Thread: Marginal Utility

Originally Posted by goober

Ahhh, that explains your position, you have your facts wrong.

Borrowed money is not receipts, receipts are taxes, fees and fines
And outlays are actual expenses, paid for during the fiscal year.
You need to review the facts.

You obviously do not realize that borrowing money and adding it to the treasury to pay down the publicly held debt is used as if they were normal receipts. And they increased the total national debt, which apparently you have overlooked in your zeal to misunderstand what a true surplus is. You blew it. Does Peter/Paul mean anything to you?

Originally Posted by goober

For 4 years (1998, 1999, 2000 and 2001) Receipts exceeded outlays, and that is the definition of surplus used here.

Aah, so you ARE using a voodoo accounting convention to claim there was a surplus. Ok, it doesn't matter what you say or why you say it so long as we all know that there was no true surplus based on the fact that Clinton added to the total national debt every year he was in office. Gosh, you can call the moon blue cheese if you want, it would be just as accurate.

Originally Posted by goober

Did receipts exceed outlays, for those 4 years?

NO! Except in a warped voodoo accounting convention designed to lie to the people and to hide the true deficits which occurred in those years.

Originally Posted by goober

Let's just say it's a huge step that we all agree on the diminishing marginal utility of money, and leave it there for tonight...

How could we? It would be accepting a lie. I for one don't want to live in your left wing dream world, its nuts.

Originally Posted by dnsmith

Actually he did a good job of describing the marginal utility of goods and services money can buy. His first sentence, "The principles that man’s desire for wealth is LIMITLESS is fully consistent with the law of diminishing marginal utility, one of the most important and well-known principles of economics." Obviously you misread the point of his entire essay.

Read the whole thing, he even uses the same example I did, of using a $100 bill to light a cigar.
Apparently it's just you who's holding out.....

Originally Posted by dnsmith

You obviously do not realize that borrowing money and adding it to the treasury to pay down the publicly held debt is used as if they were normal receipts. And they increased the total national debt, which apparently you have overlooked in your zeal to misunderstand what a true surplus is. You blew it. Does Peter/Paul mean anything to you?

You should check this out, because you've been told what actually happened a couple of times now.
Receipts (taxes, fees, fines, seizures, etc.) don't include borrowing.
I urge you to read up on the subject before continuing (or you'll be in the 9aces category)

Originally Posted by 9aces

No, it's your definition. It doesn't represent what actually was the result, but that's never stopped you before.

There's reality, and there's what you believe, and there's very little overlap....

Seriously, look it up, haven't you embarrassed yourself enough?

Here, I'll look it up for you.

Surplus
The amount by which the revenue of a government from taxes, tariffs and other sources exceeds its expenditures. A surplus means that the budget is likely healthy, at least in the short-term, and in any case the government does not have to resort to borrowing. Some economists believe that a budget surplus or deficit has only minor importance, while others believe that it is very important to maintain a surplus if at all possible. Most U.S. states are required to maintain either a surplus or a balanced budget, while the federal government is not. See also: Federal deficit.

http://financial-dictionary.thefreed...ry.com/Surplus

Originally Posted by dnsmith

How could we? It would be accepting a lie. I for one don't want to live in your left wing dream world, its nuts.

You missed it.

Maha cut and pasted a big chunk from his favorite economist.
And in the piece he pasted his favorite economist was describing how the marginal utility of money diminishes, so here's his goto guy, using the same example that Goober used to describe the diminishing marginal utility of money.

So I think we're all aboard on the diminishing marginal utility of money (except you maybe, but read the whole piece, it's not bad)
Or you can argue that Mr. Reisman, Maha's favorite economist and a Heritage Foundation guy is a left wing nutter.....

Originally Posted by Mahasattva

While Goober will ridicule and dismiss the following quote without addressing any of the writer’s argument or even attempting a cogent rational rebuttal, I thought it would be interesting for those who are actually interested in economics and do not suffer from the intellectual dishonest and hubris which allows some to misuse and misrepresent the science of economics to further their ideological agenda. This except also has the benefit of irony considering that it finishes with lighting cigars with hundred dollar bills.

From George Reisman’s Capitalism http://www.capitalism.net/Capitalism...M_Internet.pdf

4. The Law of Diminishing Marginal Utility and the Limitless Need for Wealth
The principles that man’s desire for wealth is limitless is fully consistent with the law of diminishing marginal utility, one of the most important and well-known principles of economics. The law of diminishing marginal utility states that the utility or, equivalently, the importance or personal value than an individual attaches to a unit of any good diminishes as the quantity of the good in his possession increase.

