Thread: Marginal Utility

Originally Posted by dnsmith

For the second time: What all of the economists statements I have posted effectively have considered ALL of the goods and services a person consumes as mutually inclusive rather than each good or service by it self. The point is when product A is purchased to the point that the marginal utility of A diminishes, the individual then moves to product B, the utility of which increases until at a certain point (different with each individual) the marginal utility of B diminishes and then the individual turns his need for satisfaction to another good, expressed here as C. Given a scale of total satisfaction the combined utility of A, B, C ie the summation of A+B+C always tends to remain constant. These assumptions are based on an infinite number of potential goods and/or services and include the ability to invest as X. Thus the summation A+B+C.......+X always tend to have a relatively constant marginal utility.

BTW, those "cut and pastes" were done to show Sluggo that there are economists who accept that the marginal utility of money DOES tend to remain constant.

The reason that these "cut and pastes" are so easy to challenge is the implications of taking text out of context to try to prove that the Marginal Utility of Money is constant. Most economists will say money tends to exhibit Declining Marginal Utility. I have illustrated this with ease before using many examples but since you are stuck on my use of goods vs. money then I will switch gears and talk exclusively about money (for a moment.)

Another easy example of the demonstration of Declining Marginal Utility of Money is the obvious utility difference in increasing your wealth from $1,000 to $2,000 vs. $1,000,000 to $1,001,000. The amount of change in actual dollars is identical between the two subjects, but the utility difference is beyond obvious. Person B, the change was not all that great. But in the case of Person A the amount was doubled. Amazing difference in behavior and economic effect. Therefore the Marginal Utility of Money must decline the further we go. Say even compared to another subject at $100,000,001,000 to $100,000,002,000. You can see this clearly the further we go. The holder of these large pools of cash are not looking to the next $1,000 increment with the same utility as the one that started with $1,000. These concentrations of wealth are looking for much greater returns. Therefore, the Marginal Utility of Money cannot be linear.

The behavior aspects of this are also beyond easy to explain. As your wealth increases you tend to spend each increment on goods that have more utility per dollar, putting off those with less utility per dollar until you have bought the more important goods. The crossroads of economic theory and realistic human behavior for those that are rational. That is what economists are getting at when income levels effect the purchase of goods and services to statisfy a utility. In the actual purchase of goods and services, the amount of money in hand all pretty much has the same utility in that state. However, earning more money shows different utility. And the Declining Marginal Utility of those Goods and Services still exists with very few exceptions. In other words, the difference (in economics and bahavior) of income in and use of that income out for other goods and services.

Take the same two people from the above illustration. Those two subjects will make a very different decision when it comes to the consideration in the purchase of an expensive $2,000 laptop. Both can now afford it, technically, but odds are only one will make the purchase. Person A will purchase more important items that return the most utility at the lowest price. "Necessities" may be a good term here using their $2,000 to ensure basic needs before the nice new expensive laptop idea. Thus, putting off items which give less utility until those important purchases have been made. To person B, the laptop decision may not be that big of a deal. Why? The general Declining Marginal Utility of Money.

Originally Posted by Sluggo

The reason that these "cut and pastes" are so easy to challenge is the implications of taking text out of context to try to prove that the Marginal Utility of Money is constant. Most economists will say money tends to exhibit Declining Marginal Utility.

And when they do, they are talking about money which is not spent or invested

I have illustrated this with ease before using many examples but since you are stuck on my use of goods vs. money then I will switch gears and talk exclusively about money (for a moment.)

I am not stuck on anything, but the forum topic is "money."

Another easy example of the demonstration of Declining Marginal Utility of Money is the obvious utility difference in increasing your wealth from $1,000 to $2,000 vs. $1,000,000 to $1,001,000. The amount of change in actual dollars is identical between the two subjects, but the utility difference is beyond obvious. Person B, the change was not all that great. But in the case of Person A the amount was doubled. Amazing difference in behavior and economic effect. Therefore the Marginal Utility of Money must decline the further we go. Say even compared to another subject at $100,000,001,000 to $100,000,002,000. You can see this clearly the further we go. The holder of these large pools of cash are not looking to the next $1,000 increment with the same utility as the one that started with $1,000.

These concentrations of wealth are looking for much greater returns. Therefore, the Marginal Utility of Money cannot be linear.

