The Marginal Utility Theory and Its Discontents
Abstract
The article reanalyzes the treatment of the marginal utility theory and certain discontents with or criticisms of it. After introducing and defining the problem, it reconsiders the tendency of its creators and devotees since the 1870s through later days to treat the marginal utility theory as the exclusive or main foundation of economics as an extension of their considering the sole or prime determinant of value and prices. This is followed by presenting the discontents or criticisms of the marginal utility theory, as its proponents and adherents exposit and consider it, by its critics and skeptics within both heterodox as well as late classical political economy and neoclassical economics from the 1870s to later times. The article concludes that the treatment of the marginal utility theory by its exponents leads to considering economics a monolithic, single-paradigm science as the result of that one theory. Conversely, it infers that the discontents with the marginal utility theory conduce to regarding economics as a pluralist, multi-paradigm science resulting from multiple theories.
General Remarks:
(1) In this paper, the author tries to present and reassess the various arguments both for and against the well-known marginal utility theory, seeking to “correct” the imbalance “between the appreciation and appropriation of the marginal utility theory of value as the basis of the ‘new’, i.e., neoclassical and modern, economics and the consideration or elaboration of criticisms of or discontents with it in and outside mainstream economics”. As the author acknowledges, some parts of the topic are well-examined in the existing literature, so the paper only reconsiders well-known arguments. However, the article seeks also to develop a related methodological point-argument which may represent a potentially interesting and novel contribution. Specifically, the adopters of the marginal utility theory regard economics as a monolithic or single-paradigm science, while the discontents of the afore-mentioned theory are in favor of a multidimensional, pluralist, i.e. multi-paradigm science.
(2) There are numerous short quotations and/or lengthy sentences throughout the article, which may make it hard to read and cause issues with clarity and fluency at some points.
(3) There may be some objections concerning the authors’ categorization. For example, is Fisher an early marginalist? Or is Schumpeter a neoclassical economist?
Specific Comments:
(1) P. 10, 2nd Paragraph, lines 5-6: “this assertion seems to overlook, even while recognizing his precursors, that this discovery turns out to be a rediscovery”. Perhaps a quick reference to these forerunners would be useful.
(2) P. 10, 2nd Paragraph: The author may add some more references concerning Jevons’ economics and its relationship with statical mechanics and natural sciences in general.
(3) P. 11, 1st Paragraph and P. 19, 2nd Paragraph: I think that the author should add Richard Jennings’ contribution. Jennings was one of the first economists who tried to use principles of physiology and psychology in his work. In his most significant work entitled “Natural Elements of Political Economy” (1855), he sought to analyze the mental and physical phenomena that influence human economic behavior in order to form scientific laws that describe/explain the relevant human actions. According to Jennings, if we want to find common economic laws and universal principles, we should carefully examine how the combination of psychological and physiological factors affects human economic actions. Jennings’ psychological approach to economics influenced Jevons, as he himself admits.
(4) P. 12: the author may write a bit more regarding Comte.
(5) P. 14, 3rd Paragraph, lines 5-7 (“as a synthesis … economics”): I think that the author should rewrite the text so as not to repeat the same phrase and the same words.
(6) P. 27, 1st Paragraph, lines 3-6 (“In his second … as not so original”): Why did Marshall regard Jevons’ final utility as not so original? There may be some comments on this point.
(7) P. 31: There is much bibliography on Veblen’s psychology. It is known that Veblen attacked the hedonistic psychology of Marginalism and provided an analysis of instincts and habits as a substitute psychological foundation. More specifically, after the rise of Marginalism, Veblen was the first major figure to focus his criticism on the established model of individual economic behaviour. In general, I think that the author should add a few more secondary references.
Minor Remarks:
• P. 9, 3rd Paragraph, line 5: “indicative” instead of “inductive”?
