Liberty Matters
Bastiat and the Origin of Supply and Demand Curves
Don's suggestion to look at Alfred Marshall's Principles of Economics (1890 and many later editions) as the source of the modern way of depicting the relationship between supply, demand, and price graphically proved to be very fruitful. By reading Marshall's footnotes carefully one can also identify where he got the idea.
One thing I noticed straight away when looking at these sources (Cournot, Dupuit, and Marshall) is that the supply and demand curves were relegated to footnotes or appendixes, rather than taking center stage as they do now, as if they were curiosities of some kind only of interest to selected experts in mathematics. It is also interesting to note that Bastiat did not do that with his lines and circles. They are there on the main page in front of the reader, which is an indication of the importance he placed on them.
Marshall began by depicting graphically supply and demand (versus price) individually for the most part and then only later (figure 19) put the two together in the famous cross. Since this was so new he felt obliged to explain to the reader what it meant in another footnote (no. 13):
13. Let us seek a graphical illustration. It is to be remembered that graphical illustrations are not proofs. They are merely pictures corresponding very roughly to the main conditions of certain real problems. They obtain clearness of outline, by leaving out of account many considerations which vary from one practical problem to another.... [p. 155 of 8th ed.]
In footnote 19 he discussed why he put the two curves together:
To represent the equilibrium of demand and supply geometrically we may draw the demand and supply curves together as in Fig. 19. If then OR represents the rate at which production is being actually carried on, and Rd the demand price is greater than Rs the supply price, the production is exceptionally profitable, and will be increased. R, the amount-index, as we may call it, will move to the right. On the other hand, if Rd is less than Rs, R will move to the left. If Rd is equal to Rs, that is, if R is vertically under a point of intersection of the curves, demand and supply are in equilibrium.[67]
The text in which this footnote occurs is the following:
When demand and supply are in stable equilibrium, if any accident should move the scale of production from its equilibrium position, there will be instantly brought into play forces tending to push it back to that position; just as, if a stone hanging by a string is displaced from its equilibrium position, the force of gravity will at once tend to bring it back to its equilibrium position. The movements of the scale of production about its position of equilibrium will be of a somewhat similar kind.[FN19]But in real life such oscillations are seldom as rhythmical as those of a stone hanging freely from a string; the comparison would be more exact if the string were supposed to hang in the troubled waters of a mill-race, whose stream was at one time allowed to flow freely, and at another partially cut off Nor are these complexities sufficient to illustrate all the disturbances with which the economist and the merchant alike are forced to concern themselves. If the person holding the string swings his hand with movements partly rhythmical and partly arbitrary, the illustration will not outrun the difficulties of some very real and practical problems of value. For indeed the demand and supply schedules do not in practice remain unchanged for a long time together, but are constantly being changed; and every change in them alters the equilibrium amount and the equilibrium price, and thus gives new positions to the centres about which the amount and the price tend to oscillate.[68]
In another long footnote Marshall explained where he got this idea:[69]
A great change in the manner of economic thought has been brought about during the present generation by the general adoption of semi-mathematical language for expressing the relation between small increments of a commodity on the one hand, and on the other hand small increments in the aggregate price that will be paid for it: and by formally describing these small increments of price as measuring corresponding small increments of pleasure. The former, and by far the more important, step was taken by Cournot (Recherches sur les Principes Mathématiques de la Théorie des Richesses, 1838); the latter by Dupuit (De la Mesure d'utilité des travaux publics in the Annales des Ponts et Chaussées, 1844), and by Gossen (Entwickelung der Gesetze des menschlichen Verkehrs, 1854). But their work was forgotten; part of it was done over again, developed and published almost simultaneously by Jevons and by Carl Menger in 1871, and by Walras a little later....
Bastiat might have known about the mathematician and statistician Antoine Augustin Cournot (1801–1877) and the engineer Jules Dupuit (1804-1866) since they were contemporaries. He did not mention Cournot (most likely the first person to draw up supply and demand curves), but Dupuit was a regular contributor to the Journal des Économistes and wrote some of the articles on public works for the Dictionnaire de l'Économie politique, which was being prepared by Bastiat's publisher Guillaumin in the last two years of his life.
In Recherches sur les principes mathématiques de la théorie des richesses (1838), Cournot discussed the relationship between supply, demand, and price on p. 57, but put the relevant curve in the appendix on p. 222, where he thought it would not disturb the reader too much.[70]
Dupuit wrote a great deal about public works and the application of economics to the government monopoly provision of these goods; he also dealt with the private provision of things like roads, canals, and water, especially the charging of tolls for privately built roads.[71] In his article "De la Mesure d'utilité des travaux publics" (On Measuring the Utility of Public Goods) in the obscure engineering journal Annales des Ponts et Chaussées (1844) Dupuit did all the math in the main article and again put his graphs in an appendix. He didn't show the famous "cross" or overlay or intersection of the supply curve and the demand curves, but he was close to the basic concept, as the following example shows:[72]
Perhaps the reader should look again at Bastiat's efforts to graphically depict the economic principles above and compare them with Cournot's and Dupuit's. Once again, Bastiat seemed to be close to an important theoretical insight but didn't have the time or the good health to take it any further.
Another question we might ask our economist friends is: when did the supply and demand curves graduate to the main text rather than being relegated to the bench (i.e., the appendix or the footnotes)?
Endnotes
[67.] Footnote 19 in the online version, Book V, Chapter III "Equilibrium of Normal Demand and Supply." <https://oll.libertyfund.org/titles/1676#lf0197_label_300>. In the 8th ed. of the book, this is on page 346.
[69.] <https://oll.libertyfund.org/titles/1676#lf0197_footnote_nt066>. P. 101 in 8th ed.
[70.] Augustin Cournot, Recherches sur les principes mathématiques de la théorie des richesses (Paris: L. Hachette, 1838). English trans.: Antoine Augustin Cournot, Researches Into the Mathematical Principles of the Theory of Wealth, trans. Nathaniel Terry Bacon (New York: Macmillan, 1897).
[71.] Jules Dupuit, "Voies de communication" (Communication Routes), DEP (1852-53), T. 2, pp. 846-54.
[72.] Jules Dupuit, "De la Mesure d'utilité des travaux publics," Annales des ponts et chaussées. Mémoires et documents relatifs à l'art des constructions et au service de l'ingénieur (Paris: Carilian-Goeury, 1844), No. 116, pp. 332-75. Also, De l'influence des péages sur l'utilité des voies de communication (Paris: Guillaumin, 1849).
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