Marginal utility of money

Of course the next marginal unit of money always has utility, and it always has less utility than the previous unit.
That is the Law of Diminishing Marginal Utility.

 

Only if the marginal unit remains constant in size.

Capitalism: A Treatise on Economics
Page 51
George Reisman says,
"As people grow richer, the size of the marginal unit tends to increase."
He also says, "Furthermore, the fact that the utility of a marginal unit of wealth OF A GIVEN SIZE (CONSTANT) diminishes as the quantity of wealth available to us increases is actually an important aspect of the desirability of increasing our wealth." What we rationally want is to be in a position in which marginal utility of a unit of wealth of any given (constant) size more and more approaches zero."

IE, IF we let the marginal unit retain a constant size, marginal utility will diminish.

"Therefore, we rationally want more wealth in order to deal with marginal units of wealth of progressively larger size, and to be less and less concerned with units of wealth of any given size. (constant size)"

I suspect you fell into the same trap as Diamond and Saez in their effort to "prove" there was a diminishing marginal of money to justify draconian income taxes on the rich; so they chose to ignore the fact that with money, the marginal unit increases in size with wealth thus the marginal utility of money does not diminish but can increase.

 

Clearly you misunderstand the material you present.
When the marginal unit changes from say $100 to $100,000, the comparison is made using the new unit.

So the second $100 dollars has lower utility than the first $100 and the second $100,000 has lower utility than the first $100,000.

 

Your mistake is, there is never reason to use the same constant sized marginal unit, thus after the first $100 there is no reason to repeat using that sized unit. Same things for the $100K unit. As wealth increases further the marginal unit size increases as well, thus the marginal utility of money can increase ad infinitum. That is the case since it is the individuals perception which counts, not any outside judgement. Even in such cases as the uber rich, like Gates. He continues to get marginal utility (satisfaction) in each successive larger marginal unit even if he gives it away.

As I recall, in your efforts to continue using constant sized marginal units Mahabharata tore you a new one.

 

You can say it a million times. I'm guessing you will.

I agree when you change the definition of a marginal unit you can say there is a different result.

Just like you can change the definition of "moderate Democrat" and say that TownHall, Breitbart and WashingtonTimes support Democratic positions.

- - - Updated - - -

Changing the definition to make a semantics argument isn't really "thinking outside the box". I'd call it disingenuous.

 

Having problems reading Iriemon? I don't change the definition of the marginal unit, I, as does Reisman change THE SIZE of the marginal unit. The marginal unit is and will continue to be the next unit acquired.

I also did not change the definition of "moderate Democrat." I am just not a fanatic left wing democrat like you and those who have taken over my party. But I do agree that TownHall, Breitbart and WashingtonTimes have correctly supported my position relative to the fact that there has not been a true budgetary surplus since Eisenhower.

 

I agree if you change the definition of the laws of diminishing returns and marginal utility you can argue the result is different. So what?

The important point is that the returns diminish for the same size unit. A $1000 to a starving man has a heck of a lot more utility that $1000 to a billionaire. Which is why progressive taxes make sense.

- - - Updated - - -

The law of diminishing returns is defined based on a homogenous unit.

But I agree if you change the definition you can get a different result.

Just like if you change the definition of a surplus or deficit you can argue there was a deficit in FY2000.

Well sure. You can argue that TownHall, Breitbart and WashingtonTimes support moderate Democratic positions. If you change the meaning of moderate Democrat.

The truth is coming out, and the fake facade is peeling away.

 

That is true. If you talk about the marginal utility of $900,000 to a millionaire it may be greater than $10 to a guy making $20k. So what?

I agree if you change the definition you get different results. What's your point?

- - - Updated - - -

Of course. But we are arguing with a brick wall. He simply changes the definition.

 

Money simply represents a means for exchange of goods and services. Anyone with two brain cells can see that.

- - - Updated - - -

The law of diminishing return of marginal utility.

Not the law of diminishing return of marginal utility.

What we want is not a consideration in the law of diminishing returns.

But I agree if you change the definition you can argue that there is a different result.

 

If the marginal unit changes size, then it is not the law of diminishing returns.

But I agree you can change the definition and argue you'll get a different result.

 

Of course there is a reason to use a constant sized unit. If you are considering whether to tax the marginal $1000 for the starving man and the marginal $1000 for the billionaire, you use the same marginal sized unit to compare the utility. Which is why from an economics perspective a progressive tax makes sense.

 

Had I done that I would agree with you. But I have changed no definitions. All I have done is USE TOTAL GOVERNMENT MONEYS INSTEAD OF JUST PART OF THEM AS THE UNIFIED BUDGET DOES.

 

Bull crap! That sounds like a Diamond/Saez bit of nonsense. Since taxation is not relevant to the issue of marginal utility of money it is reasonable to conceive of the marginal unit increasing in size as wealth increases. One does not need an excuse like a constant sized marginal unit for tax purposes. That is a bogus concept. Read Reisman's discussion,

"As people grow richer, the size of the marginal unit tends to increase."
He also says, "Furthermore, the fact that the utility of a marginal unit of wealth OF A GIVEN SIZE (CONSTANT) diminishes as the quantity of wealth available to us increases is actually an important aspect of the desirability of increasing our wealth." What we rationally want is to be in a position in which marginal utility of a unit of wealth of any given (constant) size more and more approaches zero."​

IE, IF we let the marginal unit retain a constant size marginal utility will diminish.

