special invited symposium on the foundations of neoclassical economics jevons and menger...

SPECIAL INVITED SYMPOSIUM ON THEFOUNDATIONS OF NEOCLASSICAL ECONOMICS

Jevons and Menger Re-homogenized?:

Jaffe AJier 20 Years

By Sandra J. Peart*

Abstract. Following Jaffe's 1976 argument, the effort to de-homogenizeJevons, Walras, and Menger may have obscured some key similarities be-tween Jevons and Menger. The article argues that Jevons's view of humanbehavior is more complex than has been allowed, and has much in com-mon with Menger's predisposition for process, uncertainty, mistakes, andthe significance of time in decision making. Some of the key features ofthe Mengerian economic being, features that have often been used to por-tray him as the "odd man out" among the triumvirate, also characterizeJevons's decision makers. For both Menger and Jevons, the decision makeris plagued by error, indecision, and information gaps.

I

Introduction

TWENTY YEARS HAVE PASSED since William Jaffe lamented the focus of theeconomics profession on the achievement that, at the time, seemed themajor contribution shared by the progenitors of the "marginal revolution"—the notion of diminishing marginal utility (1976, p. 511). Instead, he argued,differences that characterize the analyses of Walras, Jevons, and Mengerare of interest—differences that "the passage of time has revealed moreimportant than anything they may have had in common" (1976, p. 511).'The de-homogenization of Walras, Menger, and Jevons would, he main-tained, enable us correctly to perceive and appreciate the significance oftheir separate contributions to economic analysis.

The effort to de-homogenize Jevons, Walras, and Menger, however, mayhave obscured some key similarities among the early neoclassicals, most

• [Sandra Peart is Associate Professor of Economics, Baldwin-Wallace College Berea,Ohio.]. Her research interests include classical and early neoclassical economic thought.

American Journal of Economics and Sociology, Vol. 57, No. 3 Quly, 1998).© 1998 American Journal of Economics and Sociology, Inc.

308 American foumal of Economics and Sociology

notably between Jevons and Menger. It is not my position that we need tore-homogenize Walras, Menger, and Jevons, but rather that close attentionto the original texts (which Jaffe called for in 1976; see p. 523), reveals amuch more complex view of human behavior in Jevons than has oftenbeen allowed, and one that has much in common with Menger's predis-position for process, for decision making under uncertainty, for mistakes,and for the significance of time in decision making. In what follows, Idemonstrate that some of the key features of the Mengerian economic per-son, features that have often been used to portray him as the "odd manout" among the triumvirate, also characterize the Jevonian decision maker.While there is some evidence in Walras, also, of concern with the move-ment to equilibrium (with "groping"), his emphasis was clearly much morefixed on the nature of general equilibrium and the determination of equi-librium prices. Price determination did not constitute a key concern forJevons or Menger, and while both considered the economy in terms ofinterrelated markets, neither attempted to describe those interrelationshipsmathematically. Perhaps, then, my argument may be that Jevons and Men-ger should be "re-homogenized," but that Walras should not!̂

The article proceeds as follows. I begin by considering differences thatJaffe and others have emphasized among Walras, Jevons, and Menger.Here, my argument is that for the most part these are properly regarded asdifferences between Walras on the one hand and Jevons and Menger onthe other. Section III investigates Menger's conception of economic man.In Section IV, I demonstrate some key similarities between Menger's eco-nomic being and the Jevonian decision maker. It transpires that both Men-ger and Jevons have been improperly characterized by Veblen (and others).For both Menger and Jevons, decision makers are plagued by error, inde-cision, and information gaps. Finally, Section V concludes with some re-marks about the contrasting claims that have been made regarding thepolicy stance of Jevons and Menger. Such claims may have resulted in partfrom a misreading of the nature of economic man in Jevons on the onehand and in Menger on the other.

II

Differences

SEVERAL INTERRELATED DIFFERENCES characterize the economics of Walras onthe one hand and of Jevons and Menger on the other. These differences

fevons and Menger Re-bomogenized? 309

provide some clues to the similarities outlined in Sections III and IV.' Eirst,as Jaffe argued, the general equilibrium focus of Walras places him apartfrom both Jevons and Menger. The major driving force for Walras's researchwas the specification of a competitive market model. Alone among hiscontemporaries, in a Jubilee Celebration at the end of his career, Walrasreceived the honor of being proclaimed the first to have "established thegeneral conditions of equilibrium" (Jaffe 1976, p. 5l6). Accordingly, Walraswas much less concerned with the elaboration of a theory of subjectivevaluation in consumption. He rarely used the word "consumption," pre-ferring instead the term "possession." Such "inattention to consumption"has been attributed to the fact that his gaze was fixed on the marketplace,and nowhere else (Jaffe 1976, p. 5l6). His was a catallactic theory of thedetermination of prices under perfectly free competition: "Our task is todiscover the laws to which these purchases and sales tend to conformautomatically. To this end, we shall suppose that the market is perfectlycompetitive, just as in pure mechanics we suppose, to start with, that ma-chines are perfectly frictionless" (Walras 1874, p. 84; cf. pp. 71, 255)."

