Revisiting Cournot and Neoclassical Economics

Abstract

This study highlights the deep influence that Cournot’s economic thought had on subsequent neoclassical and mainstream economics. Cournot’s idea for price stability and perfect competition through an infinite number of firms, each of inappreciable production that cannot affect the price, has been fully adopted by subsequent neoclassical theorists and embodied in today’s mainstream economics. But, in the passage of this idea from Cournot to neoclassical economics, there was a misinterpretation of this price stability condition that led neoclassical economics to the notion of price taking and horizontal demand curve for the individual firm, while Cournot himself considered this individual demand curve to be sloping. This misconception led neoclassical and mainstream economics to erroneous models and outcomes. The most serious implication is that the equilibrium price in perfect competition is not at the minimum average cost, as neoclassical economics argues, but at a higher cost, which, in turn, has further implications for social welfare.