Tendency does not specify linear. It would only suggest that as some part of the line diminishes other parts go up, but you answered my point magnificently when you said those who are part of the concentration of wealth want more so they invest, ergo in their case the extra (or marginal $$$) are utilized to the highest degree of the value of money. IE, making profits. In those cases the marginal utility of money tends to go up.[/quote]

The behavior aspects of this are also beyond easy to explain. As your wealth increases you tend to spend each increment on goods that have more utility per dollar, putting off those with less utility per dollar until you have bought the more important goods. The crossroads of economic theory and realistic human behavior for those that are rational. That is what economists are getting at when income levels effect the purchase of goods and services to statisfy a utility. In the actual purchase of goods and services, the amount of money in hand all pretty much has the same utility in that state. [/quote]

However, earning more money shows different utility. And the Declining Marginal Utility of those Goods and Services still exists with very few exceptions. In other words, the difference (in economics and bahavior) of income in and use of that income out for other goods and services.

It appears that you have hit upon one of the reasons Marshall theorized that the marginal utility tends to remain constant where as in some it goes up and with some it goes down, but as a whole the tendency is constant. The mindset of the rich is substantially different to the persons who are not so rich. Most of us as consumers tend to spend virtually all of our money for items we need or want and in that process the utility does tend to remain constant because takes all our dollars to satisfy us.

Take the same two people from the above illustration. Those two subjects will make a very different decision when it comes to the consideration in the purchase of an expensive $2,000 laptop. Both can now afford it, technically, but odds are only one will make the purchase. Person A will purchase more important items that return the most utility at the lowest price. "Necessities" may be a good term here using their $2,000 to ensure basic needs before the nice new expensive laptop idea. Thus, putting off items which give less utility until those important purchases have been made. To person B, the laptop decision may not be that big of a deal. Why? The general Declining Marginal Utility of Money.

You have reverted to the marginal utility of goods when you bring in the purchase of an item, but you are correct in that everyone is different. One man's $500 laptop satisfies his need, but another man's laptop needs are only satisfied by the $2,000 model, thus both purchases maintain equality in utility.

What some economists and goober and to an extent you over look is the utility value of investment. I have never met a person who is well off who does not lust for good investments thus increasing the utility of his money. I have also never met a person who is well off who does not find utility in his propensity to save, the savings having an intrinsic value to him.

It is very true that one person can find diminishing utility in some goods, like the laptops you described, because you can only use so much of a good to its maximum value. Therein lies the difference between goods and money, ie one never runs out of uses for money with which goods and services can be obtained; the propensity of savings which satisfies ones feelings of financial security; or the propensity to invest, which in turn satisfies the need to make more money.

One can only attribute a lessening of utility of money to that portion which is not used or intended to use. (lock box principle)

Understanding the "marginal utility of money" theories one can describe several models which would apply.

1. The "marginal utility of money" will diminish if it is kept such that the declination is equal to the loss of purchasing power that money has by virtue of inflation.

2. The "marginal utility of money" does not diminish if the margin of $$$ increases in quantity, but never reaches that threshold of utility by which one has more than money than one needs to satisfy the individual's expectations of need or desire.

3. The "marginal utility of money" remains constant if one invests all of the $$$s over and above that which satisfies his purchase desires or need. and the investment maintains equilibrium with inflation.

4. The "marginal utility of money" increases if the money over and above what is needed to satisfy ones needs or desires is invested and the profits are greater than the depreciation of value caused by inflation.

Originally Posted by dnsmith

Understanding the "marginal utility of money" theories one can describe several models which would apply.

1. The "marginal utility of money" will diminish if it is kept such that the declination is equal to the loss of purchasing power that money has by virtue of inflation.

2. The "marginal utility of money" does not diminish if the margin of $$$ increases in quantity, but never reaches that threshold of utility by which one has more than money than one needs to satisfy the individual's expectations of need or desire.

3. The "marginal utility of money" remains constant if one invests all of the $$$s over and above that which satisfies his purchase desires or need. and the investment maintains equilibrium with inflation.

4. The "marginal utility of money" increases if the money over and above what is needed to satisfy ones needs or desires is invested and the profits are greater than the depreciation of value caused by inflation.