Jevons possessed some insights into interrelationships throughout theeconomy, and his analysis of exchange also presupposes a catallactic com-munity (Creedy 1992, p. 174; Peart 1996a), but he clearly never approachedWalras's interest in delineating the conditions for general equilibrium.^ Thus,in Chapter V of his Theory of Political Economy (TPE), we find a mathe-matical argument relating what we now call marginal productivity to mar-ginal utility. His "Preface to the Second Edition" of the TPE also containsreflections of a general-equilibrium character, but as Jevons himself acknowl-edged in the same preface, "Looking forward to the eventual results of thetheory , I must beg the reader to bear in mind that this book was never putforward as containing a systematic view of economics" (1871, p. xxx). Nor,of course, was Menger's focus "general equilibrium" in the Walrasian sense.^

In part, the explanation for this first difference lies in the second majorand rather obvious difference: neither Jevons nor Menger focused on pricedetermination, while Walras clearly did (see, for instance, 1874, p. 71). InWalras, the idea of marginal utility is used to derive individual demand andoffer curves, and then to determine equilibrium prices. No similar analysisis contained in Jevons or Menger. Jevons, in fact, has suffered some ratherharsh criticism for neglecting the issue.

For both Menger and Jevons, the key economic phenomenon requiring

310 American fournal of Economics and Sociology

explanation was the act of exchange.^ Given prices, exchange occurred aslong as a preponderance of utility gain resulted; exchange ceased whenthe (given) ratio of exchange equaled the ratio of the final degrees of utility.Jevons is very clear that exchange equations presuppose the existence ofwhat he refers to as a "theoretically perfect market—a market in whichprices may be presumed to be given." The significance of his often-criti-cized "trading body" concept is that it enabled Jevons to specify equilib-rium conditions of exchange, when price-taking behavior pertains.^ In sub-sequent sections of the TPEhe turned his full attention to bargaining situ-ations (see pp. 1190, arguing—as Menger did—that such situations areresolved on "non-economic" grounds of comparative knowledge, "dispo-sition," "force of character," "persistence," "adroitness," "experience," and"feelings of justice or kindliness" (pp. 124-5; cf. Peart 1996a, pp. 106-7).

Jevons's initial procedure, then, was to suppose a rate of exchange is inplace, and to consider whether tra^des will occur, given the trading parties'tastes, and at what point trade will cease (1871, p. 96). But he left no doubtthat, in reality, prices were constantly in fiux. Thus when he describedmarkets in operation, he readily admitted that prices varied constantly:"The real condition of industry is one of perpetual motion and change" (p.96); "Though the price of the same commodity must be uniform at any onemoment, it may vary from moment to moment and must be conceived asin a state of continual change" (p. 92). The Law of One Price was, conse-quently, an abstraction from reality.' In reality, differences in observedprices arose all the time in practice as a result of "caprice" and "extraneouscircumstances," including "the defective credit of the purchasers" and theirimperfect knowledge (p. 91)'°

Menger's intention in the Principles, like that of Jevons, was not to ex-plain prices but rather to focus attention on exchange behavior. Thus, hemaintained that prices "are by no means the most fundamental feature ofthe economic phenomenon of exchange," constituting instead "only inci-dental manifestations of these activities [trade], symptoms of an economicequilibrium between the economies of individuals" (1871, p. 191). In re-ality, prices are said to fiuctuate constantly." As a consequence, while spe-cific prices may be observed at a point in time, they will generally notprevail for future trades: "Let anyone buy grain on a grain exchange orsecurities on a stock exchange and try to sell them again before a changein market conditions occurs, or let him try to sell and buy separate units of

fevons artd Menger Re-homogenized? 311

the same commodity at the same time, and he will easily be convinced thatthe difference between supply prices and demand prices is no mere acci-dent but a general feature of social economy" (pp. 192-3).'^

Menger thus never tried to link the importance of satisfactions analyti-cally with market prices. He never referred to the ratio of exchange whiledemonstrating the relation between scales of want or satisfaction and thequantities of horses or cows traded. Instead, market price is a posited man-ifestation of forces that show how "economizing men" are induced "to givegoods (that is, definite quantities of goods) for other goods" (1871,pp. 193-4)."

Menger did, however, use the notion of equilibrium, or "points of rest,"for an individual: "the foundations for economic exchanges are constantlychanging, and we therefore observe the phenomenon of a perpetual suc-cession of exchange transactions. But even in this chain of transactions wecan, by observing closely, find points of rest at particular times, for partic-ular persons, and with particular kinds of goods. At these points of rest, noexchange of goods takes place because an economic limit to exchange hadalready been reached" (1871, p. 188). But, as Vaughn has argued, suchequilibria are presented as "partial and ephemeral" (1990, p. 384).'''

