", 1861.
De l'impôt dans le Canton de Vaud, 1861.
Walras, Léon (1865). Les associations populaires de consommation, de production et de
crédit (https://archive.org/details/lesassociations00walrgoog) (in French). Paris: Dentu.
Retrieved 17 August 2018.
"La bourse et le crédit", 1867, Paris Guide.
Walras (1868). Recherche de l'idéal social: leçons publiques faites à Paris (https://archive.o
rg/details/recherchedelida00walrgoog) (in French). Paris: Guillaumin. Retrieved 17 August
2018.
Walras, Léon (1874). Éléments D'économie Politique Pure, Ou, Théorie De La Richesse (htt
ps://archive.org/details/lmentsdconomiep01walrgoog) (in French). Lausanne: L. Corbaz.
Retrieved 17 August 2018.
Éléments d'économie politique pure, ou théorie de la richesse sociale (Elements of Pure
Economics, or the theory of social wealth, transl. W. Jaffé), 1874. (1899, 4th ed.; 1926, rev
ed., 1954, Engl. transl.)[12]
"Correspondance entre M. Jevons, professeur a Manchester, et M. Walras, professeur a
Lausanne", 1874, Journal des économistes.
Walras, Léon (1882). De la fixité de valeur de l'étalon monétaire (https://archive.org/details/
delafixitdevale00walrgoog) (in French). Paris. Retrieved 17 August 2018.
"Un nuovo ramo della matematica. Dell' applicazione delle matematiche all' economia
politica", 1876, Giornale degli economisti.
Théorie mathématique de la richesse sociale, 1883.
"Notice autobiographique de Léon Walras", 1893.
Études d'économie sociale; Théorie de la répartition de la richesse sociale, 1896.
Études d'économie politique appliquée; Théorie de la production de la richesse sociale,
1898.
"Théorie du crédit", 1898, Revue d'économie politique.
"Sur les équations de la circulation", 1899, Giornale degli economisti
"Cournot et l'Économique Mathématique", 1905, Gazette de Lausanne.
"La Paix par la Justice Sociale et le Libre Échange", 1907, Questions Pratiques de
Legislation Ouvrière.
L'état et le chemin de fer.
"Le Noble Walrus"
"Leone Walras, Autobiografia", 1908, Giornale degli Economisti.
"Un initiateur en économie politique, A.A. Walras", 1908, La Revue du Mois.
"Économique et méchanique", 1909, Bulletin de la Societe Vaudoise de Sciences Naturelles
Correspondence of Léon Walras and related papers (ed. by William Jaffé, 3 vols.), 1965.
See also
Walras's law
Walrasian auction
General equilibrium
Cost the limit of price
Progressive theory of capital
References
1. Singh, H. K. Manmohan (1958). "Marie Esprit Léon Walras". Indian Economic Review. 4 (1):
6–17. JSTOR 29793129 (https://www.jstor.org/stable/29793129).
2. Cirillo, Renato (Jan 1984). "Léon Walras and Social Justice". The American Journal of
Economics and Sociology. 43 (1): 53–60. doi:10.1111/j.1536-7150.1984.tb02222.x (https://d
oi.org/10.1111%2Fj.1536-7150.1984.tb02222.x). JSTOR 3486394 (https://www.jstor.org/sta
ble/3486394).
3. Economyths (2010) by David Orrell, p. 54
4. Walras, Léon (1969). Elements of Pure Economics; or, The Theory of Social Wealth.
Translated by William Jaffé. New York: A. M. Kelly. p. 457,458.
5. "Marie-Ésprit Léon Walras, 1834–1910" (https://web.archive.org/web/20110106050650/htt
p://homepage.newschool.edu/het/profiles/walras.htm). The New School, The History of
Economic Thought Website. Archived from the original (http://homepage.newschool.edu/he
t//profiles/walras.htm) on January 6, 2011. Retrieved 2010-12-30.
6. Walker, Donald A. (December 1981). "William Jaffé, Historian of Economic Thought, 1898–
1980". The American Economic Review. 71 (5): 1012–19. JSTOR 1803482 (https://www.jst
or.org/stable/1803482).
7. Sandmo, Agnar (2011). Economics Evolving: A History of Economic Thought, Princeton
University Press: Princeton, p. 190
8. Walras, Léon (1969). Elements of Pure Economics; or, The Theory of Social Wealth.
Translated by William Jaffé. New York: A. M. Kelly. p. 204.
9. Pressman, Steven. Fifty Major Economists. "Léon Walras (1834-1910)." 2nd ed., Routledge,
2006.
10. Stigler, George, 1994 [1941], Production and Distribution Theories, New Brunswick, N.J.:
Transaction Publishers, p. 222.
11. Schumpeter, J. A., 1994 [1954], History of Economic Analysis, Oxford University Press, p.
795
12. Léon Walras (2014). Léon Walras: Elements of Theoretical Economics: Or, The Theory of
Social Wealth (https://books.google.com/books?id=Srq1BAAAQBAJ). Cambridge University
Press. ISBN 9781316061725. OCLC 168491 (https://www.worldcat.org/oclc/168491).
Note
^ « Je dis que les choses sont utiles dès qu'elles peuvent servir à un usage quelconque, dès qu'elles
répondent à un besoin quelconque et en permettent la satisfaction. Ainsi, il n'y a pas à s'occuper ici des
nuances par lesquelles on classe, dans le langage de la conversation courante, l'utilité à côté de l'agréable
entre le nécessaire et le superflu. Nécessaire, utile, agréable et superflu, tout cela, pour nous, est plus ou
moins utile. Il n'y a pas davantage à tenir compte ici de la moralité ou de l'immoralité du besoin auquel
répond la chose utile et qu'elle permet de satisfaire. Qu'une substance soit recherchée par un médecin
pour guérir un malade ou pour un assassin pour empoisonner sa famille, c'est une question très
importante à d'autres points de vue, mais tout à fait indifférente au nôtre. La substance est utile, pour
nous, dans les deux cas, et peut l'être plus dans le second que dans le premier. » Elements d'économie
pure, ou théorie de la richesse sociale, 1874
Further reading
Jaffé, William, and Donald A. Walker (ed.) (1983). Essays on Walras. Cambridge University
Press.
Morishima, Michio (1977). Walras' economics : a pure theory of capital and money.
Cambridge University Press.
Medema S.G. & Samuels W.J. (2003). "The history of economic thought: a reader"
Routledge, London and New York.
External links
Biography and major works (https://web.archive.org/web/20051025052836/http://cepa.news
chool.edu/het/profiles/walras.htm)
Leon Walras (1834–1910) (http://www.econlib.org/library/Enc/bios/Walras.html). The
Concise Encyclopedia of Economics. Library of Economics and Liberty (2nd ed.). Liberty
Fund. 2008.
Retrieved from "https://en.wikipedia.org/w/index.php?title=Léon_Walras&oldid=941772789"

Marginalism
Marginalism is a theory of economics that attempts to explain the discrepancy in the value of goods and
services by reference to their secondary, or marginal, utility. The reason why the price of diamonds is
higher than that of water, for example, owes to the greater additional satisfaction of the diamonds over
the water. Thus, while the water has greater total utility, the diamond has greater marginal utility.
Although the central concept of marginalism is that of marginal utility, marginalists, following the lead of
Alfred Marshall, drew upon the idea of marginal physical productivity in explanation of cost. The
neoclassical tradition that emerged from British marginalism abandoned the concept of utility and gave
marginal rates of substitution a more fundamental role in analysis. Marginalism is an integral part of
mainstream economic theory.
Contents
Important marginal concepts
Marginality
Marginal use
Marginal utility
Quantified marginal utility
Law of diminishing marginal utility
Marginal rate of substitution
Marginal cost
Application to price theory
Demand
Supply
Markets
Paradox of water and diamonds
History
Proto-marginalist approaches
Marginalists before the Revolution
Marginal Revolution
Second generation
Marginal Revolution as a response to socialism
Eclipse
Revival
Criticism
Marxist criticism of marginalism
Marxist adaptations to marginalism
See also
References
External links
Important marginal concepts
Marginality
For issues of marginality, constraints are conceptualized as a border or margin.[1] The location of the
margin for any individual corresponds to his or her endowment, broadly conceived to include
opportunities. This endowment is determined by many things including physical laws (which constrain
how forms of energy and matter may be transformed), accidents of nature (which determine the presence
of natural resources), and the outcomes of past decisions made both by others and by the individual.
A value that holds true given particular constraints is a marginal value. A change that would be affected
as or by a specific loosening or tightening of those constraints is a marginal change.
Neoclassical economics usually assumes that marginal changes are infinitesimals or limits. Although this
assumption makes the analysis less robust, it increases tractability. One is therefore often told that
"marginal" is synonymous with "very small", though in more general analysis this may not be
operationally true and would not in any case be literally true. Frequently, economic analysis concerns the
marginal values associated with a change of one unit of a resource, because decisions are often made in
terms of units; marginalism seeks to explain unit prices in terms of such marginal values.
Marginal use
The marginal use of a good or service is the specific use to which an agent would put a given increase, or
the specific use of the good or service that would be abandoned in response to a given decrease.[2]
Marginalism assumes, for any given agent, economic rationality and an ordering of possible states-of-
the-world, such that, for any given set of constraints, there is an attainable state which is best in the eyes
of that agent. Descriptive marginalism asserts that choice amongst the specific means by which various
anticipated specific states-of-the-world (outcomes) might be affected is governed only by the distinctions
amongst those specific outcomes; prescriptive marginalism asserts that such choice ought to be so
governed.
On such assumptions, each increase would be put to the specific, feasible, previously unrealized use of
greatest priority, and each decrease would result in abandonment of the use of lowest priority amongst
the uses to which the good or service had been put.[2]
Marginal utility
The marginal utility of a good or service is the utility of its marginal use. Under the assumption of
economic rationality, it is the utility of its least urgent possible use from the best feasible combination of
actions in which its use is included.
In 20th century mainstream economics, the term "utility" has come to be formally defined as a
quantification capturing preferences by assigning greater quantities to states, goods, services, or
applications that are of higher priority. But marginalism and the concept of marginal utility predate the
establishment of this convention within economics. The more general conception of utility is that of use
or usefulness, and this conception is at the heart of marginalism; the term "marginal utility" arose from
translation of the German "Grenznutzen",[2][3] which literally means border use, referring directly to the
marginal use, and the more general formulations of marginal utility do not treat quantification as an
essential feature.[4] On the other hand, none of the early marginalists insisted that utility were not
quantified,[5][6] some indeed treated quantification as an essential feature, and those who did not still
used an assumption of quantification for expository purposes. In this context, it is not surprising to find
many presentations that fail to recognize a more general approach.
Quantified marginal utility

Under the special case in which usefulness can be quantified, the change in utility of moving from state
to state is
Moreover, if and are distinguishable by values of just one variable which is itself quantified,
then it becomes possible to speak of the ratio of the marginal utility of the change in to the size of that
change:
(where “c.p.” indicates that the only independent variable to change is ).
Mainstream neoclassical economics will typically assume that
is well defined, and use “marginal utility” to refer to a partial derivative
Law of diminishing marginal utility

