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Robert B. Ekelund, Jr.
Robert F. Hébert
The University of Louisiana at Lafayette
An Address to Faculty, Staff and Students at the University of Montréal
March 24, 2000
We are assembled at this inauguration of the Dupuit Agora to discuss the intellectual impact of a nineteenth-century Frenchman who, despite his training as an engineer, turned his substantial talents toward economics, and in the spirit of scientific discovery, became an important economist and pioneer. Few historians of economic thought have paid much attention to Dupuit, or to how his ideas helped shape the contours of contemporary economics. For this reason, we shall sketch, briefly, in this address, Dupuit’s accomplishments in economics, as we have come to understand them through studying his intellectual legacy.
Jules Dupuit was a polytechnician in an era that worshipped the technical achievements of mankind. He was born in Fossano, Italy, on May 18, 1804, while this region was under the domination of Napoleon Bonaparte. He died in Paris on September 5, 1866. As a boy of ten, Dupuit returned to France, where he continued his education in the secondary schools at Versailles, at the academies of Louis-le-Grand and Saint-Louis. He finished his primary schooling brilliantly, winning a physics prize against stiff competition from fellow students. After graduating from high school, Dupuit was admitted, on the basis of an entrance exam, to the prestigious École Polytechnique, the training ground for French engineers in the public service. In 1824, Dupuit entered the École Nationale des Ponts et Chaussées, a kind of post-graduate school for state engineers, from which he emerged a few years later as a novice engineer. He distinguished himself quickly in his new career. In 1827, he was put in charge of an engineering district in the department of Sarthe, where he concentrated on roadway and navigation work. He married in 1829, and rose to the rank of engineer first-class in 1836.
Dupuit concerned himself with important engineering problems throughout his career. He conducted innovative experiments on the deterioration of roadways, writing monographs and a prize-winning article on the subject in the 1830s. On the basis of his technical achievements, he was elected to the Legion of Honor in 1843. Shortly thereafter, Dupuit focused his energies on water problems, in response to serious and repeated floods in the Loire Valley. His studies culminated in a book entitled, Theoretical and Practical Studies on the Movement of Running Water (1848, revised, 1863). In 1850, Dupuit was recalled to Paris, promoted to director and chief engineer, and put in charge of municipal water distribution and the construction of sewers. In December of 1855, Dupuit was named Inspector-general of the state corps of civil engineers. He served for eleven years (1855-1866) on the corps’ general council, and was one of its most illustrious and respected members.
By all accounts, Dupuit’s career as an engineer was accomplished and remarkable. But it was no less so than his career as an economist. Self-taught in this second field, he showed a natural flair for the subject. Chiefly, he had a deep understanding of the nature of markets and of the motivations of market participants, which he revealed in a series of brilliant articles beginning in 1844. Unfortunately, he never completed a projected book, tentatively titled, Political Economy Applied to Public Works, which he mentioned in his first major contribution to economics. With the exception of his superb analysis of free trade (Commercial Freedom, 1861), Dupuit’s reputation as an economist rests on a substantial number of journal contributions, chiefly to the Annales des ponts et chaussées, and to the Journal des économistes. Led by a desire to evaluate the welfare effects of the provision of public works, Dupuit concentrated his analytical skill on the economic concept of demand, establishing its foundation on the principle of utility, and installing utility as the basis for calculating the net benefits of public goods. In order to elaborate on the revolutionary nature of his contributions, we divide them into two categories, his contributions to economic theory and his theory of economic policy.
Even though full recognition of Dupuit’s contributions to economics has been delayed for many years, his basic theoretical advances are fairly well known. For many centuries economists have linked, however loosely, individual satisfactions and the general welfare to the concept of “utility”. Dupuit, however, was the first writer (1844) to place utility maximization at the center of economics and to devise a computational framework that focused on marginal evaluations. Dupuit’s core principle was perfectly generalized to include all maximizing behavior. Demand for anything -- potatoes, railway passage, theater tickets, or even awards (e.g., a medal of the Legion of Honor) -- presupposed utility. He was fond of stating emphatically that, “there is no utility other than that for which people are willing to pay” (1844: 39). This principle applied to “social” as well as "economic" behavior. In an argument that today would be described as "Beckerian", Dupuit explained implicit markets for various "social goods," such as marriage: "[Not all wealth has] an exchange value susceptible to market analysis, but it all has utility. Because utility is susceptible to a common measure, the general principles of science may be applied to [all such goods] . . .In some cases, the beauty, youth, wit, or good breeding of a woman takes the place of a dowry; in others, a fine dowry makes up for what she lacks" (Dupuit 1853: 13-14).