Menger argued that in exchange situations where small numbers areinvolved, the agreed-upon price will settle halfway between the supplyand demand price for "economically equally capable individuals" (1871,p. 196). Like Jevons, however, he recognized that if bargaining capabilitiesdiffered, the agreed-upon price may favor one trader over the other. Whilehe acknowledged that "human caprice" has some influence on the result,Menger maintained that generally, the "opposing efforts of the bargainersto derive the greatest possible gain from the transaction will balance outin most cases, and that prices will therefore have a tendency to settle at theaverage of the extreme possible limits" (p. 197).'^ But other, "non-eco-nomic" factors, "founded on the personalities of the two economizing in-dividuals or on other external conditions affecting the transaction," mayinterfere, in which case prices then "can deviate from this natural middleposition between the limits".


III

Menger's Economic Man

In all the received formulations of economic theory, whether at the hands of theEnglish economists or those of the Continent, the human material with which theinquiry is concemed is conceived in hedonistic terms; that is to say, in terms of apassive and substantially inert and immutably given human nature. The psychologicaland anthropological preconceptions of the economists have been those which wereaccepted by the psychological and social sciences some generations ago. The hedo-nistic conception of man is that of a lightning calculator of pleasures and pains, whooscillates like a homogeneous globule of desire of happiness under the impulse ofstimuli that shift him about the area, but leave him intact. He has neither antecedentnor consequent. He is an isolated, definitive human datum, in stable equilibriumexcept for the buffets of the impinging forces that displace him in one direction oranother (Veblen 1897, p. 232).

IN STARK CONTRAST to the characterization by Veblen outlined above, Jaffeposits Menger's economic man as "a bumbling, erring, ill-informed crea-ture, plagued with uncertainty, forever hovering between alluring hopesand haunting fears, and congenitally incapable of making finely calibrateddecisions in pursuit of satisfactions" (1976, p. 521). Mengerian man is aptlydescribed as operating under uncertainty, with less than full information.In fact, a major theme of Menger's Principles is that decision making islargely about the acquisition of information, since men "naturally acquirea very obvious interest in being informed not only about all the goods intheir own possession but also about the goods of all the other persons withwhom they maintain trading relations" (1871, p. 91).'^ Such behavior isthoroughly purposeful (though not always successful), so that Jaffe's choiceof adjective, "bumbling," may be somewhat harsh. While the Mengeriandecision maker possesses little information about the present, he is con-stantly trying to increase his knowledge—being "seriously concerned toobtain as exact a knowledge as possible of the quantities of goods availableto them for this purpose" (1871, pp. 89-90). Moreover, he attempts toacquire information conceming future needs and wants: "men in civilizedsocieties alone among economizing individuals plan for the satisfaction oftheir needs, not for a short period only, but for much longer periods oftime" (1871, p. 78). He even goes so far as to create social institutions togather information (1871, p. 91; cf. Streissler 1972, p. 433).^'

Menger's decision makers know even less, and possess even more "de-ficient foresight" about the future than the present: "experience tells us that

fevons and Menger Re-bomogenized? 313

we are often more or less in doubt whether certain needs will be felt in thefiiture at all" (1871, pp. 81, 82; cf. Streissler 1972, p. 433). Again and againMenger stresses the time dimension of goods and the amount of uncer-tainty ^\?, entails. Significantly in the light of Jevons's position describedin Section IV, Menger's discussion of intertemporal choices stressed themyopic estimation of future wants, as well as the defective telescopic fac-ulty of man: "All experience teaches that a present enjoyment or one in thenear future usually appears more important to men than one of equal in-tensity at a more remote time in the future" (1871, pp. 153-54; cf. Streissler1972, p. 434).̂ «

Consequently, the economic being for Menger is neither Veblen's light-ning calculator, nor a passive reactor to changing constraints. He cannotbe fully summarized by a static, well-defined preference function. He isignorant of the world around him, but purposeful in the attempt to removeas much of that ignorance as he can.

It is important to keep in mind that while the movement of economicman toward equilibrium was, for Menger, a slow and painstaking process,he nevertheless attributed to economic man a fairly specific goal. His pur-pose in the Principles is to "show how men, on the basis of this knowledge,direct the available quantities of goods (consumption goods and means ofproduction) to the greatest possible satisfaction of their needs" (1871, p.94; cf. p. 115).'^ Yet while he was adamant about the sovereignty of pref-erences and the purposefulness of actions, he was also of the opinion thatconsumers may be "mistaken" as to what is in fact in their own best interest(Kirzner 1990, p. 102).̂ " He stressed that there are both "real" and "imag-ined" needs, and, correspondingly, "real" and "imagined" goods: "men canbe in error about the value of goods just as they can be in error with respectto all other objects of human knowledge. Hence they may attribute valueto things that do not, according to economic considerations, possess it inreality, if they mistakenly assume that the more or less complete satisfactionof their needs depends on a good, or quantity of goods, when this rela-tionship is really non-existent. In cases of this sort we observe the phe-nomenon of imaginary vzlue" (1871, p. 120). He argued, for instance, thatconsumers erroneously assign value to primitive medicines, or love po-tions, and he maintained, like Jevons, that people display a weakness for"overestimating the importance of satisfactions that give intense momen-tary pleasure but contribute only fleetingly to their well-being":


But what has been said by no means excludes the possibility that stupid men may,as a result of their defective knowledge, sometimes estimate the importance of varioussatisfactions in a manner contrary to their real importance. Even individuals whoseeconomic activity is conducted rationally, and who therefore certainly endeavor torecognize the true importance of satisfactions in order to gain an accurate foundationfor their economic activity, are subject to error. Error is inseparable from all humanknowledge.