The law of diminishing marginal utility, also known as a Gossen's First Law, is that ceteris paribus, as
additional amounts of a good or service are added to available resources, their marginal utilities are
decreasing. This law is sometimes treated as a tautology, sometimes as something proven by
introspection, or sometimes as a mere instrumental assumption, adopted only for its perceived predictive
efficacy. It is not quite any of these things, although it may have aspects of each. The law does not hold
under all circumstances, so it is neither a tautology nor otherwise proveable; but it has a basis in prior
observation.
An individual will typically be able to partially order the potential uses of a good or service. If there is
scarcity, then a rational agent will satisfy wants of highest possible priority, so that no want is avoidably
sacrificed to satisfy a want of lower priority. In the absence of complementarity across the uses, this will
imply that the priority of use of any additional amount will be lower than the priority of the established
uses, as in this famous example:
A pioneer farmer had five sacks of grain, with no way of selling them or buying more. He
had five possible uses: as basic feed for himself, food to build strength, food for his
chickens for dietary variation, an ingredient for making whisky and feed for his parrots to
amuse him. Then the farmer lost one sack of grain. Instead of reducing every activity by a
fifth, the farmer simply starved the parrots as they were of less utility than the other four
uses; in other words they were on the margin. And it is on the margin, and not with a view
to the big picture, that we make economic decisions.[7]
However, if there is a complementarity across uses, then an

amount added can bring things past a desired tipping point, or an
amount subtracted cause them to fall short. In such cases, the
marginal utility of a good or service might actually be increasing.
Without the presumption that utility is quantified, the diminishing

of utility should not be taken to be itself an arithmetic
subtraction. It is the movement from use of higher to lower
priority, and may be no more than a purely ordinal change.[4][8] Diminishing marginal utility, given
quantification
When quantification of utility is assumed, diminishing marginal
utility corresponds to a utility function whose slope is continually
or continuously decreasing. In the latter case, if the function is also smooth, then the law may be
expressed as
Neoclassical economics usually supplements or supplants discussion of marginal utility with indifference
curves, which were originally derived as the level curves of utility functions,[9] or can be produced
without presumption of quantification,[4] but are often simply treated as axiomatic. In the absence of
complementarity of goods or services, diminishing marginal utility implies convexity of indifference
curves,[4][9] although such convexity would also follow from quasiconcavity of the utility function.
Marginal rate of substitution

The rate of substitution is the least favorable rate at which an agent is willing to exchange units of one
good or service for units of another. The marginal rate of substitution (MRS) is the rate of substitution at
the margin; in other words, given some constraint.
When goods and services are discrete, the least favorable rate at which an agent would trade A for B will
usually be different from that at which she would trade B for A:
When the goods and services are continuously divisible in the limiting case
and the marginal rate of substitution is the slope of the indifference curve (multiplied by ).
If, for example, Lisa will not trade a goat for anything less than two sheep, then her
If she will not trade a sheep for anything less than two goats, then her
However, if she would trade one gram of banana for one ounce of ice cream and vice versa, then
When indifference curves (which are essentially graphs of instantaneous rates of substitution) and the
convexity of those curves are not taken as given, the "law" of diminishing marginal utility is invoked to
explain diminishing marginal rates of substitution – a willingness to accept fewer units of good or service
in substitution for as one's holdings of grow relative to those of . If an individual has a stock or
flow of a good or service whose marginal utility is less than would be that of some other good or service
for which he or she could trade, then it is in his or her interest to effect that trade. As one thing is traded-
away and another is acquired, the respective marginal gains or losses from further trades are now
changed. On the assumption that the marginal utility of one is diminishing, and the other is not
increasing, all else being equal, an individual will demand an increasing ratio of that which is acquired to
that which is sacrificed. One important way in which all else might not be equal is when the use of the
one good or service complements that of the other. In such cases, exchange ratios might be constant.[4] If
any trader can better his or her own marginal position by offering an exchange more favorable to other
traders with desired goods or services, then he or she will do so.
Marginal cost
At the highest level of generality, a marginal cost is a marginal opportunity cost. In most contexts,
marginal cost refers to marginal pecuniary cost, that is to say marginal cost measured by forgone money.
A thorough-going marginalism sees marginal cost as increasing under the law of diminishing marginal
utility, because applying resources to one application reduces their availability to other applications.
Neoclassical economics tends to disregard this argument, but to see marginal costs as increasing in
consequence of diminishing returns.
Application to price theory

Marginalism and neoclassical economics typically explain price formation broadly through the
interaction of curves or schedules of supply and demand. In any case buyers are modelled as pursuing
typically lower quantities, and sellers offering typically higher quantities, as price is increased, with each
being willing to trade until the marginal value of what they would trade-away exceeds that of the thing
for which they would trade.
Demand
Demand curves are explained by marginalism in terms of marginal rates of substitution.
At any given price, a prospective buyer has some marginal rate of substitution of money for the good or
service in question. Given the "law" of diminishing marginal utility, or otherwise given convex
indifference curves, the rates are such that the willingness to forgo money for the good or service
decreases as the buyer would have ever more of the good or service and ever less money. Hence, any
given buyer has a demand schedule that generally decreases in response to price (at least until quantity
demanded reaches zero). The aggregate quantity demanded by all buyers is, at any given price, just the
sum of the quantities demanded by individual buyers, so it too decreases as price increases.
Supply
Both neoclassical economics and thorough-going marginalism could be said to explain supply curves in
terms of marginal cost; however, there are marked differences in conceptions of that cost.
Marginalists in the tradition of Marshall and neoclassical economists tend to represent the supply curve
for any producer as a curve of marginal pecuniary costs objectively determined by physical processes,
with an upward slope determined by diminishing returns.
A more thorough-going marginalism represents the supply curve as a complementary demand curve –
where the demand is for money and the purchase is made with a good or service.[10] The shape of that
curve is then determined by marginal rates of substitution of money for that good or service.
Markets
By confining themselves to limiting cases in which sellers or buyers are both "price takers" – so that
demand functions ignore supply functions or vice versa – Marshallian marginalists and neoclassical
economists produced tractable models of "pure" or "perfect" competition and of various forms of
"imperfect" competition, which models are usually captured by relatively simple graphs. Other
marginalists have sought to present what they thought of as more realistic explanations,[11][12] but this
work has been relatively uninfluential on the mainstream of economic thought.
Paradox of water and diamonds

The law of diminishing marginal utility is said to explain the paradox of water and diamonds, most
commonly associated with Adam Smith,[13] although it was recognized by earlier thinkers.[14] Human
beings cannot even survive without water, whereas diamonds, in Smith's day, were ornamentation or
engraving bits. Yet water had a very small price, and diamonds a very large price. Marginalists explained
that it is the marginal usefulness of any given quantity that matters, rather than the usefulness of a class
or of a totality. For most people, water was sufficiently abundant that the loss or gain of a gallon would
withdraw or add only some very minor use if any, whereas diamonds were in much more restricted
supply, so that the loss or gain was much greater.
That is not to say that the price of any good or service is simply a function of the marginal utility that it
has for any one individual nor for some ostensibly typical individual. Rather, individuals are willing to
trade based upon the respective marginal utilities of the goods that they have or desire (with these
marginal utilities being distinct for each potential trader), and prices thus develop constrained by these
marginal utilities.
History
Proto-marginalist approaches
Perhaps the essence of a notion of diminishing marginal utility can be found in Aristotle's Politics,
wherein he writes
external goods have a limit, like any other instrument, and all things useful are of such a
nature that where there is too much of them they must either do harm, or at any rate be of no
use[15]
There has been marked disagreement about the development and role of marginal considerations in
Aristotle's' value theory.[16][17][18][19][20]
A great variety of economists concluded that there was some sort of inter-relationship between utility and
rarity that effected economic decisions, and in turn informed the determination of prices.[21]
Eighteenth-century Italian mercantilists, such as Antonio Genovesi, Giammaria Ortes, Pietro Verri,
Cesare Beccaria, and Giovanni Rinaldo, held that value was explained in terms of the general utility and
of scarcity, though they did not typically work-out a theory of how these interacted.[22] In Della Moneta
(1751), Abbé Ferdinando Galiani, a pupil of Genovesi, attempted to explain value as a ratio of two ratios,
utility and scarcity, with the latter component ratio being the ratio of quantity to use.
Anne Robert Jacques Turgot, in Réflexions sur la formation et la distribution de richesse (1769), held
that value derived from the general utility of the class to which a good belonged, from comparison of
present and future wants, and from anticipated difficulties in procurement.
Like the Italian mercantilists, Étienne Bonnot de Condillac saw value as determined by utility associated
with the class to which the good belongs, and by estimated scarcity. In De commerce et le gouvernement
(1776), Condillac emphasized that value is not based upon cost but that costs were paid because of value.
This last point was famously restated by the 19th century proto-marginalist Richard Whately, who wrote
as follows in Introductory Lectures on Political Economy (1832):
It is not that pearls fetch a high price because men have dived for them; but on the contrary,
men dive for them because they fetch a high price.[23]
Whately's student Nassau William Senior is noted below as an early marginalist.
Frédéric Bastiat in chapters V and XI of his Economic Harmonies (1850) also develops a theory of value
as ratio between services that increment utility, rather than between total utility.
Marginalists before the Revolution

The first unambiguous published statement of any sort of theory of marginal utility was by Daniel
Bernoulli, in "Specimen theoriae novae de mensura sortis".[24] This paper appeared in 1738, but a draft
had been written in 1731 or in 1732.[25][26] In 1728, Gabriel Cramer produced fundamentally the same
theory in a private letter.[27] Each had sought to resolve the St. Petersburg paradox, and had concluded
that the marginal desirability of money decreased as it was accumulated, more specifically such that the
desirability of a sum were the natural logarithm (Bernoulli) or square root (Cramer) thereof. However,
the more general implications of this hypothesis were not explicated, and the work fell into obscurity.
In "A Lecture on the Notion of Value as Distinguished Not Only from Utility, but also from Value in
Exchange",[28] delivered in 1833 and included in Lectures on Population, Value, Poor Laws and Rent
(1837), William Forster Lloyd explicitly offered a general marginal utility theory, but did not offer its
derivation nor elaborate its implications. The importance of his statement seems to have been lost on
everyone (including Lloyd) until the early 20th century, by which time others had independently
developed and popularized the same insight.[29]
In An Outline of the Science of Political Economy (1836), Nassau William Senior asserted that marginal
utilities were the ultimate determinant of demand, yet apparently did not pursue implications, though
some interpret his work as indeed doing just that.[30]
In "De la mesure de l'utilité des travaux publics" (1844), Jules Dupuit applied a conception of marginal
utility to the problem of determining bridge tolls.[31]
In 1854, Hermann Heinrich Gossen published Die Entwicklung der Gesetze des menschlichen Verkehrs
und der daraus fließenden Regeln für menschliches Handeln, which presented a marginal utility theory
and to a very large extent worked-out its implications for the behavior of a market economy. However,
Gossen's work was not well received in the Germany of his time, most copies were destroyed unsold, and
he was virtually forgotten until rediscovered after the so-called Marginal Revolution.
Marginal Revolution
Marginalism as a formal theory can be attributed to the work of three economists, Jevons in England,
Menger in Austria, and Walras in Switzerland. William Stanley Jevons first proposed the theory in
articles in 1863 and 1871.[32] Similarly, Carl Menger presented the theory in 1871.[33] Menger explained
why individuals use marginal utility to decide amongst trade-offs, but while his illustrative examples
present utility as quantified, his essential assumptions do not.[8] Léon Walras introduced the theory in
Éléments d'économie politique pure, the first part of which was published in 1874. The American John
Bates Clark is also associated with the origins of Marginalism, but did little to advance the theory.
Second generation
Although the Marginal Revolution flowed from the work of Jevons, Menger, and Walras, their work
might have failed to enter the mainstream were it not for a second generation of economists. In England,
the second generation were exemplified by Philip Wicksteed, by William Smart, and by Alfred Marshall;
in Austria by Eugen Böhm von Bawerk and by Friedrich von Wieser; in Switzerland by Vilfredo Pareto;
and in America by Herbert Joseph Davenport and by Frank A. Fetter.
There were significant, distinguishing features amongst the approaches of Jevons, Menger, and Walras,
but the second generation did not maintain distinctions along national or linguistic lines. The work of von
Wieser was heavily influenced by that of Walras. Wicksteed was heavily influenced by Menger. Fetter
referred to himself and Davenport as part of "the American Psychological School", named in imitation of
the Austrian "Psychological School". Clark's work from this period onward similarly shows heavy
influence by Menger. William Smart began as a conveyor of Austrian School theory to English-language
readers, though he fell increasingly under the influence of Marshall.[34]
Böhm-Bawerk was perhaps the most able expositor of Menger's conception.[34][35] He was further noted
for producing a theory of interest and of profit in equilibrium based upon the interaction of diminishing
marginal utility with diminishing marginal productivity of time and with time preference.[7] (This theory
was adopted in full and then further developed by Knut Wicksell[36] and with modifications including
formal disregard for time-preference by Wicksell's American rival Irving Fisher.[37])
Marshall was the second-generation marginalist whose work on marginal utility came most to inform the
mainstream of neoclassical economics, especially by way of his Principles of Economics, the first
volume of which was published in 1890. Marshall constructed the demand curve with the aid of
assumptions that utility was quantified, and that the marginal utility of money was constant, or nearly so.
Like Jevons, Marshall did not see an explanation for supply in the theory of marginal utility, so he paired
a marginal explanation of demand with a more classical explanation of supply, wherein costs were taken
to be objectively determined. Marshall later actively mischaracterized the criticism that these costs were
themselves ultimately determined by marginal utilities.[10]
Marginal Revolution as a response to socialism

