Yesterday I made a post about a passage that occurs very near the end of Tyler Cowen’s new monograph, The Marginal Revolution: Rise and Decline, and the Pending AI Revolution. At that time I suggested that I might have more to say about the book, but I made no promises. Well, I’m saying more, and it looks like I’ll be doing a series of posts about the book, though I can’t say how long that series will be, perhaps only one more post, but maybe two, three, or even four more. Who knows.
The monograph is of particular interest to me for two reasons: 1) I’ve just posted a small monograph of my own, on the rise of the contemporary academic discipline of literary criticism: The Discipline of Literary Criticism: A Quixotic Essay about Thinkers, Methods and Authority. Literary criticism is a very different beast from economics. Still, now I have two case studies in the rise of an academic discipline. More deeply, 2) I now have a case study for the theory of cognitive ranks that David Hays and I developed in the last quarter of the previous century. That’s what I want to pursue in this post.
The theory of cognitive ranks, as readers of New Savanna may know, is about the development of ever more sophisticated cognitive architectures over the long haul of human history. Rank 1 cognition arises with the emergence of language between, say, 100 thousand and who knows how many years ago. Rank 2 thought precipitated around written language and Rank 3 around the introduction of arithmetic calculation into Europe in the Late Medieval, Early Modern period. Rank 4 began emerging late in the 19th century and began consolidating around, first the ideas and then the machinery, of computing in the 20th century.
Much hunch was that marginalism in economics is a Rank 4 idea. Rather than work out the details myself, I put the question to Claude Sonata 4.6 extended. I’ve appended that conversation below. Just to be clear, I’m using my Claude account, not the AI facility that Cowen has made available with his book. One final note: You’ll see that at the very end of this conversation Claude mentions Rank 5. While Hays and I talked about a possible Rank 5, we never published about it because we couldn’t figure out how to conceptualize it. That changed for me in the last few weeks and I have been talking about it with both Claude and ChatGPT.
The rest of this post consists of my interaction with Claude, which was a simple one: I posted a long prompt to get things started and Claude responded.
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I have uploaded a PDF of a book by Tyler Cowen, The Marginal Revolution: Rise and Decline, and the Pending AI Revolution (2026). In it he recounts the rise of marginal thinking in economics starting roughly in the late 19th century up though 20th and on into the 21st, where it seems to be dissipating. I’m interested in understanding it in terms of the cognitive rank theory that David Hays and I have developed (see our paper, The Evolution of Cognition, in the project materials). The timing suggests it is a Rank 4 concept, along with thermodynamics and Darwinian evolution.
Though we don’t mention Piaget’s term, “reflective abstraction,” we use the idea, which is: the process by which the operations of one cognitive level become the objects of the next. Piaget was mostly interested in cognitive development in individuals, but he also applied his ideas to the history of ideas (e.g. Genetic Epistemology). That’s what I want to do with Cowen’s argument about the marginal revolution. My intuitive understanding is that the technical development of that idea presupposes a technical understanding of supply and demand. I want you to vet that idea.
I think that supply and demand is a Rank 3 idea. Here are some remarks I made about supply and demand in a blog post from 2023:
But how do we get to supply and demand? I'm not prepared to give a detailed answer to that question. [...] Here's the question I'd ask myself: What does double-entry bookkeeping have in common with supply and demand? Double-entry bookkeeping dates back to the late 15th century and is a practical discipline. What becomes visible by 'going meta over that practice?
Double-entry bookkeeping is a system for maintaining closure over a set of transactions that grow over time as transactions are added to the list. We've got closure and change over time. Supply and demand change over time. Where's the closure, the dynamic closure? How do supply and demand complement one another in a say similar to the balance of debit and credit accounts in double-entry bookkeeping? How was Adam Smith able to get "on top" of that in the way that previous thinkers could not? How does the famous metaphor of the invisible hand do its work?
With that in mind here’s Cowen’s basic statement: “Marginalism is the economic doctrine that we can best understand value by considering the question of how many units of a good or service an individual has, and using that starting point to ask how much an additional – or marginal – unit would be worth in terms of other goods and services.” Intuitively it seems to me that that presupposes that an understanding of supply and demand has become thoroughly routine.
Cowen’s paradigmatic example of marginal utility is the diamonds-water paradox:
If someone had to choose between having no water and having enough water to avoid dying of thirst, they would be willing to pay a very high price for water (the exact final price still would depend on how many suppliers were competing to sell you water and the cost of getting you the water, questions which also can be addressed using marginalism). But that is not the choice for most people. Most people have a fair amount of water, and they are paying for more water, or you might say water at the margin. And the value of water at the margin just isn’t that high. In American restaurants, many people don’t even drink the glass of water they get for free.
To consider diamonds, if you could receive plenty more diamonds by turning on your kitchen tap, diamonds probably wouldn’t sell for much in the market, just as water doesn’t. Of course, that is not the case and real diamonds remain relatively scarce, thus boosting their value. That said, circa 2025 competition from high-quality artificial diamonds, which can be made in the lab, is threatening to further depress diamond prices. Again, that is consistent with marginalism.
Your turn. Is my intuition valid? Either way, unpack it for me.