Men are especially prone to let themselves be misled into overestimating the im-portance of satisfactions that give intense momentary pleasure but contribute onlyfleetingly to their well-being, and so into underestimating the importance of satisfac-tions on which a less intensive but longer enduring well-being depends. In otherwords, men often esteem passing, intense enjoyments more highly than their per-manent welfare, and sometimes even more than their lives (1871, p. 148).̂ '

Such an attitude opened the door for government intervention to correctconsumer errors in valuation. In fact, Menger called for state action to en-courage thrift—an expression of his paternalistic urge to counteract thecircumstance that "men often esteem passing, intense enjoyments morehighly than their permanent welfare, and sometimes even more than theirlives" (Kirzner 1990, p. 102). Like Jevons, Menger held that mistaken eval-uations concerning the capacity of goods to fulfill needs occur dispropor-tionately among "peoples who are poorest in true goods" (1871, p. 53).

Menger's position concerning such real and imaginary wants had impli-cations for his price theory. Since in theory prices are based on marginalutility foundations for consumer valuation, while in actuality consumersmay be mistaken regarding those valuations, Menger distinguished be-tween what he called "economic prices" and real-world prices. Economicprices are the prices that would pertain in the absence of error, if rationaleconomic actors pursued their own best interests without the hindrance ofincomplete information either concerning their own wants or market phe-nomena. But in the real world, human decision making is characterized byerrors, as well as considerations of goodwill toward others, and othercauses. Thus, only rarely do economic prices pertain; real prices are muchmore likely to occur.̂ ^

Fully rational economic man was, for Menger, an enlightened creaturewho understood his real needs, and the movement toward fijll equilibrium,toward an economy characterized by an array of economic prices, was aslow and uncertain process. But it was more. It was, as one scholar hasnoted recently, "the entire movement of human history as nineteenth-cen-

fevons and Menger Re-homogenized.'' 315

tury European liberals, echoing Condorcet, had visualized it" (Silverman1990, pp, 90-91)—or what may be termed the "improvement of mankind,"to use a phrase that has been coined regarding J, S, Mill as well as W. S,Jevons (Peart 1990).

IV

Jevons's Economic Man

jEvoNS's METHODOLOGICAL PROCEDURE in the TPE Consisted of analyzing eco-nomic phenomena on the basis of a few main causes (such as private self-interest) that could be identified as being primary infiuences in economicdecision making, while acknowledging the existence and even the importanceof a multitude of additional influences. In social science, Jevotis argued, the"complexity" of economic relationships hindered predse theoretical specifi-cation of laws: "as soon as we attempt to draw out the equations expressingthe laws of demand and supply," for instance, "we discover that they have acomplexity entirely surpassing our powers of mathematical treatment" (1874,p, 759), As a consequence of such pronounced multiplicity of cause, Jevonsendorsed Mill's "comparatively abstract and general" method, "treating man-kind from simple points of view, and attempting to detect general principlesof action" (p, 760),^ This method involved the theoretical investigation ofeffects following from a few main causes of interest, while recognizing theexistence of additional causes. In economics, private self-interest constitutedthe major cause from which to start: "we may start from some obvious psy-chological law, as for instance, that a greater gain is preferred to a smaller one,and we may then reason downwards, and predict the phenomena which willbe produced in society by such a law" (1871, pp, 16-17),

Yet Jevons acknowledged that consumers' actions resulted from a mul-titude of "extraneous," "capricious," or "noxious" influences. He was, inaddition, aware that the intermixture of these latter causes with pure self-interest would lead consumers to stray from his theoretical conditions forutility maximization, and cause prices to deviate from marginal valuations.And since what the economist actually observes consists of choices madeby individuals that are the result of all—and not simply the main—causalfactors operating at once, observed behavior will rarely if ever conform tothe economist's simplified theory. In practice, choices have the appearanceof caprice, and violations of the utility-maximizing conditions (mistakes)

3l6 American fournal of Economics and Sociology

repeatedly occur. In the case of savings decisions, moreover, Jevons in-sisted that consumers are myopic, underestimate the importance of futureconsumption, and consequently undersave.

Indeed, nonsystematic and systematic mistakes are conspicuous in Jev-ons's analysis of decision making. He allowed, first, that nonsystematicmistakes occurred with every transaction, when, because of the interfer-ence of "capricious motives," or because they lack information or fail toprocess the information contained in price signals, consumers or producersmake mistaken trades. He even went so far as to maintain in the TPE thatconsumers sometimes are unable accurately to assess the utility associatedwith particular actions: "the mind often hesitates and is perplexed in mak-ing a choice of great importance: this indicates either varying estimates ofthe motives, or a feeling of incapacity to grasp the quantities concemed. Ishould not think of claiming for the mind any accurate power of measuringand adding and subtracting feelings so as to get an exact balance" (1871,p. 13).