• P. 11, 2nd Paragraph, line 15: “describes” instead of “describe”
• P. 15, line 1: You should remove “)”
• P. 15, line 5: You should add a “comma” between Jevons and Wicksteed
• P. 20, 4th Paragraph, line 4: I think you should add the word “New” before the German Historical School
• P. 21, 2nd Paragraph, line 2: “economics” instead of “economic”
• P. 21, 2nd Paragraph, line 5: “in” not “In”
• P. 22, 3rd Paragraph, line 3: “according to” Schumpeter
• P. 27, 1st Paragraph, line 4: remove “.” from the parenthesis after 558
• P. 33, 2nd Paragraph, line 4: “its” instead of “Its”
• P. 34, Note 23: the first half of the note is the same as the related main text
• P. 35: You should remove the second full stop from the end of the 1st paragraph
• P. 35, Note 26: the word “theory” has a different style
• P. 37, 2nd Paragraph, line 2: “as the fundamental principle, simply fundament”. I think you should rewrite the sentence
• P. 37, 3rd Paragraph, line 3: remove “)”
• P. 37, 3rd Paragraph, line 13: remove full stop after Fisher
Prof. Zafirovski offers his readers a panorama of literature relative to the defense of the utility theory and its early critics. Although the paper focuses on the first 60 years of the debate (from 1870 to 1930), there are references to more recent authors such as Allais, Samuelson, Solow and Stigler. The author challenges the generally accepted view of the revolutionary character of the early Marginalists and adopts a rather new methodological approach: the defenders of the marginal utility theory consider economics as a unified, single-paradigm science while the discontents have a pluralistic, multi-paradigmatic view of our science.
Despite its length, and in many parts its repetitive character, the paper makes a significant contribution to the subject and has an important pedagogical aspect. My discontents, if I may use the same word, concern mainly three issues. First, the uncritical reception of the standard view on the existence of a “trinity of founders of the marginal utility theory”, i.e. Jevons-Menger-Walras. Not only the specialists, but the majority of the historians of economic thought are aware of William Jaffé’s path-breaking paper of 1976 (a 50-year anniversary, by the way) that has decisively refuted this view and excluded Menger from this team of founders, mainly of his categorical rejection of mathematics as an engine of discovery. Well, Jaffé is missing from the plethoric list of references.
Second, the author’s point of view of considering this old debate about the revolutionary character of the marginal utility theory, would be strengthened by the argument that early marginalists like Jevons and Walras, were imitating 19th century energy physics (while Menger did not, as the author points out p.37). Jevons was crystal clear in his intention in his “Brief account of a general mathematical theory of political economy” of 1862 (not of 1866 as it is mentioned in the paper, p. 9). Philip Mirowski has made substantial contribution to this idea and should not be ignored by the list of references. This remains true even if one shares a continuist point of the historical evolution of economics, as Zafirovski does.
My final point concerns my reserve as to the way Edgeworth and especially Marshall are treated as having an ambivalent mood of accepting Jevons’ theoretical novelties (see pp.26-27). Marshall in particular had an elaborated rhetoric strategy of presenting his innovative contributions as a rand synthesis of three schools, Classical Political Economy, German Historical School and Marginalists. So, he did emphasize the common points (e.g. the cost of production theory of value) and deliberately undervalued his own novelties! This is why he put mathematics and diagrams in the footnotes and the appendix, as if “marginal productivity”, or “elasticity” could ever have been discovered without the help of mathematics.
ANSWERS TO THE COMMENTS
There may be some objections concerning the authors’ categorization. For example, is Fisher an early marginalist? Or is Schumpeter a neoclassical economist?
MY ANSWER.
In this connection, some objections may arise concerning the present categorization, for example, one can object if Fisher is an early marginalist or Schumpeter a neoclassical economist. (I thank Prof. Ioannis Katselidis for this comment). In this respect, Schumpeter (1954, 796, 922) includes Fisher among Walras’ ‘two first-rank followers’ (the other being Moore) and generally into the Marginal Revolution period’s ‘dominant analytic structure’, together with Jevons, Menger, Walras, Marshall, Wicksell, Böhm-Bawerk, J. B. Clark, and Pareto, and thus implies that he is an early marginalist. Fisher (1965 (1892), 7, 22) himself refers to the ‘marginal utility of consuming each commodity’ and states that prices are ‘proportional to marginal utilities’ as early as 1892 in his doctoral dissertation under J. B. Clark’s supervision Mathematical Investigations in the Theory of Value and Price, which directly qualifies him as an early marginalist. In turn, whether Schumpeter is a neoclassical economist seems more debatable and less settled. Still, Schumpeter often depicts himself as a great admirer of Walras and a disciple of Menger and Böhm Bawerk. For example, Schumpeter (1949, 95) describes Böhm-Bawerk as his ‘great teacher’ and thus implies that himself is a neoclassical qua marginalist (specifically Austrian) economist, although this implication may be debated, given his varying influences (including that of Marx) and ensuing theoretical eclecticism, by some historians of economic thought.