The doctrines of marginalism and the Marginal Revolution are often interpreted as a response to the rise
of the worker's movement, Marxian economics and the earlier (Ricardian) socialist theories of the
exploitation of labour. The first volume of Das Kapital was not published until July 1867, when
marginalism was already developing, but before the advent of Marxian economics, proto-marginalist
ideas such as those of Gossen had largely fallen on deaf ears. It was only in the 1880s, when Marxism
had come to the fore as the main economic theory of the workers' movement, that Gossen found
(posthumous) recognition.[38]
Aside from the rise of Marxism, E. Screpanti and S. Zamagni point to a different 'external' reason for
marginalism's success, which is its successful response to the Long Depression and the resurgence of
class conflict in all developed capitalist economies after the 1848-1870 period of social peace.
Marginalism, Screpanti and Zamagni argue, offered a theory of the free market as perfect, as performing
optimal allocation of resources, while it allowed economists to blame any adverse effects of laissez-faire
economics on the interference of workers' coalitions in the proper functioning of the market.[38]
Scholars have suggested that the success of the generation who followed the preceptors of the Revolution
was their ability to formulate straightforward responses to Marxist economic theory.[39] The most famous
of these was that of Böhm-Bawerk, “Zum Abschluss des Marxschen Systems” (1896),[40] but the first
was Wicksteed's “The Marxian Theory of Value. Das Kapital: a criticism” (1884,[41] followed by “The
Jevonian criticism of Marx: a rejoinder” in 1885).[42] The most famous early Marxist responses were
Rudolf Hilferding's Böhm-Bawerks Marx-Kritik (1904)[43] and The Economic Theory of the Leisure
Class (1914) by Nikolai Bukharin.[44]
Eclipse
In his 1881 work Mathematical Psychics,[45] Francis Ysidro Edgeworth presented the indifference curve,
deriving its properties from marginalist theory which assumed utility to be a differentiable function of
quantified goods and services. But it came to be seen that indifference curves could be considered as
somehow given, without bothering with notions of utility.
In 1915, Eugen Slutsky derived a theory of consumer choice solely from properties of indifference
curves.[46] Because of the World War, the Bolshevik Revolution, and his own subsequent loss of interest,
Slutsky's work drew almost no notice, but similar work in 1934 by John Hicks and R. G. D. Allen[47]
derived much the same results and found a significant audience. Allen subsequently drew attention to
Slutsky's earlier accomplishment.
Although some of the third generation of Austrian School economists had by 1911 rejected the
quantification of utility while continuing to think in terms of marginal utility,[48] most economists
presumed that utility must be a sort of quantity. Indifference curve analysis seemed to represent a way of
dispensing with presumptions of quantification, albeït that a seemingly arbitrary assumption (admitted by
Hicks to be a "rabbit out of a hat")[49] about decreasing marginal rates of substitution[50] would then have
to be introduced to have convexity of indifference curves.
For those who accepted that superseded marginal utility analysis had been superseded by indifference
curve analysis, the former became at best somewhat analogous to the Bohr model of the atom—perhaps
pedagogically useful, but “old fashioned” and ultimately incorrect.[50][51]
Revival
When Cramer and Bernoulli introduced the notion of diminishing marginal utility, it had been to address
a paradox of gambling, rather than the paradox of value. The marginalists of the revolution, however, had
been formally concerned with problems in which there was neither risk nor uncertainty. So too with the
indifference curve analysis of Slutsky, Hicks, and Allen.
The expected utility hypothesis of Bernoulli et alii was revived by various 20th century thinkers,
including Frank Ramsey (1926),[52] John von Neumann and Oskar Morgenstern (1944),[53] and Leonard
Savage (1954).[54] Although this hypothesis remains controversial, it brings not merely utility but a
quantified conception thereof back into the mainstream of economic thought, and would dispatch the
Ockhamistic argument.[51] It should perhaps be noted that in expected utility analysis the law of
diminishing marginal utility corresponds to what is called risk aversion.
Criticism
Marxist criticism of marginalism

Karl Marx died before marginalism became the interpretation of economic value accepted by mainstream
economics. His theory was based on the labor theory of value, which distinguishes between exchange
value and use value. In his Capital, he rejected the explanation of long-term market values by supply and
demand:
Nothing is easier than to realize the inconsistencies of demand and supply, and the
resulting deviation of market-prices from market-values. The real difficulty consists in
determining what is meant by the equation of supply and demand.
[...]
If supply equals demand, they cease to act, and for this very reason commodities are sold
at their market-values. Whenever two forces operate equally in opposite directions, they
balance one another, exert no outside influence, and any phenomena taking place in
these circumstances must be explained by causes other than the effect of these two
forces. If supply and demand balance one another, they cease to explain anything, do not
affect market-values, and therefore leave us so much more in the dark about the reasons
why the market-value is expressed in just this sum of money and no other.[55]
In his early response to marginalism, Nikolai Bukharin argued that "the subjective evaluation from which
price is to be derived really starts from this price",[56] concluding:
Whenever the Böhm-Bawerk theory, it appears, resorts to individual motives as a basis

for the derivation of social phenomena, he is actually smuggling in the social content in a
more or less disguised form in advance, so that the entire construction becomes a vicious
circle, a continuous logical fallacy, a fallacy that can serve only specious ends, and
demonstrating in reality nothing more than the complete barrenness of modern bourgeois
theory.[57]
Similarly a later Marxist critic, Ernest Mandel, argued that marginalism was "divorced from reality",
ignored the role of production, further arguing:
It is, moreover, unable to explain how, from the clash of millions of different individual
"needs" there emerge not only uniform prices, but prices which remain stable over long
periods, even under perfect conditions of free competition. Rather than an explanation of
constants, and of the basic evolution of economic life, the "marginal" technique provides
at best an explanation of ephemeral, short-term variations.[58]
Maurice Dobb argued that prices derived through marginalism depend on the distribution of income. The
ability of consumers to express their preferences is dependent on their spending power. As the theory
asserts that prices arise in the act of exchange, Dobb argues that it cannot explain how the distribution of
income affects prices and consequently cannot explain prices.[59]
Dobb also criticized the motives behind marginal utility theory. Jevons wrote, for example, "so far as is
consistent with the inequality of wealth in every community, all commodities are distributed by exchange
so as to produce the maximum social benefit." (See Fundamental theorems of welfare economics.) Dobb
contended that this statement indicated that marginalism is intended to insulate market economics from
criticism by making prices the natural result of the given income distribution.[59]
Marxist adaptations to marginalism

