Marginal utility of money

Discussion in 'Economics & Trade' started by dnsmith, Jul 13, 2013.

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  1. dnsmith

    dnsmith New Member

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    What do you mean by that?
     
  2. danielpalos

    danielpalos Banned

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    Eventually, your special pleading runs into finites instead of infinites for comparison.
     
  3. Iriemon

    Iriemon Well-Known Member Past Donor

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    Diminishing marginal utility

    The law says, first, that the marginal utility of each homogenous unit decreases as the supply of units increases (and vice versa); second, that the marginal utility of a larger-sized unit is greater than the marginal utility of a smaller-sized unit (and vice versa). The first law denotes the law of diminishing marginal utility, the second law denotes the law of increasing total utility."

    http://en.wikipedia.org/wiki/Marginal_utility

    The law of diminishing returns is about the marginal utility of each homogenous unit.

    You are arguing that is wrong by using non-homogenous units.

    I agree if you change it and use a bogus definition, you can come to a different conclusion.

    You can change the definition of "deficit" and then say there was no surplus under Clinton, or change the definition of orange and say the grass is orange.

    Your not making any logical point. Simply semantics.
     
  4. Liberalis

    Liberalis Well-Known Member

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    I'm tired of going in circles with you and responding to your same failed arguments and irrelevant refutations. The law of marginal utility requires that the units remain constant. Yes, units change--but not when you are measuring the effects of the law of marginal utility. You have ignored this distinction repeatedly, and I have run out of patience.

    Here is an example for you that sums up how you are thinking.

    There is a building that is 12,000 inches tall. A construction crew then cuts off 6,000 inches. Clearly the height of the building has diminished. Then a man named Mr. Smith comes along thinking he has a brilliant idea, and says "no! The building is actually taller!" He explains that due to the change in company policy, all buildings are now measured in feet, a larger-sized unit. After doing so he shouts wildly "The building is actually 12,000 FEET!"

    Now we can acknowledge that the size of the measuring unit has increased, but must also understand that doing so does not mean the laws of measurement do not apply to height. All of the crew understand the error quite clearly, but there is no convincing poor Mr. Smith of his unscientific reasoning.
     
  5. Liberalis

    Liberalis Well-Known Member

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    What is great about that quote is the source used by the wiki article: The Mises Institute. The irony is that dnsmith has been quoting Reisman, who studied under Mises himself--whom the institute is named after. The economists he is trying to use to back up his absurd definition are the very economists who argue that the law of diminishing marginal utility applies to homogeneous units.
     
  6. smevins

    smevins New Member

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    It allows them to do things with it that satisfies the top couple tiers of Maslow's hierarchy if they so desire which would have great utility. If they just let it sit there, not so much.
     
  7. danielpalos

    danielpalos Banned

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    I believe this special pleading definition may explain some aspects of any given rational addiction model.

    - - - Updated - - -

    Typically, what have the wealthiest done in the private sector to "out compete" each other when in the same tax bracket?
     
  8. smevins

    smevins New Member

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    Build the biggest crap or give it away in the grandest way, or some combination of both
     
  9. dnsmith

    dnsmith New Member

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    Yet the whole discussion on my part has to do with the fact that as wealth increases the size of the marginal unit under consideration increases, thus marginal utility can increase. I could really give a rats butt what your definition, as again I AM DISCUSSING THE MARGINAL UTILITY OF MONEY, NOT GOODS AND SERVICES AND MONEY IS NOT TREATED THE SAME AS GOODS AND SERVICES. Look at my original OP. Do you see anything there about a law of diminishing utility? Of course not. I knew the paradox of money instead of goods and services would confuse the lessor informed.
     
  10. dnsmith

    dnsmith New Member

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    Quite frankly your patience does not disturb me at all. My argument is fact as supported by capitalist paradigm economists. If you don't want to accept it as being part of the law of diminishing utility that is ok by me. So long, that is, that you understand that as wealth increases the size of the MARGINAL UNIT OF MONEY INCREASES, thus the marginal utility OF MONEY CAN INCREASE.
     