As a consequence of Jevons's recognition that transactions involve a setof circumstances much more complex than his theoretical analysis of utilitymaximization allowed, the distinction between "theoretically perfect" mar-kets and the real world—markets "in practice"—was of paramount im-portance. In the TPEhe recognized three market imperfections that "moreor less" characterize decisions in practice: lack of information, lack of com-petition, and the existence of capricious motives.^^

In the theoretically perfect market, information is complete and accurate.In practice, however, information only "more or less" mirrors this pre-sumption. The key feature of a perfect market was not, Jevons maintained,its location, but instead consisted of the common and complete knowledgeheld by participants in its exchanges.^^

"In practice" the theoretical conception of perfect information is only"more or less completely carried out" (1871, p. 86). Not surprisingly, somemarkets were said to be characterized by better information flows thanothers (p. 87). Any exception to "wide and constant information" (p. 87),Jevons argued, meant that trades would occur that violate his equilibriumconditions for exchange, producing "unnatural" relative prices. Conspira-cies designed to conceal information were singled out as one cause ofoverthrowing the "ordinary conditions of the market," causing "prices bear-ing no proper relation to the existing supplies" (p. 86).

fevons and Menger Re-homogenized? 317

In addition, the conditions of theoretical perfection rarely hold true ofreal-wodd trades, because what is observed is a conglomerate of "acci-dent[s]" influencing behavior. The theoretical analysis of exchange presup-posed individuals motivated by private self-interest alone: "Every individ-ual must be considered as exchanging from a pure regard to his ownrequirements or private interests" (1871, p. 86). In practice, however, Jev-ons acknowledged the importance of altruism and other extraneous mo-tives (cf. p. 141).

In practice Jevons also recognized that the operation of what he termed"capricious motives" overwhelms or disguises the theoretical responses to,for instance, an increase in price, and discontinuities result:

We cannot usually observe any precise and continuous variation in the wants anddeeds of an individual, because the action of extraneous motives, or what wouldseem to be caprice, overwhelms minute tendencies. As I have already remarked (p.15), a single individual does not vary his consumption of sugar, butter, or eggs fromweek to week by infinitesimal amounts, according to each small change in price. Heprobably continues his ordinary consumption until accident directs his attention to arise in price, and he then, perhaps, discontinues the use of the articles altogether fora time (1871, p. 89).'̂

Individual actions, Jevons reiterated in the introduction to his TPE, mightfrequently "have the appearance of caprice," because of the "numerousand complicated" "motives and conditions" influencing them (p. \5)P

In the discussion of the "hierarchy of motives" we flnd evidence of Jev-ons's belief that, especially among the uneducated laboring classes, eco-nomic decisions might persistently be incorrect. Jevons circumscribed hispurpose in the TPE by noting that he treated only "the lowest rank offeelings"—those feelings aimed at supplying "the ordinary wants of manat the least cost of labour" (1971, p. 38). His purported task was thereforenot to assess what people should desire or consume, but instead simply toanalyze what they do consume: "The food which prevents the pangs ofhunger, the clothes which fend off the cold of winter, possess incontestableutility; but we must beware of restricting the meaning of the word by anymoral considerations. Anything which an individual is found to desire andto labour for must be assumed to possess for him utility. In the science ofEconomics we treat men not as they ought to be, but as they are" (1871,p. 38; cf p. 39).'*

Like Menger, however, despite disclaimers regarding the sovereignty of


consumer preferences, Jevons possessed a firtn notion of a hierarchy ofgoods. Although he attempted to keep his investigation neutral regardingthe desirability of actions, his own judgments about what types of choicesshould prevail are evident even in this treatment of the so-called lowerpleasures. At the lowest stage of motives (those most purely privately self-interested), a man ought to satisfy only his "proper and moderate" desires.Further, since a "higher calculus of moral right and wrong" is required "toshow how he may best employ that wealth for the good of others as wellas himself," the passage implies that uncoordinated actions of individualsmay maximize their own, but not necessarily society's, welfare. Then, if"the claims of a family or of friends fall upon" the consumer, "it may be-come desirable that he should deny his own desires and even his physicalneeds their full customary gratification" (1871, pp. 25-6). Like iVIenger,Jevons also reveals a predisposition toward pleasures that are lastingthough moderate, as opposed to fleeting and intense; and like Menger, too,he supposed that consumers frequently make the wrong choice in suchcases (see his essay on utilitarianism [1879] and Peart 1990). Such argu-ments left the door open for important policy interventions (see Sec-tion V),

