Thread: Marginal Utility

Originally Posted by Disillusioned_1

On page 49 he has more relevant arguments, and he even suggests that each unit of wealth gets larger as you become more wealthy. He even discusses the comparison of $10 vs $100 vs $1000 vs $10,000. If you use 'money' in place of any of his 'sack of grain' arguments you could reasonably argue that money does have diminishing utility, but you use larger increments of money as you get more and more of it.

Except that when you start inserting goods and services into the equation (sack of grain) you now are talking about the marginal utility of those goods and services.

In most places he is careful not to refer to money as a 'good' but since money is completely exchangeable for most goods, I don't see how it cannot be construed as a good in its own right. It is a good that facilitates barter transactions.

You are right, money cannot be construed as a good in its own right. The value of money is only involved in the satisfaction of needs or desires. When he says on page 49, The law of diminishing marginal utility and the limitless need for wealth, he has said it all, then proceeds to give some examples as to why. If you notice as the frontiersman gets additional sacks of grain he eventually discusses deriving enjoyment by feeding parrots. The point is, there is an infinite number of things he can do as he becomes more wealth and he can continue to derive pleasure from different things making has marginal utility of money "limitless" or as Marshall puts it, tends to remain constant as he continues to get satisfaction ad infinitum.

Originally Posted by Sluggo

Sorry for the late response, I almost missed this post between all the others going back and forth.

Theoretically the marginal utility of money reaches zero when total utility has been fulfilled, and trying to find that point when it comes to money would be totally useless. As others have pointed out not all will act identical with their wealth. However, one theory it would be a point in which all wealth has been reduced in distribution to one holder of all wealth, the ultimate conclusion of concentration of wealth. Another may be simply when there is no desire for continued return from investment.

The next question you asked is a little bit of a flawed one. "Is it a decline in the utility of money or the utility of the goods you can buy with that money?" In looking to even Marshall, the general accepted decline in marginal utility would mean application to money. I tried to explain this in post #393 to dnsmith, in terms of investments using your (or someone's) cut and paste. The general point of even the cut and paste is not that marginal utility was a constant, that is a false conclusion to draw from that study. Rather that diminishing marginal utility of money means the more wealth you have to invest means the target return is progressively larger sized units of wealth. I used an example that should make sense to you both in terms of two investors of very different wealth levels.

The point is you can have a sort of limitless desire for wealth and still coexist with a decline in marginal utility of money. Because, the higher the wealth one has to invest then the rate of return target means the amount made to achieve "utility" from that investment means a larger unit of wealth. To recap post #393, a $1,000 return on a $10,000 investment is pretty good at 10%. To that investor "utility" was handled. A $1,000 return on a $100,000 investment is all of 1% and not anything to write home about. Assuming 10% is the target for that investor as well, this was a total miss. The return amount was identical between the two but for the $100,000 investment to return 10% would mean $10,000 is needed. Or, a larger sized unit of wealth because... of the decline in marginal utility of money.

Again, hope that helps as I am interested in seeing how $1,000 means the same to a $10,000 investor and a $100,000 investor (or even $100,000,000 investor) using your theory of marginal utility of money being a constant. In this respect to get to the larger size unit of wealth, from the cut and past, the guy investing $100,000,000 would be looking for a $1,000,000 return at the 10% target in our exercise here. $1,000 to investor 3 would be a total waste of time but to you and your constant marginal utility of money somehow means the $1,000 investment return on a $100,000,000 investment is identical to the $10,000 investor. I can't think of a single economist (or investor for that matter) that would agree with you.

One word, "Satisfaction!" Satisfaction is as much a utility as is any other good or service and as long as the satisfaction continues the marginal utility of money tendsto remain constant. Of course that would not be true in all individuals, thus the word "tends" which gives some leeway. I think Reisman's "limitless desire for wealth" says as much as any other argument put forth on either side of the discussion. You are getting a little closer than Goober because he has seemed to have wound down to shrieks instead of arguments now. As to the 1 or 10 or 100, or 1,000..........$100,000,000 argument, remember the more money one has, the bigger ones investments and the greater expectation of growth of that wealth. The propensity to invest grows with wealth which in turn can give greater satisfactions.