Some economists strongly influenced by the Marxian tradition such as Oskar Lange, Włodzimierz Brus,
and Michał Kalecki have attempted to integrate the insights of classical political economy, marginalism,
and neoclassical economics. They believed that Marx lacked a sophisticated theory of prices, and
neoclassical economics lacked a theory of the social frameworks of economic activity. Some other
Marxists have also argued that on one level there is no conflict between marginalism and Marxism as one
could employ a marginalist theory of supply and demand within the context of a big picture
understanding of the Marxist notion that capitalists exploit surplus labor.[60]
See also
Theory of value
References
1. Wicksteed, Philip Henry; The Common Sense of Political Economy (1910), Bk I Ch 2 and
elsewhere.
2. von Wieser, Friedrich; Über den Ursprung und die Hauptgesetze des wirtschaftlichen
Wertes [The Nature and Essence of Theoretical Economics] (1884), p. 128.
3. von Wieser, Friedrich; Der natürliche Werth [Natural Value] (1889), Bk I Ch V "Marginal
Utility" (HTML (http://praxeology.net/FW-NV-I-5.htm)).
4. Mc Culloch, James Huston; "The Austrian Theory of the Marginal Use and of Ordinal
Marginal Utility", Zeitschrift für Nationalökonomie 37 (1973) #3&4 (September).
5. Stigler, George Joseph; "The Development of Utility Theory" Journal of Political Economy
(1950).
6. Stigler, George Joseph; "The Adoption of Marginal Utility Theory" History of Political
Economy (1972).
7. Böhm-Bawerk, Eugen Ritter von; Kapital Und Kapitalizns. Zweite Abteilung: Positive
Theorie des Kapitales (1889). Translated as Capital and Interest. II: Positive Theory of
Capital with appendices rendered as Further Essays on Capital and Interest.
8. Theodore-Angwenyi, Nicholas; "Utility", International Encyclopedia of the Social Sciences
(1968).
9. Edgeworth, Francis Ysidro; Mathematical Psychics (http://socserv.mcmaster.ca/econ/ugcm/
3ll3/edgeworth/mathpsychics.pdf) (1881).
10. Schumpeter, Joseph Alois; History of Economic Analysis (1954) Pt IV Ch 6 §4.
11. Mund, Vernon Arthur; Monopoly: A History and Theory (1933).
12. Mises, Ludwig Heinrich Edler von; Nationalökonomie: Theorie des Handelns und
Wirtschaftens (http://library.mises.org/books/Ludwig%20von%20Mises/Nationalokonomie%
20Theorie%20des%20Handelns%20und%20Wirtschaftens.pdf) (1940). (See also his
Human Action. (https://mises.org/books/humanaction.pdf))
13. Smith, Adam; An Inquiry into the Nature and Causes of the Wealth of Nations (1776)
Chapter IV. "Of the Origin and Use of Money".
14. Gordon, Scott (1991). "The Scottish Enlightenment of the eighteenth century". History and
Philosophy of Social Science: An Introduction. Routledge. ISBN 0-415-09670-7.
15. Aristotle, Politics, Bk 7 Chapter 1.
16. Soudek, Josef; “Aristotle's Theory of Exchange: An Inquiry into the Origin of Economic
Analysis”, Proceedings of the American Philosophical Society v 96 (1952) pp. 45–75.
17. Kauder, Emil; “Genesis of the Marginal Utility Theory from Aristotle to the End of the
Eighteenth Century”, Economic Journal v 63 (1953) pp. 638–50.
18. Gordon, Barry Lewis John; “Aristotle and the Development of Value Theory”, Quarterly
Journal of Economics v 78 (1964).
19. Schumpeter, Joseph Alois; History of Economic Analysis (1954) Part II Chapter 1 §3.
20. Meikle, Scott; Aristotle's Economic Thought (1995) Chapters 1, 2, & 6.
21. Přibram, Karl; A History of Economic Reasoning (1983).
22. Pribram, Karl; A History of Economic Reasoning (1983), Chapter 5 “Refined Mercantilism”,
“Italian Mercantilists”.
23. Whately, Richard; Introductory Lectures on Political Economy, Being part of a course
delivered in the Easter term (1832).
24. Bernoulli, Daniel; "Specimen theoriae novae de mensura sortis" in Commentarii Academiae
Scientiarum Imperialis Petropolitanae 5 (1738); reprinted in translation as "Exposition of a
new theory on the measurement of risk" in Econometrica 22 (1954).
25. Bernoulli, Daniel; letter of 4 July 1731 to Nicolas Bernoulli (excerpted in PDF (http://www.cs.
xu.edu/math/Sources/Montmort/stpetersburg.pdf#search=%22Nicolas%20Bernoulli%22)
Archived (https://web.archive.org/web/20080909221757/http://www.cs.xu.edu/math/Source
s/Montmort/stpetersburg.pdf) 9 September 2008 at the Wayback Machine).
26. Bernoulli, Nicolas; letter of 5 April 1732, acknowledging receipt of "Specimen theoriae
novae metiendi sortem pecuniariam" (excerpted in PDF (http://www.cs.xu.edu/math/Source
s/Montmort/stpetersburg.pdf#search=%22Nicolas%20Bernoulli%22) Archived (https://web.a
rchive.org/web/20080909221757/http://www.cs.xu.edu/math/Sources/Montmort/stpetersbur
g.pdf) 9 September 2008 at the Wayback Machine).
27. Cramer, Garbriel; letter of 21 May 1728 to Nicolaus Bernoulli (excerpted in PDF (http://www.
cs.xu.edu/math/Sources/Montmort/stpetersburg.pdf#search=%22Nicolas%20Bernoulli%22)
Archived (https://web.archive.org/web/20080909221757/http://www.cs.xu.edu/math/Source
s/Montmort/stpetersburg.pdf) 9 September 2008 at the Wayback Machine).
28. Finally some recognition that the guidance isn't clear.
29. Seligman, Edwin Robert Anderson; "On some neglected British economists", Economic
Journal v. 13 (September 1903).
30. White, Michael V; "Diamonds Are Forever(?): Nassau Senior and Utility Theory" in The
Manchester School of Economic & Social Studies 60 (1992) #1 (March).
31. Dupuit, Jules; "De la mesure de l'utilité des travaux publics", Annales des ponts et
chaussées, Second series, 8 (1844).
32. “A General Mathematical Theory of Political Economy” (http://socserv2.socsci.mcmaster.ca/
~econ/ugcm/3ll3/jevons/mathem.txt) (PDF (http://www.eco.utexas.edu/~hmcleave/jevonsma
th.pdf)), The Theory of Political Economy (1871).
33. Grundsätze der Volkswirtschaftslehre (translated as Principles of Economics PDF (https://mi
ses.org/document/595))
34. Salerno, Joseph T. 1999; "The Place of Mises's Human Action in the Development of
Modern Economic Thought". Quarterly Journal of Economic Thought v. 2 (1).
35. Böhm-Bawerk, Eugen Ritter von. "Grundzüge der Theorie des wirtschaftlichen
Güterwerthes", Jahrbüche für Nationalökonomie und Statistik v 13 (1886). Translated as
Basic Principles of Economic Value.
36. Wicksell, Johan Gustaf Knut; Über Wert, Kapital unde Rente (1893). Translated as Value,
Capital and Rent. (https://mises.org/books/valuecapital.pdf)
37. Fisher, Irving; Theory of Interest (1930).
38. Screpanti, Ernesto; Zamagni, Stefano (2005). An Outline of the History of Economic Theory.
Oxford University Press. pp. 170–173.
39. Screpanti, Ernesto, and Stefano Zamagni; An Outline of the History of Economic Thought
(1994).
40. Böhm-Bawerk, Eugen Ritter von; “Zum Abschluss des Marxschen Systems” [“On the
Closure of the Marxist System”], Staatswiss. Arbeiten. Festgabe für K. Knies (1896).
41. Wicksteed, Philip Henry; “Das Kapital: A Criticism”, To-day 2 (1884) pp. 388–409.
42. Wicksteed, Philip Henry; “The Jevonian criticism of Marx: a rejoinder”, To-day 3 (1885) pp.
177–79.
43. Hilferding, Rudolf; Böhm-Bawerks Marx-Kritik (1904). Translated as Böhm-Bawerk's
Criticism of Marx.
44. Nikolai Bukharin; Политической экономии рантье (1914). Translated as The Economic
Theory of the Leisure Class (https://www.marxists.org/archive/bukharin/works/1927/leisure-
economics/).
45. Mathematical Psychics (http://socserv.mcmaster.ca/econ/ugcm/3ll3/edgeworth/mathpsychic
s.pdf)
46. Eugen Slutsky; "Sulla teoria del bilancio del consumatore", Giornale degli Economisti 51
(1915).
47. Hicks, John Richard, and Roy George Douglas Allen; "A Reconsideration of the Theory of
Value", Economica 54 (1934).
48. von Mises, Ludwig Heinrich; Theorie des Geldes und der Umlaufsmittel (1912).
49. Hicks, Sir John Richard; Value and Capital, Chapter I. "Utility and Preference" §8, p. 23 in
the 2nd edition.
50. Hicks, Sir John Richard; Value and Capital, Chapter I. "Utility and Preference" §7–8.
51. Samuelson, Paul Anthony; "Complementarity: An Essay on the 40th Anniversary of the
Hicks-Allen Revolution in Demand Theory", Journal of Economic Literature vol 12 (1974).
52. Ramsey, Frank Plumpton; “Truth and Probability” (PDF (http://cepa.newschool.edu/het//text
s/ramsey/ramsess.pdf) Archived (https://web.archive.org/web/20080227205205/http://cepa.
newschool.edu/het//texts/ramsey/ramsess.pdf) 27 February 2008 at the Wayback Machine),
Chapter VII in The Foundations of Mathematics and other Logical Essays (1931).
53. von Neumann, John and Oskar Morgenstern; Theory of Games and Economic Behavior
(1944).
54. Savage, Leonard Jimmie; Foundations of Statistics (1954).
55. Marx, Karl; Capital v. III pt. II ch. 10 (https://www.marxists.org/archive/marx/works/1894-c3/c
h10.htm).
56. Nikolai Bukharin (1914) The Economic Theory of the Leisure Class, Chapter 3, Section 2.
[1] (https://www.marxists.org/archive/bukharin/works/1927/leisure-economics/ch03.htm#s6).
57. Nicholai Bukharin (1914) The Economic Theory of the Leisure Class, Chapter 3, Section 6.
[2] (https://www.marxists.org/archive/bukharin/works/1927/leisure-economics/ch03.htm#s6).
58. Mandel, Ernest; Marxist Economic Theory (1962), “The marginalist theory of value and neo-
classical political economy” (https://www.marxists.org/archive/mandel/works/marxist-econo
mic-theory/marginalists.htm).
59. Dobb, Maurice; Theories of value and Distribution (1973).
60. Steedman, Ian; Socialism & Marginalism in Economics, 1870–1930 (1995).
External links
Backhouse, Roger E. "Marginal Revolution." eds. Steven N. Durlauf and Lawrence E.
Blume (2008). The New Palgrave Dictionary of Economics. Palgrave Macmillan. 2nd edition
online (http://www.dictionaryofeconomics.com/article?id=pde2008_M000392)
doi:10.1057/9780230226203.1026 (https://doi.org/10.1057%2F9780230226203.1026)
Retrieved from "https://en.wikipedia.org/w/index.php?title=Marginalism&oldid=930545611"
This page was last edited on 13 December 2019, at 06:19 (UTC).

Alfred Marshall
Alfred Marshall FBA (26 July 1842 – 13 July 1924) was one of
Alfred Marshall
the most influential economists of his time. His book, Principles
FBA
of Economics (1890), was the dominant economic textbook in
England for many years. It brings the ideas of supply and
demand, marginal utility, and costs of production into a coherent
whole. He is known as one of the founders of neoclassical
economics.[1] Although Marshall took economics to a more
mathematically rigorous level, he did not want mathematics to
overshadow economics and thus make economics irrelevant to
the layman.
Contents
Life and career
Contributions to economics
Principles of Economics (1890)
Theoretical contributions Born 26 July 1842
The Marshallian industrial district London, England
Later career Died 13 July 1924
Final years, death and legacy (aged 81)
Works Cambridge,
England
See also
Nationality British
References
Further reading Institution St John's College,
Cambridge
External links
University College,
Bristol
Balliol College,
Life and career Oxford
Marshall was born in London. His father was a bank cashier and School or Neoclassical
devout Evangelical. Marshall grew up in Clapham and was tradition economics
educated at the Merchant Taylors' School and St John's College,
Alma mater St John's College,
Cambridge, where he demonstrated an aptitude in mathematics,
Cambridge
achieving the rank of Second Wrangler in the 1865 Cambridge
Influences Léon Walras,
Mathematical Tripos.[2][3] Marshall experienced a mental crisis
Vilfredo Pareto,
that led him to abandon physics and switch to philosophy. He
Jules Dupuit,
began with metaphysics, specifically "the philosophical
Stanley Jevons,
foundation of knowledge, especially in relation to theology.".[4]
Henry Sidgwick
Metaphysics led Marshall to ethics, specifically a Sidgwickian
version of utilitarianism; ethics, in turn, led him to economics, Contributions Founder of
because economics played an essential role in providing the neoclassical
preconditions for the improvement of the working class. economics
Principles of
He saw that the duty of economics was to improve material Economics (1890)
conditions, but such improvement would occur, Marshall
believed, only in connection with social and political forces. His interest in Georgism, liberalism,
socialism, trade unions, women's education, poverty and progress reflect the influence of his early social
philosophy on his later activities and writings.
Marshall was elected in 1865 to a fellowship at St John's College at Cambridge, and became lecturer in
the moral sciences in 1868. In 1885 he became professor of political economy at Cambridge, where he
remained until his retirement in 1908. Over the years he interacted with many British thinkers including
Henry Sidgwick, W.K. Clifford, Benjamin Jowett, William Stanley Jevons, Francis Ysidro Edgeworth,
John Neville Keynes and John Maynard Keynes. Marshall founded the Cambridge School which paid
special attention to increasing returns, the theory of the firm, and welfare economics; after his retirement
leaderships passed to Arthur Cecil Pigou and John Maynard Keynes.
Contributions to economics
Marshall desired to improve the mathematical rigour of
economics and transform it into a more scientific profession. In
the 1870s he wrote a small number of tracts on international trade
and the problems of protectionism. In 1879, many of these works
were compiled into a work entitled The Theory of Foreign Trade:
The Pure Theory of Domestic Values. In the same year (1879) he
published The Economics of Industry with his wife Mary Paley.
Although Marshall took economics to a more mathematically

rigorous level, he did not want mathematics to overshadow
economics and thus make economics irrelevant to the layman.
Accordingly, Marshall tailored the text of his books to laymen
and put the mathematical content in the footnotes and appendices
for the professionals. In a letter to A. L. Bowley, he laid out the
following system:
(1) Use mathematics as shorthand language, rather

than as an engine of inquiry. (2) Keep to them till Elements of economics of industry,
you have done. (3) Translate into English. (4) Then 1892
illustrate by examples that are important in real life
(5) Burn the mathematics. (6) If you can't succeed in
4, burn 3. This I do often."[5]
Marshall had been Mary Paley's professor of political economy at Cambridge and the two were married
in 1877, forcing Marshall to leave his position as a Fellow of St John's College, Cambridge to comply
with celibacy rules at the university. He became the first principal at University College, Bristol, which
was the institution that later became the University of Bristol, again lecturing on political economy and
economics. He perfected his Economics of Industry while at Bristol, and published it more widely in
England as an economic curriculum; its simple form stood upon sophisticated theoretical foundations.
Marshall achieved a measure of fame from this work, and upon the death of William Jevons in 1882,
Marshall became the leading British economist of the scientific school of his time.
Marshall returned to Cambridge, via a brief period at Balliol College, Oxford during 1883–4, to take the
seat as Professor of Political Economy in 1884 on the death of Henry Fawcett. At Cambridge he
endeavoured to create a new tripos for economics, a goal which he would only achieve in 1903. Until
that time, economics was taught under the Historical and Moral Sciences Triposes which failed to
provide Marshall the kind of energetic and specialised students he desired.
Principles of Economics (1890)