In his discussion of intertemporal consumption decisions, Jevons pre-sumed, like Menger, that both in theory and in practice consumers aremyopic, systematically undervaluing benefits from future consumption. Hedescribed a situation where the usefulness of a good is distributed overtime. Then, "If we reckon all future pleasures and pains as if they werepresent," Jevons argued, the utility-maximizing solution was formally iden-tical to the case of a good distributed across different uses (1871, p, 71). Ifa good is used over n days, and Vi is the marginal utility associated witheach day's use, the distribution made by a "being of perfect good senseand foresight"^' will be such that Vj = V2= Vj- . . .- Vni^. 71), This isthe distribution, Jevons asserted, "which should be made, and would bemade by a being of perfect good sense and foresight. To secure a maximumof benefit in life, all future events, all future pleasures or pains, should actupon us with the same force as if they were present, allowance being madefor their uncertainty. The factor expressing the effect of remoteness should,in short, always be unity, so that time should have no influence" (p, 72),^

Jevons insisted, however, that consumers are not constituted in this "per-fect way," since future pleasures are discounted relative to present ones

n


(1871, p. 72): "But no human mind is constituted in this perfect way: afuture feeling is always less influential than a present one" (p. 72). Thispurported character flaw implied that, without intervention, individuals donot save enough for the future, a problem that Jevons returned to timeand again in his analyses of poverty and overpopulation (1865; 1883;Peart 1996a).

Thus, a number of different types of "mistakes" emerge in Jevons's anal-ysis: those due to "caprice" and other "extraneous" causes; those associ-ated with consumers being incapable of making finely calibrated decisions;those reflecting individuals' inability to accurately assess satisfactions ac-cruing from consuming specific bundles of goods; mistakes attributable toconsumers' ignorance concerning the "true" benefits associated with par-ticular goods; and, most serious, consumers' lack of appreciation of the"true" benefits of future consumption. Jevons apparently presumed thatsome types of mistakes were empirically less important than others: theeffects of caprice, for instance, were presumed to be small, and also tobalance over time. Yet other mistakes, such as those associated with inter-temporal consumption as well as systematic undervaluing of specific goods(e.g., libraries), could not be glossed over so simply, and required formalconsideration by economic theorists. These latter also formed the analyticalbasis for Jevons's many policy recommendations in favor of educating con-sumers as to the error of their spending ways.

V

Conclusion

THE PROCEDURE JEVONS AND MENGER both used to analyze economic choicesdistinguished between "correct" and "incorrect" decision making, and out-lined the results for economic agents and the economy that flow from aseries of correct (equilibrium) choices. Such a procedure carries with it amixed policy message that may have contributed to some confusion con-cerning the overall policy stance of these writers.

Menger's view of the economic system saw it governed by consumervaluations in the case of the economic model in which the effects of errorand other complications are nonexistent, ignored, or presumed to balance.If prices that "correctly" reflect the underlying realities of "correct" con-sumer valuations were to prevail—"economic prices"—then the resource


allocation that would result would reflect the (correct) wishes of sovereignconsumers. Menger seems to have presumed that markets will tend towardan array of economic prices, but he clearly maintained that, for the mostpart, such an array of prices cannot be assumed to be already in place(Kirzner 1990, p, 103), His awareness of entrepreneurial errors and otheraberrations served to separate the real-wodd economy from his consumer-governed "economic" model.

Much the same may be said of Jevons, who, like Menger, has also beeninterpreted as an extreme laissez faire liberal on the one hand and an in-terventionist on the other. For while Jevons's theoretical analysis pertainedto equilibrium exchanges and presupposed perfect information, he clearlymaintained that, in practice, trades are effected by myopic, poorly in-formed, impatient, or simply capricious consumers. The strong laissez fairepolicy statements in his TPE flow from the assumptions of perfect infor-mation and rationality, but they do not hold up generally as representativeof "Jevons's economics,"

One tentative conclusion that emerges from the foregoing representationof Jevons and Menger follows from their differing conceptions of the so-called movement toward equilibrium. Both Menger and Jevons view con-sumers as impatient and myopic. But Menger sees consumers as activelyimproving their own decision-making processes, while Jevons regardsthem as somewhat less able to effect such improvement without education.

Notes

1. Jaffe acknowledged that a few authors had already alluded to such differences; seeSchumpeter (1954, p, 918) and Hicks, who showed little enthusiasm for the then-commonpractice of treating the three revolutionaries as one (1934, p, 338),

2. There is no reason to suppose that this must be an all-or-nothing proposition, Jevonsshares some features with his contemporaries, most notably with Menger, and he alsodeparts from them in other respects. But the "homogenization/de-homogenization" ar-gument provides a useful starting point for our investigation. This is because, followingJaffe's call for de-homogenization (though not necessarily as a result of that call), com-monalities between Menger and Jevons have been neglected. It is those common featuresthat this investigation seeks to highlight,

3. I do not claim to have, as yet, found tbe explanation for why Menger and Jevonshold similar beliefs about consumer behavior. But it does seem reasonable to suggestthat their focus on exchange, in contrast to Walras's emphasis on price determination.


led them to delve more insistently into the nature of consumer decision making. Thusthe contrast outlined here is at least a partial explanation for the similarities that follow,

