W. S. Jevons' The Theory of Political Economy marks the shift from classical to the development of neo-classical economic theory in the nineteenth century. Classical political economy originated in the eighteenth century as an expansion of moral philosophy, uniting observation of facts with deductive analysis of cause and effect relationships to explain the workings of the economic system [Black, 1970]. The writings of British philosophers John Stuart Mill and Jeremy Bentham combined to produce a theory of utilitarianism that viewed human activity motivated by pleasure, and the maximization of an individual's pleasure while minimizing their pain as the aim of moral philosophy; that is, as the condition of happiness. The realization that people sought pleasure as the good was combined with the work of Adam Smith in The Wealth of Nations to form classical economic theory. Smith found that national wealth depended upon the degree of division of labor, or social stratification, in a given economy which would allow the maximum production of goods by specialized tradesmen. Analyzing economic progress as based on self-interest, or the desire of individuals to increase their own happiness, allowed Smith to posit that natural competition based around market prices determined by supply and demand would create an "invisible hand" to direct social prosperity. By minimizing government intervention in business, which Smith saw as promoting favoritism, the principle of laissez-faire would see competition prevent monopolies and ensure the greatest production of goods and wealth through a capitalist economy.
[...] Rather, this revision in the concept views value dependent upon short-run exchange-ratios determined by the psychology of parties undergoing the transaction. The theory presented by Jevons would be termed the law of diminishing marginal utility: it is seen that consumers will derive overall satisfaction from consuming a particular product, or their total utility, which depends on the number of units he or she purchases [Lovewell, 2002]. Referring to previous work accomplished by Bentham and Mill, who believed utility could be measured in units or Jevons proposed that marginal utility would fall at higher consumption levels. [...]
[...] Lovewell [2002] notes that long as consumers can say they prefer one set of products to another (without having to state exactly how much more they prefer conclusions like those drawn from the law of diminishing marginal utility and the utility-maximizing rule can still be reached.” In fact, Jevons' fixation of positive economics as the central preoccupation of The Theory of Political Economy is perhaps his most significant contribution to the modern study of economics, as it allowed the development of micro-economic theory and analysis which sought to comprehend individual action as determining price without relying on the previous maxims of classical macro- economic thought which predicated price and value as determined by the contribution of labor to a particular good. [...]
[...] Jevons proceeds from his discussion of the law of diminishing marginal utility and the utility-maximizing rule by underlying his writing with a theory of pleasure and pain which grounds his theory of utility. Assuming the work developed by Bentham and Mill, Jevons applied political economic to utilitarian thinking through the development of a theory of economy as a calculus of pleasures and pains. In discussing feeling, Jevons proposes that it must whether one of pleasure or one of pain be regarded as having two dimensions, or modes of varying in regard to quantity: every feeling must last a given time, either a shorter or a longer time; and while it lasts it can be more or less acute and intense [Jevons, 1871]. [...]
[...] In reference to the law of diminishing marginal utility, the relationship between selecting items which would maximize the consumer's satisfaction could be clearly demonstrated and quantified insofar as the economist could determine the optimal utility of products. The effect of this would be to determine the psychological factors which influence demand as consumer's would only purchase items until their satisfaction sufficiently diminished whereas it was no longer beneficial to acquire additional units. Lovewell [2002] cites the example of a student purchasing cappuccinos and Danish pastries at a sidewalk café with a total budget of as an example of the law of diminishing marginal utility, and presents the theorem of MU1 P1 = MU2 P2 to achieve the utility-maximizing rule. [...]
[...] While Jevons' The Theory of Political Economy can be attributed as the herald of the neo-classical shift in political economics, and as a core text in the development of economics as a social science distinct from moral philosophy, Black [1970] indicates that it would be premature and incorrect to acquaint Jevons with founding a neo-classical school in the same manner in which Adam Smith is perceived as the master of the classical. As such, Black [1970] does not consider The Theory of Political Economy to be readily compared as a monumental treatise such as the Wealth of Nations where all the doctrines of its followers could be perceived to have originated. [...]
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