ABSTRACT
The prehistory of the marginal utility theory of demand is well known and will be briefly sketched here for context. The classical political economists, from Smith through Mill and Cairnes, saw market prices as unrelated to utility. This was expressed in Smith’s paradox of diamonds and water. Accordingly, the classical political economists focused on a long-run, cost theory of price with labor as the measure of cost. There were, of course, some passages in the classical writings that pointed toward the marginalist theory. Malthus hinted, in a little-known essay (1800), that demand price would be the marginal willingness to pay, and his proposition of diminishing productivity of land would be generalized in neoclassical economics. John Stuart Mill had a modern conception of demand, applied in exceptional cases such as international trade and monopoly, though he did not derive it from utilitarian premises. Utilitarianism and price theory cohabited in Mill’s thought but he did not marry them, nor did they have issue.