Your intuition is valid, and I think it can be made quite precise. Let me work through it carefully, using Cowen's text and the cognitive ranks paper together.
The surface complication
Cowen himself says something that might seem to cut against your claim. He writes (lines 68–79) that supply and demand "rely very directly on the ideas of marginalism" — that the derivations of supply and demand schedules "refer repeatedly to how much of a resource people currently have." So in the logical order, after the fact, supply and demand depends on marginal analysis.
But this conflates the logical order with the developmental/historical order, and the Piagetian point is about the developmental order. Historically, supply and demand came first — Adam Smith (1776), the classical economists — and the Marginal Revolution arrived nearly a century later (1871). Cowen himself acknowledges that the burst of economic progress following Smith was a real thing, and that progress from the ancient Greeks to the late 19th century was "glacial" before it suddenly accelerated. The takeoff point is 1871, not 1776.
The reflective abstraction argument
The Piagetian structure you're looking for is this: what were the operations that Rank 3 economists performed with supply and demand, such that Rank 4 could take those operations as objects?
The Rank 3 economist works with supply and demand curves as given primitives. She asks: given a supply curve and a demand curve of such-and-such shape, where does the market clear? What happens to equilibrium price if demand shifts? How do taxes or subsidies alter the equilibrium? The curves themselves are taken as data — they're the tools of analysis, not the objects of analysis. This is exactly what you'd expect at Rank 3: algorithm and calculation applied to theoretical constructs, the constructs themselves unquestioned.
Marginalism makes precisely the Rank 4 move: it refuses to take the curves as given and asks what generates them. The demand curve has a characteristic downward-sloping shape — why? Because of diminishing marginal utility. The supply curve slopes upward — why? Because of increasing marginal cost. The market clears at a particular price — what does that mean at the individual level? That each buyer's marginal valuation equals price, and each seller's marginal cost equals price. Marginalism takes the supply-and-demand apparatus that Rank 3 thought with and turns it into an object of theoretical construction. In the exact language from your paper: "The new thinker can think about what the old thinker thought with."
The diamonds-water paradox is the clearest illustration of this. A Rank 3 economist can use supply and demand to explain why diamonds are expensive (scarce supply, high demand) and water is cheap (abundant supply, though high demand). That's a workable, practically useful analysis. What the Rank 3 economist cannot explain is why demand for water, despite its essentialness to life, doesn't translate into a high price in ordinary circumstances. The answer requires going meta on the demand curve itself: it's not about total value, it's about marginal value at the position where the individual currently stands. That's the Rank 4 move — taking the demand curve as object and asking about its internal structure.
The double-entry bookkeeping thread
Your intuition about the structural parallel is suggestive. Double-entry bookkeeping imposes closure on a system of transactions through a debit/credit complementarity. Supply and demand imposes closure on a market through price equilibration — the "invisible hand" as Adam Smith's metaphor for how individual decisions produce systemic balance without anyone intending it. Both involve what you might call dynamic closure: the system absorbs change (new transactions, shifts in supply and demand) while maintaining a global constraint (books balance, market clears). The transition from double-entry bookkeeping to supply-and-demand might itself be seen as a Rank 3 reflective abstraction: going meta on the bookkeeping closure principle to ask what maintains closure at the level of the entire market, not just a firm's ledger.
Then marginalism goes meta on that, asking: what internal structure of preferences and costs makes the market produce the equilibrium it does? This is a control-theoretic question in the sense relevant to Rank 4 — not a question about where equilibrium is, but about the mechanism that drives the system to equilibrium and that determines the shape of the response function. The marginal utility framework is precisely a model of the internal state (how much of the good the agent currently holds) that governs behavior. This is exactly the Rank 4 move toward control and model-building.
The timing as confirming evidence
The 1871 date for the Marginal Revolution slots perfectly into the Rank 4 emergence window you and Hays identify in the paper — "two developments in late nineteenth century thought: the creation of formal systems of logic and metamathematics and the emergence of non-mechanistic science." Darwin's Origin (1859), the first and second laws of thermodynamics (roughly 1840s–1860s), and the Marginal Revolution (1871) are all within a roughly thirty-year window. Each involves a similar cognitive move: not just describing the regularities of a domain (Rank 3 theory) but modeling the mechanism that generates those regularities — natural selection as the mechanism generating species distributions, entropy as the mechanism constraining energy transformations, marginal utility and cost as the mechanisms generating market prices.
One refinement worth noting
Cowen's "intuitive marginalism" versus "tautological marginalism" distinction maps interestingly onto this framework. Intuitive marginalism — generating clever, potentially falsifiable insights about behavior by identifying the relevant margin — is what made marginalism a research program that economists could actually work with. Tautological marginalism — the formal apparatus of first-order conditions and equating marginal returns — is what made it rigorous but also eventually made it something that could be taken for granted, and thus set the stage for the next level of reflection. Cowen's own argument that marginalism is now declining as a frontier concept is itself a Rank 4 → Rank 5 signal: the marginalist framework has become routine enough that it is now being taken as object rather than used as tool.
So yes: supply and demand, Rank 3. Marginalism, Rank 4. The reflective abstraction is real and the timing confirms it.
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