  11. dnsmith

    dnsmith New Member

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  12. Iriemon

    Iriemon Well-Known Member Past Donor

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    I agree if you change the definition of marginal utility you can say that it doesn't diminish.
    I agree if you change the definition of deficit you can say Clinton had a deficit in FY2000.
    I agree if you change the definition of orange you can say grass is orange.

    Impressive.
     
  13. danielpalos

    danielpalos Banned

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    I agree that with special pleading, anything can work, within that "vacuum".

    Why is concentration of wealth more marginally useful than full employment of resources in the market for human capital?
     
  14. dnsmith

    dnsmith New Member

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    http://mises.org/humanaction/chap7sec1.asp
    Chapter VII Action Within the World
    1. The Law of Marginal Utility
    "Quantity and quality are categories of the external world. Only indirectly do they acquire importance and meaning for action. Because every thing can only produce a limited effect, some things are consider scarce and treated as means. Because the effects which things are able to produce are different, acting man distinguishes various classes of things. Because means of the same quantity and quality are apt always to produce the same quantity of an effect of the same quality, action does not differentiate between concrete definite quantities of homogeneous means. But this does not imply that it attaches the same value to the various portions of a supply of homogeneous means. Each portion is valued separately. To each portion its own rank in the scale of value is assigned. But these orders of rank can be ad libitum interchanged among the various portions of the same magnitude. [p. 120]
    "The praxeological notion of utility (subjective use?-value in the terminology of the earlier Austrian economists) must be sharply distinguished from the technological notion of utility (objective use?-value in the terminology of the same economists). "

    "The law of marginal utility and decreasing marginal value is independent of Gossen's law of the saturation of wants (first law of Gossen). In treating marginal utility we deal neither with sensuous enjoyment nor with saturation and satiety. We do not transcend the sphere of praxeological reasoning in establishing the following definition: We call that employment of a unit of a homogeneous supply which a man makes if his supply is n units, but would not make if, other things being equal, his supply were only n-1 units, the least urgent employment or the marginal employment, and the utility derived from it marginal utility. In order to attain this knowledge we do not need any physiological or psychological experience, knowledge, or reasoning. It follows necessarily from our assumptions that people act (choose) and that in the first case acting man has n units of a homogeneous supply and in the second case n-1 units. Under these conditions no other result is thinkable. Our statement is formal and aprioristic and does not depend on any experience."

    "If we were to believe that marginal utility is about things and their objective use?-value, we would be forced to assume that marginal utility can as well increase as decrease with an increase in the quantity of units available. It can happen that the employment of a certain minimum quantity?--n units?--of a good a can provide a satisfaction which is deemed more valuable than the services expected from one unit of a good b."

    "A man whose savings amount to $100 may not be willing to carry out some work for a remuneration of $200. But if his savings were $2,000 and he were extremely anxious to acquire an indivisible good which cannot be bought for less than $2,100, he would be ready to perform this work for $100. All this is in perfect agreement with the rightly formulated law of marginal utility according to which value depends on the utility of the services expected. There is no question of any such thing as a law of increasing marginal utility."

    "How do we define homogeneity? Very easily......two objects are homogenous if both can serve the same end. (interchangeable in use for satisfaction.) Take the case of a man with 2 sweaters, of the same color and the same physical properties of keeping a person warm. On the one hand they are homogenuous in that they are interchangeable in their use to produce satisfaction of warmth. But if the individual chooses 1 over the other it demonstrates his preference, thus two homogenuous units may in fact have different marginal utility based on his preference.
    "Block's analysis (Block 1980, PP. 424-425) Suggested that goods are homogeneous before action, but during action (of selection) goods become heterogeneous. " The problem with this approach, if there is no way to group things into classes (different kinds of supply) and not treat all the billions of billions of goods as homogenous. Since before action all goods are not part of the action, then cars can be homogenous with peanuts. {I personally disagree with that assertion but recognize the value of the comment in that it further defines homogenuity)
    Neoclassicists presume that people are indifferent to all goods, which basically leads us to a striking conclusion, which cannot be accepted, that people are indiferent to different needs. This leads them to another conclusion which is counter praxeological thus disregarding the concept of preference of selection not being related to satiation. Classic Liberals, including Austrian school economist disagree totally with their theory.