The attempt to approach the ultimate (1 man, all the money) is not appropriate in this discussion as it is an utter impossibility to achieve.

Originally Posted by dnsmith

One word, "Satisfaction!" Satisfaction is as much a utility as is any other good or service and as long as the satisfaction continues the marginal utility of money tendsto remain constant. Of course that would not be true in all individuals, thus the word "tends" which gives some leeway. I think Reisman's "limitless desire for wealth" says as much as any other argument put forth on either side of the discussion. You are getting a little closer than Goober because he has seemed to have wound down to shrieks instead of arguments now. As to the 1 or 10 or 100, or 1,000..........$100,000,000 argument, remember the more money one has, the bigger ones investments and the greater expectation of growth of that wealth. The propensity to invest grows with wealth which in turn can give greater satisfactions.

The attempt to approach the ultimate (1 man, all the money) is not appropriate in this discussion as it is an utter impossibility to achieve.

So lighting a cigar with a $100 bill has the exact same utility as feeding your family a hundred dollars worth of food?
That a millionaire gets the same satisfaction seeing his income go from $10,000,000/year to $10,010,000/year as a guy making $50,000/year would from a $10,000 raise?

Originally Posted by goober

So lighting a cigar with a $100 bill has the exact same utility as feeding your family a hundred dollars worth of food?

Again you over look the obvious, that the poor man barely feeding his family would never light a cigar with a $100 bill. That is a ridiculous suggestion even for you. The fact is the rich guy gets satisfaction from one thing, and the poor guy gets satisfaction for another.

That a millionaire gets the same satisfaction seeing his income go from $10,000,000/year to $10,010,000/year as a guy making $50,000/year would from a $10,000 raise?

Your problem is the way you use logic in one direction and apply it to people going different ways. The satisfaction may be the same, but for different reasons. What gives a guy making $50K a year satisfaction would be significantly different than a guy making $50 million. One cannot extrapolate with AAAA when discussing BBBB.

Originally Posted by dnsmith

You are right, money cannot be construed as a good in its own right. The value of money is only involved in the satisfaction of needs or desires. When he says on page 49, The law of diminishing marginal utility and the limitless need for wealth, he has said it all, then proceeds to give some examples as to why. If you notice as the frontiersman gets additional sacks of grain he eventually discusses deriving enjoyment by feeding parrots. The point is, there is an infinite number of things he can do as he becomes more wealth and he can continue to derive pleasure from different things making has marginal utility of money "limitless" or as Marshall puts it, tends to remain constant as he continues to get satisfaction ad infinitum.

He argues basically that the marginal utility of money DOES decrease, and that the wealthier you are, the bigger chunks of money you must have to maintain the same utility.

page 51

We want to be in a position in which the loss of the wealth represented by $10 is absolutely unimportant to us; better still, in which the loss of the wealth represented by $100, $1,000, or $10,000 is absolutely unimportant to us.

.....

Thus, we rationally want more wealth in order to be able to deal with marginal units of wealth of progressively larger size

Also, I disagree that money itself isn't a good, but that's not really important to the discussion, unless in the economic model you DEFINE money to have constant utility. As long as you acknowledge that the possibility exists for money to have decreasing utility (whether you agree with it or not), then whether you call money a good or not isn't that important.

I find it slightly baffling that you think money has constant utility and that goods have decreasing marginal utility, but you simultaneously acknowledge that money is intrinsically tied to the value of goods and services. To me, those seem to go hand-in-hand. If the goods I can buy with my money have less utility, then the money I'm using to buy those goods must therefore ALSO have less utility. Of course, that same money in the hands of someone ELSE may have great utility.

Originally Posted by Disillusioned_1

He argues basically that the marginal utility of money DOES decrease, and that the wealthier you are, the bigger chunks of money you must have to maintain the same utility.

Yet the basic theory of marginal utility is most commonly used when referring to the utility of goods and services.[/quote]

page 51

Also, I disagree that money itself isn't a good, but that's not really important to the discussion, unless in the economic model you DEFINE money to have constant utility.

By golly you are getting there. For the marginal utility of a good or service to be discussed you base it on the marginal utility of money being a relative constant. It is the yard stick.

As long as you acknowledge that the possibility exists for money to have decreasing utility (whether you agree with it or not), then whether you call money a good or not isn't that important.

