Jevons' Paradoxes

The roots of both biophysical and neoclassical economics can be found in the work of British economist William Stanley Jevons. In 1862 he presented a paper before the British Association for the Advancement of Science, arguing for a new approach to economic theory. Jevons critiqued, and sought to replace, the classical theory of value which stated that the basis of value and price was the amount of human labor embodied in a good's production. Jevons believed that value was determined in exchange, and prices reflected the underlying pursuit of utility, or satisfaction. This became subsequently known as marginal utility and the principle formed the basic premise of what was to become neoclassical economics. In 1865 Jevons produced a book entitled The Coal Question. In it he argued that the industrial revolution was, indeed, an energy revolution and energy was provided by coal. Jevons' study showed that coal deposits were becoming exhausted. He believed that the depletion of cheap and high-quality coal would spell the end of British economic and political superiority. In this work he enunciated what has become known as the Jevons Paradox: Increases in energy efficiency lead to increases in energy use. The analysis of The Coal Question forms much of the fundamentals of biophysical economics, While Jevons' major works are different and often contradictory, they share the same theory of human behavior. This is important as we strive for sustainability. Technological change and improved efficiency alone will not allow us to live well within nature's limits. We need a reordered economic system that will allow for improved well-being in the absence of economic growth in a social and economic system that is already in overshoot.

Soon after the presentation of his paper on economic theory before the British Association Jevons turned to empirical work, publishing papers, pamphlets, and books on subjects that included a meteorological explanation of business cycles, the price of gold, and the probable exhaustion of British coal mines. His work on The Coal Question was his most significant and well-received work. This chapter focuses on the details of Jevons' argument from his geological observations of the conditions of coal mining to the economics and social effects of the depletion of the energy source that powered the industrial revolution. Jevons also paid special attention to inventions and technologies such as improved steam engines, superior iron furnaces, and revolutions in transportation enabled by the use of coal. the chapter will also focus on Jevons' famous paradox and offer analysis and explanation as to why improvements in energy efficiency lead to greater resource use.

After his foray into empirical analyses, especially as regards coal, Jevons returned to the development of his mathematical theory based on the premise that value is determined by subjective utility of consumers and not the labor embodied in production of commodities. The full exposition of the theory that was first outlined in his 1862 British Association paper appeared in a text entitled The Theory of Political Economy, first published in 1871 and revised in 1879 and posthumously 1906 by A.W. Flux. Jevons' focus was on the final degree of utility, now known as marginal utility, He argued that the final degree of utility declines as more of a commodity was consumed. Jevons then proceeded to utilize the theory based on subjective utility to explain the exchange process in general, as well as the behavior of agents, now known as factors of production. In this chapter he also advocated for free trade and established the conditions for the market structure subsequently known as perfect competition. The book ends with Jevons' complaint that the "Noxious Influence of Authority" of David Ricardo and John Stuart Mill was stultifying his quest for a "true" theory of economics.

William Stanley Jevons enunciated fully the marginal beginnings of neoclassical economics in The Theory of Political Economy. However, his mathematical approach was essentially static, as was most of the neoclassical economics that was to follow. It was a quest for a stable equilibrium. Neoclassical economics thereby lacks sufficiently dynamic and historical approaches to incorporate the evolution of human institutions and changes in the quality and nature of resources, especially energy. Jevons failed to understand the transition of the handicraft economy, based on skilled labor and the solar flow, to the industrial economy based on stocks of fossil fuels and operative labor. His theory of the labor supply, found in chapter five of The Theory of Political Economy, was based on individual rational choice on the part of workers as to how many hours of labor they would provide to the market by equating the utility of the wage with the disutility of the work. This left Jevons unappreciative of the compulsion involved in the actual creation of a labor force and unable to understand fully the part played by labor in the transition from the handcraft to the industrial economy. Moreover, Jevons' fealty to the doctrines of free trade and free competition left him unable to analyze fully the role of monopoly concentration in the emergence of the fossil fuel economy.

The paradox enunciated in Chap. 7 of The Coal Question, that improvements in resource efficiency leads to more resource use as the expansion of scale overwhelms the micro level gains in efficiency, is what is usually meant by Jevon’s paradox. However, there are many paradoxes and contradictions in the corpus of Jevons' work. There are methodological contradictions between his dynamic and empirical writings, such as The Coal Question and his static and theoretical work like The Theory of Political Economy. There was the paradox of free trade. Jevons believed fervently in the principles of free trade while, at the same time, he believed "the English race" was meant to rule the world. Jevons saw colonization and imperial domination as unequivocal goods. He believed workers were able to determine their own hours of work by equating the marginal utility of the wage with the marginal disutility of the wage, while the reality was a series of laws and provisions that took free employment away from workers in the name of efficiency and profit. the paradox of fossil fuels and the quality of life remains more relevant today than in Jevons' own time. It was the revolution in energy that led to increases in wealth, comfort, and convenience. Yet today the continued use of fossil fuels, and the continued increase in carbon emissions threatens life on the planet itself. Since powerful constituencies base modern life on fossil fuel use the transition to a non-carbon economy and society will be difficult. Moreover, a capitalist economy requires continual growth while the earth systems are approaching their limits to the absorption of more effluents of the human economy. We need a fundamental re-ordering of the economy to one which can provide a decent quality of life while remaining well within earth's limits.