4, In opposition to Schumpeter on this matter, Jaffe maintains that it is in this contextthat Walras invoked marginal utility. See 1976, p, 516,

5, See Black's introduction to the Theory of Political Economy (1970), where he sug-gests that Jevons's treatment in this regard is less than satisfactory,

6, The distinction made by Mark Blaug (1990) in this context is particularly helpful.He argues that one might characterize Walrasian economics, whereby the economy isdepicted as a set of simultaneous equations, as "general equilibrium" economics, whereasthe analysis by Menger (and, I would add, Jevons) is best called "total equilibrium eco-nomics" whereby everything depends on everything else; both are contrasted to Mar-shallian-style partial equilibrium analysis, or "one-at-a-time economics" (p. 186),

7, Black argues that the TPE "shifted the focal point of value theory from long-run'normal' values determined by cost of production to short-mn exchange-ratios deter-mined by the psychology of the parties making the exchange" (1970, p. 11). I wouldmodify this somewhat to argue that Jevons's TPE attempts to explain price-takingexchange. In Menger, too, the focus is on exchange: "A correct theory of price mustinstead be directed to showing how economizing men, in their endeavor to satisfy theirneeds as fully as possible, are led to give goods (that is, definite quantities of goods) forother goods" (1871, pp. 193-4),

8, See Blaug (1985, p, 312), The trading body was used to rule out situations whereprices are indeterminate. The device arose, in part, as a result of Jevons's correspondenceearly in 1868 with Fleeming Jenkins, where diagrams referring to two traders, Jones andBrown, are used, and Jenkins rightly objected that prices were not determinate. See theletters from Jenkins to Jevons, dated March 4 and 11, 1868, in Jevons (1972-81, Vol. 3,pp. 167-78), as well White (1989, pp, 4430,

9, Both Walras and Menger also relied on abstraction. See, for instance, Walras (1874,p. 84), as well as Menger's remarks that "I shall present a simple case [of exchange] forthis purpose in which we can most carefully observe the relationship we wish to considerundisturbed by secondary influences" (1871, p. 182). The difference is one of degree:Menger and Jevons appear convinced that prices vary constantly and explicitly considerthat phenomenon, while Walras alludes to the issue but for the most part is unconcemedby it. For a rare examination of the "adjustment process" in Walras's 3rd edition of theElements, that regrets subsequent changes to later editions, see Walker (1995),

10, Jevons sometimes presumed that the effects of "caprice" would balance acrossindividuals, so that on average, an aggregate specification will be correct: "The use of anaverage, or, what is the same, an aggregate result, depends upon the high probabilitythat accidental and disturbing causes will operate, in the long run, as often in one directionas the other, so as to neutralize each other" (1871, p, l6; cf p, 90), For Jevons's discussionof this method, see 1874, pp, 334-98. Peart (1995) contains a detailed examination of hisassumptions in this regard. For Menger's treatment of this issue, see note 15 below,

11, Moss has argued that Menger called his a theory of price formation rather thanprice determination in order to underscore the indeterminateness of the outcome ofexchange (1978, pp. 26f; cf Menger 1871, p, 194),


12. Jevons also used the markets for grain and securities in his discussions of theoperations of markets "in reality."

13. Cf.: "Thus commodities that can be exchanged against each other in certain definitequantities (a sum of money and a quantity of some other economic good, for instance),that can be exchanged for each other at will by a sale or z purchase, in short, commoditiesthat are equivalents in the objective sense of the term, do not exist—even on given marketsand at a given point in time. And what is more important, deeper understanding of thecauses that lead to the exchange of goods and to human trade in general teaches us thatequivalents of this sort are utterly impossible in the very nature of the case and cannotexist in reality at all. In this respect, Menger goes a step beyond Jevons: Menger insiststhat prices vary at a point in time and through time, while Jevons's emphasis is on thelatter. See the evaluations by Vaughn (1990, p. 383), Streissler (1972, p. 436) and Jaffe(1976, PP 519-20).

14. An additional difference of degree exists, now between Jevons and Menger.Jevons apparently found the notion of equilibrium more compelling than did Menger,and thus insisted upon describing the conditions for equilibrium trades in mathe-matical terms. The evidence does not suggest, however, that Jevons was convincedthat such equilibria were long lasting, or wide ranging. Instead, he seems to havebeen convinced (see above, p. 316-17) that what we observe around us is largelynonequilibrium trades. His rationale for treating equilibrium trades was a desire totreat the simpler problem (equilibrium) before tackling the more difficult one (move-ment toward equilibrium), as opposed to an argument that the former are empiricallysignificant (Peart 1996a, pp. 90ff).

15. Perhaps for this reason, Menger argued that average prices might serve approxi-mately as a basis for valuation; "Where only an approximate correctness of the estimatesis required, average prices can properly serve as the basis of valuation, since they aregenerally most suitable for this purpose. But it is clear that this method of valuing goodsmust prove itself completely insufficient and even erroneous, even for practical life, wher-ever a higher degree of precision becomes necessary" (1871, p. 274). In general, he waswary of aggregation.

