Jevons’ Utility Theory

Much of William Stanley Jevons’ (1835-1882) work in utility theory was his alone, especially the discovery of marginal utility (Ekelund & Hébert, 1990). Later he realized that others such as Dupuit and Cournot preceded him, to which he aptly gave credit. Nevertheless, Jevons’ work went beyond others in that he recast value theory in terms of utility maximization. Jevons was at heart a statistician and he expressed reservation that subjective analysis of an individual’s pleasure and pain (i.e., net utility) were at best only ordinal (not cardinal) estimates of the actual values around which valuation of goods in the entire economy revolved. Being the empirical statistician that he was, Jevons did not state that utility was directly measurable, but instead he defined the utility function as a relationship between the consumption behavior of an individual and the ethereal act of valuation.

Like Jeremy Bentham, he argued that positive utility was simply the net gain of pleasure over pain in the use of a commodity in four types of circumstances: (1) intensity; (2) duration; (3) certainty or uncertainty; (4) nearness or remoteness. Unlike Bentham, he distinguished between total utility and marginal utility, analysis of marginal utility and definition of the equimarginal principle. These were the hallmark of his study.

Jevons noted the difference between the additional utility provided by an additional unit of the commodity vs. the total utility of all the units of the commodity consumed to date. In summary, within a given time period the increase in utility offered by the addition of units of a commodity is not linear. In fact, it will decrease total utility if more units are added. For example, those first bites of a meal are of high utility and the last bites of the meal are comparatively the lowest in utility.

Further applications of Jevons’ utility theory can be seen in the Equimarginal Principle and Theory of Exchange. The Equimarginal principle illustrates how an individual maximizes behavior by allocating to uses in utility-equivalent portions. The Theory of Exchange shows how a trading body comprised of individuals maximizes utility by trading goods that have different marginal utilities.

I disagree with Ekelund and Hébert (1990) that the concept of a trading body always constitutes a “fallacy of composition” (p. 365) in aggregating the members’ individual utility functions because the participants in a trading body could be assumed to have implicitly charged the corporate body with the fiat to make utility maximizing decisions for all, at least for purposes of analysis of the trading body and not an ordinary group. Therefore, increasing the group’s utility (i.e., maximizing general welfare) could constitute a maximization of utility for most of the individuals, by definition.

(For purpose of analysis of a trading body, it seems wise to assume that if one has improved the utility of a group in the aggregate, that most of the members of the group are better off, because of the presumed choice to be part of the trading body. An example might be defending the country against a hegemonic enemy, whereas the country as a whole is better off, but the intensity of pain and pleasure among citizens may vary drastically. This is unlike the specific case of criticism of Jeremy Bentham’s conclusion on p. 131 of the Ekelund and Hébert (1990) where total welfare is calculated by summing the individual welfares. In sum, apportionment of utility seems wise where aggregation does not.)

Reference

Ekelund, R. B., Jr., & Hébert, R. F. (1990). A history of economic theory and method (3rd ed.). New York: McGraw Hill.