{{Italic title ''Value and Capital'' is a book by the British economist John Richard Hicks, published in 1939. It is considered a

classic A classic is an outstanding example of a particular style; something of lasting worth or with a timeless quality; of the first or highest quality, class, or rank – something that exemplifies its class. The word can be an adjective (a ''c ...

exposition of

microeconomic theory Microeconomics is a branch of mainstream economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. Microeconomics foc ...

. Central results include: * extension of

consumer theory The theory of consumer choice is the branch of microeconomics that relates preferences to consumption expenditures and to consumer demand curves. It analyzes how consumers maximize the desirability of their consumption as measured by their pref ...

for individual and market equilibrium as to

goods In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not t ...

demanded with explicit use of only

ordinal utility In economics, an ordinal utility function is a function representing the preferences of an agent on an ordinal scale. Ordinal utility theory claims that it is only meaningful to ask which option is better than the other, but it is meaningless to a ...

for individuals, rather than requiring interpersonal utility comparisons * analysis of the 2-

good In most contexts, the concept of good denotes the conduct that should be preferred when posed with a choice between possible actions. Good is generally considered to be the opposite of evil and is of interest in the study of ethics, morality, ph ...

as to effects of a price change and mathematical extension to any number of goods

without loss of generality ''Without loss of generality'' (often abbreviated to WOLOG, WLOG or w.l.o.g.; less commonly stated as ''without any loss of generality'' or ''with no loss of generality'') is a frequently used expression in mathematics. The term is used to indicat ...

* parallel results for

production theory Production is the process of combining various inputs, both material (such as metal, wood, glass, or plastics) and immaterial (such as plans, or knowledge) in order to create output. Ideally this output will be a good or service which has value a ...

* extension of general equilibrium theory of markets and adaptation of static-equilibrium theory to economic dynamics in distinguishing temporary and

long-run equilibrium In economics, the long-run is a theoretical concept in which all markets are in equilibrium, and all prices and quantities have fully adjusted and are in equilibrium. The long-run contrasts with the short-run, in which there are some constraints an ...

through expectation of agents.

Outline and details

The book has 19 chapters and the following outline: * Introduction * Part I, The theory of subjective value * Part II, General equilibrium * Part III, The foundations of economic dynamics * Part IV, The working of the dynamic system * Mathematical appendix. It begins with a simplified case and generalises from it. An individual consumer has a given money income for spending on only two goods. What determines quantity demanded of each good by that individual? The basic

hypothesis A hypothesis (plural hypotheses) is a proposed explanation for a phenomenon. For a hypothesis to be a scientific hypothesis, the scientific method requires that one can test it. Scientists generally base scientific hypotheses on previous obse ...

is the set of restrictions on the utility function and demand equilibrium that results as to the consumer's budget constraint. That hypothesis drives the theoretical outcome of a price change in one of the goods on the quantity demanded of each good. The book decomposes the change into the

substitution effect In economics and particularly in consumer choice theory, the substitution effect is one component of the effect of a change in the price of a good upon the amount of that good demanded by a consumer, the other being the income effect. When a ...

and the income effect. The latter is the change in real income in theoretical terms without which the distinction between real and nominal values would be more problematic. The two effects are now standard in

. The analysis conforms with a proportionate change in money income and money prices of both goods leaving quantity demanded of both goods unchanged. This is also consistent with the distinction between real and nominal values and represents a common hypothesis in economics of no

money illusion In economics, money illusion, or price illusion, is a cognitive bias where money is thought of in nominal, rather than real terms. In other words, the face value (nominal value) of money is mistaken for its purchasing power (real value) at a previ ...

. An appendix generalises the 2-good case for consumption to the case of one good and a ''

composite good In economics, a composite good is an abstraction that represents all but one of the goods in the relevant budget.* ''Deardorff's Glossary of International Economics''"Composite good."/ref> Purpose Consumer demand theory shows how the composite ma ...

'', that is, all other consumer goods. It derives the conditions under which the demand properties in equilibrium as to the price ratio and the

marginal rate of substitution In economics, the marginal rate of substitution (MRS) is the rate at which a consumer can give up some amount of one good in exchange for another good while maintaining the same level of utility. At equilibrium consumption levels (assuming no exte ...

attributed to the 2-good case apply to the more general case, allowing the neat distinction between the income effect and the substitution effect. In hi
Nobel lecture
Hicks cites ''Value and Capital'' for clarifying an aspect of what became known as the

aggregation problem An ''aggregate'' in economics is a summary measure. It replaces a vector that is composed of many real numbers by a single real number, or a scalar. Consequently there occur various problems that are inherent in the formulations that use aggregate ...

