Marginal utility of money

What is apparent is, you have no idea what marginal utility is. I think we need a little iteration:

Utility is a subjective concept. It denotes "satisfaction" (or "happiness" or "contentment"). It rises if and when an individual increases his or her state of satisfaction. Conversely, if and when someone considers himself in a worse state of affairs, his utility decreases.

What is more, utility is an ordinal concept, meaning that utility cannot be measured in terms of higher or lower utility from the viewpoint of an individual; and changes in utility among different people cannot be measured. All one can say is that utility is higher or lower from the viewpoint of an individual. Ludwig von Mises​

Before you can tout one study or another, you have to understand the concept of marginal utility, something so far you have failed to grasp. It is obvious that you use your hostility (or as you call it dismissal) in the hopes that your ignorance on the subject will be missed. Sorry, but it has not been missed. The very idea that one can empirically measure satisfaction such that it can be compared between one individual and another is preposterous. Read George Reisman's Capitalism: a Treatise starting on page 51 through the end of his explanation of and description of marginal utility. Then come back and maybe you will understand it well enough to discuss it. For now, you can't.

 

Nope. What we have is simple. The idea that marginal utility of income is diminishing is an empirically testable result. And we have it tested! I do feel sorry mind you. Must be annoying to read some guff and then realise you can't simply pretend to know stuff online

 

I believe it should be self-evident that the marginal utility of money is not what it was once thought to be; so why keep the "entitlement" of the distinction for capital gains if we don't get any economic booms out if?

 

I believe we should keep it simple; how much change in lifestyles would ending the capital gains distinction for income really have on the wealthiest?

 

How are you defining "wealth"? Do you mean an individual's supply of money?

People make decisions on the margin. No one chooses between "guns" or "butter", but between a definite amount of guns and a definite amount of butter.
As an actor acquires more and more units of a good (in this case money), he or she devotes them to successively less and less urgent ends (i.e. ends that are lower on his or her subjective scale of values). Therefore the marginal utility of a good declines as its supply increases. This is the law of diminishing marginal utility. I'm not sure why it wouldn't apply to money.

 

If money is as is claimed by the OP, then why is our economy so slow to return to full employment when the wealthiest are generating record profits from current public policy schemes being financed with the Peoples' money.

 

Wrong! Trying to measure a subjective survey with empirical data simply doesn't work. I agree, one cannot pretend to know stuff on line, and you have failed miserably at trying to do just that. Your only claim to fame in this thread is touting a subjective study, hostility and rudeness. They have failed you terribly.

On the other hand, I fully understand marginal utility, the means of determining the marginal unit (as wealth increases the marginal unit increases) and what makes the whole thing click. The marginal utility of goods and services do diminish, if for no other reasons, how many houses can one live in at once, or cars one can drive, or bags of grain one can stock pile? The facts are simply, as an individual (who is the only one who can determine his level of satisfaction relative to the last marginal unit) can perceive increased marginal utility of money so long as the marginal unit increases in size in some proportion to the increase of wealth, thus getting satisfaction from that larger marginal unit. That is where the study you touted failed to make the grade, it held that marginal unit constant thereby PREDETERMINING what the result would be. Bad methodology makes for bad conclusions. Like I said earlier, if you want to support diminishing marginal utility read Diamond and Saez....they did a better job than the study you touted, but they still don't get the gold star. If you really want to learn something, read George Reisman's Capitalism: A Treatise starting at page 51. After you do, get back to me. As it is you are loaded with blanks, you make a lot of noise but no sense.

 

We are talking about money as the law of diminishing utility applies. Why does it not apply to money as it does to a good or service? That is easy! I mentioned earlier, one can live in but one home at a time or drive one car at a time, eat one meal at a time. After being fulfilled by any good or service another one will not mean nearly as much as the one which sated your need.

That is where the similarity ends. Since a steak is a steak is a steak, after consuming your fill of that steak by getting another means nothing, so increasing the size of the marginal unit of steak does not not satisfy one beyond the point of being full. In the case of money, as one's wealth increases it takes a larger marginal unit of money to satisfy the desire to increase wealth. $100 annual raise to a man who makes $100K annually will not get much satisfaction from that $100 raise. BUT if that next marginal unit is $10K, increasing his annual earnings by 10% that man will likely see an increase in marginal utility.

Many people argue that the $10K would be of great utility to a poor man such that it would buy lots of food, clothing, fuel etc for his family, and no one disputes that. But the fact is, we are discussing the marginal utility of that $10K raise to the more wealthy man and it is of sufficient size such that there is an increase in utility of the marginal unit.

If you want to understand it more fully google George Reisman's Capitalism: A Treatise and start with page 51 which more fully describes mans limitless desire for wealth, and its relationship to marginal utility.

 

Money does have diminishing marginal utility, but that does not mean the rich should be taxed more. That argument is basically "a dollar gives a lot more utility to a poor person than a rich one." That argument is false, because utility is an ordinal comparison, not a cardinal one. Marginal utility is subjective to individuals, and is meaningless when comparing separate individuals to each other (such as rich to poor).

