4.7 William Forster Lloyd and utility theory in England

Just because Mountifort Longfield and the Trinity connection had no influence in England does not mean that the utility theory of value died out with such prominent economists as Bailey and Senior. Indeed, Nassau Senior's successor in the Drummond chair at Oxford was also a distinguished utility theorist. William Forster Lloyd (1794–1852) was the son of an Anglican rector from Gloucestershire. Lloyd went to Christ Church, Oxford, where he took a first in mathematics and a second in classics. Lloyd was a reader in Greek and then a lecturer in mathematics at Christ Church, and was also ordained as an Anglican minister, but never served a parish. Lloyd held the Drummond chair from 1832 to 1837, and seems to have done little at all after that. A sickly man, Lloyd retired to his county and displayed little interest in economics, in writing, or in politics before dying in middle age.

But for Lloyd as for the other Drummond and Whately chair holders, his term as professor provided him both opportunity and stimulus to compose, deliver and publish lectures in economics. His various lectures, including one delivered on value in 1833, were all published separately, and then collected and republished as Lectures on Population, Value, Poor-Laws, and Rent (1837).

One does not have to agree in politics to have similar views of economic theory. We have seen, for example, James Lawson's hard-core attitude against the peasantry. While William Lloyd was a utility theorist, he was far from a Whatelyan at Oxford; on the contrary, at Oxford Lloyd belonged to the high Tory circle at Christ Church that was the main counterweight to the Liberals at Oriel. Leader of the Christ Church Tories was William's elder brother, Charles Lloyd (1774–1829), who tutored future Prime Minister Sir Robert Peel at Christ Church, and soon became a close friend and adviser to Peel. At his untimely death in 1829, Charles Lloyd was Regius professor of divinity and canon of Christ Church, as well as serving as bishop of Oxford. He was widely known as ‘the most influential Oxford Professor of his day’. Even though Lloyd taught and inspired many of the leaders of the future ultra-Tory, proto-Catholic Oxford movement, he himself, as well as William Lloyd, was a moderate, Peelite Tory, both theologically and politically. The influence of Peel and of his late brother Charles undoubtedly secured the Drummond chair for William Lloyd.

Most of Lloyd's lectures were devoted to his quasi-statist and paternalistic views on public policy. Of particular interest, however, was his lecture on value. There Lloyd, stumbling through the literature, thinks he discovers in the Wealth of Nations inspiration for a subjective theory of value. Value, Lloyd asserts, is ‘a feeling of the mind’. It can be understood as belonging to a single object, he added, where the feeling reveals itself ‘at the margin of separation between the satisfied and unsatisfied wants’. But value, or even utility, cannot be intrinsic to any object. Utility, points out E.R.A. Seligman of Lloyd's theory, ‘is predicated of an object with reference to the wants of mankind. Ice is useful in summer, useless in winter. Still the intrinsic qualities of ice are at all times and in all places the same’.²⁰

After treading what was by now familiar ground about an increase in the supply of an object diminishing and eventually satiating demand, William Lloyd suddenly arrives at a great light – a remarkably clear portrayal of the law of diminishing marginal utility. Lloyd points out:

Let us suppose the case of a hungry man having one ounce, and only one ounce of food at his command. To him this ounce is obviously of very great importance. Suppose him now to have two ounces. These are still of great importance; but the importance of the second is not equal to that of the single ounce. In other words he would not suffer so much from parting with one of his two ounces... as he would suffer, when he had only one ounce, by parting with that one, and retaining none. The importance of a third ounce is still less than that of the second; so likewise of a fourth, until at length, in the continual increase of the number of ounces, we come to a point when... the appetite is entirely... lost; with respect to a single ounce, it is a matter of indifference whether it is parted with or retained. Thus, while he is scantily supplied with food, he holds a given portion of it in great esteem, in other words, he sets a great value on it; when his supply is increased, his esteem for a given quantity is lessened, or, in other words, he sets a less value on it.

Similarly, Lloyd goes on, the utilities of different goods compared with one another and each of their values falls with increase in supply; so a good that may be more valuable than another in an absolute philosophic sense, in the sense of a class of the commodity, can be worth very little if its supply is abundant. Thus, ‘Water is more wanted by a man almost dying with thirst than by another who has quenched his thirst, and desires only to wash himself. It is on want, thus estimated, that value depends’. More specifically,

If, to a man who has already half a dozen coats, you should offer to give another, he might probably reply that he would have no use for it. Here, however, he would speak, not of the abstract utility of the coat, but of its special utility to him under the circumstances of his want of coats being already so far supplied. This, though not quite the same thing as value, approaches very near to it. The coat would be of no use to him; therefore, were he to have it, it would not be valuable in his estimation... But this is very different from the utility of the coat in the general sense of utility...²¹

William Lloyd was also clear that value, being subjective, could not be measured. In a passage reminiscent of and going beyond Bailey, he writes trenchantly that

It would indeed be difficult to discover any accurate test, by which to measure either the absolute utility of a single object, or the exact ratio of the comparative utilities of different objects. Still it doesn't follow, that the notion of utility has no foundation in the nature of things. It does not follow, that because a thing is incapable of measurement, therefore it has no real existence. The existence of heat was no less undeniable before thermometers were invented, than at present.

Lloyd goes on to point out, quite correctly, that value or valuation is anterior to exchange, and that such valuations also take place in the case of an isolated Robinson Crusoe economy. Unfortunately, Lloyd was so enamoured of the distinction between value and exchange, and of Smith's faulty split between use- and exchange-values, that he failed to complete the task of the theory of demand and link up marginal utility analysis with consumer demand and the determination of market pricing. Such men as Butt, Longfield, Lloyd and Bailey had hammered out many of the building blocks of the marginal utility theory of pricing and even of the marginal productivity theory of factor prices; it required the Austrians, however, to put the pieces together and set forth an integrated whole.

If Lloyd's value theory seems to have had little or no influence in England, the eminent Nassau Senior's utility theory was picked up and lauded a decade after the publication of his Lectures. Thomas C. Banfield (c. 1800–60), had spent many years in Germany, and in his 1844 lectures at Cambridge, Banfield brought to England the good news that economic theory on the Continent was not blighted by any Ricardian miasma; instead, he noted that a flexible form of Smithianism was dominant in Europe. In addition to basing his doctrines on Say, von Storch, and Senior, Banfield was the first English economist to refer to the marginal theorist Heinrich von Thünen, and to the advanced Smithian Friedrich von Hermann. In the preface to his lectures, published as The Organization of Industry (1845), Thomas Banfield pointed to the enormous changes that had been made in economic theory during the past two decades by the subjective theory of value, ‘which demands of producers at least as much attention to the physical and mental improvement of their consuming fellow-citizens as to the mechanical operations’ or production. Wages, he noted, will depend on the productivity of labour, i.e., ‘the utility of the instrument of which a man understands the use’. In his lectures, Banfield emphasized the relativity and degree of intensity of wants as the function of economic science.

It certainly seems that economics in England, by the later 1840s, was poised for a mighty ‘Austrian’ breakthrough, for an integrated system elaborating the effect of human purposes and values and their interaction with the scarcity of resources. Yet something happened; and economics, poised for a great breakthrough, sank back into the slough of fallacies constituting the Ricardian system. And the important body of pre-Austrian or anti-Ricardian thought was forgotten as if it never existed, only to be resurrected either a generation later or as late as the twentieth century. How this unfortunate retrogression came about will be treated below.