. The problem is most acute in measuring the capital stock by its market value for the real-world case of heterogeneous capital goods (for example, steel presses and shovels). He showed that if the price ratios between the goods (equal to their marginal rates of substitution in equilibrium) did not remain constant with additional capital, aggregation of capital-good values would not be a strictly valid measure of the capital stock. He also showed that there was no unambiguous way of measuring the "period of production" (proposed by Böhm-Bawerk) that would in general serve as a measure of the capital stock. From consumer equilibrium for an individual, the book aggregates to market equilibrium across all individuals, producers, and goods. In so doing, Hicks introduced Walrasian general equilibrium theory to an English-speaking audience. This was the first publication to attempt a rigorous statement of ''stability conditions'' for general equilibrium. In doing so, Hicks formalised

comparative statics In economics, comparative statics is the comparison of two different economic outcomes, before and after a change in some underlying exogenous parameter. As a type of ''static analysis'' it compares two different equilibrium states, after the ...

. The book synthesises dynamic-adjustment elements from Walras and Wicksell and from

Marshall Marshall may refer to: Places Australia * Marshall, Victoria, a suburb of Geelong, Victoria Canada * Marshall, Saskatchewan * The Marshall, a mountain in British Columbia Liberia * Marshall, Liberia Marshall Islands * Marshall Islands, an i ...

and

Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in m ...

. It distinguishes temporary, intermediate, and long-run equilibrium with expectations as to future market conditions affecting behaviour in current markets (Bliss, 1987, pp. 642–43).

References

* J.R. Hicks (1939, 2nd ed. 1946). ''Value and Capital: An Inquiry into Some Fundamental Principles of Economic Theory''. Oxford: Clarendon Press. * _____ (1932, 1963, 2nd ed.). ''

The Theory of Wages ''The Theory of Wages'' is a book by the British economist John R. Hicks published in 1932 (2nd ed., 1963). It has been described as a classic microeconomic statement of wage determination in competitive markets. It anticipates a number of deve ...

''. Macmillan. * _____ (1959). "A 'Value and Capital' Growth Model," ''Review of Economic Studies'', 26(3)

pp. 159–173. * _____ (1973). "Recollections and Documents," ''Economica'', N.S., 40(157)

pp. 2–11. * Book reviews of ''Value and Capital'': : Roy Harrod, R. F. Harrod (1939). '' Economic Journal'', 49(194)

pp. 294-300. : Albert Gailord Hart (1939). ''Journal of Farm Economics'', 21(2)

pp.513-515. :

Oskar Morgenstern Oskar Morgenstern (January 24, 1902 – July 26, 1977) was an Austrian-American economist. In collaboration with mathematician John von Neumann, he founded the mathematical field of game theory as applied to the social sciences and strategic decis ...

(1941). "Professor Hicks on Value and Capital," ''Journal of Political Economy'', 49(3)

pp.361-393. * Christopher Bliss, 9872008. “Hicks, John Richard (1904–1989)," section 3, Value theory, '' The New Palgrave: A Dictionary of Economics''
Abstract.
* Michel De Vroey (1999). "J. R. Hicks on Equilibrium and Disequilibrium: ''Value and Capital'' Revisited," ''History of Economics Review'', 29(1)

pp. 31–44. * Meier Kohn (1994) "Value and Exchange," ''Cato Journal'', 24(3)

pp. 303–317 on ''Value and Capital'' vis-á-vis

Paul A. Samuelson Paul Anthony Samuelson (May 15, 1915 – December 13, 2009) was an American economist who was the first American to win the Nobel Memorial Prize in Economic Sciences. When awarding the prize in 1970, the Swedish Royal Academies stated that he "h ...

(1947), ''

Foundations of Economic Analysis ''Foundations of Economic Analysis'' is a book by Paul A. Samuelson published in 1947 (Enlarged ed., 1983) by Harvard University Press. It is based on Samuelson's 1941 doctoral dissertation at Harvard University. The book sought to demonstrate a ...

''. * Lionel W. McKenzie and Stefano Zannigli, ed. (1991). ''Value and Capital Fifty Years Later'', including

Roy Radner Roy Radner (June 29, 1927 - October 6, 2022) was Leonard N. Stern School Professor of Business at New York University. He was a micro-economic theorist. Radner's research interests included strategic analysis of climate change, bounded ratio ...

"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. * Robert Solow, R. M. Solow (1984). "Mr Hicks and the Classics," ''Oxford Economic Papers'', N.S., 36(198)

pp. 13–25.

Outline and details

References

See also