Marshall began his economic work, the Principles of Economics, in 1881, and spent much of the next
decade at work on the treatise. His plan for the work gradually extended to a two-volume compilation on
the whole of economic thought. The first volume was published in 1890 to worldwide acclaim,
establishing him as one of the leading economists of his time. The second volume, which was to address
foreign trade, money, trade fluctuations, taxation, and collectivism, was never published.
Principles of Economics established his worldwide reputation. It appeared in 8 editions, starting at 750
pages and growing to 870 pages. It decisively shaped the teaching of economics in English-speaking
countries. Its main technical contribution was a masterful analysis of the issues of elasticity, consumer
surplus, increasing and diminishing returns, short and long terms, and marginal utility. Many of the ideas
were original with Marshall; others were improved versions of the ideas by W. S. Jevons and others.
In a broader sense Marshall hoped to reconcile the classical and modern theories of value. John Stuart
Mill had examined the relationship between the value of commodities and their production costs, on the
theory that value depends on the effort expended in manufacture. Jevons and the Marginal Utility
theorists had elaborated a theory of value based on the idea of maximising utility, holding that value
depends on demand. Marshall's work used both these approaches, but he focused more on costs. He noted
that, in the short run, supply cannot be changed and market value depends mainly on demand. In an
intermediate time period, production can be expanded by existing facilities, such as buildings and
machinery, but, since these do not require renewal within this intermediate period, their costs (called
fixed, overhead, or supplementary costs) have little influence on the sale price of the product. Marshall
pointed out that it is the prime or variable costs, which constantly recur, that influence the sale price most
in this period. In a still longer period, machines and buildings wear out and have to be replaced, so that
the sale price of the product must be high enough to cover such replacement costs. This classification of
costs into fixed and variable and the emphasis given to the element of time probably represent one of
Marshall's chief contributions to economic theory. He was committed to partial equilibrium models over
general equilibrium on the grounds that the inherently dynamical nature of economics made the former
more practically useful.
Much of the success of Marshall's teaching and Principles book derived from his effective use of
diagrams, which were soon emulated by other teachers worldwide.[6]
Alfred Marshall was the first to develop the standard supply and demand graph demonstrating a number
of fundamentals regarding supply and demand including the supply and demand curves, market
equilibrium, the relationship between quantity and price in regards to supply and demand, the law of
marginal utility, the law of diminishing returns, and the ideas of consumer and producer surpluses. This
model is now used by economists in various forms using different variables to demonstrate several other
economic principles. Marshall's model allowed a visual
representation of complex economic fundamentals where
before all the ideas and theories were only capable of being
explained through words. These models are now critical
throughout the study of economics because they allow a clear
and concise representation of the fundamentals or theories
being explained.
Theoretical contributions
Marshall is considered to be one of the most influential
economists of his time, largely shaping mainstream economic
thought for the next fifty years, and being one of the founders
of the school of neoclassical economics. Although his
economics was advertised as extensions and refinements of
the work of Adam Smith, David Ricardo, Thomas Robert Alfred Marshall's supply and demand
Malthus and John Stuart Mill, he extended economics away graph.
from its classical focus on the market economy and instead
popularised it as a study of human behaviour. He downplayed
the contributions of certain other economists to his work, such as Léon Walras, Vilfredo Pareto and Jules
Dupuit, and only grudgingly acknowledged the influence of Stanley Jevons himself.
Marshall was one of those who used utility analysis, but not as a theory of value. He used it as a part of
the theory to explain demand curves and the principle of substitution. Marshall's scissors analysis –
which combined demand and supply, that is, utility and cost of production, as if in the two blades of a
pair of scissors – effectively removed the theory of value from the center of analysis and replaced it with
the theory of price. While the term "value" continued to be used, for most people it was a synonym for
"price". Prices no longer were thought to gravitate toward some ultimate and absolute basis of price;
prices were existential, between the relationship of demand and supply.
Marshall's influence on codifying economic thought is difficult to deny. He popularised the use of supply
and demand functions as tools of price determination (previously discovered independently by Cournot);
modern economists owe the linkage between price shifts and curve shifts to Marshall. Marshall was an
important part of the "marginalist revolution;" the idea that consumers attempt to adjust consumption
until marginal utility equals the price was another of his contributions. The price elasticity of demand
was presented by Marshall as an extension of these ideas. Economic welfare, divided into producer
surplus and consumer surplus, was contributed by Marshall, and indeed, the two are sometimes described
eponymously as 'Marshallian surplus.' He used this idea of surplus to rigorously analyse the effect of
taxes and price shifts on market welfare. Marshall also identified quasi-rents.
Marshall's brief references to the social and cultural relations in the "industrial districts" of England were
used as a starting point for late twentieth-century work in economic geography and institutional
economics on clustering and learning organisations.
Gary Becker (1930-2014), the 1992 Nobel prize winner in economics, has mentioned that Milton
Friedman and Alfred Marshall were the two greatest influences on his work.
Another contribution that Marshall made was differentiating concepts of internal and external economies
of scale. That is that when costs of input factors of production go down, it is a positive externality for all
the firms in the market place, outside the control of any of the firms.[7]
The Marshallian industrial district

A concept based on a pattern of organisation that was common in late nineteenth century Britain in which
firms concentrating on the manufacture of certain products were geographically clustered. Comments
made by Marshall in Book 4, Chapter 10 of Principles of Economics[8] have been used by economists
and economic geographers to discuss this phenomenon.
The two dominant characteristics of a Marshallian industrial district[9] are high degrees of vertical and
horizontal specialisation and a very heavy reliance on market mechanism for exchange. Firms tend to be
small and to focus on a single function in the production chain. Firms located in industrial districts are
highly competitive in the neoclassical sense, and in many cases there is little product differentiation. The
major advantages of Marshallian industrial districts arise from simple propinquity of firms, which allows
easier recruitment of skilled labour and rapid exchanges of commercial and technical information
through informal channels. They illustrate competitive capitalism at its most efficient, with transaction
costs reduced to a practical minimum, but they are feasible only when economies of scale are limited.
Later career
Marshall served as President of the first day of the 1889 Co-operative Congress.[10]
Over the next two decades he worked to complete the second volume of his Principles, but his
unyielding attention to detail and ambition for completeness prevented him from mastering the work's
breadth. The work was never finished and many other, lesser works he had begun work on – a
memorandum on trade policy for the Chancellor of the Exchequer in the 1890s, for instance – were left
incomplete for the same reasons.
His health problems had gradually grown worse since the 1880s, and in 1908 he retired from the
university. He hoped to continue work on his Principles but his health continued to deteriorate and the
project had continued to grow with each further investigation. The outbreak of the First World War in
1914 prompted him to revise his examinations of the international economy and in 1919 he published
Industry and Trade at the age of 77. This work was a more empirical treatise than the largely theoretical
Principles, and for that reason it failed to attract as much acclaim from theoretical economists. In 1923,
he published Money, Credit, and Commerce, a broad amalgam of previous economic ideas, published and
unpublished, stretching back a half-century.
Final years, death and legacy