An example drawn from Bohm-Bawerk, the leading theorist of marginal utility, will illustrate the principle. Imagine that an isolated frontiersman, say, of the old American West, requires five sacks of grain, which must last him until the next harvest. He needs one sack to meet his minimum need for nutrition. Without it, he would die of starvation. He needs a second sake to be sure of having enough food to keeo up his health and strength. A third sack enables him to raise some poultry and satisfy his hunger completely. With a fourth sack he can distill some brandy. With a fifth sack he can feed some parrots, from which he derives amusement.

If our frontiersman in fact possesses only one sack of grain, he will value it as highly as his very life. This because, in the context, the possession of a sack of grain is a necessary condition of his survival; if he loses his one and only sack of grain, he will die. If, however , he possesses two sacks of grain, he will not value one sack as highly as his life, but only as highly as the maintenance of his health and strength. Because now, in this context, this is what depends on the possess of a sack of grain; if he lost one of his two sacks, it would be his health and strength, not his life, that would be threatened. In the same way, if he should possess three sacks of grain, he will value one sack only as highly as the remaining satisfaction of his hunger. With the possession of a fourth sack, the value he attaches to any one sack falls to the importance he attaches to having brandy; with a fifth sack, it falls to the importance he attaches to feeding parrots. Thus, the marginal utility of a good can be thought of as the utility of the last unit of a supply, and thus falling as the number of such earlier units increases.

The law of diminishing marginal utility rests on two closely related foundations. First, because goods have the power to satisfy wants, successive units of a good that are used to satisfy a want necessarily encounter wants that are more and more satisfied. For example, if I am very thirsty, the first glass of water I drink meets a very intense need. But that glass of helps to satisfy the need. The second glass of water I drink, therefore, goes to serve a need that is less urgent precisely because it is already partly satisfied by virtue of the first glass of water. The same, of course, is true of the frontiersman’s grain, insofar as he consumes it.

The second foundation of the law of diminishing marginal utility is that insofar as we must choose which of our wants to satisfy our more important wants in preference to our less important wants. Our frontiersman, for example, chooses to fee himself ahead of the parrots. Indeed, as far as we are able, we devote our goods to the satisfaction of the important of our wants that they are capable of satisfying. Diminishing marginal utility follows from this because, with the units of the initial supply devoted to serving the most important of the wants they can serve, the only wants that remain to be served by an addition to the supply are necessarily wants that are less important than those already being served.

The concept “most important of our wants that a good is capable of satisfying” must be understood as a variable range , whose extent depends on the quantity of the good we possess. Our frontiersman, for examples, devotes his supply of grain to its most important uses even when he feeds parrots. In the context of possessing five sacks of grain, feeding parrots is the most important use to which he can devote his fifth sack. While it is certainly not as important as devoting any of his first three sacks of grain to feeding himself, it is certainly more important than devoting a fourth sack of grain to feeding himself (which might be unhealthy and make him feel ill) and more important than any other use to which he can devote that fifth sack, given the existence of the other four. We satisfy our most important wants in descending order of importance. The larger the number of units of a go at our disposal, the further down in the scale of importance we are able to carry the satisfaction of our wants. The marginal unity of a supply is devoted to the most important wants that it can serve, but these wants are necessarily less important wants that it can serve, but these wants are necessarily less important than the wants being served by the “earlier” units of supply. The marginal wants that a good serves should be thought of not as bing unimportant, but as being the least important of the most important wants that its supply suffices to serve. The marginal wants are always more important than any of the submarginial wants, that is, wants whose satisfaction would require a still larger supply of the good.

It should be realized, of course, that the utility of the marginal unit of supply determines the utility of any of the units of that supply at that moment. If, for example, our frontiersman were to attach a tag to one of his five sacks of grain, and label it specifically as the sack necessary to the feeding of his parrots. This is because irrespective of any such labeling, it is still only a question of one sack out of a supply of five. If the particular sack labeled necessary to survival were lost, the sack previously designated as reserved for the feeding of the parrots could take its place. By virtue of making this substitution, the actual loss would fall on the feeding of parrots, and that utility, therefore, would be the marginal utility of the sack in question.

As previously stated, the law of diminishing marginal utility is perfectly consistent with the fact that man’s need for wealth is limitless. It is necessary to stress this point in view of the misconception spread by Galbraith that increasing wealth and the consequent fall in the marginal utility of a unit of wealth, makes the pursuit of wealth progressively less important. 20

One reason for the consistency between the law of diminishing marginal utility and the limitless need for wealth is the elementary fact that the total utility of a person’s supply of wealth must go on increasing so long as wealth has any positive marginal utility to him whatever. For example, the fact that the fifth sack of grain has a lower marginal utility to the frontiersman than the fourth does not contradict the fact that five sacks of grain have a greater total utility to him than four and thus that it is better for him to own five sacks than four. So long as additional wealth has any marginal utility whatever, there is a need for more wealth.