Dupuit used the theory of marginal utility to establish the general theory of consumer demand (1844; 1849a and 1849b), which he elaborated in verbal, graphical, and symbolic terms. Upon this foundation he erected a theory of supply, based on production costs and optimal resource allocation, interpreted in the context of the opportunity cost of resource use (1844: 104-105). Combining these twin concepts of demand and supply, he was able to develop the modern theory of markets (1861: 447; 134-135). These fundamental insights, covering a great deal of what eventually came to be known as the static version of “neoclassical microeconomics,” provided the basis for numerous and important discoveries, including the efficiency and welfare implications of static monopoly theory; the theories of price discrimination, marginal-cost pricing, excise taxation, and spatial economics; and the comparative, price-allocative effects of competition. All of these contributions have been extolled at one time or another in the past, but several critical aspects of Dupuit’s inquiry have remained in shadow.
Dupuit insisted that economics, a discipline still emerging from its philosophical cocoon, employ scientific methods. He was so adamant in his admonitions that he alienated several liberal members of the Société d'économie politique, an organization to which he belonged. He certainly approached the market phenomena of supply and demand in the spirit of scientific discovery. But he understood that comparative statics provided a generalized method of studying the behavior of particular markets, and hence, as a method of analysis it constituted a mere starting point for economic investigation. More thorough investigation required careful empirical analysis of each market, employing a procedure which Alfred Marshall later called ceteris paribus—the act of removing one restrictive assumption, or parameter, at a time and tracing the consequent adjustments to a new market equilibrium. One especially modern trait demonstrated by Dupuit is that he regarded economic goods as combinations of utility-producing characteristics. This led him to conceive of competitive equilibrium in terms of full price, which involves dimensions of product quality as well as consideration of transaction costs that attend the act of exchange.
Dupuit insisted that scientific economics required actual estimates of demand and utility, and he, like other prominent engineer-economists of the day (e.g., Charles Ellet, Jr., Dionysius Lardner, and Alphonse Belpaire) launched empirical studies. He did so in advance of the contributions of Galton, Edgeworth, Pearson, and Yule that established the basis for econometric analysis. Dupuit’s earliest writings on economics contain explicit instructions regarding linear estimations of demand curve segments (1844: 103). And his later studies involving the regressive nature of the “tobacco tax” (1859b: 143) on the one hand, and his analysis of population and mortality statistics (1865b) on the other, reveal the sure and steady hand of the applied statistician.
Dupuit understood fully that the measurement of utility, and particularly, its monetary expression, was problematic. Political economy, he argued, must invoke monetary measures, but he added that:
In the final analysis, it [utility measured in money terms] is not a rigorous measure of the ability of things to satisfy mankind’s needs; it is difficult to say whose hunger is the greater - that of the rich man, who might be willing to pay a million francs for a kilogram of bread, or that of the beggar, who, having nothing to give, would risk his life for it. Confining itself to questions of wealth, political economy can measure the intensity of a desire only by its monetary expression. It bakes bread only for those who can buy it, and leaves to social economy the trouble of supplying it to those who cannot afford to give anything in exchange (1844: 49).
As a practical matter, Dupuit’s welfare economics involves the maximization of the sum of producers’ and consumers’ surpluses. If supply represents the real and full opportunity costs of using resources, and demand represents the summed marginal utilities (in cardinal, money terms) to be had from producing a good or service, then the maximization of public utility is achieved when competitive markets establish equilibrium price and quantity. The happy result of this analysis, namely the minimization of deadweight loss, occurs within an open, inter-temporal process of competition unfettered by utility-reducing assignments of property rights (as we will see below) or by artificial restrictions of any kind. Dupuit was the first writer to identify the geometric definite integral of the difference between costs and demand as a proxy for this maximand (cf., Roy in Boutet 1945: 11-12). In short, public utility (and the volume of market exchange engendered by its creation) provides a criterion for gauging economic prosperity and progress. But all markets function within a structure of property rights that shapes the incentives which ultimately guide economic behavior. We now have persuasive evidence that Dupuit understood the critical role of property rights and similar institutions in shaping the economic realm.