From 1890 to 1924 he was the respected father of the economic profession and to most economists for
the half-century after his death, the venerable grandfather. He had shied away from controversy during
his life in a way that previous leaders of the profession had not, although his even-handedness drew great
respect and even reverence from fellow economists, and his home at Balliol Croft in Cambridge had no
shortage of distinguished guests. His students at Cambridge became leading figures in economics,
including John Maynard Keynes and Arthur Cecil Pigou. His most important legacy was creating a
respected, academic, scientifically founded profession for economists in the future that set the tone of the
field for the remainder of the 20th century.
Marshall died aged 81 at his home in Cambridge and is buried in the Ascension Parish Burial Ground.[11]
The library of the Department of Economics at Cambridge University (The Marshall Library of
Economics), the Economics society at Cambridge (The Marshall Society)[12] as well as the University of
Bristol Economics department are named after him. His archive is available for consultation by
appointment at the Marshall Library of Economics.[13]
His home, Balliol Croft, was renamed Marshall House in 1991 in his honour when it was bought by Lucy
Cavendish College, Cambridge.[14]
Alfred Marshall's wife was Mary Paley, co-founder of Newnham College; she continued to live in Balliol
Croft until her death in 1944; her ashes were scattered in the garden.
Works
1879 - The Economics of Industry (with Mary Paley Marshall)
1879 - The Pure Theory of Foreign Trade: The Pure Theory of Domestic Values
1890 - Principles of Economics
1919 - Industry and Trade
1923 - Money, Credit and Commerce.
See also
Welfare definition of economics
Marshall Jevons, a pseudonym partly derived from Marshall's name
References
1. "Alfred Marshall" (https://web.archive.org/web/20161107181816/http://economics.illinoisstat
e.edu/ntskaggs/eco372/readings/alfred_marshall.htm). economics.illinoisstate.edu.
Archived from the original (http://economics.illinoisstate.edu/ntskaggs/eco372/readings/alfre
d_marshall.htm) on 7 November 2016. Retrieved 1 June 2017.
2. "Marshall, Alfred (MRSL861A)" (http://venn.lib.cam.ac.uk/cgi-bin/search-2018.pl?sur=&suro
=w&fir=&firo=c&cit=&cito=c&c=all&z=all&tex=MRSL861A&sye=&eye=&col=all&maxcount=5
0). A Cambridge Alumni Database. University of Cambridge.
3. McWilliams Tullberg (May 2008). "Alfred Marshall (1896-2019)" (http://www.oxforddnb.com/
view/article/34893). Oxford Dictionary of National Biography, OUP.
doi:10.1093/ref:odnb/34893 (https://doi.org/10.1093%2Fref%3Aodnb%2F34893). Retrieved
25 April 2008.
4. Keynes, 1924
5. Dimand, Robert W. (2007). "Keynes, IS-LM, and the Marshallian Tradition". History of
Political Economy. Duke University Press. 39 (1): 81–95. doi:10.1215/00182702-2006-024
(https://doi.org/10.1215%2F00182702-2006-024).
6. Cook (2005)
7. "External Economies of Scale" (http://www.investopedia.com/articles/03/012703.asp#axzz1
WK4kQ0T3). Investopedia.
8. Fiorenza Belussi, "Industrial Districts/Local Production Systems as hypernetworks: a neo-
Marshallian interpretive frame", in Marco Enrico Luigi Guidi, The changing firm,
contributions from the history of economic thought
9. Alfred Marshall y la teoría económica del empresario, Jesus M. Zaratiegui (http://dspace.un
av.es/dspace/handle/10171/6115) Archived (https://web.archive.org/web/20100912205751/
http://dspace.unav.es/dspace/handle/10171/6115) 12 September 2010 at the Wayback
Machine .
10. "Congress Presidents 1869–2002" (https://web.archive.org/web/20080528100558/http://arc
hive.co-op.ac.uk/downloadFiles/congressPresidentstable.pdf) (PDF). February 2002.
Archived from the original (http://archive.co-op.ac.uk/downloadFiles/congressPresidentstabl
e.pdf) (PDF) on 28 May 2008. Retrieved 10 May 2008.
11. A Guide to Churchill College, Cambridge: text by Dr. Mark Goldie, pages 62 and 63 (2009)
12. marshallsociety.com
13. A finding aid to his materials is available at "Marshall Library Archives - Overview" (http://ww
w.marshall.econ.cam.ac.uk/archives/archivescollections).
14. "Lucy Cavendish College Site and Buildings" (https://web.archive.org/web/2011092701502
7/http://www.lucy-cav.cam.ac.uk/media/college/documents/site-buildings.pdf) (PDF).
Archived from the original (http://www.lucy-cav.cam.ac.uk/media/college/documents/site-buil
dings.pdf) (PDF) on 27 September 2011.
Further reading
Backhouse, Roger E. "Sidgwick, Marshall, and the Cambridge School of Economics."
History of Political Economy 2006 38(1): 15–44. ISSN 0018-2702 (https://www.worldcat.org/
search?fq=x0:jrnl&q=n2:0018-2702) Fulltext: Ebsco
Cook, Simon J. "Late Victorian Visual Reasoning and Alfred Marshall's Economic Science
(https://www.academia.edu/1465608/Late_Victorian_visual_reasoning_and_Alfred_Marshall
s_economic_science)." British Journal for the History of Science 2005 38(2): 179–195.
ISSN 0007-0874 (https://www.worldcat.org/search?fq=x0:jrnl&q=n2:0007-0874)
Cook, Simon J. "Race and Nation in Marshall's Histories (https://www.academia.edu/44467
35/Race_and_Nation_in_Marshalls_Histories)." European Journal of the History of
Economic Thought 2013 20(6): 940–956.
Cook, Simon J. The Intellectual Foundations of Alfred Marshall's Economic Science: A
Rounded Globe of Knowledge (https://www.academia.edu/2311967/The_Intellectual_Found
ations_of_Alfred_Marshalls_Economic_Science_A_Rounded_Globe_of_Knowledge_CUP_
2009_) (2009)
Groenewegen, Peter. A Soaring Eagle: Alfred Marshall: 1842–1924 (1995) 880pp, the major
scholarly biography
Groenewegen, Peter. Alfred Marshall: Economist 1842–1924 (2007, short version)
Keynes, John Maynard. "Alfred Marshall, 1842–1924," The Economic Journal 34#135
September 1924 pp. 311–372, included in his Essays in Biography (1933, 1951) at 125–
217, in JSTOR (https://www.jstor.org/pss/2222645)
Parsons, Talcott. "The Structure of Social Action." (1937), Chapter IV.
Narmadeshwar Jha, The Age of Marshall: Aspects of British Economic Thought – 1890–
1915. London: F. Cass, 1973.
Raffaelli, Tiziano et al. The Elgar Companion to Alfred Marshall 2006. 752 ISBN 1-84376-
072-X.
Tullberg, Rita McWilliams. "Marshall, Alfred (1842–1924)" Oxford Dictionary of National
Biography 2004;
Tullberg, Rita McWilliams, ed. Alfred Marshall in Retrospect (1990) ·
External links
Works by or about Alfred Marshall (https://archive.org/search.php?query=%28%28subject%
3A%22Marshall%2C%20Alfred%22%20OR%20subject%3A%22Alfred%20Marshall%22%2
0OR%20creator%3A%22Marshall%2C%20Alfred%22%20OR%20creator%3A%22Alfred%2
0Marshall%22%20OR%20title%3A%22Alfred%20Marshall%22%20OR%20description%3
A%22Marshall%2C%20Alfred%22%20OR%20description%3A%22Alfred%20Marshall%2
2%29%20OR%20%28%221842-1924%22%20AND%20Marshall%29%29%20AND%20%2
8-mediatype:software%29) at Internet Archive
Works by Alfred Marshall (https://librivox.org/author/4337) at LibriVox (public domain
audiobooks)
List of major works. (https://web.archive.org/web/20090304144645/http://cepa.newschool.e
du/het/profiles/marshall.htm)
"Marshall, Alfred" (https://en.wikisource.org/wiki/The_Encyclopedia_Americana_(1920)/M
arshall,_Alfred). Encyclopedia Americana. 1920.
Alfred Marshall (https://www.findagrave.com/memorial/5935486) at Find a Grave
Retrieved from "https://en.wikipedia.org/w/index.php?title=Alfred_Marshall&oldid=940941656"
Neoclassical economics
Neoclassical economics is an approach to economics focusing on the determination of goods, outputs,
and income distributions in markets through supply and demand. This determination is often mediated
through a hypothesized maximization of utility by income-constrained individuals and of profits by firms
facing production costs and employing available information and factors of production, in accordance
with rational choice theory[1], a theory that has come under considerable question in recent years.
Neoclassical economics dominates microeconomics and, together with Keynesian economics, forms the
neoclassical synthesis which dominates mainstream economics today.[2] Although neoclassical
economics has gained widespread acceptance by contemporary economists, there have been many
critiques of neoclassical economics, often incorporated into newer versions of neoclassical theory, but
some remaining distinct fields.
Contents
Overview
Three central assumptions
Origins
Marginal revolution
Further developments
Criticisms
See also
References
External links
Overview
The term was originally introduced by Thorstein Veblen in his 1900 article 'Preconceptions of Economic
Science', in which he related marginalists in the tradition of Alfred Marshall et al. to those in the Austrian
School.[3][4]
No attempt will here be made even to pass a verdict on the relative claims of the recognized
two or three main "schools" of theory, beyond the somewhat obvious finding that, for the
purpose in hand, the so-called Austrian school is scarcely distinguishable from the neo-
classical, unless it be in the different distribution of emphasis. The divergence between the
modernized classical views, on the one hand, and the historical and Marxist schools, on the
other hand, is wider, so much so, indeed, as to bar out a consideration of the postulates of the
latter under the same head of inquiry with the former. – Veblen[5]
It was later used by John Hicks, George Stigler, and others[6] to include the work of Carl Menger,
William Stanley Jevons, Léon Walras, John Bates Clark, and many others.[3] Today it is usually used to
refer to mainstream economics, although it has also been used as an umbrella term encompassing a
number of other schools of thought,[7] notably excluding institutional economics, various historical
schools of economics, and Marxian economics, in addition to various other heterodox approaches to
economics.
Neoclassical economics is characterized by several assumptions common to many schools of economic

thought. There is not a complete agreement on what is meant by neoclassical economics, and the result is
a wide range of neoclassical approaches to various problem areas and domains—ranging from
neoclassical theories of labor to neoclassical theories of demographic changes.
Three central assumptions

