Early Neoclassical Contributions

Abstract

Augustin Cournot (1801–77) was a major figure in the shaping of the basic structure of twentieth-century economics. He was among the first to model the actions of economic agents in terms of optimising behaviour which was therefore amenable to analysis as solutions to maximisation and minimisation problems. Cournot thought of economic concepts such as ‘demand’ and ‘cost’ as functional ones. He pioneered the treatment of economic phenomena as being in essence functional relationships (mutual interdependence) that could be expressed by behavioural equations between variables. Through him, relationships between economic variables came to be recognised as functional ones, e.g. a change in quantity demand with respect to a change in price or of cost as a function of price. As functional relationships, they could be expressed as equations and curves. He constructed a model determining the price and quantity demanded and considered how the equilibrium values would change as a result of changes in tax and transport costs, i.e. the method of comparative statics. Cournot started with a demand function (in fact, a sales function) without seeing the need to base it on utility; since as far as he was concerned, demand functions tell us all we need to know about market phenomena from the side of demand or consumption. As is well known, he developed quite modern-looking analyses of partial equilibrium, monopoly and oligopoly and elaborated the marginal principle in its application to the theory of the firm. He understood the concept of marginal revenue which was only rediscovered in the 1930s.