Value and Capital

Value and Capital is a book by the British economist John Richard Hicks, published in 1939. It is considered a classic exposition of microeconomic theory. Central results include:

The book has 19 chapters and the following outline:

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 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 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 consumer theory. 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.

An appendix generalises the 2-good case for consumption to the case of one good and a composite good, 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 attributed to the 2-good case apply to the more general case, allowing the neat distinction between the income effect and the substitution effect.

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