Economics and Psychology: A Resurrection Story

Abstract

Although few historians of economics nowadays view the so-called “marginal revolution” of the 1870s as a complete break with the past, it is still generally seen as an important turning point in the development of the discipline: the beginning of modern professionalized academic economics, and a major paradigm shift which, one recent scholar has persuasively argued, inaugurated a new research program (Fisher, 1986). Central to the achievement of the three major innovators — Jevons, Menger, and Walras — was the formulation and elaboration of a new “subjective” theory of value to supplant the dominant “objective” cost of production theory, which in turn contributed to a fundamental shift of focus from supply-based to demand-based theories of value, production, and distribution (Black, Coats, and Goodwin, 1970). There was, of course, much more to the marginal revolution than this. But for present purposes it will serve as a convenient starting point, for it was followed by a protracted, intense, and complex debate about the relations between economics and psychology which lasted at least until the late 1920s, and which involved many scholars from both disciplines and several different countries.