A New Approach to Consumer Theory

Abstract

I. THE CURRENT STATUS OF CONSUMER THEORY m TIHE theory of consumer behavior in deterministic situations as set out by, say, Debreu (1959, 1960) or Uzawa (1960) is a thing of great aesthetic beauty, a jewel set in a glass case. The product of a long process of refinement from the nineteenth-century utility theorists through Slutsky and Hicks-Allen to the economists of the last twenty-five years,1 it has been shorn of all irrelevant postulates so that it now stands as an example of how to extract the minimum of results from the minimum of assumptions. To the process of slicing away with Occam's razor, the author made a small contribution (I 957). This brought forth a reply by Johnson (1958) which suggested, somewhat tongue-in-cheek, that the determinateness of the sign of the substitution effect (the only substantive result of the theory of consumer behavior) could be derived from the proposition that goods are goods. Johnson's comment, on reflection, would seem to be almost the best summary that can be given of the current * The author wishes to acknowledge helpful comments from various sources, including Gary Becker, Harry Johnson, and colleagues and students

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