Marginal utility of money

Perusing the forum this A.M. prompted me to follow the thread more closely going back over 2 weeks. It has an interesting tone, one of which is, "how can several people post comments exactly like dnsmith?" It was almost laughable, especially since he, and I and 2 or 3 others are in fact posting exactly the same thing, frequently using the same words. Now that folks would be strange, except for the fact that we could not have posted any other words because we were all posting quotes from the same book. Golly, now how strange is it? Should we have paraphrased the comments instead of quoting them? And even with them being quoted we still have at least one person saying, "he did not say that." How droll! An example follows from back up this page. (Reisman quote), ""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."

And here is the response, "I read it (being a native English speaker) that the part he disagrees with is "makes pursuit of wealth progressively less important".
Obviously increasing wealth is the situation he's speaking of, "the consequent fall in the marginal utility of a unit of wealth" Reisman seems to accept as a given."

It seems this gentleman can glean that Dr. Reisman was only talking about half of what the quote said had written. How profoundly capable this gentleman must be to be enabled to take an entire quoted sentence and make the determination that the writer only meant to say part of what he wrote. My hat is off to member goober. You are capable of reading the mind of the writer 17 years after the book was finally published. I must now be careful to quote only those parts of Dr. Reisman's comments with which goober agrees.

I think it would be prudent to re-post some quotes and comments I made earlier.

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I believe those statements mean exactly what they said.

"As people grow richer, the size of the marginal unit tends to increase." That means that as people grow more rich the marginal unit increases in value.

"Furthermore, the fact that the utility of a marginal unit of wealth OF A GIVEN SIZE (CONSTANT) diminishes as the quantity of wealth available to us increases is actually an important aspect of the desirability of increasing our wealth." This means that so long as the marginal unit remains constant there will be a diminishing marginal utility.

"What we rationally want is to be in a position in which marginal utility of a unit of wealth of any given (constant) size more and more approaches zero." This anticipates that if we wish to keep a marginal unit constant we want it to become less and less desirable.

"Therefore, we rationally want more wealth in order 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." Wealthy people want more money, and as that wealth increases they will always want the units of wealth to increase instead of being concerned about a marginal unit of a constant size.

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I also want to comment on an astute observation made my "Taxpayer" in answer to a members statement that appropriation of higher rates of income tax can be justified because of his opinion that the marginal utility of wealth always diminishes, a situation which is not true. Taxpayer then replied, "I suppose. But once you accept that argument for seizure of private property as needed, the illusion that any private property exists is shattered. Makes me think of kidneys again..

Taxpayer, that is a very interesting observation and it will make me rethink some of the issues of progressive taxation.

 

I was never under any such illusion. Private property, like any other right we have, is a limited right the extent of which is granted by government.

 

I think you have it backwards. The government is granted certain rights, privileges and authority by the people as stipulated by the constitution. The people then the states have all of the rights not specifically granted the federal government by the constitution. The federal government has been eroding those rights on a regular basis, especially over the last 60 years. Key to the philosophy of classic liberalism is the right to private property. What can be more private to an individual than a body part? Once private property rights are challenged it is not so far fetched that the government could declare redundant organs as exempt from that right.

http://www.princeton.edu/~achaney/tmve/wiki100k/docs/Classical_liberalism.html

Classical liberalism is a philosophy committed to the ideal of limited government and liberty of individuals including freedom of religion, speech, press, assembly, and free markets.

 

Here's a little English lesson.

"the consequent fall in the marginal utility of a unit of wealth" is in apposition to "Increasing wealth", what Reisman calls "the misconception spread by Galbraith" , can be stated without the part in apposition as
"the misconception spread by Galbraith that increasing wealth ... makes the pursuit of wealth progressively less important."
If Reisman meant to say that Galbraith's misconception was the "the consequent fall in the marginal utility of a unit of wealth", he would have said so, he didn't.
What he didn't say was that Galbraith's misconception was that the marginal value of a unit of wealth would always fall as wealth increased, but that the marginal value actually increased as wealth increased therefore making the pursuit of wealth progessively more important.

