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Jevons and Menger re-homogenized: who is the real 'odd man out'? A comment on Peart - response to S. Peart in this issue, p. 307
American Journal of Economics and Sociology, The, July, 1998 by Robert F. Hebert
I
Introduction
Sandra J. Peart's paper, "Jevons and Menger Re-homogenized?: Jaffe After 20 Years," is an attempt to re-evaluate the Jaffe Thesis two decades after it was advanced as a reproach against the prevalent tendency of historians of economics to blur the differences among the cofounders of the so-called "marginal utility revolution," Jevons, Menger, and Walras. Jaffe (1976) complained that the tendency to homogenize these three pioneers obscured important differences between them, and that, of the three, Menger was the "odd man out." On re-examining the issue, however, Peart concludes that the differences between Jevons and Menger were not so great as Jaffe asserted, and that on closer study, Walras is the real odd man out. Although I find Peart's study convincing in many respects, especially in her discovery of a natural alliance between Jevons and Menger on key issues such as their mutual focus on process, uncertainty, error, and the significance of time, I also believe that many contemporary historians of economics have missed the boat regarding the fundamental nature of the paradigm shift that constituted the movement from classical economics to neoclassical economics. This fact continues to cloud the issue of the relative standing of Jevons, Menger and Walras in the history of economic thought.
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II
Problems With the Marginal Utility "Revolution"
The tendency to homogenize Jevons, Menger, and Walras emerged as a consequence of misunderstanding the fundamental nature of the paradigm shift from classical to neoclassical economics. The significance of key developments in economic theory after 1850 was not so much that utility found its way into economists' thinking but that the onus of explanation shifted from the macroeconomy (i.e., questions of economic growth and income distribution) to the microeconomy (i.e., the decisions of the firm and the individual consumer). After all, utility as a motivating factor in human behavior had been recognized by the ancient Greeks. Smith was aware of this even though he shunted utility aside in his paradoxical discussion of value. Bentham returned the concept to prominence, albeit as an aggregate welfare measure. Jevons clearly credited Bentham with the appropriate theory of human behavior, even as he redirected the focus of analysis away from collective welfare considerations toward the level of individual decisions. Nor was the marginal concept entirely absent from classical economics. Witness Ricardo's theory of rent, in which returns to land were based on its marginal productivity, as determined by differences in soil fertility. Or consider von Thunen's brilliant application of the principle in his own version of an agricultural economy. Nevertheless, classical economics from Smith to Mill had no important place for utility, and therefore no use for marginal utility. Senior (1836), for example, recognized the concept but did nothing with it.
The need for a marginal concept, as Hutchison (1953) indicated long ago, emerges when similar successive units of goods or inputs have a different significance to the consumer or producer. Inasmuch as classical economics analyzed mainly competitive markets in which there is no divergence between marginal and average costs, there was little scope in the main classical models for the marginal concept, or for the distinction between marginal and average values. The absence or presence of utility considerations is not the chief issue. Thus, Hutchison (1953, p. 16) correctly concluded that "what was important in marginal utility was the adjective rather than the noun."
III
Jevons, Menger, and the Econo-Engineering Tradition
One major, overlooked, exogenous event that ushered in the need for the marginal concept was the railroad. As a practical manifestation of new power technology, the railroad touched off a transport revolution; but it also sparked a theoretical revolution in economics. The railroad offered huge potential gains for virtually all consumers but required massive capital investments. The determination of whether or not such investments were advantageous, particularly when public funds were to be committed, was originally the province of engineers. Thus, not surprisingly, the real pioneers of marginal analysis were engineers, such as Ellet (1839), Dupuit (1844, 1849), and Lardner (1850). These writers, and a supporting cast of lesser-knowns, faced new problems of price and output determination by monopoly firms that incurred high fixed and low variable costs, and sharply increasing returns. Issues of cost allocation and optimal railway rates - where the utility of the consumer was an inescapable part of the problem - dominated the new transport economics. Classical economics was ill-suited to deal with such issues. The engineers therefore drew on their special training and resources to discover new analytical tools, and in the process ushered in a fertile period of invention and discovery.
Jevons and Menger were receptive to these developments, whereas Walras remained aloof.(1) In Jevons' case we have his own admission that Lardner's book influenced him when he was writing his first economic essays on the railway problems of New South Wales. He was also alert to other advances by engineers. Jenkin's graphic representation of demand and supply, for example, spurred him into print sooner than he had planned. In Menger's case, direct affiliations are less easily established because he did not overtly acknowledge the writings of the econo-engineers. But his personal library was well stocked with a cross-section of the literature. Concentrating only on the French contributions (which arguably were the most robust), we find among the holdings in Menger's possession the following: the Annales des ponts et chausees (from 1844-1849, the period when Dupuit's pathbreaking articles appeared therein), the Journal des economistes (1852-1903), and a partial run of the Journal de la statistique de Paris, as well as books by Isnard (1781), Dutens (1804, 1835), Cazaux (1825, 1826), Du Mesnil-Marigny (1860, 1878), Dupuit (1861, 1863, 1865), and Foville (1880).(2) On the one hand, Menger's ownership of these journals and books constitutes mere circumstantial evidence, but on the other hand, we may reasonably infer that Menger was steeped in the econo-engineering literature, for he was no mere bibliophile who simply collected books. It is especially likely that he would have absorbed Dupuit's provocative ideas, several of which bear such striking resemblance to his own.