There has never been disagreement that in some cases the marginal utility of money declines. That was one of the principle assumptions of the theory. That is Marshal's, then Reisman's et al basic assumption.

I find it slightly baffling that you think money has constant utility and that goods have decreasing marginal utility, but you simultaneously acknowledge that money is intrinsically tied to the value of goods and services. To me, those seem to go hand-in-hand. If the goods I can buy with my money have less utility, then the money I'm using to buy those goods must therefore ALSO have less utility.

No, for the goods and service to be measured as a declining utility it is based on the constancy of utility of money.

Of course, that same money in the hands of someone ELSE may have great utility.

Absolutely! But remember the whole point of the marginal utility of money tending to be constant gives us something with which to establish an evaluation of the intrinsic marginal utility of goods and services. It is like saying $1 buys and ice cream cone, but $2 buys a double dipper. The utility value of money remains the same and at that point so does the goods if equal satisfaction is derived from eating the 2 dips as the 1 dip. But, since the stomach only holds so much the marginal utility of the ice cream tends to decline, but it still only takes $1 extra to buy the 3rd dip.

Well if the economists are going to create an economic theory where money is defined to have constant utility, then they should state so clearly.

However, I don't think that's the case in the author you cite. In the part I quote above, he is clearly indicating that money has decreasing utility unless you take it in bigger and bigger chunks as you become more wealthy. He's not talking about goods. He's talking about $10, $100, $1,000 and $10,000. He discusses goods in his explanation, but he's quite clear in indicating that for someone quite wealthy, $10 has almost no utility. By contrast, for someone extremely poor $10 has great utility.

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

Lets choose a unit of wealth to be $10,000. He's saying that ideally we want to be in a situation where that money has almost no utility anymore. In order for that quote to be possible at all, money must have decreasing utility.

Originally Posted by Disillusioned_1

Well if the economists are going to create an economic theory where money is defined to have constant utility, then they should state so clearly.

As they have done, going back around the 1900 by Marshall, then by other economists through Reisman. Which premised much of his work on the marginal utility of money theories are based on limitless desire for more wealth. When you recognize that situation, then you understand.

However, I don't think that's the case in the author you cite. In the part I quote above, he is clearly indicating that money has decreasing utility unless you take it in bigger and bigger chunks as you become more wealthy. He's not talking about goods. He's talking about $10, $100, $1,000 and $10,000. He discusses goods in his explanation, but he's quite clear in indicating that for someone quite wealthy, $10 has almost no utility. By contrast, for someone extremely poor $10 has great utility.

In reality he is talking about Goods and Services based on the price of those Goods and Services and recognizing that the extremely poor will have a different marginal utility than the rich. You simply have use the holistic approach to his work instead of looking for individual answers of some parts of his work.

Lets choose a unit of wealth to be $10,000. He's saying that ideally we want to be in a situation where that money has almost no utility anymore. In order for that quote to be possible at all, money must have decreasing utility.

It doesn't work that way. You have to individualize that $10,000 as to who has it, and what does that amount do in the utility. If the unit of wealth is for a poor man his satisfaction is derived from the purchase of goods and services which takes care of his physical needs. If it is a rich man, then one has to look at the motivation of the individual and determine how does it satisfy him. Remember, this is a theory based on the subjective analysis of the myriad individuals and how they are PRESUMED to be satisfied and the use of the marginal utility of money tending to be constant gives them a yardstick to measure desire and satisfaction.

Originally Posted by dnsmith

It doesn't work that way. You have to individualize that $10,000 as to who has it, and what does that amount do in the utility. If the unit of wealth is for a poor man his satisfaction is derived from the purchase of goods and services which takes care of his physical needs. If it is a rich man, then one has to look at the motivation of the individual and determine how does it satisfy him. Remember, this is a theory based on the subjective analysis of the myriad individuals and how they are PRESUMED to be satisfied and the use of the marginal utility of money tending to be constant gives them a yardstick to measure desire and satisfaction.