    My own opinion which I formulated while doing graduate work for my MBA with a minor in Economics is more simple to understand that the expressed theories of most economists. Effectively I do not believe that money cannot be applied to the Law of Diminishing Utility in the same manner as goods and services, even if (and I don't agree it does) the marginal unit is constant in size or value. The reason being, unlike a steak which has a marginal utility based on the perception of satisfaction by the individual eating it, the second steak is not as satisfying. But given the satisfaction of a marginal unit of money, and recognizing that the second unit can be as satisfying as the first since it can be used to acquire something with equal or greater satisfaction as was acquired by the first marginal unit, as does the third unit and the fourth unit and so on. In addition to which even as the individual becomes wealthy his perception of satisfaction would necessarily require ever increasing sizes of marginal units.
    Economists of different schools, such as Classic Liberal, Austrian, Socialist et al, all view marginal utility in a different manner. The Classic Liberal and the Austrian paradigm economists either do not accept that money can even be considered subject to the law of diminishing utility or that with wealth the size of the marginal unit increases in relative proportion to increases of wealth. Socialist paradigm economists insist that the marginal unit remain constant in size and that it applies to money just like goods and services and that the marginal utility diminishes as wealth increases.
    The reasons for the socialist paradigm economist are mostly predisposed such that their concept of diminishing marginal utility is a good reason to propose that an even greater progressive income tax can be reasonably extracted from the highest earners.

    What it boils down to is, economists of different schools disagree as to what the marginal utility means based on the units used.
     
  15. dnsmith

    dnsmith New Member

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    Yet, I for one do not change the definition of anything whether it is about marginal utility, deficits and surpluses or the definition of a color. I do recognize that not all methodology arriving at proper conclusions are the same. And unlike some people I don't live and think in a sealed concrete box. I use my ability to think outside the box to check what I learn in the box.
     
  16. Iriemon

    Iriemon Well-Known Member Past Donor

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    The definition of marginal utility in the law of diminishing returns as cited above is for each homogeneous unit. Your OP is about variable units. That changed definition is what you used for your conclusions.

    It's not thinking outside the box. It's semantics. Like arguing grass is orange if you define orange to be on the color spectrum between blue and yellow.

    Same thing with your argument on the deficit. A deficit or surplus is defined as the difference between receipts and outlays. In FY2000 receipts were greater than outlays. You change it to be the change in the level of debt to reach a different conclusion.

    It's and argument based on semantics.

    I agree if you change the definition of marginal utility you can say that it doesn't diminish.
    I agree if you change the definition of deficit you can say Clinton had a deficit in FY2000.
    I agree if you change the definition of orange you can say grass is orange.

    - - - Updated - - -

    I agree when you change the definition you get a different result.
     
  17. dnsmith

    dnsmith New Member

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    The fact of the matter about marginal utility is, THERE ARE DIFFERENT DEFINITIONS BASED ON DIFFERENT SCHOOLS OF ECONOMICS. Any attempt to say one is absolute over another only identifies which school one prefers. In addition, I have seen not a single citation which states unequivocally that money is treated in the same way as goods and services.

    As to definitions of deficits or surpluses the government's definition is quite acceptable to me, though there are in fact different definitions based on the accounting convention to which one adheres. I personally accept the one which compares receipts vs outlays.

    I do, however, recognize that there are more ways to determine the actual value of the deficit or surplus than just adding up all income and adding up all outlays for the comparison. And my point of view is expressed very well by a comment on the US Treasury web site.
     
  18. dnsmith

    dnsmith New Member

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    Thomas C. Taylor

    The principle of diminishing marginal utility and its complementary law of value resolve the paradox of value as exemplified by the discrepancy between the price of diamonds and the price of water. The element of scarcity in controlling the extent to which a particular commodity can be used holds the key. The relative abundance of water as compared with the availability of diamonds means that increments of water can be devoted to less and less important uses than those to which the limited amount of diamonds can be put. No one is ever in the predicament of having to choose between all water and all diamonds; thus there is no meaningful paradox. Prices arise in connection with definite amounts of goods and not in connection with whole categories of various goods.