 

So you have chosen to tell Reisman how he should have written his book? That is as absurd as it gets. He wrote it. He wrote it like he wanted to. He meant what he said. The fact you don't like what he wrote or how he wrote it is irrelevant. When Reisman said, "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," he is clearly saying that Galbraith is wrong when he said the marginal utility of wealth diminishes, and that his error makes it look like the pursuit of wealth is not important. In other words Goober, you are not only a snob, you are a snob who does not understand what that English sentence meant.

You also did not understand it when Reisman said, "As people grow richer, the size of the marginal unit tends to increase."

Or, "Furthermore, the fact that the utility of a marginal unit of wealth of a given size diminishes as the quantity of wealth available to us increases is actually an important aspect of the desirability of increasing our wealth."

And, "What we rationally want is to be in a position in which marginal utility of a unit of wealth of any given size more and more approaches zero."

As well, "Therefore, we rationally want more wealth in order 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."

So tell us again how "Reisman did not say those things Reisman actually said."

 

If you really understood Reisman, you'd realize that all those quotes refute your theory

What you have never been able to grasp is that the marginal unit depends on what is being dealt with, and it is compared to the next unit of that same size.
You don't compare a $100 bill to a cigar or to a yacht, you compare the cost of the yacht, to the utility of the same unit of wealth after the yacht.
You don't compare the cost of bubblegum to the cost of a bicycle, to the cost of a car, to the cost of a Ferrari, and conclude marginal utility increases.
You compare the 25 cents you spent on gum to the next 25 cents, you compare the cost of the bicycle to what the next bicycle sized unit of wealth was used for, you compare the utility of the car to the utility of the next car sized unit of wealth, and you compare the utility of the Ferrari to the utility of the next ferrari sized unit of wealth.

 

What gives you the impression that the next unit will be the same size? The marginal unit increases as wealth increases, exactly like Reisman said.

Nope! The $100 bill is the example of the millionaire seeing that amount as insignificant such that he gets more satisfaction from burning it up than counting it as money. That example proves his theory that as wealth increases so does the size of the marginal unit, which would make it quite stupid for a millionaire to maintain a constant sized marginal unit.

Nope! Because if you are rich you don't consider the cost of bubble gum or a bicycle as the marginal unit, but rather the cost of a yacht would be a better choice. So much for your ability to understand English.

Where you go wrong can be shown with this quote of Reisman's, "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." There is no reason to presume that any two consecutive marginal units will remain the same. That is your fantasy, and it is your fallacy.

 

See the thing is, and you just demonstrated it clearly, you don't understand the concept of marginal unit or marginal utility.
What possible insight can be gained from the comparison of different sized units?

And it's been over a year, and you claim to have read and understood Reisman, so I'd say you are a hopeless case, and leave it at that.

 

Where do you get the idea we compare different sized units? Each perception of a marginal unit under consideration stands on its own, and if the unit is large enough there is an increase in marginal utility.

If there is a hopeless case it is you. You constantly try to add crap to the game which is simply not there. Now if you are not man enough to admit you are wrong so be it. But there is no way what you have been writing for the last "year" is correct.

 

You are not only correct about marginal utility, you are correct that that guy has been completely wrong; laughably so. If you recall he pulled the same BS on the other forum with Mahasattva. He refuses to accept what Reisman says as what the man said. It is not important whether he agrees with Reisman, he will still see a simple sentence quoted and come back saying he did not mean what he said. He is nothing more than a troll looking to argue and insult other posters.

 

See, you still don't have a clue what is meant by a marginal unit.

It's the unit being dealt with, being added to or subtracted from a stock of equivalent units.

If it's a millionaire's $100 bill, it may be the 100,000th unit, and of so little utility, that he'll use it to light his cigar, to make a point.

If it's a football team, it might be a half of the owners net worth, and have tremendous utility. But not as much as the first half of his wealth.
You don't compare $100 bill to a football team.

 

Of course it is. What ever gave you the idea it wasn't. I mean after all, as Reisman said, "As von Mises once said in a discussion with the present author, the marginal unit is whatever is the amount under consideration. (being dealt with) Do I have to remind you of every quote I have presented here?

I have said that many times over the last year.

Of course you don't and I have never suggested anything like that. You can't compare a $100 bill to anything but $100, and there is no reason to believe that even if $100 is the marginal unit an individual is dealing with that his next marginal unit will be $100.