I think that the author should add Richard Jennings’ contribution. Jennings was one of the first economists who tried to use principles of physiology and psychology in his work. In his most significant work entitled “Natural Elements of Political Economy” (1855), he sought to analyze the mental and physical phenomena that influence human economic behavior in order to form scientific laws that describe/explain the relevant human actions. According to Jennings, if we want to find common economic laws and universal principles, we should carefully examine how the combination of psychological and physiological factors affects human economic actions. Jennings’ psychological approach to economics influenced Jevons, as he himself admits.
MY ANSWER.
At this point, one should probably add Richard Jennings’ contribution (I thank Prof. Ioannis Katselidis or this suggestion). Thus, Jevons (1965 [1871], xxxviii) admits that he developed his system ‘more or less consciously’ from ‘certain passages’ of Jennings (as well as of Bentham, Senior, and other authors). Schumpeter (1954, 1021) comprises Jennings (together with Auguste Walras and Lloyd) among the ‘forerunners’ of Jevons, Menger, and Léon Walras. Jennings was one of the first economists to adopt principles of physiology and psychology, as in his most important book “Natural Elements of Political Economy” (published in 1855) in which he focused on the mental and physical phenomena affecting economic behavior to derive scientific laws governing these and other relevant human actions (I credit Prof. Ioannis Katselidis or these remarks.) For Jennings, discovering common economic laws and universal principles, requires a careful examination of how the combination of psychological and physiological factors impacts human economic actions. As noted, Jennings’ psychological approach to economics inspired Jevons as the latter admits above. Thus, Jennings (1855, 189) maintains that persons with the ‘largest share of Wealth (money) often exhibit the greatest disregard for pleasurable Sensations’ and hence implies the principle of diminishing marginal utility with regard to money. He adds that gratification of desires ‘obviously differs in kind and in degree, according to the quantity and the quality of the Commodity from which it is derived’, with ‘each kind and degree of gratification’ being remembered, thus implying diminishing marginal utility particularly commodities (Jennings 1855, 206-7). Jennings (1855, 209) infers that any ‘limited quantity must be held less valuable’ in proportion as objects are ‘more abundant’ and vice versa, thus suggesting the diminishing marginal utility and consequently value of commodities when their abundance increases.
Why did Marshall regard Jevons’ final utility as not so original? There may be some comments on this point.
MY ANSWER.
At this point (1874) Marshall does not explain why he regards Jevons’ final utility as not so new and only does later (in Principles of Economics published in 1890). Thus, Marshall (1961 (1890), 485) suggests that Jevons’ final utility doctrine is not so original because his ‘predecessors’, including Ricardo and Cournot, ‘thought it too obvious to be explicitly mentioned, viz. that the diminution in the amount of a thing demanded in a market indicates a diminution in the intensity of the desire for it on the part of individual consumers, whose wants are becoming satiated.’
There is much bibliography on Veblen’s psychology. It is known that Veblen attacked the hedonistic psychology of Marginalism and provided an analysis of instincts and habits as a substitute psychological foundation. More specifically, after the rise of Marginalism, Veblen was the first major figure to focus his criticism on the established model of individual economic behaviour. In general, I think that the author should add a few more secondary references.
MY ANSWER.
As well-known, Veblen rejected the hedonistic psychology of Marginalism and substituted for it an analysis of instincts and habits as a psychological foundation, namely, following the emergence of Marginalism, he became the first major figure directing his criticism to the established model of individual economic behaviour. Also, bibliography on Veblen’s economics in relation to psychology is relatively extensive (e.g., Arrow 1963; Hodgson 1998; Jaffe 1976; Lawson 1997; McCloskey and Ziliak 2008. Spengler 1940). (I thank Prof. Ioannis Katselidis for these comments.).
Minor Remarks.
MY ANSWER.
All addressed and corrected.
First, the uncritical reception of the standard view on the existence of a “trinity of founders of the marginal utility theory”, i.e. Jevons-Menger-Walras. Not only the specialists, but the majority of the historians of economic thought are aware of William Jaffé’s path-breaking paper of 1976 (a 50-year anniversary, by the way) that has decisively refuted this view and excluded Menger from this team of founders, mainly of his categorical rejection of mathematics as an engine of discovery. Well, Jaffé is missing from the plethoric list of references.
MY ANSWER.