Of course, if one considers a very narrow type of good, such as bread, say, it is possible to imagine additional units beyond a point being of negative utility, and, therefore, a larger supply being of less utility than a smaller supply. This would be the case for example, if the additional units either had to be eaten by people who already had all they wanted or else would simply rot and impose costs of removal and cleanup. But, for reasons explained earlier in this section, it could certainly never be the case with all or most goods or, therefore, wealth in general, could fall into this category.

Furthermore, it should be realized that the very process of increasing the amount of wealth that is available to the average member of any society entails the opening up of new uses for additional wealth, which has the effect of increasing the marginal utility of additional units of wealth. The opening up of new uses for wealth occurs because essential to the ability to increase the supply of wealth is scientific and technological progress, which makes possible not only improved methods of producing goods of the kind that already exist, but also brand new kinds of goods. Thus, for example, the invention of the electric motor and the internal combustion engine, which radically increased our ability to produce and enjoy wealth, did not result in our sating ourselves with a vastly increased production of such goods as candles and oxcarts. On the contrary, as part of the same process of improvement, these inventions were accompanied by the invention of the electric light and all the electrical appliances and, of course, the automobile. In this way, increases in the ability to produce raise the marginal utility of additional wealth along with providing it.

Thus, an automobile represents perhaps a hundred or a thousand times the wealth represented by an oxcart, and, at the same time, is probably of correspondingly greater marginal utility than an oxcart. Certainly, the marginal utility of a second automobile does not represent a drop in the marginal utility of wealth to the point that would correspond to the possession of a second hundred or thousand oxcart. Along the same lines, one might think a two-hundred horsepower automobile as representing the material equivalent of two hundred horses. Wealth representing a two-hundredth part of an automobile has a higher marginal utility to the owner of an automobile than would the wealth representing a two-hundredth horse. Thus, the effect of a growing ability to produce is not only more wealth, but also a higher marginal utility of the additional wealth in comparison with what it would otherwise have been (if somehow the additional wealth had been able to come into existence without such technological advances). And, as these examples imply, the effect of a growing ability to produce is a tendency toward an increase in the size of the marginal unit of wealth, as well.

This last point requires elaboration. The size of the marginal unit is never something fixed and immutable. It is always a matter of context, and the context is always the circumstances and conditions with which the individual is confronted. If, for example, our frontiersman had two of his five sacks of grain stored in the same place, and that place was threatened by a fire, what would be at stake for him would be the importance of satisfying the wants dependent on the two sacks together. The two sacks together would have to be evaluated, and they together would constitute the marginal unit. As von Mises once said I a discussion with the present author, the marginal unit is whatever is the amount under consideration.

As people grow richer, the size of the marginal unit tends to increase. Not only do they deal with things like automobiles instead of oxcarts, but richer people deal with Cadillac-or Mercedes-level automobiles rather than Chevrolet-or Toyota-level automobiles. When differences in quality are considered, a house, a suitor a dress, a restaurant meal, practically everything, tends to be a larger-size unit of wealth for a richer person than for a poorer person. When this is taken into account, it becomes clear that it is a great mistake to assume that as wealth increases, the utility of the marginal units actually dealt with diminishes. On the contrary, the utility of these units actually increases! Unit for unit, a Cadillac has a higher marginal utility than a Chevrolet; a large, luxurious house has a higher marginal utility than a small, modest house; and so on.

Furthermore, 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. What we rationally want is to be in a position in which the marginal utility of a unit of wealth of any given size more and more approaches zero, while what we deal with more and more is progressively larger-sized units of wealth. We want to be in a position in which the loss of the wealth represented by $10, say, is absolutely unimportant to us; better still, in which the loss of the wealth represented by $100, $1000, or $10,000 is absolutely unimportant to us. The loss of wealth represented by $10 will be unimportant to us when we are rich enough to afford spending $50 or $100 for a single fine meal rather than $10 for a whole day’s food--when, in other words, $50 or $100 replaces $10 as the representative of a marginal unit of food. The loss of $1,000 will be unimportant to us when we can afford to spend $50,000 for a second automobile, perhaps, rather than just $1,000 for our one and only ancient used car. The loss of $10,000 will be unimportant to us when we can afford to spend $1,000,000 for our second or third home rather than just $10,000 for our one and only small used trailer.