THE THEORY OF ECONOMIC POLICY
A more inclusive and contemporary side of Dupuit’s thought has been overlooked owing to the neglect of a series of essays and communications that has only recently been evaluated in detail (Ekelund and Hebert 1999; Ekelund 2000). Despite evidence to the contrary, Dupuit never received acclaim as a holistic scientist and integrator of theory, legal institutions and policy. The writings which establish this claim were published mainly in the Journal des économistes between 1850 and 1865. In these papers, and in his 1861 book, La Liberté commerciale, Dupuit focused on economic questions exclusively, and became the “complete economist,” placing utility at the core of the economic universe and portraying it as the unifying force behind not only theory, but policy and institutions as well. In short, he believed that pure economics was both a theoretical and an empirical science; that it should be universally accepted as such (1863); that economic institutions and all policy questions are tractable using economics as a “positive science” (1861c: 113); and that an empirically-based concept of utility provided the foundation of that science. Far more than simply a railway practitioner or a diddler at the periphery of economics, Dupuit was one of the most profound scholars of the early neoclassical era. Space precludes a full consideration of all points, but the following summary is illustrative of Dupuit’s accomplishments in developing a theory of economic policy.
· Dupuit was the first writer to link a modern, marginal-utility based theory of value with the incentive-based management of property rights. His view was both theoretical and empirical. On empirical grounds, he rejected natural rights as the appropriate foundation of private property rights. Instead, he maintained that the principal aim of society was public utility maximization. In such a world there was no nirvana. Property rights were required to fit the nature of resources and to establish personal incentives and constraints in line with the goal of public utility maximization.
· Dupuit’s theory of economic policy was wrapped within a utility-based framework that considered all goods and services, economic as well as “social”. He maintained that economic considerations dictated outcomes in markets for all kinds of goods and services, including fully reproducible goods, non-reproducible goods, and common-property resources. This holistic perspective asserted that utility was produced in implicit as well as in explicit markets; and that economics could be used to analyze all markets. These markets included intellectual and artistic productions, prizes and awards, as mentioned earlier, even a market for marriage. In Dupuit’s words, “it is a gross misunderstanding to believe that man attaches a price only to material things” (1853: 8). These “goods,” as well as all others, produce public utility, which could be discouraged or encouraged by the placement of property rights and incentives.
· Dupuit argued forcefully and persuasively that institutions such as law and legislation evolved in the direction of public utility maximization. This position, put forward and debated only in recent years, recognizes the role of interest groups in institutional change. Today the tendency is to portray the evolution of law and other institutions in this manner, and contemporary treatment has earned the sobriquet of “the new institutional economics”.
· The basis for the public choice paradigm is also found, non-adventitiously, in Dupuit’s later works. Dupuit’s example of “voting one’s economic interest” directly anticipates Stigler’s (1971) famous dictum of more recent vintage. Furthermore, Dupuit applied the example of how tariffs and other utility-reducing regulations affect political outcomes to a variety of regulatory situations. He also asserted that relevant interest-group shifts occur when the costs of regulation and/or its non-appropriable benefits become so large that a change in regulatory regime takes place. Dupuit believed that ideas are always superseded by interests in the give and take of institutional change. When good ideas finally come to dominate policy, it is because enabling interests have coalesced around them.
· Last, but not least, Dupuit was the first economist to fully understand the nature and role of technology in the dynamics of market operations. The development of “scientific” theory was critical but only as a starting point to actual market investigation. As he told the liberal economists in 1853,
In political economy, defective data is what usually bars a complete solution; but this inconvenience only makes it more necessary to know the rules and general principles that are at the base of every solution. They alone can fill in our gaps of knowledge, indicate what is missing and, consequently, furnish the wherewithal to search and find a solution if possible, or to provide one if it is not. As in geometry, . . . political economy must draw its adroitness and precision in practice from the analytical rigor of science, because the data that are available are often incomplete and uncertain (1853: 26-27).
For the reasons outlined above, we believe that Dupuit deserves a far more exalted place in the pantheon of pre-twentieth century economists than he has achieved. He was part of an ongoing tradition of intellectual inquiry at the Ecole des ponts et chaussées and as such, his name is linked to other engineers who tested the boundaries of formal economic analysis. People such as Charles Ellet, Jr., Dionysius Lardner, Clement Colson, and Émile Cheysson belong in any list of distinguished early engineers who contributed to economics. But these authors made contributions that more closely resembled those of Dupuit’s illustrious contemporary, Augustin Cournot, who envisioned economics as a branch of rational mechanics. Dupuit trod a different path, emerging finally as a unique and able authority in the development of early nineteenth century economics, a subject that he conceived as both a theoretical and applied science. He thought as an economist and he was an economist. Proof of this claim is that his integration of economic theory, legal and political institutions, and economic policy comprised the essence of the modern view of how wealth and welfare is created and destroyed in a ceaseless interplay of freedom and restraint motivated by self interest.