Thursday, August 28, 2014

Antoine Cournot and the Mathematical Theory of Economics

Antoine Cournot
(1801 – 1877)
On August 28, 1801, French philosopher and mathematician Antoine-Augustin Cournot was born. He is considered being the first economist who applied mathematics to the treatment of economic questions. In 1838, he published Recherches sur les principes mathématiques de la théorie des richesses (Researches into the Mathematical Principles of the Theory of Wealth) which was a treatment of mathematical economics.

Antoine Cournot was born in Gray, France and it is known that he was interested in politics from early age. By the age of 15, it is assumed that Cournot finished his education in Gray and read almost all works by Voltaire. He noted that all books he read in this period had a "decisive influence on all of his subsequent ideas and studies". Despite his interests in mathematics, philosophy and politics, Cournot began studying law. Cournot continued his education in Besançon in order to study mathematics and was admitted at the École normale. In his later life, Cournot remembered this period as one of the happiest of his life [2,3].

Cournot was appointed professor of mathematics at Lyon in 1834. Four years later, he published 'Recherches sur les principes mathématiques de la théorie des richesses', but unfortunately, his work stayed mostly unrecognized at this time. In the following years, the scientist simplified his theories and published them again in 1863 and 1876. I assume, every student of economics is aware of the Cournot-Nash-equilibrium and his theories on monopolies explained in this work. In the first chapters of his masterpiece, Cournot defines wealth and explains that all individuals of an economy seek to maximize their profits. The following chapters remain the most famous. After Cournot describes the demand curve, he discusses monopolies. This model is expanded in a way that he adds more competitors, leading to his famous oligopoly theory. However, his explanations on duopolies are described in detail including several graphics and calculations. Further topics of the masterpiece include tax theories on these models. Cournot admits that the wealth he defined at the beginning is not always beneficial to economic welfare [1].

It is assumed, that Antoine Cournot was influenced by Adam Smith's 'Wealth of Nations', who described demand curves without exact definitions. Cournot's findings are considered incredibly advanced. Still, the understanding of demand curves today is a little bit different. Most economic students would agree that the demand curve today is derived from the utility of the demanding party. Cournot however believed, that the demands of individuals are very subjective, and thus not to be expressed in formulas [1,3].

Even though Cournot was a scientist with a good reputation, his masterpiece was mostly ignored during his lifetime. Still, it is known that his influence on economists a few years later was significant. Especially Marshall and Walras are believed to be influenced by Cournot's theories.

At yovisto, you may be interested in a lecture on Oligopoly by Jon Gruber at MIT.

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