But he explicitly states that we want to get to the point where we won't even miss the loss of $10,000 as an individual. The only way that is possible is if money suffers from a decrease in marginal utility. In my interpretation of what the author you link is saying, is that we never actually get to ZERO utility therefore the accumulation of wealth is a limitless goal. However, that doesn't mean that money stays at a constant utility. It just means that it goes from very high (for a poor person) to very low (for a wealthy person). The wealthy person has to deal in bigger and bigger chunks of money because the small chunks have basically no utility to them. That is why estates sell for $50 million instead of $50,321,241.14. My argument is completely consistent with what he presents.

In your version, why doesn't the billionaire fight every inch of the way for that extra $321,241.14 on his $50 million estate? After all, that $321,241.14 has just as much utility for him as it does for the homeless guy on the street.

Originally Posted by Disillusioned_1

But he explicitly states that we want to get to the point where we won't even miss the loss of $10,000 as an individual. The only way that is possible is if money suffers from a decrease in marginal utility. In my interpretation of what the author you link is saying, is that we never actually get to ZERO utility therefore the accumulation of wealth is a limitless goal. However, that doesn't mean that money stays at a constant utility. It just means that it goes from very high (for a poor person) to very low (for a wealthy person).

No matter how you put it, it has to be individualized and the theory is based on what those economists believe. Are there exceptions? Of course there are, but it is not unusual for theories to have exceptions and the basic theory is using the tendency for the utility of money to remain constant. There are billions of people on earth so a million or so exceptions should be easy to accept.

BTW, wanting to "get to the point" where a specific amount of money will not be missed is but a desired pipe dream every one has, it was not intended to be considered a done deal.

Originally Posted by dnsmith

No matter how you put it, it has to be individualized and the theory is based on what those economists believe. Are there exceptions? Of course there are, but it is not unusual for theories to have exceptions and the basic theory is using the tendency for the utility of money to remain constant. There are billions of people on earth so a million or so exceptions should be easy to accept.

I certainly appreciate exceptions to theories and you have been consistent in adding "tends to" to the "remain constant" part. Having not ever really thought about the marginal utility of money much until this thread, I think I've convinced myself (in part by the source you provided) that money DOES have diminishing utility, at least in large enough amounts (I actually started off thinking the opposite earlier in this thread). That diminishment of utility can be made up for by using larger chunks of money to offset the decrease in utility.

One thing that I have been thinking about is the 'satisfaction' part of the utility of wealth, and how many billionaires are pledging the vast majority of their fortunes to charity. Its an interesting psychological response to having vast amounts of wealth.

More billionaires pledge to give away half of their wealth | World news | The Guardian

Its rather interesting that the one remaining satisfaction that wealth can give you when you have so much of it .... is to give it all away. I wonder how many theories on wealth accumulation find themselves unable to explain this paradox.

Originally Posted by Disillusioned_1

I certainly appreciate exceptions to theories and you have been consistent in adding "tends to" to the "remain constant" part. Having not ever really thought about the marginal utility of money much until this thread, I think I've convinced myself (in part by the source you provided) that money DOES have diminishing utility, at least in large enough amounts (I actually started off thinking the opposite earlier in this thread). That diminishment of utility can be made up for by using larger chunks of money to offset the decrease in utility.

One thing that I have been thinking about is the 'satisfaction' part of the utility of wealth, and how many billionaires are pledging the vast majority of their fortunes to charity. Its an interesting psychological response to having vast amounts of wealth.

More billionaires pledge to give away half of their wealth | World news | The Guardian

Its rather interesting that the one remaining satisfaction that wealth can give you when you have so much of it .... is to give it all away. I wonder how many theories on wealth accumulation find themselves unable to explain this paradox.

I don't think it is a paradox, even for those of us who are not nearly so wealthy getting extreme satisfaction from donating to charities of various kinds. I currently support 5 foster children from impoverished families in a boarding school which takes care of their every need from food, to clothes, shelter and education. In fact I get more satisfaction from that money spent than I do for the greater amount of money I give to my Church or other charities because it means as the sole provider for those 5 children I get letters of thanks and advancement. I am sure you get an equal satisfaction for the help you give to others in your own circumstances. During a period when the money from the sale of stocks put me in a financial strain I had to curtail those payments and I felt terrible until I could catch up and resume the contributions.

In fact it was that extreme satisfaction knowing I was taking care of my own and helping others which made me challenge the notion of declining marginal utility of money in this forum. To me, personal experience is always more important than theories put forward by others trying to condense what an individual feels to a generalization of what everyone tends to feel.