You left out the one that says the marginal utility of money declines as income increases.
That's the one that economists use, you know, today, in the 21st century, at universities, and places of higher learning.

So far, you have ignored the examples that Sluggo and I posted, maybe you can use one of those examples to explain what you perceive to be the error in our thinking.


Here, use this one

Another easy example of the demonstration of Declining Marginal Utility of Money is the obvious utility difference in increasing your wealth from $1,000 to $2,000 vs. $1,000,000 to $1,001,000. The amount of change in actual dollars is identical between the two subjects, but the utility difference is beyond obvious. Person B, the change was not all that great. But in the case of Person A the amount was doubled. Amazing difference in behavior and economic effect. Therefore the Marginal Utility of Money must decline the further we go. Say even compared to another subject at $100,000,001,000 to $100,000,002,000. You can see this clearly the further we go. The holder of these large pools of cash are not looking to the next $1,000 increment with the same utility as the one that started with $1,000. These concentrations of wealth are looking for much greater returns. Therefore, the Marginal Utility of Money cannot be linear.

Originally Posted by goober

You left out the one that says the marginal utility of money declines as income increases.

Because that isn't valid for most people.

That's the one that economists use, you know, today, in the 21st century, at universities, and places of higher learning.

Some economists teach that and others throw it out in all but a very small % of individuals who not put that marginal dollar to work for them. I gave you the examples and they are logical. But it appears you can't think for yourself so you use a couple of left leaning economists who are trying to convince those who don't think that that the marginal utility of money among the rich and try to convince those same people who don't think that it is an excuse for progressive taxation. I accept progressive taxation but let's have it for the right reason instead of conjuring up a convenient yet shaky theory like your pair of leftists trying to make an improper justification.

So far, you have ignored the examples that Sluggo and I posted, maybe you can use one of those examples to explain what you perceive to be the error in our thinking.

I have given you a number of reasons why the both of you are wrong. A middle class person who is afraid to invest is more likely to have the marginal utility of a little more money to decline that rich people who get the utility of investment to increase the utility of money. Not only that, but you have failed to justify any reason why a decline is more than just an uncommon event.

Here, use this one

The example you use is absolutely not valid if the person in the example you give invest that extra money. "What I see clearly" is, you always throw out how that person making a huge amount of money makes personal choices about that money. If all he does is let it sit losing value based on inflation the marginal utility does go down. But tell me Goober, just how many people making that much money don't invest it to buy the satisfaction of it making money for him? Marshall took such issues into account, where as you are simply seeing huge piles of money don't no work therefore having little value of satisfaction. It ALWAYS is in the eyes of the beholder, not some theoretical economist making declarations.

Originally Posted by dnsmith

Because that isn't valid for most people.Some economists teach that and others throw it out in all but a very small % of individuals who not put that marginal dollar to work for them. I gave you the examples and they are logical. But it appears you can't think for yourself so you use a couple of left leaning economists who are trying to convince those who don't think that that the marginal utility of money among the rich and try to convince those same people who don't think that it is an excuse for progressive taxation. I accept progressive taxation but let's have it for the right reason instead of conjuring up a convenient yet shaky theory like your pair of leftists trying to make an improper justification.I have given you a number of reasons why the both of you are wrong. A middle class person who is afraid to invest is more likely to have the marginal utility of a little more money to decline that rich people who get the utility of investment to increase the utility of money. Not only that, but you have failed to justify any reason why a decline is more than just an uncommon event.The example you use is absolutely not valid if the person in the example you give invest that extra money. "What I see clearly" is, you always throw out how that person making a huge amount of money makes personal choices about that money. If all he does is let it sit losing value based on inflation the marginal utility does go down. But tell me Goober, just how many people making that much money don't invest it to buy the satisfaction of it making money for him? Marshall took such issues into account, where as you are simply seeing huge piles of money don't no work therefore having little value of satisfaction. It ALWAYS is in the eyes of the beholder, not some theoretical economist making declarations.

Now you are doing that right wing thing, the one where you claim that you represent the consensus of the experts.
Have you wondered why you haven't been able to find any material that supports your view that was published after 1890?

Originally Posted by goober

Now you are doing that right wing thing, the one where you claim that you represent the consensus of the experts.
Have you wondered why you haven't been able to find any material that supports your view that was published after 1890?