16. Thus, for Menger, technological progress is the improvement of things, and of ourunderstanding, or a change in the information content of goods (Streissler 1972, p. 431;cf. p. 432). Agents are portrayed as active problem solvers. See the assessment by Mitford(1990, p. 218).

17. A key feature of Menger's economic man is that he lives in and plans through time:"The idea of causality, however, is inseparable from the idea of time. A process of changeinvolves a beginning and a becoming, and these are only conceivable as processes intime" (1871, p. 61).

18. Menger disapproved of such choices (1871, p. 148), cited above (pp. 313-14).19. Menger uses the phrase "economizing individual[s]" repeatedly.20. People may be mistaken both with respect to their ability to appraise their "own

states of mind" and to "their knowledge of the magnitudes of the quantities available tothem and of the different qualities of goods" (1871, p. 148). As an economy becomesmore civilized, fewer imaginary goods are consumed (see 1871, pp. 53-54).

Jevons and Menger Re-homogenized? 323

21. This attitude, of course, has a long history. See J. S. Mill's very similar position inUtilitarianism, as well as the treatment in Jevons, discussed below, and Marshall (1890),Fisher (1892), and Pigou (1920). For a discussion of the pervasiveness of such claims,see Peart (1996b).

22. As noted above, Menger foresaw that over time such errors would diminish; hencehe was convinced that "real world" prices must move closer to "economic" prices overtime. See Menger (1871, p. 70), and Vaughn (1990, p. 384).

23. Such a procedure, however, yielded limited predictive power (1874, p. 760).24. Distinctions among these three phenomena sometimes become blurred. Jevons on

occasion refers to lack of competition as a capricious motive, or as a cause of imperfectinformation. Further, imperfect information is sometimes referred to as a cause of im-perfect competition. In fact, lack of competition is rarely discussed as a distinct consid-eration. Edgeworth, who took Jevons as his starting point (Creedy 1992, p. 174), com-menced his discussion with the consideration of competition (1881, pp. 170. He arguedthat Jevons's Law of Indifference pertained only when there is "perfect competition" (p.109), and he was critical of Jevons for not having dealt with the problem of the numberof people in the market (Creedy 1992, p. 120).

25. Jevons makes a similar argument concerning his famous "trading bodies" (1871,pp. 88-89). As noted above, Edgeworth was very much concerned with how the numberof traders affected competition, and, consequently, with the nature of Jevons's "tradingbodies." His description is apt: "IJevons's] couple of dealers are, I take it, a sort of typicalcouple, clothed in the property of 'Indifference,' whose origin in an 'open market' is solucidly described . . ." (1881, p. 109). Each is a "representative particular," and "in thebackground" there is "presupposed a class of competitors" (p. 109). Elsewhere he refersto "individuals clothed with the properties of a market" (p. 31, nl).

26. There may actually be two conceptually different issues here: lumpiness of con-sumption units and extraneous motives.

27. Jevons did not often elaborate upon the motives he had in mind, but in one passagehe focused on "motives more or less extraneous to a theory of Economics"—knowledge,""disposition," "force of character," "persistence," "adroitness," "experience," and "feel-ings of justice or kindliness" (1871, pp. 124, 125). Menger also referred to such motivesas "extraneous" to economics.

28. Jevons's discussion of gambling constitutes an example of this type of analysis: "Ifa person with a certain income prefers to run the risk of losing a portion of it at play,rather than spending it in any other way, it must no doubt be conceded that the politicaleconomist, as such, can make no conclusive objection. If the gamester is so devoid ofother tastes that to spend money over the gaming-table is the best use he can discoverfor it, economically speaking, there is nothing fiirther to be said. The question thenbecomes a moral, or a political one" (1871, pp. 160-1). Even here, Jevons's disapprovalis evident: gamblers are "devoid of other tastes." The treatment by Walras is similar,though somewhat more extreme: "From other points of view the question of whether adrug is wanted by a doctor to cure a patient, or by a murderer to kill his family is a veryserious matter, but from our point of view, it is totally irrelevant. So far as we are con-


cemed, the drug is useful in both cases, and may even be more so in the latter case thanin the former" (1874, p. 65).

29. A similar phrase pertains to decisions made at a point in time (1871, p. 60).30. Marshall's treatment is similar: the "prudent" consumer being said to "endeavour

to distribute his means between all their several uses, present and future, in such a waythat they will have in each the same marginal utility" (1890, p. 119). Like Jevons, Marshallmaintained that consumers make two "deductions" from the "future value of a good":the first, which is justified, due to the uncertainty of obtaining future pleasures, and asecond, which is not, due to lack of prudence, or impatience (1890, p. 120). On thesimilar treatment of the savings decision by Jevons, Fisher, Marshall, and Pigou, seePeart (1996b).

31. On the majority view that Menger favors laissez faire, as well as the recent challengeto that argument, see Kirzner (1990, p. 94); for an overview of conflicting interpretationsof Jevons's policy stance, see Peart (1990).

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