Also keep in mind I am generally considered liberal/moderate democrat (not left wing and certainly not right wing.)

Originally Posted by goober

Originally Posted by Mahasattva
...

Goober you define anyone who disagrees with your silliness as an illegitimate source.

No, that's not true,

Yeah, it is Goober. You regularly apply your own definitions for common terms and pretty much any source that does not agree with your ideology is rejected with ridicule as illegitimate.

I have asked for a link where anyone with a good reputation says there was no surplus.

Anyone who rejects your belief is, by your definition, not of good reputation.

And no names has been supplied, except for Craig Steiner, who as far as I can tell, has a reputation for being an idiot.

Others do not share your evaluation of Steiner. But this is one of your more common tactics, in order to not address any of the substance of the actual argument being presented or the facts revealed you attack the source as illegitimate. For those who are interested in Steiner’s argument here: The Clinton Surplus Myth - Craig Steiner - Townhall Finance Conservative Columnists and Financial Commentary and The Clinton Surplus Myth- Part 2 - Craig Steiner - Townhall Finance Conservative Columnists and Financial Commentary
Now Goober can, as he wants to do, continue attacking Steiner’s character and intelligence or he can actually address the specific statements and the evidence that Steiner reveals in his two columns. Since Goober has proved that he is unable to rebut Steiner’s specifics, he’ll continue attacking him personally.

Surely you understand what a good reputation is?

Considering the crap you post I wonder if you understand what a good reputation is?

Can you supply a person who is respected who adopts this belief that there were no surpluses?

Anyone who “adopts this belief” will by your definition not be respected.

Of course you can't, because it's a ridiculous idea, that no one who understands the topic believes.
Try to find one, you can't.

How much surplus did the US have when Clinton left office
Government - Historical Debt Outstanding - Annual 1950 - 1999
Mythbusters - The Clinton Surplus - YouTube
The Clinton Surplus Myth - Bloomingdale-Riverview, FL Patch
The surplus myth - News-Times: Editorials
Roger
DEAN: Clinton, Gingrich and the balanced budget myth - Washington Times
From a Heritage Foundation “hack” by way of Brian Riedl: The Bush Tax Cuts and the Deficit Myth - WSJ.com

What do you say to the Heritage Foundation?

“Keep up the good work.”

I linked to a piece on their website, that claims there was a surplus.

Really, you actually linked to a source? Wow, and hell hasn’t frozen over? Amazing. Which page did you link? Was it this one Growing Surplus Shrinking Debt The Compelling Case For Tax Cuts Now or this one The Right Way to Use The Surplus or could it have been one of these Executive Summary: Return the Revenue Surplus to the Taxpayers
What Really Is Turning the Budget Surpluses into Deficits
Ex CBO Director More Tax Money Less Spending Brought Surpluses
Using Supplemental Spending Bills to Raid the Budget Surplus
Should we pay off the debt
A Surplus of Excuses
Top Ten Ways to Avoid Wasting the Surplus
Top Ten Ways to Avoid Wasting the Surplus
Breach of Faith: How Washington is Poised to Shatter the Budget Agreement and Squander the Surplus

You posted a piece from Reisman that described the declining marginal utility of money,

False. He described the diminishing marginal utility of goods and the unlimited need for wealth.

he even used the same example I gave earlier, of the marginal utility of a millionaire's money declining to the point where the millionaire will use a $100 bill to light his cigar.

:rolleyes: If he gained satisfaction from that experience then there was no diminishing of the value of his $100 dollar bill. It was simply the cost of that experience.

:rolleyes: Again, if your alleged surplus occurred as you claim, how did it happen? Did Clinton push Congress to balance the budget or did the Republican controlled Congress force Clinton to accept a balanced budget?

Ahh, so there was a surplus, at least that is what the Heritage Foundation says.
But before we explore who was responsible for the surplus, can we at least agree that the surplus existed?

To use a cliché, “SHOW ME THE MONEY!” You can count I.O.U.s as “real” money, but I don’t. And again, the accounting tricks used to claim this alleged surplus were also the accounting tricks that got Enron in trouble.

tashi deleks,

M