I guess you can't read, or understand what you read. I posted several pieces of material which supports my view, PLUS I can think for myself; something you need to do once in a while. You want read the opinions of some economists who are far more realistic than the ones you cited? Go to Heritage Foundation.com. Yes, they are conservatives and far to the right of me, but their opinions are more on point.

Originally Posted by dnsmith

I guess you can't read, or understand what you read. I posted several pieces of material which supports my view, PLUS I can think for myself; something you need to do once in a while. You want read the opinions of some economists who are far more realistic than the ones you cited? Go to Heritage Foundation.com. Yes, they are conservatives and far to the right of me, but their opinions are more on point.

You just (well continued to) destroy your credibility with this debate. Their explicit mission statement, and note what is missing when it comes to sound economic principles. They might as well say "we ignore everything else that may conflict."

"to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense".

Originally Posted by Sluggo

You just (well continued to) destroy your credibility with this debate. Their explicit mission statement, and note what is missing when it comes to sound economic principles. They might as well say "we ignore everything else that may conflict."

I guess you missed the comment I made, "they are far to the right of me." Even so, when you examine the economists who The Heritage Foundation cite, you will see far more sense than the two left wing economists USCitizen cited. Don't read just part of what I say, look at the disclaimers too.

BTW, the day I lose credibility you left wingers will be dead and gone.

"to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense".

I think those are good ideas too.

Originally Posted by goober

Now you are doing that right wing thing, the one where you claim that you represent the consensus of the experts.
Have you wondered why you haven't been able to find any material that supports your view that was published after 1890?

Advice from the "experts" has this country 16 trillion in debt with bankruptcy on the horizon. What are they experts at again? Losing money?

Originally Posted by 9aces

Advice from the "experts" has this country 16 trillion in debt with bankruptcy on the horizon. What are they experts at again? Losing money?

Actually the experts said that cutting taxes was crazy...that it would lead to huge deficits.

Originally Posted by dnsmith

I guess you missed the comment I made, "they are far to the right of me." Even so, when you examine the economists who The Heritage Foundation cite, you will see far more sense than the two left wing economists USCitizen cited. Don't read just part of what I say, look at the disclaimers too.

BTW, the day I lose credibility you left wingers will be dead and gone.

I think those are good ideas too.

What credibility? You value the opinion of a right wing propaganda mill, over the economics department of MIT.

In what world does that make sense?

Here's a big clue, The Heritage Foundation doesn't have real economists, they are like tobacco scientists, they start with the conclusion that the answer is lower taxes, then they make up stuff to get them there.
At MIT and UC Berkeley they require a more scholarly approach.

Originally Posted by dnsmith

I guess you missed the comment I made, "they are far to the right of me." Even so, when you examine the economists who The Heritage Foundation cite, you will see far more sense than the two left wing economists USCitizen cited. Don't read just part of what I say, look at the disclaimers too.

BTW, the day I lose credibility you left wingers will be dead and gone.

No I did not ignore your comment or the disclaimers. I just said that the Heritage Foundation has a specific purpose politically, it does not have the intention of rational debate on the principles of Economics. With that, whatever they come up with in terms of Economics has nothing to do with best principle, best study and best application but rather everything to do with their mission statement of political protectionism. And that is generally at the expense of best priniciple.

Originally Posted by dnsmith

I think those are good ideas too.

Does not change a thing. They may be good ideas but going into discussions on Economic theory with this organization means getting political motivated responses over any other factor. It is by design.

This concept (backed up with plenty of prinicples and practical application) of Decline in Marginal Utility of Money is taught in higher education across the nation. It would be hard for you to discredit that as all left leaning. It has been demonstrated that even Marshall himself probably did not really agree that the Marginal Utility of Money was a constant even after producing models that suggested as much. And later economists showed why those models were problematic.

When we discuss these models (from many economists, sometimes in opposition) and the Decline in Marginal Utility of Money is discarded due to anything the Heritage Foundation cites, an obvious red flag is there. Anything that could lead to higher tax rates the Heritage Foundation, by mission statement, would object to. I would rather lean to professors from higher learning, reading many sources on economics and those published studies, modern economic study with current models, and obvious application of these priniples we can see over the Heritage Foundation's political motivations.