It was expressed by E. Roy Weintraub that neoclassical economics rests on three assumptions, although
certain branches of neoclassical theory may have different approaches:[8]
1. People have rational preferences between outcomes that can be identified and associated
with values.
2. Individuals maximize utility and firms maximize profits.
3. People act independently on the basis of full and relevant information.
From these three assumptions, neoclassical economists have built a structure to understand the allocation
of scarce resources among alternative ends—in fact understanding such allocation is often considered the
definition of economics to neoclassical theorists. Here's how William Stanley Jevons presented "the
problem of Economics".
Given, a certain population, with various needs and powers of production, in possession of
certain lands and other sources of material: required, the mode of employing their labour
which will maximize the utility of their produce.[9]
From the basic assumptions of neoclassical economics comes a wide range of theories about various
areas of economic activity. For example, profit maximization lies behind the neoclassical theory of the
firm, while the derivation of demand curves leads to an understanding of consumer goods, and the supply
curve allows an analysis of the factors of production. Utility maximization is the source for the
neoclassical theory of consumption, the derivation of demand curves for consumer goods, and the
derivation of labor supply curves and reservation demand.[10]
Market supply and demand are aggregated across firms and individuals. Their interactions determine
equilibrium output and price. The market supply and demand for each factor of production is derived
analogously to those for market final output (https://bea.gov/bea/glossary/glossary.cfm?key_word=Final_
use&letter=F#Final_use) to determine equilibrium income and the income distribution. Factor demand
incorporates the marginal-productivity relationship of that factor in the output market.[6][11][12][13]
Neoclassical economics emphasizes equilibria, which are the solutions of agent maximization problems.
Regularities in economies are explained by methodological individualism, the position that economic
phenomena can be explained by aggregating over the behavior of agents. The emphasis is on
microeconomics. Institutions, which might be considered as prior to and conditioning individual
behavior, are de-emphasized. Economic subjectivism accompanies these emphases. See also general
equilibrium.
Origins
Classical economics, developed in the 18th and 19th centuries, included a value theory and distribution
theory. The value of a product was thought to depend on the costs involved in producing that product.
The explanation of costs in classical economics was simultaneously an explanation of distribution. A
landlord received rent, workers received wages, and a capitalist tenant farmer received profits on their
investment. This classic approach included the work of Adam Smith and David Ricardo.
However, some economists gradually began emphasizing the perceived value of a good to the consumer.
They proposed a theory that the value of a product was to be explained with differences in utility
(usefulness) to the consumer. (In England, economists tended to conceptualize utility in keeping with the
utilitarianism of Jeremy Bentham and later of John Stuart Mill.)
The third step from political economy to economics was the introduction of marginalism and the
proposition that economic actors made decisions based on margins. For example, a person decides to buy
a second sandwich based on how full he or she is after the first one, a firm hires a new employee based
on the expected increase in profits the employee will bring. This differs from the aggregate decision
making of classical political economy in that it explains how vital goods such as water can be cheap,
while luxuries can be expensive.
Marginal revolution
The change in economic theory from classical to neoclassical economics has been called the "marginal
revolution", although it has been argued that the process was slower than the term suggests.[14] It is
frequently dated from William Stanley Jevons's Theory of Political Economy (1871), Carl Menger's
Principles of Economics (1871), and Léon Walras's Elements of Pure Economics (1874–1877). Historians
of economics and economists have debated:
Whether utility or marginalism was more essential to this revolution (whether the noun or
the adjective in the phrase "marginal utility" is more important)
Whether there was a revolutionary change of thought or merely a gradual development and
change of emphasis from their predecessors
Whether grouping these economists together disguises differences more important than
their similarities.[15]
In particular, Jevons saw his economics as an application and development of Jeremy Bentham's
utilitarianism and never had a fully developed general equilibrium theory. Menger did not embrace this
hedonic conception, explained diminishing marginal utility in terms of subjective prioritization of
possible uses, and emphasized disequilibrium and the discrete; further Menger had an objection to the
use of mathematics in economics, while the other two modeled their theories after 19th century
mechanics.[16] Jevons built on the hedonic conception of Bentham or of Mill, while Walras was more
interested in the interaction of markets than in explaining the individual psyche.[15]
Alfred Marshall's textbook, Principles of Economics (1890), was the dominant textbook in England a
generation later. Marshall's influence extended elsewhere; Italians would compliment Maffeo Pantaleoni
by calling him the "Marshall of Italy". Marshall thought classical economics attempted to explain prices
by the cost of production. He asserted that earlier marginalists went too far in correcting this imbalance
by overemphasizing utility and demand. Marshall thought that "We might as reasonably dispute whether
it is the upper or the under blade of a pair of scissors that cuts a piece of paper, as whether value is
governed by utility or cost of production".
Marshall explained price by the intersection of supply and demand curves. The introduction of different
market "periods" was an important innovation of Marshall’s:
Market period. The goods produced for sale on the market are taken as given data, e.g. in a
fish market. Prices quickly adjust to clear markets.
Short period. Industrial capacity is taken as given. The level of output, the level of
employment, the inputs of raw materials, and prices fluctuate to equate marginal cost and
marginal revenue, where profits are maximized. Economic rents exist in short period
equilibrium for fixed factors, and the rate of profit is not equated across sectors.
Long period. The stock of capital goods, such as factories and machines, is not taken as
given. Profit-maximizing equilibria determine both industrial capacity and the level at which
it is operated.
Very long period. Technology, population trends, habits and customs are not taken as given,
but allowed to vary in very long period models.
Marshall took supply and demand as stable functions and extended supply and demand explanations of
prices to all runs. He argued supply was easier to vary in longer runs, and thus became a more important
determinant of price in the very long run.
Further developments
An important change in neoclassical economics occurred around 1933. Joan Robinson and Edward H.
Chamberlin, with the near simultaneous publication of their respective books, The Economics of
Imperfect Competition (1933) and The Theory of Monopolistic Competition (1933), introduced models of
imperfect competition. Theories of market forms and industrial organization grew out of this work. They
also emphasized certain tools, such as the marginal revenue curve.
Joan Robinson's work on imperfect competition, at least, was a response to certain problems of
Marshallian partial equilibrium theory highlighted by Piero Sraffa. Anglo-American economists also
responded to these problems by turning towards general equilibrium theory, developed on the European
continent by Walras and Vilfredo Pareto. J. R. Hicks's Value and Capital (1939) was influential in
introducing his English-speaking colleagues to these traditions. He, in turn, was influenced by the
Austrian School economist Friedrich Hayek's move to the London School of Economics, where Hicks
then studied.
These developments were accompanied by the introduction of new tools, such as indifference curves and
the theory of ordinal utility. The level of mathematical sophistication of neoclassical economics
increased. Paul Samuelson's Foundations of Economic Analysis (1947) contributed to this increase in
mathematical modelling.
The interwar period in American economics has been argued to have been pluralistic, with neoclassical
economics and institutionalism competing for allegiance. Frank Knight, an early Chicago school
economist attempted to combine both schools. But this increase in mathematics was accompanied by
greater dominance of neoclassical economics in Anglo-American universities after World War II.
Some[17] argue that outside political interventions, such as McCarthyism, and internal ideological
bullying played an important role in this rise to dominance.
Hicks' book, Value and Capital had two main parts. The second, which was arguably not immediately
influential, presented a model of temporary equilibrium. Hicks was influenced directly by Hayek's notion
of intertemporal coordination and paralleled by earlier work by Lindhal. This was part of an
abandonment of disaggregated long run models. This trend probably reached its culmination with the
Arrow–Debreu model of intertemporal equilibrium. The Arrow-Debreu model has canonical
presentations in Gérard Debreu's Theory of Value (1959) and in Arrow and Hahn's "General Competitive
Analysis" (1971).
Many of these developments were against the backdrop of improvements in both econometrics, that is
the ability to measure prices and changes in goods and services, as well as their aggregate quantities, and
in the creation of macroeconomics, or the study of whole economies. The attempt to combine neo-
classical microeconomics and Keynesian macroeconomics would lead to the neoclassical synthesis[18]
which has been the dominant paradigm of economic reasoning in English-speaking countries since the
1950s. Hicks and Samuelson were for example instrumental in mainstreaming Keynesian economics.
Macroeconomics influenced the neoclassical synthesis from the other direction, undermining foundations
of classical economic theory such as Say's law, and assumptions about political economy such as the
necessity for a hard-money standard. These developments are reflected in neoclassical theory by the
search for the occurrence in markets of the equilibrium conditions of Pareto optimality and self-
sustainability.
Criticisms
Perhaps the best way to frame a criticism of Neoclassical Economics is in the terms offered by
Leijonhufvud[19] in the contention that "Instead of looking for an alternative to replace it, we should try
to imagine an economic theory to transcend its limitations." The contention also points to the need to
bring in empirical science... testing and re-testing Neoclassical Economics propositions... in order to
nudge the Framework and Theory toward a foundation of empirical reality. It is with such empirical
reality we might transcend limitations. Leijonhufvud is speaking from the perspective of Experimental
Economics; Behavioral Economics, too, uses experimental techniques, but also relies on surveys and
other observations of what drives economic choice, also seeking ways to bring economic reality into the
Framework and Theory. For overviews of the many empirical findings in both Experimental and
Behavioral Economics, some supporting Neoclassical Economics and many suggesting changes needed
in the Framework and Theory, see Altman[20] and Tomer.[21]. Also, for an overview of the empirical
findings relating to conservation (and recycling) behavior, as in the notion of Empathy Conservation, see
Lynne et al.[22]. Neoclassical Economics Framing and Theory has a history of not being able to
adequately explain choices related to the interdependence of a person with the natural system.
Neoclassical economics is sometimes criticized for having a normative bias. In this view, it does not
focus on explaining actual economies, but instead on describing a theoretical world in which Pareto
optimality applies.[23][24]
Perhaps the strongest criticism lies in its disregard for the physical limits of the Earth and its ecosphere
which are the physical container of all human economies. This disregard becomes hot denial by
neoclassical economists when limits are asserted, since to accept such limits creates fundamental
contradictions with the foundational presumptions that growth in scale of the human economy forever is
both possible and desirable. The disregard/denial of limits includes both resources and "waste sinks", the
capacity to absorb human waste products and man-made toxins.[25] Ecological Economicss sees
interdependent Travelers on a Spaceship Earth, a Spaceship having limits. Neoclassical Economics,
instead, sees each Traveler as independent of every other Traveler, and with the natural systems that
make Travel on the Spaceship Earth possible, which are presumed (without empirical test) to be
unlimited, or, at best limited only by knowledge. The empirical reality that people are interdependent
with one another and with nature (i.e. the Spaceship Earth systems) is also recognized in Humanistic
Economics, Buddhist Economics and Metaeconomics (https://www.metaeconomics.info/metaeconomics-
an-overview).
Neoclassical Economics addresses the reality of interdependence through the notion of an externality,
which is only occasional, and of no real consequence in that the market can always resolve it. Just change
the property rights, privatizing the resource or good in question. Empirical reality points to the matter of
interdependence being far more complex than can be fixed only with changing to private property rights,
seeing the essential need, pragmatically speaking, for a good mix of both private and public property, a
major theme in Institutional Economics.
The assumption that individuals act rationally may be viewed as ignoring important aspects of human
behavior. Many see the "economic man" as being quite different from real people, the Econ different
from the Human. [26] Many economists, even contemporaries, have criticized this model of economic
man... with empirical evidence (as noted, especially in Behavioral Economics) growing in support of
representing a person as a Human rather than an Econ. Thorstein Veblen put it most sardonically that
neoclassical economics assumes a person to be:
[A] lightning calculator of pleasures and pains, who oscillates like a homogeneous globule
of desire of happiness under the impulse of stimuli that shift about the area, but leave him
intact.[27]
As a result, neoclassical economics has extreme difficulty explaining such things as voting behavior, or
someone running into a burning building to save a complete stranger, perhaps even perishing in the
process. Clearly such choices are not much, if at all, in the self-interest. Such "non-rational" decision
making has been examined deeply and widely in Behavioral Economics. Perhaps most importantly,
Behavioral Economics has empirically demonstrated that while the Econ almost exclusively pursues only
self-interest, the Human pursues a Dual Interest. The Dual Interest includes both the Ego based self-
interest and the Empathy based other (shared with others, yet internalized within the own-self)-
interest.[28][29]. And, most importantly, it is quite rational to seek balance in Self&Other-interest, even
sacrificing a bit in the domain of Self-interest in order to do so.
Voting behavior, as well as running into a burning building, is rational in that it produces payoff in the
realm of shared other-interest... as in the right-thing-to-do... which often requires a bit of sacrifice in the
domain of self-interest. Rationality is all about maximizing a joint, non-separable and interdependent
self&other-interest, which represents the own-interest. Maximizing own-interest generally means a bit of
sacrifice in both domains of self-interest and other-interest, with own-interest all about finding balance.
The Dual Interest analytical system now represents the analytical engine of a Metaeconomics...[30] the
Meta pointing to bringing considerations of both ethics and the moral dimension...the right-thing-to-do...
back into the formal structure of Neoclassical Economics. The Moral Dimension was there at the
beginning, in the Moral Philosophy of Adam Smith. It is also quite rational to seek a balance in the Own-
interest, with the Moral Dimension tempering the Self-interest.
Large corporations might perhaps come closer to the neoclassical ideal of profit maximization, but this is
not necessarily viewed as desirable if this comes at the expense of neglect of wider social issues.[31]. The
wider social issues are represented in the shared other-interest while profit maximization is represented in
the self-interest. Balance is needed.
Problems exist with making the neoclassical general equilibrium theory compatible with an economy that
develops over time and includes capital goods. This was explored in a major debate in the 1960s—the
"Cambridge capital controversy"—about the validity of neoclassical economics, with an emphasis on
economic growth, capital, aggregate theory, and the marginal productivity theory of distribution. There
were also internal attempts by neoclassical economists to extend the Arrow-Debreu model to
disequilibrium investigations of stability and uniqueness. However a result known as the Sonnenschein–
Mantel–Debreu theorem suggests that the assumptions that must be made to ensure that equilibrium is
stable and unique are quite restrictive.
Neoclassical economics is also often seen as relying too heavily on complex mathematical models, such
as those used in general equilibrium theory, without enough regard to whether these actually describe the
real economy. Many see an attempt to model a system as complex as a modern economy by a
mathematical model as unrealistic and doomed to failure. A famous answer to this criticism is Milton
Friedman's claim that theories should be judged by their ability to predict events rather than by the
realism of their assumptions.[32] Mathematical models also include those in game theory, linear
programming, and econometrics. Some[33] see mathematical models used in contemporary research in
mainstream economics as having transcended neoclassical economics, while others[34] disagree. Critics
of neoclassical economics are divided into those who think that highly mathematical method is inherently
wrong and those who think that mathematical method is potentially good even if contemporary methods
have problems.[35]
In general, allegedly overly unrealistic assumptions are one of the most common criticisms towards
neoclassical economics. It is fair to say that many (but not all) of these criticisms can only be directed
towards a subset of the neoclassical models (for example, there are many neoclassical models where
unregulated markets fail to achieve Pareto-optimality and there has recently been an increased interest in
modeling non-rational decision making). Its disregard for social reality and its alleged role in aiding the
elites to widen the wealth gap and social inequality is also frequently criticized.
It has been argued within the field of Ecological Economics that the Neoclassical Economics system is
by nature dysfunctional. It considers the destruction of the natural world through the accelerating
consumption of non-renewable resources as well as the exhaustion of the "waste sinks" of the ecosphere
as mere "externalities." Such externalities, in turn, are viewed as occurring only occasionally, and easily
rectified by shifting public property to private property: The Market will resolve any externalitity, given
the opportunity to do so; so, thre is no need for any kind of Government, or any other kind of Community
"intervention." The Spaceship Earth system is viewed as a subset of the Human Economy, and fully
subject to control (which is essential in order to have independence). Neoclassical Economics sees
independence between the Human Economy and the Spaceship, between each Human and Nature.
Ecological Economics points, instead, to the Human Economy as being embedded in the Spaceship Earth
system, so everything is internal: It sees interdependence between each Human and Nature. In effect,
there are no externalities, except for some material and energy exchange beyond the atmosphere of the
Spaceship. So, a Framework and Theory is needed to transcend the limitation of the Neoclassical
Economics presumption of independence, transcending the focus on only the Ego based Self-interest of
an independent person, in both consumption and production. The inherent interdependence of each
person and nature, as well as each person with every other person, is recognized in Frameworks and
Theory that see the role of Empathy in forming a shared Other-interest in the outcomes on the
Spaceship.[36][37] The essential need to consider Empathy, in order to address the matter of achieving
sustainability on this Spaceship Earth, is also becoming a theme in the natural and environmental
sciences.[38]
See also
Marginalism
Market economy
Microeconomics
Neoclassical synthesis
Static equilibrium (economics)
References
1. Antonietta Campus (1987), "marginal economics", The New Palgrave: A Dictionary of
Economics v. 3, p. 323.
2. Clark, B. (1998). Principles of political economy: A comparative approach. Westport,
Connecticut: Praeger. Nadeau, R. L. (2003). The Wealth of Nature: How mainstream
economics has failed the environment. New York City, NY: Columbia University Press.
3. Colander, David; "The Death of Neoclassical Economics (http://sandcat.middlebury.edu/eco
n/repec/mdl/ancoec/0237.pdf)," Journal of the History of Economic Thought 22(2), 2000.
4. Aspromourgos, T. (1986). On the origins of the term "neoclassical". Cambridge Journal of
Economics, 10(3), 265–70. [1] (http://cje.oxfordjournals.org/cgi/reprint/10/3/265.pdf)
5. Veblen, T. (1900). 'The Preconceptions of Economic Science – III', The Quarterly Journal of
Economics, 14(2), 240–69. (Term on pg. 261).
6. George J. Stigler (1941 [1994]). Production and Distribution Theories. New York: Macmillan.
Preview. (https://books.google.com/books?id=c4z5t4GTlxwC&printsec=frontcover&source=
gbs_v2_summary_r&cad=0#v=onepage&q&f=false)
7. Fonseca G. L.; “Introduction to the Neoclassicals” (http://cepa.newschool.edu/~het/essays/
margrev/ncintro.htm) Archived (https://web.archive.org/web/20090112011011/http://cepa.ne
wschool.edu/~het/essays/margrev/ncintro.htm) 2009-01-12 at the Wayback Machine, The
New School.
8. E. Roy Weintraub. (2007). "Neoclassical Economics". The Concise Encyclopedia Of
Economics. Retrieved September 26, 2010, from
http://www.econlib.org/library/Enc1/NeoclassicalEconomics.html
9. William Stanley Jevons (1879, 2nd ed., p. 289), The Theory of Political Economy. (https://bo
oks.google.com/books?id=aYcBAAAAQAAJ&printsec=frontcover&source=gbs_v2_summar
y_r&cad=0#v=onepage&q&f=false) Italics in original.
10. Philip H. Wicksteed The Common Sense of Political Economy
11. Christopher Bliss (1987), "distribution theories, neoclassical", The New Palgrave: A
Dictionary of Economics, v. 1, pp. 883–86.
12. Robert F. Dorfman (1987), "marginal productivity theory", The New Palgrave: A Dictionary of
13. C.E. Ferguson (1969). The Neoclassical Theory of Production and Distribution. Cambridge.
ISBN 9780521076296, ch. 1: pp. 1–10 (http://assets.cambridge.org/97805210/76296/excer
pt/9780521076296_excerpt.pdf) (excerpt (https://www.jstor.org/pss/2720638)).
14. Roger E. Backhouse (2008). "marginal revolution," The New Palgrave Dictionary of
Economics, 2nd Edition. Abstract (http://www.dictionaryofeconomics.com/article?id=pde200
8_M000392&edition=current&q=).
15. William Jaffé (1976) "Menger, Jevons, and Walras De-Homogenized", Economic Inquiry, V.
14 (December): 511–25
16. Philip Mirowski (1989) More Heat than Light: Economics as Social Physics, Physics as
Nature's Economics, Cambridge University Press.
17. Frederic Lee (2009), A History of Heterodox Economics: Challenging the mainstream in the
twentieth century, London and New York: Routledge.
18. Olivier Jean Blanchard (1987). "neoclassical synthesis", The New Palgrave: A Dictionary of
19. Leijonhufvud, A. (2004). "The Trento Summer School: Adaptive Economic Dynamics" In:
Daniel Friedman and Alessandra Casser (eds). Economics Lab: An Intensive Course in
Experimental Economics. New York: Routledge. pp. 5–11.
20. Altman, Morris (2012). Behavioral Economics for Dummies. Mississauga, ON: John Wiley
and Sons Canada, Ltd.
21. Tomer, John F. (2017). Advanced Introduction to Behavioral Economics. Elgar.
22. Lynne, G.D.; Czap, N.V; Czap, H.J.; Burbach, M.E. "Theoretical Foundation for Empathy
Conservation: Toward Avoiding the Tragedy of the Commons". Review of Behavioral
Economics. 3: 245–279.
23. For example, see Alfred S. Eichner and Jan Kregel (Dec. 1975) An Essay on Post-
Keynesian Theory: A New Paradigm in Economics, Journal of Economic Literature.
24. Hayes, W.M.; Lynne, G.D. (2013). The Evolution of Ego and Empathy: Progress in Forming
the Centerpiece for Ecological Economic Theory In: Robert B. Richardson (ed.) In Building
a Green Economy: Perspectives from Ecological Economics. East Lansing, MI: Michigan
State University Press. pp. 107–118.
25. Herman E. Daly (1997) Georescu-Roegen versus Solow/Stiglitz, 'Ecological Economics'.
26. Thaler, R.H.; Sunstein, C.R. (2008). Nudge: Improving Decisions About Health, Wealth, and
Happiness. New Haven, MA: Yale University Press.
27. Thorstein Veblen (1898) Why Is Economics Not an Evolutionary Science?, reprinted in The
Place of Science in Modern Civilization (New York, 1919), p. 73.
28. Cory, G.A. (2006). "A Behavioral Model of the Dual Motive Approach to Behavioral
Economics and Social Exchange". Journal of Socio-Economics. 35 (4): 592–612.
29. Lynne, G.D.; Czap, N.V.; Czap, H.J; Burbach, M.E. "Theoretical Foundation for Empathy
Conservation: Toward Avoiding the Tragedy of the Commons". Review of Behavioral
Economics. 3: 245–279.
30. Lynne, Gary. "What is Dual Interest Theory?" (https://www.metaeconomics.info/what-is-dual
-interest-theory). Metaeconomics. Wix. Retrieved 27 January 2020.
31. For an argument that the existence of modern corporations is incompatible with the
neoclassical economics, see John Kenneth Galbraith (1978). The new Industrial State,
Third edition, revised, (New York).
32. Friedman argued for this in essays III, IV and V in "Essays in Positive Economics".
http://www.econ.umn.edu/~schwe227/teaching.s11/files/articles/friedman-1953.pdf
33. For example, David Colander, Richard Holt, and J. Barkley Rosser Jr. (2004) The changing
face of mainstream economics, Review of Political Economy, V. 16, No. 4: pp. 485–99)
34. For example, Matias Vernengo (2010) Conversation or monologue? On advising heterodox
economists, Journal of Post Keynesian Economics, V. 32, No. 3" pp. 485–99.
35. Jamie Morgan (ed.) (2016) 'What is Neoclassical Economics? Debating the origins,
meaning and significance', Routledge.
36. Hayes, W.M.; Lynne, G.D. (2004). "Towards a Centerpiece for Ecological Economics."
Ecological Economics". Ecological Economics. 49 (3): 287–301.
37. Hayes, W.M.; Lynne, G.D. (2013). The Evolution of Ego and Empathy: Progress in Forming
the Centerpiece for Ecological Economic Theory In: Robert B. Richardson (ed.) Building a
Green Economy: Perspectives from Ecological Economics. East Lansing, MI: Michigan
State University Press. pp. 107–118.
38. Brown, K.; Adger, W.N.; Devine-Wright, P.; Anderies, J.M.; Barr, S.; Bousquet, F.; Butler, C.;
Evans, L.; Marshall, N.; Quinn, T. (2019). "Empathy, Place and Identity Interactions for
Sustainability". Global Environmental Change. 56: 11–17.
External links
Weintraub, E. Roy (2002). "Neoclassical Economics" (http://www.econlib.org/library/Enc1/N
eoclassicalEconomics.html). In David R. Henderson (ed.). Concise Encyclopedia of
Economics (1st ed.). Library of Economics and Liberty. OCLC 317650570 (https://www.worl
dcat.org/oclc/317650570), 50016270 (https://www.worldcat.org/oclc/50016270), 163149563
(https://www.worldcat.org/oclc/163149563)
Neoclassical Economics (https://web.archive.org/web/20071022035220/http://william-king.w
ww.drexel.edu/top/prin/txt/Neoch/Eco111s1.html), William King, Drexel University
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William Stanley Jevons

