The Enlightenment (1685-1815) in Europe brought a new emphasis on reason, individual rights, natural law, and social progress. It began to replace the worldview dominated by absolute monarchy, mercantilism, rigid social hierarchies, and religious dogma. This shift in thinking had a profound impact on European societies, laying the groundwork for the development of modern democracies and our understanding of political economies.

Thinkers like Adam Smith, often considered the father of modern economics, and other classical political economists, such as David Ricardo, John Stuart Mill, and François Quesnay, developed their theories on political economy based on logical reasoning, historical analysis, observation, and philosophical arguments. They used illustrative examples rather than mathematical precision to argue their positions.

In an age before political arithmetic and the collection of national “state-istics,” began to create a numerical representation of the state, political economists sought to develop arguments that would influence merchants, monarchs, and other politicians, not just other scholars. They were “policy” oriented and sought to make society better.

However, economics would take a turn away from “normative economics” (what should be) to what are called “positive economics” (describing what is), due primarily to the work of the “marginalists” in the 1870s. This group included Carl Menger, William Stanley Jevons, and Léon Walras. Alfred Marshall gave visual legitimacy to the marginalists’ ideas by developing the graphical representation of supply and demand, which is taught in economics courses.

While they worked independently, these four economists converged on a revolutionary idea. They argued that the economic value of a good is not determined by the labor required to produce it (the classical political economy view) but by the “marginal utility” it provides to a consumer. What is the usefulness of one additional unit of that good? And how would that influence price? This “marginalist” perspective was born from a new philosophical and corporate environment that prized scientific positivism and individualism over the historical and social concerns of the Enlightenment’s early political economists.

There was a powerful drive to make the social sciences as rigorous and objective as the natural sciences, like physics. The goal was to discover universal, mathematical laws that governed human society, just as Newton had discovered laws that governed the planets. The language of calculus and equilibrium was seen as more scientific than the historical narratives of the political economists.

They were also under pressure to develop narratives that countered the growing interest in critical perspectives. The classical labor theory of value had been used by Karl Marx to argue that capitalism was inherently exploitative. The marginal utility theory provided a powerful counterargument, suggesting that if value originates from a consumer’s subjective desire, rather than from labor, then there is no inherent conflict between capital and labor. Instead, the market is a harmonious system where rational individuals all pursue their own self-interest, leading to a stable and efficient equilibrium.

Carl Menger (Austrian School) argued that value is not an inherent property of a good but exists in the individual who needs it. His focus was on human action and causality, explaining how individuals make choices based on their personal, ranked preferences. The subjective theory of value challenged the labor theory of value proffered by Adam Smith and Karl Marx.

William Stanley Jevons (British School) developed the theory of marginal utility and one price, arguing that the value of a good is determined by the satisfaction gained from consuming one more unit of it, not by the cost of production. Jevons sought to make economics a true science by applying mathematics. He framed economics as a “calculus of pleasure and pain,” arguing that a rational person would consume a good up to the point where the pleasure from the last unit (its marginal utility) equals the pain or cost of acquiring it.

His one price theory argued that prices would converge to one price where markets would clear was important in the development of supply and demand charts. William Stanley Jevons gave one of the first and most explicit formulations of the Law of One Price in his 1871 book, The Theory of Political Economy. It was a foundational component of his effort to build a scientific and mathematical theory of economics.

Jevons’ core argument was that a “perfect market” would naturally lead to a single prevailing price for any identical good. His famous statement on the matter is: “In the same open market, at any one moment, there cannot be two prices for the same kind of article.” His reasoning was based on the flow of information and the actions of rational traders. If two different prices for the same item existed, a trader could instantly profit by buying the good at the lower price and selling it at the higher price. This act of arbitrage, when performed by many traders, would increase demand for the lower-priced good (raising its price) and increase the supply of the higher-priced good (lowering its price) until the two prices converged into one.

Léon Walras (Lausanne School) argued markets must be “cleared” of any excess supply and demand to be in the state of equilibrium. The existence of excess supply in one market must be matched by excess demand in another market so that both factors are balanced out. Walras was the most mathematically ambitious of the group. He developed general equilibrium theory, creating a complex system of simultaneous equations to show how supply and demand across all markets in an economy could, in theory, reach a state of equilibrium. His work became the foundation for much of modern microeconomic modeling.

