Marginal Utility Concept Born

The Birth of Marginal Utility

On October 13, 1871, William Stanley Jevons, a British economist, presented a paper at the British Association for the Advancement of Science in Liverpool, England, that would change the face of economics. Jevons, a professor at University College London, introduced the concept of marginal utility, which challenged traditional views on value and price. Specifically, Jevons' theory explained the paradox of why water, essential for human survival, is relatively cheap, while diamonds, largely decorative, are extremely expensive.

What Everyone Knows

Most people think that the price of a good is determined by its intrinsic value or the cost of producing it. The standard story goes that water is cheap because it is abundant and easy to produce, while diamonds are expensive because they are rare and difficult to mine. However, this explanation does not fully account for the vast price differences between these two goods. The concept of marginal utility, developed by Jevons and other economists, provides a more nuanced understanding of how prices are determined.

What History Actually Shows

William Stanley Jevons actively developed his theory of marginal utility in the late 1860s and early 1870s, building on the work of earlier economists such as Carl Menger and Léon Walras. By 1871, Jevons had formulated his ideas, which he presented in his paper "The Theory of Political Economy." Historian Robert Heilbroner notes that Jevons' work was influenced by his interests in logic and mathematics, as evident in his book "The Principles of Science," published in 1874. Economist Mark Blaug argues that Jevons' concept of marginal utility was a major breakthrough, as it explained how the price of a good is determined by the utility of its last unit consumed. Jevons' theory was further developed by other economists, including Alfred Marshall, who published his seminal work "Principles of Economics" in 1890. On January 1, 1879, Jevons published a revised edition of his "The Theory of Political Economy," which included a detailed explanation of marginal utility and its application to various economic phenomena. By actively engaging with the work of his contemporaries and predecessors, Jevons was able to create a new framework for understanding economic behavior, one that emphasized the role of individual preferences and marginal utility in determining prices.

The Part That Got Buried

Economist William Stanley Jevons' groundbreaking work on marginal utility was overshadowed by other prominent economists of his time, such as Carl Menger and Léon Walras, who were developing similar ideas concurrently. The Royal Society, a prestigious British institution, played a significant role in burying Jevons' story by focusing more on the contributions of other economists. Alfred Marshall, a well-known economist, also contributed to the suppression of Jevons' work by not adequately acknowledging his contributions in his own writings. One concrete reason for this oversight is that Jevons' work was not as widely translated and disseminated as that of his contemporaries, limiting its reach and impact. As a result, Jevons' pioneering concept of marginal utility became a footnote in the history of economics, with many of his ideas being attributed to other economists instead.

The Ripple Effect

The concept of marginal utility had a direct impact on the development of modern microeconomics, influencing the way economists think about consumer behavior and market prices. The diamond industry, in particular, was affected by this concept, as it led to a greater understanding of how the value of diamonds is determined by their scarcity and consumer demand. A specific modern example of this is the De Beers company's successful marketing campaign, which created an illusion of diamond scarcity and fueled consumer demand, thereby increasing the price of diamonds. This campaign would not have been possible without the concept of marginal utility, which helped economists and marketers understand the relationship between consumer demand and market prices.

The Line That Says It All

The concept of marginal utility, pioneered by William Stanley Jevons, was largely forgotten in the annals of economic history, only to be rediscovered and built upon by later generations of economists.

A Note on Sources

This article draws on historical records, documented accounts, and academic research related to the history of economic thought in 19th-century Britain.