"Therefore, we rationally want more wealth in order to deal with marginal units of wealth of progressively larger size, and to be less and less concerned with units of wealth of any given size. "(constant size)​

 

That is absolutely untrue. You have never showed the receipts and outlays to prove there was a deficit in FY2000 as you claim.

 

Which is the law of diminishing turns. And thus we can say that $1000 to the starving man has more utility than $1000 to the billionaire, which is why progressive taxes makes sense.

It's saying the exact same thing I did. Why is it bullcrap?

We all want more wealth. What we want is irrelevant to the law of diminishing returns, which is based on the marginal utility of a homogenous unit.

But I agree you can change the definition and argue there is a different result. You can do that with anythings.

 

Why would want to do that? Changing the size as wealth increases is not changing the definition of a marginal unit. A marginal unit is and will forever be the next unit of goods or services or money you receive, without any requirement to keep it constant in the case of money or other medium of exchange.

Haven't changed that either. I support progressive taxation, help for the needy, good public education, and universal medical care; all of which are democrat goals. I just have gotten to be a fanatic left winger like you and the current democrat party leaders.

Nope, but they were correct about the Clinton Surplus Myth. I recognize that even conservative media is correct some of the times and the MSM liberal media is wrong some of the time.

Your inability to think outside of the CBO and OMB box puts yoe on the wrong side of the deficit surplus issue which is absolutely disingenuous.

 

What would be the point of declaring that $1000 was more useful than fifty cents?
Why would the exercise of comparing same sized units in determining relative marginal utility be different when it came to money?

When a billionaire lights his cigar with a $100 bill, is that showing reduced marginal utility?

 

Good questions. I asked essentially the same thing and got ignored.

 

Yes, the marginal utility of money is different. But the law of diminishing marginal utility applies the same to money, just like everything else. Reisman agrees that the law of diminishing marginal utility applies equally to money. His comments about size are not relevant to that law.

 

I am just glad only dragons who may be sleeping don't experience diminishing marginal utility of their wealth.

 

Total! The only purpose of discussing marginal utility is HOW SATISFIED WAS THE INDIVIDUAL RECEIVING THE MARGINAL UNIT.

That's easy! Consider a 12oz steak is the marginal unit of a good. The first satisfies the individual and his marginal utility is high. Consider the second 12 oz steak, the utility is not so high as the first, it has diminished.
Consider a check of $1,000 is the marginal unit of money. The individual is satisfied and his marginal utility is high and he pays his rent.
Consider a check of $1,000 is the 2nd marginal unit of money. The individual is satisfied and his marginal utility is high and he buys food and goes to a movie.
Then consider that the individual has gotten wealthy, and he now considers the marginal unit of money to be $100K. The satisfaction is high and his marginal utility is high and he buys a Cadillac, or some other item he wants a lot.
The point is, unlike a steak, increasing numbers of marginal units of money can continue to satisfy the individual and the marginal utility of money can go up because of man's limitless desire for wealth.

Not at all. He is showing his disdain for such a small amount of money which he will never miss and he got more pleasure from it lighting a cigar than spending or saving it. Now had he burned 1/2 a billion he would really miss it.

No matter Goober, until you read and understand Reisman's explanation of marginal utility you will stay in the dark.

- - - Updated - - -

Your posts are so predictable they deserve to be ignored and your questions tend to be inane.

 

First you say it does, then you say it doesn't.

Fact: The marginal utility of money can increase as wealth increases. Reisman explains it well, because as a person becomes more wealthy he considers larger marginal units. That is so simple it screams out for a grade schooler to understand. Reisman does not agree it applies to money in the same way, no way. Obviously you have not read his work. Just for the sake of argument, give me the page and location of the paragraph from any quote where Reisman says the marginal utility of money does not increase or that the marginal unit must remain constant.

 

There is no contradiction in my previous post. You simply can't--no, you refuse-- to understand the difference between marginal utility in general and the law of diminishing marginal utility. You make the enormous and gross error of conflating everything that has to do with marginal utility with the very specific law of diminishing marginal utility.

Reisman agrees that the law of diminishing marginal utility applies equally to money. He also agrees that as wealth increases the size of the unit used by a given person increases, and thus due to the law of total increasing utility the new larger unit is not diminished in utility. But that is not the law of diminishing marginal utility, nor does it refute the law in any way at all. Saying is does would be like saying the law of supply refutes the law of demand.

 

The thing is, I have read the very piece by Reisman that you refer to, and so I can say with confidence, that you clearly don't understand what he wrote.
You are taking phrases out of context, and twisting their meaning.

 

It's kind of like when he takes a general FAQ statement from the US Treasury "You can think of the total debt as accumulated deficits plus accumulated off-budget surpluses" and claims that means that the US Treasury defines "deficit" as the change in debt. Even though every source says a deficit is the difference between receipts and outlays, and the Treasury itself says there was a surplus in fY2000 even though the debt increased a bit.

He takes things out of context to change the definition to make his argument. It's not clever; its simply disingenuous semantics.