The Law of DMU definitely applies to wealth for a single individual. Each addition unit of wealth that I acquire is used to satisfy a want which is lower on my value scale than the want which was satisfied by the last unit of wealth I acquired. So if you tax the rich man more, the poor may be able to satisfy their want 5 at the expense of the rich's want 20. But there is no way to say the poor person values his want 5 more than the rich values his want 20. Utility is subjective.

So the tax the rich argument is false, but marginal utility still applies to money.

 

That's the problem. There is an assumption that public spending programs are a net positive to the economy. I would disagree, and the last 5 years are evidence.

 

Again you make no sense. What we can't do is construct a unit measure called utils. We can, however, use measures such happiness to empirically test the nature of the utility function.

Its not difficult to understand. However, your reaction to the evidence informs me that you aren't able to use empirical evidence to either support or critique the analysis involved.

The only constant used was the elasticity across individuals. Even then that was tested, with the authors checking for robustness by analysing across sub-groups. This merely confirms to me that you haven't understood how empirical analysis can be used.

 

That would be true if the size of the marginal unit remained constant.

The fact that the utility of a marginal unit of wealth of given size diminishes as the quantity of wealth available to us increases is actually an important aspect of the desirability of increasing our wealth. Thus, as wealth increases the marginal unit necessarily increases in size.​

I agree about the tax but in fact the marginal utility of the ever increasing size of the marginal units can increase (based on the individual)

 

When anyone figures out how to empirically measure a subjective human emotion accurately, please let the world know, and they will beat a path to your door and make you rich. Obviously you can ask a person how happy he is, he may even answer you honestly as best he can, but Reiver, that is not empirical data, no matter how many times you whine about it being so.

 

Isn't concentration of wealth a form of "marginalizing" the utility of money?

 

I agree that it depends on the implementation of any public policy schemes, but to say that the public sector merely spending money does nothing in an economy is also, disingenuous at best.

In my opinion, providing for the general welfare implies an investment in the general prosperity and a positive multiplier effect on our economy. Unemployment compensation is one example.

 

Already done! The happiness literature is quite diverse. Want to try and construct relevant comment? Start with Easterlin. His "paradox" has been a crucial part of the analysis, but he's also researched into marginal utility of income.

 

Daniel, we are not talking about marginalizing anything, let alone what a concentration of wealth does. Do you even know what the marginal unit is?

 

And yet asking a persons opinion about an emotion is still subjective at best. Yes, the literature is diverse, and yes, several people think they have it, yet there has never been a completely objective method of measuring individual emotions.

The first paragraph of a paper by Anna Marie Ruef and Robert W. Levenson says a lot about objective measurement of a subjective experience of emotion. There are numerous methods developed, and all have unique challenges. Self-report measures provide useful information for a specific point in time, but even with interviewing an objective result is no better than the means of expression of the subject. The result is always subjective at best, sometimes near accurate and sometimes not. Affect measurement is no better than the interactive union between interviewer and subject.

 

As Rothbard puts it: In order for any measurement to be possible, there must be an eternally fixed and objectively given unit with which other units may be compared. There is no such objective unit in the field of human valuation. The individual must determine subjectively for himself whether he is better or worse off as a result of any change.

 

The marginal utility of a larger-sized unit is greater than the marginal utility of a smaller-sized unit, thus as wealth increases the size of the marginal unit increases, and the marginal utility can increase as wealth increases. Each individual determines his own satisfaction as opposed to any outside influence.

 

It seems to me you are confusing the law of diminishing marginal utility and the law of increasing total utility. The former states that the marginal utility of each (homogenous) unit decreases as the supply of units increases (and vice versa). The latter states that the marginal utility of a larger-sized unit is greater than the marginal utility of a smaller-sized unit.

As far as the law of diminishing marginal utility is concerned, you bet the unit remains constant. The law of diminishing marginal utility is all about the utility of a given unit. The size of a unit is not relevant to the law of diminishing marginal utility. Nothing in the real world changes the size of a unit..the unit is defined for purely analytically purposes.

 

That's a nonsequitur. That a unit of a larger size has more utility than a unit of a smaller size has absolutely no bearing on the size of a unit. You are misunderstanding the law of diminishing marginal utility and the law of increasing total utility.

 

Rothbard does not deny the marginal utility of money.

Replace butter with money--it still works.

Another passage:

In this case, the unit is 1 horse. Clearly, each successive horse has less utility. But using your logic, they do not. As the wealth of horses increases, the size of the unit also increases. Therefore the unit becomes 2 horses, so the utility is the same. You have made up a law that not only does not exist but makes no sense. There is no law saying that as wealth increases, the size of a unit increases. Furthermore, saying that anything effects the size of a unit makes no sense at all, because the unit is simply a logical measuring tool.

 

The problem is nothing of that points to there being no diminishing marginal utility of money. You are misreading Reisman and Mises.

 

We are referring to marginal utility and "marginalizing" some utility of money through concentration of wealth which results in less circulation than could be the case with full employment of resources in the market for labor.