You keep posting less useful information with every post. That would suggest you know little or nothing about marginal utility and you certainly have not the slightest idea what Reisman has written in his book. That is painfully obvious, and as Cal suggested comical.

 

What you suggested is that marginal utility could rise as wealth increased.

 

Yes, I have always said that too, just like Reisman said, "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." And he also says, " Furthermore, it should be realized that the very process of increasing the amount of wealth that is available to the average member (note the singularity of 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."

So when I say that the marginal utility of wealth can increase providing the marginal unit size has increased with additional wealth, I am agreeing with Reisman.

 

When Reisman talks about the utility of the marginal units actually dealt with, he is talking about different sized units, chevys and cadillacs.
The law of diminishing marginal utility still holds.
When he talks about the "increasing the amount of wealth that is available to the average member of any society" he means the increasing the ratio (total wealth/total members), that's a macroeconomic effect, on the microeconomic level, the law of diminishing marginal utility still holds.

 

Yes he is. Either in products one can buy or in the amount of money added to his wealth.

Just not in the same manner as it does for goods and services because if the marginal unit is larger enough it satisfies the player and his marginal utility increases. Effectively he says that there are an infinite number of new things a rich man can buy which will please him.

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."​

Wrong! As pointed out to you earlier, he is talking about a member of society, not the society. That member is average and is a singular entity. No wonder you don't understand what he says, you keep reading things into his text which he does not say.

 

Goober, you are grasping for straws, straws that are not there. You are just too predictably easy to prove wrong. You still don't understand what Reisman said. You may have a different opinion than Reisman, and that is ok. But there is no way you are going to convince an intelligent person that Reisman did not say what he said and did not mean what he said. That is not going to happen.

 

Sadly, I mostly agree with you. You've accurately described the status quo. When we set up this country, we tried to protect certain rights from the whims of those who govern with a constitution. It seems we failed.


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The point is that you are dealing with the subjective "variable" regarding an "evolution" in wealth instead of a more objective constant with any equilibrium.

It could be comparable to an arrow in flight only one subjective frame at a time instead of the more objective arrow in flight.

 

We are definitely dealing with a subjective ranking based on individual and personal feelings.

Is there a reason you want to create a constant in a situation in which that constant may only occur in one persons perception and only for a short time?

Effectively there is never any absolute reason why any one subjective ranking of marginal utility will ever be duplicated. All we ever have is the subjective feeling of satisfaction based on a ranking which is little more than a more or less than any other ranking with each in a different period of time.

 

That is the rub, it is what you want us to give more weight to the subjective "increasing" marginal utility of the next marginal unit instead of the objective, diminishing utility of the next marginal unit, at any given constant equilibrium (with which to base rational choices on instead of rational addictions.)

 

Why would anyone give marginal utility more weight that it has?

Objective diminishing marginal utility? Why would that ever be a reality given that MU is a subjective feeling of satisfaction?

The error is giving marginal utility any more weight that it is already. There is no objective application, such as has been alluded by a few left leaning economists who skew studies to try to convince the gullible that it is justification for increasing taxes on the rich. Why would we do that? There is already enough justification for progressive taxation. As well the skewing of studies to attempt a phoney justification is intellectual dishonesty. Anyone with a grain of sense knows that as people become more wealthy they must deal with progressively larger sized marginal units and in doing so experience an increased marginal utility. Those left leaning economists are taking advantage of low info voters who don't understand what marginal utility is and just see the words "JUSTIFIES HIGHER TAXES ON THE RICH."

 

In other words, marginal utility can be subjective, and is only useful to the Person who is engaging in some subjectivity.

 

Its usefulness is only in the eye of the beholder such that it assists him to make decisions about acquisitions, eliminations, dealing in an objective market place. An individuals marginal utility of anything is never of any value to anyone but he who has the feeling of or lack of satisfaction. Those feelings drive our actions in the market place and they have no objective connection to anyone else but he who perceives of the subjective rankings of good/bad/better/worse and those rankings mean nothing to anyone but the player. It is really a very simple exercise that got blown out of proportion by persons who believe that marginal utility always diminishes.

 

It seems like an analogy and potential dilemma between rational choice theory and the rational addiction model.