In this regard, first, one may remark and admit the uncritical reception of the standard view on the existence of a “trinity of founders of the marginal utility theory”, namely Jevons-Menger-Walras. For instance, William Jaffé’s (1976) path-breaking article decisively refutes this view and excluded Menger from this team of founders, mainly because of his categorical rejection of mathematics as an engine of discovery. (I thank Prof Michel Zouboulaki for this and next two remarks.) For illustration, it maintains that Menger was unconcerned with ‘relative maximum or minimum values of a function, (as) embodying the essence of marginalism. ((Jaffe 1976, 520). Generally, this article aims to de-homogenize Menger, Jevons And Walras on the basis that the ‘widely disseminated practice’ of placing them together under a single heading, “The Marginal Revolution of the 1870s”, is a gross distortion of the ‘history of their contributions to economic analysis’ (Jaffe 1976, 511). Specifically, it argues that using any single caption for designating the three “revolutionary” innovations of the 1870s obscures what are their ‘more important’ differences than commonalties (Jaffe 1976, 511).
Second, the author’s point of view of considering this old debate about the revolutionary character of the marginal utility theory, would be strengthened by the argument that early marginalists like Jevons and Walras, were imitating 19th century energy physics (while Menger did not, as the author points out p.37). Jevons was crystal clear in his intention in his “Brief account of a general mathematical theory of political economy” of 1862 (not of 1866 as it is mentioned in the paper, p. 9). Philip Mirowski has made substantial contribution to this idea and should not be ignored by the list of references. This remains true even if one shares a continuist point of the historical evolution of economics, as Zafirovski does.
MY ANSWER.
Second, the present point of view of considering the old debate about the revolutionary character of the marginal utility theory would be strengthened by the argument that early marginalists like Jevons and Walras imitated 19th century energy physics (while Menger did not). Thus, Jevons was crystal clear in his intention already in his 1862 “Brief account of a general mathematical theory of political economy.” Especially, Mirowski (1989) identifies and examines early marginalists’ idea of economics as an application of physics, namely as applied mathematical physics. For instance, he shows that Jevons and Walras as well as their successors Edgeworth and Fisher viewed utility as a measurable substance and quantity just as energy, mass or force and hence the principle of marginal utility as operating in the economy equally to how the law of conservation of energy does in physics (Mirowski 1989, 396-9). Further, he demonstrates that what dictated the development of the marginal utility theory of value, as the “very core of the explanatory structure’ of neoclassical economics, was the ‘evolution of physical theory” (Mirowski 1989, 396). Specifically, the marginal utility theory reportedly modelled itself after the ‘formalism of the field developed in physics after the rise of the energy concept” (Mirowski 1989, 399).
My final point concerns my reserve as to the way Edgeworth and especially Marshall are treated as having an ambivalent mood of accepting Jevons’ theoretical novelties (see pp.26-27). Marshall in particular had an elaborated rhetoric strategy of presenting his innovative contributions as a rand synthesis of three schools, Classical Political Economy, German Historical School and Marginalists. So, he did emphasize the common points (e.g. the cost of production theory of value) and deliberately undervalued his own novelties! This is why he put mathematics and diagrams in the footnotes and the appendix, as if “marginal productivity”, or “elasticity” could ever have been discovered without the help of mathematics.
MY ANSWER.
Third, one may qualify or alter the way Edgeworth and especially Marshall are treated as having an ambivalent mood of accepting Jevons’ theoretical novelties. Marshall in particular had an elaborated rhetoric strategy of presenting his innovative contributions as a rand synthesis of three schools, Classical Political Economy, the German Historical School and Marginalism, hence emphasizing the common points (e.g. the cost of production theory of value) and deliberately undervaluing his own novelties, which is why he put mathematics and diagrams in the footnotes and the appendix on the assumption that ‘marginal utility’, “marginal productivity”, demand “elasticity” and other concepts could have been discovered without the help of mathematics. For example, Marshall (1925, 99-100) regards Jevons among the ‘very greatest of economists’ and the ‘central argument’ of his Theory of Political Economy as standing on ‘a lower plane’ than the works of Cournot and Thunen and recounts that his own theory of distribution and by implication value was ‘based in the first instance’ on Smith, Malthus and Ricardo, in the ‘second’ on Thunen and Cournot as regards substance and form respectively. Marshall (1925, 100) concludes that while he learned ‘more from Jevons’ than anyone else on ‘many aspects of economics’, his obligations to acknowledge in the preface to his Principles were to Cournot and Thunen, ‘not to Jevons.’ In passing Marshall was more accomplished mathematician, indeed trained in mathematics, than Jevons (Schumpeter 1954) and yet relied less on it than the latter.