    If the amount of a good with which one is concerned is enlarged to encompass several of the smaller "units," the value theory is no less applicable. In this case, the larger amount becomes the marginal unit, and its valuation equals the sum of the various satisfactions that the larger amount would yield if broken down into incremental usages. For example, if our farmer is faced with giving up in one stroke three sacks of grain, his valuation of this package is not equal to three times the valuation or satisfaction attached to the maintenance of his parrots. He is not in the situation of valuing just one sack of grain. He will sacrifice the three least important uses of his sacks of grain, thereby devoting his remaining two sacks to meeting his essential food needs. The value of a "unit" of three sacks of grain equals the total satisfaction expected to be obtained from raising poultry, distilling brandy, and feeding parrots. This is the marginal satisfaction pertaining to the marginal unit of three sacks.

    The size of the unit used is not important for the operation of value theory.
     
  19. dnsmith

    dnsmith New Member

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    An observation! Some people presume that homogenous units are of constant size as concerning marginal utility. That is incorrect. The point of homogeneity is that the substance of the commodity is the same, such that:

    These are goods which have the quality of substitutability. In law they are sometimes described as fungible. Basically if you want a pound of rice from a sack of rice, it doesn't matter which grains from the sack you get, because all of the grains in the sack are interchangeable.​
     
  20. dnsmith

    dnsmith New Member

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    Concrete thinking in its most literal form would be thinking about the stuff that gets poured onto sidewalks. That is something of a joke, but it illustrates the nature of thinking in concrete terms. The idea of “concrete” stands for literal, right now, and immediate, and yet a person who sees the world only in concrete terms would likely have difficulty understanding the abstract nature of its definition. In fact concrete and abstract are often contrasted to each other, where abstract thinking is idea based, able to move to more figurative definitions, and likely to be able to understand conceptual knowledge that exists outside of the moment.

    In human development, most individuals begin thinking in concrete ways. This is easily illustrated with infants. If an infant is playing with a toy and the toy is suddenly covered with a blanket, the baby is likely to think the toy is gone: out of sight, out of mind. It takes a while for the baby to realize that the toy is still there if not seen, and this is the beginning of the ability to think in abstract ways.

    Still, most children won’t be particularly abstract in their thinking for many years, and will view things in literal ways for a long time to come. As they age, they develop different levels of facility for being abstract thinkers, and some will become very skilled at conceptualizing, while others will retain a more concrete thinking bent.

    If one learns to conceptualize how a subject can be considered one is not bound by the word for word stated definition.

    This is true when discussing marginal utility, whether one chooses to relate it to a paradox of the law of diminishing marginal utility thus recognizing that variations in marginal unit size are based on the perception of the individual considering those marginal units.
     
  21. dnsmith

    dnsmith New Member

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    I see you are still sealed in your concrete box Iriemon .
     
  22. Iriemon

    Iriemon Well-Known Member Past Donor

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    Not at all. I have readily agreed if you change the definition you get different results. What's you point?
     
  23. Liberalis

    Liberalis Well-Known Member

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    The law of diminishing marginal utility holds units constant. Period. That is a fact, and all of the economists you keep referencing agree with that fact. In the source posted by Iriemon one even said so explicitly. Is there more to marginal utility than that one law? Of course. But the law describes merely one aspect of marginal utility--that as the quantity of a given supply increases, the marginal utility of a homogeneous unit of that supply decreases. That is true for butter, candy, and yes--even money.
     
  24. dnsmith

    dnsmith New Member

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    That you still have acknowledged that the methodology referred to by the treasury dept about debt is acceptable to determine true deficits/surpluses; which is not a new or changed definition. You are still stuck in your box.:roflol:
     
  25. dnsmith

    dnsmith New Member

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    For goods and services one can accept constancy, but not for money. Reisman does not agree, and if you believe he did it is obvious you have never read the material I quoted from him. But the law describes merely one aspect of marginal utility--that as the quantity of a given supply increases, the marginal utility of a homogeneous unit of that supply decreases. That is true for butter, candy, and no--not even money.
     
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