W. Stanley Jevons The Theory Of Labor

William Stanley Jevons Theory of Labor

One of Jevons's most interesting applications of utility theory was to the theory of labor supply. With labor, as with all other activities, two quantities were of primary importance to Jevons in explaining behavior: cost incurred and utility gained (prox­ies for pain and pleasure). Jevons defined labor as "any painful exertion of mind and body undergone partly or wholly with a view of future good." The reader may ob­ject that most people at least claim to like their work. Jevons, however, was think­ing of some concept of net pain, i.e., a balance of the painfulness and the pleasure of working. He also implicitly assumed that workers were on a piecework system and that they could alter the amount of work performed. This latter assumption, ex­cept perhaps over a long-run period, does not present a very accurate picture of pre­sent conditions or even of those that obtained in Jevons's time. Nevertheless, his idea has some applicability wherever the conditions he assumed are existent.

In analyzing the work decision, Jevons focused upon three quantities: net pain from work, amount of production, and amount of utility gained. Graphically, the com­bination of these quantities may be analyzed as in Figure 1. In a piecework sys­tem the worker's real wage and income depend on his or her rate of production. The curve pq may be regarded as the degree of utility weighted by the worker's produc­tion or output. The reward for labor, in other words, may be regarded as the prod­uct of the rate of production and the degree of utility. The costs of labor are repre­sented by the curve traced out by ed. Here Jevons assumed that the act of beginning work is onerous (getting up in the morning for some of us?) and produces net pain. But as work continues, it becomes more and more pleasurable on balance, until a point is reached where painfulness begins to overwhelm the pleasure of working. Thus the net-pain-of-labor curve peaks out and turns downward, becoming negative. A significant point that Jevons made is that the worker will stop producing when the net pain of working is equivalent to the degree of utility of the real wages pro­duced. That occurs at point m in Figure 1. At point m, where the cost of working md (net pain) equals the reward from working mq (the utility reward), the worker would cease work. To go beyond this point would bring greater costs than rewards. Thus Jevons established a theory of labor supply based upon his notions concerning utility.

Jevons as a Pure Theorist

Our investigation of some of Jevons's purely theoretical ideas is necessarily incom­plete. His theory of rent and his productivity theory of capital and interest have not come within our purview. However, our discussion of his utility approach to value, exchange, and labor should leave little doubt in the reader's mind that Jevons was an innovative, original thinker.
Although utility theory revolutionized value theory, Jevons's own ideas on ex­change value were curiously lopsided. Though he never relied upon supply and de­mand curves, he was—from the work of Fleeming Jenkin—undoubtedly aware of their role in value determination. For example, he noted that "Our theory is perfectly consistent with the laws of supply and demand; and if we had the functions of util­ity determined, it would be possible to throw them into a form clearly expressing the equivalence of supply and demand."

But despite the fact that he said, "The laws of supply and demand are thus a result of what seems to me the true theory of value or exchange," he zeroed in almost exclu­sively upon utility as the source of value. Thus we have Jevons's well-known catena:
Cost of production determines supply; Supply determines final degree of utility; Final degree of utility determines value.

Labor value, and presumably the value of all inputs, is determined by the utility or value of the product and not vice versa. Independent alterations in supply due to al­terations in costs of productive inputs are not taken into account.

Jevons's independent discovery of utility analysis led him to neglect the earlier cost-of-production emphases of classical writers, including Smith, Ricardo, and Mill. Indeed, Jevons believed that utility theory effectively refuted the labor theory of value, which he (erroneously) identified as the sole determinant of value in Ri­cardo's Principles. What Jevons failed to recognize in his economic analysis was that supply and demand mutually determine prices. Fleeming Jenkin had suggested as much in 1870 or earlier, but it was Alfred Marshall's great achievement to have clearly recognized and elaborated upon the co-impact of inde­pendently determined supply and demand upon price determination.

In spite of this fundamental criticism of his value theory, Jevons's decision not to formally link demand curves with marginal-utility curves has been lauded by many economists, most notably by Leon Walras. As we have seen, Jevons looked forward to the day when these "functions of utility" could be empirically de­termined, at least in an ordinal (ranking) sense. But until that day, he was unwilling to link demand and utility functions in partial equilibrium, as Dupuit had done be­fore him and as Marshall was later to do.

For the demand curve of even a single individual to represent a utility measure , very restrictive assumptions must be imposed. The marginal utility of money must be held constant with respect to the prices or quantities of all other goods; goods in the consumer's budget must be assumed to be unrelated; etc. These condi­tions are not apt to be met in any real-world case, and it is to Jevons's credit that he recognized this important point.

True to his ambivalent nature, however, Jevons erred in a related matter. Recall that he had defined a trading body as any body of buyers and sellers. Presumably, as we discovered in connection with the theory of exchange, he believed that an ag­gregate degree-of-utility function could be constructed in order to analyze trade. Such a construction is manifestly illegitimate, however, since it would require the sum­ming up of different individuals' degree-of-utility functions for some good. Since incomes, tastes, and preferences vary, there is no reason to expect that the MU's of these individuals would be comparable. The fact that Jevons required only ordinal ranking is of no help to him in this dilemma. An interpersonal summation of rank­ings would not avoid the problem.

Thus many ambiguities are contained in Jevons's theoretical apparatus. His analy­sis of utility was pathbreaking, and it was an essential key to value theory, but his voyage into microeconomic analysis lacked the sophistication and the completeness of Marshall's. Still, many pioneering bits of analysis are contained in his Theory of Political Economy. One might speculate that had he lived to complete his projected Principles, Jevons might have left economic science far richer; however, as it stands, his contributions to pure theory, though piecemeal, were solid. Keynes (who was per­haps Alfred Marshall's greatest student) described Jevons's Theory as "simple, lucid, unfaltering, chiselled in stone where Marshall knits in wool."