Thus, we rationally want more wealth in order to be able 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. In the spirit of the welcoming party allegedly once given by American millionaires to the famous nineteenth-century English defenders of capitalism Herbert Spencer, the symbolic ideal is to be able to afford to use hundred-dollar bills to light one’s cigar--while dealing with mansions, yachts, and private railway cars as the significant marginal units of one’s life.
Pages 49 to 51

I expect insulting dismissive ridicule from the leftist-Progressive ideologue.

tashi deleks,

M

Not sure why you are expecting ridicule, this is pretty good at explaining the marginal utility of money (as not being a constant by the way.) It tells us the behavior of wealth as well, the inverse of what I was saying about gains as this guy speaks in losses. And, gets the same result. A $1,000 dollar loss is not all that big of a deal to someone who is worth $1,000,000. But to someone who is only worth $1,000, that same loss is very different in effect. Even going the investment route is the same. Take the two guys again, tell them a $1,000 "investment" could double the money in 2 days but there is a 75% chance the money will be lost entirely. The guy who only has $1,000 to his name will make a very different decision than the guy who is sitting on $1,000,000. The why is even the same as that of the example in this cut and paste... the general decline in marginal utility of money.

Originally Posted by dnsmith

Your post is right on, but none of the opposition has a long enough attention span to read it and understand what it means. The very first statement, "The principles that man’s desire for wealth is limitless" is fully consistent with the law of diminishing marginal utility, one of the most important and well-known principles of economics. "

While the marginal utility of goods and services tend to diminish, the marginal utility of money tends to remain constant for no other reason than it will continue to fund satisfactions for the owner, even if that satisfaction is nothing more than the desire to make more money through investment.

Even the article does not say that the marginal utility of money is a constant.

What we rationally want is to be in a position in which the marginal utility of a unit of wealth of any given size more and more approaches zero, while what we deal with more and more is progressively larger-sized units of wealth.

For this statement to be true at all the marginal utility of money declines. To approach zero means it cannot be a constant unless it started at zero. The examples used in the article support the diminishing marginal utility of money. Again, a loss of $1,000 to someone worth $1,000,000 is not the same as a $1,000 loss to someone who is only worth $1,000. The amount lost between the two subjects is identical, but the behavior effect is entirely different. Why? The generally accepted decline in marginal utility of money.

Originally Posted by goober

There's reality, and there's what you believe, and there's very little overlap....

Seriously, look it up, haven't you embarrassed yourself enough?

Here, I'll look it up for you.
Surplus financial definition of Surplus. Surplus finance term by the Free Online Dictionary.

There's reality, which is the total debt. And there are deliberate lies which is what you believe and pass on as the truth. Your own except from the link proves your lie.

"A surplus means that the budget is likely healthy, at least in the short-term, and in any case the government does not have to resort to borrowing."

Has the government had to resort to borrowing every single year since 1957 since the debt went up every year since? Undeniable fact they have.

The funniest thing about your complete denials of reality is I rarely have to use anything but your own links to show it.

Originally Posted by 9aces

There's reality, which is the total debt. And there are deliberate lies which is what you believe and pass on as the truth. Your own except from the link proves your lie.

"A surplus means that the budget is likely healthy, at least in the short-term, and in any case the government does not have to resort to borrowing."

Has the government had to resort to borrowing every single year since 1957 since the debt went up every year since? Undeniable fact they have.

The funniest thing about your complete denials of reality is I rarely have to use anything but your own links to show it.

Were receipts greater than outlays in 1998, 1999, 2000 and 2001? Why can't you answer that simple question?

Want to try a more advanced question? Did redemptions exceed new issues in those years?

Or how about this , Why did the Treasury stop issuing 30 year T-notes in 2000?

You'd have more success trying to use accounting gimmicks if you understood accounting, but you've been bamboozled again by the right.
Why is it that the only reference you guys can find to support your theory is a right wing whack job blog?
Why can't you get something solid from a place like "The Heritage Foundation" that states this in no uncertain terms ?

I'll let you in on a secret, it's because the Heritage Foundation is there to make sophisticated propaganda, and saying "There were no surpluses in 1998, 1999, 2000 and 2001" would remove any shred of credibility they have, in other words, they don''t want to look stupid........

Originally Posted by goober

Read the whole thing, he even uses the same example I did, of using a $100 bill to light a cigar.
Apparently it's just you who's holding out.....

Yep, that was a good example of the marginal utility of a good or service.