The Development of the Theory of Exchange

Abstract

The aim of this paper is to provide an outline of the development of the theory of exchange, concentrating on the less well-known development of the formal model which culminated in the contribution of Edgeworth. The importance of exchange, viewed as the central economic problem for the early neoclassical economists, is stressed. Instead of taking a chronological approach, non-utility approaches are first discussed. These include the extension by Walras of Cournot’s attempt to model trade between regions, and Whewell’s mathematical version of J. S. Mill’s international trade analysis, followed by Marshall’s diagrammatic version. Jevons’s and Walras’s utility approaches are then examined, showing the different paths they took from the same basic equations of exchange. After a very brief discussion of Edgeworth, the neglected but valuable contribution of Launhardt, along with the later work of Wicksell, are examined. Emphasis is placed on the similarity of the formal structure of the exchange model used by the various writers. This similarity has been obscured by the different forms of presentation used and the emphasis given to various aspects and results by each investigator.