William Stanley Jevons FRS (/ˈdʒɛvənz/;[2] 1 September

Irving Fisher described Jevons's book A General Mathematical

Jevons broke off his studies of the natural sciences in London in

In The Coal Question, Jevons covered a breadth of concepts on

In 1875, Jevons read a paper On the influence of the sun-spot

In the following year appeared the Elementary Lessons on Logic,

On Jevons as logician, see Grattan-Guinness (2000).

Works available online

Works by William Stanley Jevons (https://www.gutenberg.org/author/Jevons,+W.+Stanley)

Retrieved from "https://en.wikipedia.org/w/index.php?title=William_Stanley_Jevons&oldid=943035087"

This page was last edited on 28 February 2020, at 12:25 (UTC).

Retrieved from "https://en.wikipedia.org/w/index.php?title=Carl_Menger&oldid=942628843"

This page was last edited on 25 February 2020, at 21:04 (UTC).

See also Born 16 December 1834

As Professor of Political Economy at the University of Lausanne,

Because most of Walras's publications were only available in

Life and career

General equilibrium theory

Economic value definition of utility

Walras is … greatest of all economists. His system of economic equilibrium, uniting, as it

Retrieved from "https://en.wikipedia.org/w/index.php?title=Léon_Walras&oldid=941772789"

Important marginal concepts

Quantified marginal utility

(where “c.p.” indicates that the only independent variable to change is ).

Mainstream neoclassical economics will typically assume that

is well defined, and use “marginal utility” to refer to a partial derivative

Law of diminishing marginal utility

However, if there is a complementarity across uses, then an

Without the presumption that utility is quantified, the diminishing

Marginal rate of substitution

Application to price theory

Paradox of water and diamonds

Marginalists before the Revolution

Marginal Revolution as a response to socialism

Marxist criticism of marginalism

Whenever the Böhm-Bawerk theory, it appears, resorts to individual motives as a basis

Marxist adaptations to marginalism

Retrieved from "https://en.wikipedia.org/w/index.php?title=Marginalism&oldid=930545611"

This page was last edited on 13 December 2019, at 06:19 (UTC).

Although Marshall took economics to a more mathematically

(1) Use mathematics as shorthand language, rather

Principles of Economics (1890)

The Marshallian industrial district

Final years, death and legacy

Retrieved from "https://en.wikipedia.org/w/index.php?title=Alfred_Marshall&oldid=940941656"

This page was last edited on 15 February 2020, at 16:37 (UTC).

Neoclassical economics is characterized by several assumptions common to many schools of economic

Three central assumptions

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This page was last edited on 1 February 2020, at 23:06 (UTC).

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