Value and Capital
Value and Capital is one of the major works by British economist John Richard Hicks , published in 1939. It is considered a classic representation of microeconomic theory . The main results are:
- Extension of household theory for the individual and market equilibrium in relation to goods that are in demand for explicit use for the exclusive ordinal benefit of individuals, instead of comparing the welfare function for two individuals.
- Analysis of the choice of only two goods with regard to the effects of a price change, mathematical extension of the result to any number of goods without loss of generality
- Parallel results for production theory
- Extension of the general equilibrium model of markets and adaptation of the theory of static equilibrium to dynamic economic processes by distinguishing between a temporary and a long-term equilibrium based on the expectations of the actors.
Overview and individual content
The book has 19 chapters and the following structure:
- introduction
- Part I, The Theory of Subjective Value
- Part II, General Balance
- Part III, The Basics of Economic Dynamics
- Part IV, The Functioning of the Dynamic System
- Mathematical appendix.
It starts with a simplified case and generalizes it.
A single consumer has a certain monetary income for spending only two goods.
What determines the amount that this individual demands of each commodity?
The basic hypothesis is the set of constraints on the utility function and the demand balance resulting from the consumer's budget constraint. This hypothesis determines the theoretical result of a price change in one of the goods based on the quantity demanded of each good.
The book breaks down the change into the substitution effect and the income effect. The latter is the theoretical change in real income, without which the distinction between real and nominal values would be more problematic.
Both effects are standard in consumption theory today. The analysis is consistent with a proportional change in monetary income and monetary prices of both goods, with the amount demanded of both goods unchanged. This also agrees with the distinction between real and nominal values and represents a common hypothesis in economics that there is no illusion of money.
An appendix generalizes the case of 2-goods consumption to the case of a good and a compound good, i.e. H. of all other consumer goods. He derives the conditions under which the demand properties ascribed to the 2-goods case with regard to the price ratio and the marginal substitution rate apply to the more general case, whereby a clear distinction between the income effect and the substitution effect is possible.
In his Nobel Laureate Lecture, Hicks quotes value and capital to clarify an aspect of what has come to be known as the aggregation problem. The problem is most acute in measuring the capital stock by its market value for the real case of heterogeneous capital goods (e.g. steel presses and shovels).
He showed that the aggregation of capital-good values would not be a strictly valid measure of the capital stock if the price ratios between the goods (which correspond to their marginal substitution rates in equilibrium) did not remain constant with additional capital. He also showed that there is no clear way of measuring the "production time" ( proposed by Böhm-Bawerk ), which would generally serve as a measure of the capital stock.
Starting from the consumer equilibrium for a single individual, the book's approach to the market equilibrium for all individuals, producers and goods expands. Hicks introduced the general Walrasian equilibrium theory to an English-speaking audience.
This was the first publication that attempted a rigorous explanation of the stability conditions for general equilibrium. With this, Hicks formalized the comparative statics.
The book summarizes elements of the dynamics adjustment by Walras and Wicksell as well as Marshall and Keynes. It distinguishes between temporary, intermediate and long-term equilibrium with expectations of future market conditions that influence behavior in current markets (Bliss, 1987, pp. 642-43).
Individual evidence
- JR Hicks (1939, 2nd edition 1946). Value and Capital: An Inquiry into Some Fundamental Principles of Economic Theory . Oxford: Clarendon Press.
- _____ (1932, 1963, 2nd ed.). The Theory of Wages . Macmillan.
- _____ (1959). "A 'Value and Capital' Growth Model," Review of Economic Studies , 26 (3), pp. [Www.jstor.org/pss/2295744 159] -173.
- _____ (1973). "Recollections and Documents," Economica , NS, 40 (157), p 2 -11.
- Reviews from Value and Capital :
- RF Harrod (1939). Economic Journal , 49 (194), pp 294 -300.
- Albert Gailord Hart (1939). Journal of Farm Economics , 21 (2), pp 513 -515.
- Oskar Morgenstern (1941). "Professor Hicks on Value and Capital," Journal of Political Economy , 49 (3), pp 361 -393.
- Christopher Bliss, [1987] 2008. "Hicks, John Richard (1904-1989)," Section 3, Value theory, The New Palgrave: A Dictionary of Economics . Abstract.
- Michel De Vroey (1999). "JR Hicks on Equilibrium and Disequilibrium: Value and Capital Revisited," History of Economics Review , 29 (1), Winter, pp. 31-44 ( page no longer available ) (press Ctrl).
- Meier Kohn (1994) "Value and Exchange," Cato Journal , 24 (3). Pp. 303-17 on Value and Capital vis-à-vis Paul A. Samuelson (1947), Foundations of Economic Analysis .
- Lionel W. McKenzie and Stefano Zannigli, ed. (1991). Value and Capital Fifty Years Later , including Roy Radner , "Intertemporal General Equilibrium," pp. 427-460. Proceedings of a conference held by the International Economic Association at Bologna, Italy. Macmillan.
- Lloyd A. Metzler (1945): "Stability of Multiple Markets: The Hicks Conditions Econometrica , 13 (4), pp 277 -292.
- RM Solow (1984): "Mr Hicks and the Classics," Oxford Economic Papers , NS, 36 (198), p 13 -25.