Question

2. Compare and contrast Menger's and Jevon's theories of value and utility (total and marginal) paying particular attention to any role of exchange.

Answer 1

Ricardo freed the classical economics from contextual analysis and made it abstract. The next big jump in economic theory came in the form of Marginalist Revolution . From the second half of nineteenth century, people started critiquing the labor theory of value and started forwarding theories which are based on marginal principles . The first generations of marginalists were Jevons, Menger and Walras whose books were published between 1871 and 1874 . According to the marginalists it is not the total or average utility that matters but the marginal utility. The conceptualization of marginal utility helped solving the diamond water paradox . According to them price of exchange is determined by the value of marginal utility derived from consumption .

Menger used a table to elaborate on the concept of marginal utility . Suppose the consumer has already consumed
four units of water and no diamond yet. One more unit of water would give him 1 unit of utility while 1 more (i.e. the first) unit of diamond consumption would give him/her 2 units of utility . However, none of the early marginalists clearly explained what precisely the word utility means. Menger even did not use the word utility . Nevertheless, all of them assumed the rule of diminishing marginal utility.

Jevons and Walras used mathematical techniques to derive their results, while Menger used verbal arguments to
reach at a similar conclusion . The rule for consumption should be as follows:

MUa / Pa = MUb / Pb

Even though the first generation marginalists did talk about utility, none of them looked into the properties of utility function. Walras and Jevons however mentioned utility function of the additive form .