Alfred Marshall’s (Neoclassical Synthesis) landmark 1890 book Principles of Economics, blended the new marginalist ideas about consumer demand and utility with the classical economists’ focus on the costs of production. He created the famous supply and demand “scissors” diagram (seen above), which remains the most recognizable tool in economics. It was Marshall who popularized the term “economics” to replace “political economy,” cementing the discipline’s shift towards a social-neutral science.[2]

All four political economists were crucial in shifting economic thought towards marginalism and developing the theory of equilibrium.

Chronology of Major Works on Marginal Analysis

1862 – William Stanley Jevons presents his paper, “A General Mathematical Theory of Political Economy,” which first outlined his theory of marginal utility. It received little attention at the time but predated the major publications of the 1870s.

1871 – Carl Menger publishes Grundsätze der Volkswirtschaftslehre (Principles of Economics). This work established the Austrian School’s subjective theory of value, arguing that the value of a good is determined by the importance an individual places on its least important use. Also that year, William Stanley Jevons publishes The Theory of Political Economy. In this book, he fully developed his marginal utility theory using calculus, arguing that rational individuals consume until the marginal utility of a good equals its price.

1874 – Léon Walras publishes the first part of his Éléments d’économie politique pure (Elements of Pure Economics). Walras independently formulated marginal utility theory but, most importantly, integrated it into a comprehensive mathematical system of general equilibrium, showing how all markets could theoretically clear simultaneously.

1890 – Alfred Marshall publishes his highly influential Principles of Economics. This work did not introduce marginalism but synthesized it with classical economic thought. Marshall combined the marginalist theory of demand (utility) with the classical theory of supply (cost of production) to create the famous supply-and-demand analysis that became the foundation of neoclassical economics.

Walras provided the most complete framework for general equilibrium, while Jevons and Menger offered key insights into individual behavior and the subjective nature of value that underpin equilibrium conditions. Increased supply of something eventually decreases the value of it and demand will decrease. Jevons analyzed how individuals would purchase goods until their marginal utilities were proportional to the exchange ratios (prices).

This would lead to equilibrium in exchanges between consumers and suppliers of goods and services. Walras is known for developing the concept of general equilibrium and envisioned the economy as a system of interconnected markets, where the prices and quantities of all goods and services are simultaneously determined by supply and demand. Walras sought to express this theory mathematically, using equations to represent the equilibrium conditions across all markets. His work laid the groundwork for formal mathematical modeling in economics.

Alfred Marshall then popularized the charting of supply and demand in graphs that are still taught in economics courses. Walras invented the initial equations, and Marshall expanded on them to develop the concepts of equilibrium price and marginal analysis that could be visualized through supply and demand curves. Marshall developed a stunning representation of prices adjusting until the quantity of goods supplied equals the quantity of goods demanded. This visualization revolutionized how economists understood markets and its participants.

Subsequently, economics became more of a technical field, relying on graphs, equations, and models rather than moral and political philosophy. Jevons and Marshall showed that prices are not just determined by historical social forces but by individual consumer preferences and firm behavior in a market system. This shift would mark the decline of classical political economy (which focused on broad social and political factors) and the rise of modern economics. The new economics centered on mathematical modeling and allowed economists to study market mechanisms in isolation, ignoring broader social forces, including the centrality of labor.

Citation APA (7th Edition)

Pennings, A.J. (2025, Sep 7) Equilibrium and the Turn from Political Economy to Economics. apennings.com https://apennings.com/dystopian-economies/equilibrium-and-the-turn-from-political-economy-to-economics/

Notes

[1] This was an intriguing question for me in graduate school. When I taught macroeconomics, comparative political economy, and media economics at NYU, I had a chance to do additional research but lacked a good publishing opportunity.
[2] Sharma, S. (2020). The Death of Political Economy: A Retrospective Overview of Economic Thought. Economic Research-Ekonomska Istraživanja, 33(1), 1750–1766. https://doi.org/10.1080/1331677X.2020.1761854

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Anthony J. Pennings, PhD is a Professor at the Department of Technology and Society, State University of New York, Korea and a Research Professor for Stony Brook University. He teaches AI and broadband policy. From 2002-2012 he taught digital economics and information systems management at New York University. He also taught in the Digital Media MBA at St. Edwards University in Austin, Texas, where he lives when not in Korea.

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Category: dystopian economies, science and technology studies, telegraphic political economy, the smith effect
Tags: Adam Smith > Alfred Marshall > Carl Menger > David Ricardo > equilibrium price > François Quesnay > Léon Walras > The Wealth of Nations (1776) > William Stanley Jevons

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