The Economics of W. S. Jevons

By Sandra Peart | Go to book overview

5

JEVONS’S THEORY OF EXCHANGE

The ordinary laws of supply and demand, when properly stated, are the practical manifestation of the theory.

(TPE, p. 108)


INTRODUCTION
Jevons’s Theory of Political Economy placed utility at the centre of economic analysis, presenting his own (alternative) theory of exchange, which ran in terms of a balance of ‘feeling’. 1 While utility had figured into Classical value theory, it was, until 1862 and then more formally in 1871, inconceivable that exchange should be explained by utility considerations only, that the primary phenomenon to be explained by economics consisted of the very act of exchange by two parties (abstracting from who those parties are) or that the laws of utility could be represented formally. 2 By placing utility at the heart of economic analysis, Jevons opened up a series of new research problems for subsequent economists:
1 The investigation of the nature of utility and the utility function.
2 The formal representation of utility maximization.
3 The measurement of utility or social welfare.

The exchange equations, which attempted to explain (equilibrium) exchange in terms of a balance of ‘feeling’, 3 are the main subject of what follows. Jevons placed the Benthamite notion of ‘happiness’ squarely at the centre of his analysis of exchange; in place of the Classical notion (at least as he perceived it) of labour as the ‘cause’ of value, Jevons insisted on utility as the cause of value. While he did not reject a cost of production theory of (long run) value (see below, Chapter 6), he did his best to divert attention away from the long run, and towards the explanation of market transactions instead. 4

For Jevons, the key economic phenomenon requiring explanation was the act of exchange. Given prices, exchange between any two or more economic actors (‘trading bodies’) occurred as long as a preponderance of

-90-

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