The Underlying Theory of Modern Orthodox Neoclassical Economics: Jevons - Part 2

I begin with Jevons’s ‘mathematical’ theory of exchange, as this is, as Vivian Walsh and Harvey Gram point out, the basis of the ‘marginalist’ or ‘neoclassical’ picture of a market economy like capitalism (1980: 168-72). This theory of Jevons’s develops a model of a ‘pure exchange’ economy in which ‘production is not treated’ (Walsh and Gram, 1980: 128), as the focus is simply on establishing how goods are exchanged in the market place. (As Vivian Walsh and Harvey Gram point out, this was for Jevons the more fundamental and far easier question to address first before tackling the more complex and difficult question about the economic processes of ‘production’ [1980 129].)

The starting point of Jevons’s theory of exchange is the ‘maximizing activity of the individual’ (Walsh and Gram, 1980: 128) within the consumers’ market for exchangeable household goods (‘commodities’). Accordingly, Jevons constructs on the basis of this type of individual or economic agent a ‘pure exchange’ model in which there are at least two individuals who are ‘endowed with given stocks of commodities’ (Walsh and Gram, 1980: 129) and who seek to offer for trade any part of them through the exchange process of the market and in doing so seek to maximise a certain ‘objective’ in terms of what sorts of commodities they prefer over others: in short, they seek to maximise, as pointed out by Vivian Walsh and Harvey Gram, their ‘utility’ (1980: 130) or, as Anwar Shaikh says, making ‘optimal choices’ (2016: 344). Now, what Jevons wants to show here is that on ‘the assumption’ that such utility-maximising individuals (to put it in modern neoclassical economics terms) are able ‘to make marginal changes’ (Walsh and Gram, 1980: 130) in terms of the commodities they possess, they will consequently exchange them with each other until they have achieved their specific objective in maximising what sorts of commodities they prefer over others (hence maximising their utility). Consequently, for Jevons, this is how within a pure exchange model of a market economy, various stocks of commodities are allocated in order to maximise the objectives of these types of utility-maximising individuals.

As pointed out by Vivian Walsh and Harvey Gram, this model of a pure exchange economy as formulated by Jevons is devoid of any clear reference to social classes and therefore social class distinctions. The economic agents here are simply utility-maximising individuals or agents. Whether they are landlords, wage labourers or capitalists is not apparent and nor does it seem to matter for the purpose of constructing such a ‘theory of pure exchange’ (Walsh and Gram, 1980: 128). What does matter, at least from Jevons’s position, is describing the allocative ‘mechanism’ (Walsh and Gram, 1980, p. 130) by which such economic agents achieve their objectives in terms of maximising their utility – viz., the marginal adjustments to their stock of commodities. The absence of social classes and hence social class distinctions is, as we shall shortly see in the case of Menger’s ‘non-mathematical’ theory of production, even more pronounce.