Economics Dictionary of ArgumentsHome
| |||
|
| |||
| Marginal utility: Marginal utility measures the additional satisfaction or benefit gained from consuming one more unit of a product or service. As consumption increases, the marginal utility often decreases due to diminishing returns—each additional unit provides less additional satisfaction. This concept is fundamental in understanding consumer choices, preferences, and demand for goods or services. See also Utility, Benefit, Marginal return._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
| Author | Concept | Summary/Quotes | Sources |
|---|---|---|---|
|
Ludwig von Mises on Marginal Utility - Dictionary of Arguments
Rothbard IV 13 Money/Marginal Utility/Mises/Rothbard: Ludwig von Mises set out to repair [the] split [between money, “price levels,” “national product,” and spending], and to ground the economics of money and its purchasing power (miscalled the “price level”) on the Austrian analysis of the individual and the market economy: to arrive at a great integrated economics that would explain all parts of the economic system.(1) >Austrian School. Rothbard IV 14 Individuals/MisesVsFisher, Irving: At last, economics was whole, an integrated body of analysis grounded on individual action; there would have to be no split between money and relative prices, between micro and macro. The mechanistic Fisherine view of automatic relations between the quantity of money and the price level, of “velocities of circulation” and “equations of exchange” was explicitly demolished by Mises on behalf of an integrated application of the marginal utility theory to the supply and demand for money itself. >Irving Fisher. Specifically, Mises showed that, just as the price of any other good was determined by its quantity available and the intensity of consumer demands for that good (based on its marginal utility to the consumers), so the “price” or purchasing power of the money-unit is determined on the market in the very same way. In the case of money, its demand is a demand for holding in one’s cash balance (in one’s wallet or in the bank so as to spend it sooner or later on useful goods and services). The marginal utility of the money unit (the dollar, franc, or gold-ounce) determines the intensity of the demand for cash balances; and the interaction between the quantity of money available and the demand for it determines the “price” of the dollar (i.e., how much of other goods the dollar can buy in exchange). Quantity theory: Mises agreed with the classical “quantity theory” that an increase in the supply of dollars or gold ounces will lead to a fall in its value or “price” (i.e., a rise in the prices of other goods and services); but he enormously refined this crude approach and integrated it with general economic analysis. >Quantity theory. Rothbard IV 15 Marginal utility/Mises: (…) [von Mises] showed that this movement is scarcely proportional; an increase in the supply of money will tend to lower its value, but how much it does, or even if it does at all, depends on what happens to the marginal utility of money and hence the demand of the public to keep its money in cash balances. Furthermore, Mises showed that the “quantity of money” does not increase in a lump sum: the increase is injected at one point in the economic system and prices will only rise as the new money spreads in ripples throughout the economy. If the government prints new money and spends it, say, on paper clips, what happens is not a simple increase in the “price level,” as non-Austrian economists would say; what happens is that first the incomes and the prices of paper clips increase, and then the prices of the suppliers of the paper clip industry, and so on. So that an increase in the supply of money changes relative prices at least temporarily, and may result in a permanent change in relative incomes as well. >Money supply/Mises. Rothbard IV 16 Marginal utility/Money/Mises/Rothbard: In applying marginal utility to money, Mises had to overcome the problem which most economists saw as insuperable: the so-called “Austrian circle.” Economists could see how the prices of eggs or horses or bread could be determined by the respective marginal utilities of these items; but, unlike these goods, which are demanded in order to be consumed, money is demanded and kept in cash balances in order to be spent on goods. No one, therefore, can demand money (and have a marginal utility for it) unless it already was in existence, commanding a price and purchasing power on the market. But how then can we fully explain the price of money in terms of its marginal utility if money has to have a pre-existing price (value) in order to be demanded in the first place? Regression theorem: In his “Regression theorem,” Mises overcame the “Austrian circle” in one of his most important theoretical achievements; for he showed that logically one can push back this time component in the demand for money until the ancient day when the money commodity was not money but a useful barter commodity in its own right; in short, until the day when the money-commodity (e.g., gold or silver) was demanded solely for its qualities as a consumable and directly usable commodity. >Regression theorem. Not only did Mises thus complete the logical explanation of the price or purchasing power of money, but his findings had other important implications. For it meant that money could only originate in one way: on the free market, and out of the direct demand in that market, for a useful commodity. And this meant that money could not have originated either by the government proclaiming something as money or by some sort of one-shot social contract; it could only have developed out of a generally useful and valuable commodity. Menger had previously shown that money was likely to emerge in this way; but it was Mises who established the absolute necessity of this market origin of money. Value of money/Rothbard: But this had still further implications. For it meant, in contrast to the views of most economists then and now, that “money” is not simply arbitrary units or pieces of paper as defined by the government: “dollars,” “pounds,” “francs,” etc. Money must have originated as a useful commodity: as gold, silver, or whatever. The original money unit, the unit of account and exchange, was not the “franc” or the “mark” but the gold gram or the silver ounce. Rothbard IV 17 Gold standard/Central Banks/Mises/Rothbard: This analysis, combined with Mises’s demonstration of the unmitigated social evils of the government’s increase of the supply of arbitrarily produced “dollars” and “francs,” points the way for a total separation of government from the monetary system. For it means that the essence of money is a weight of gold or silver, and it means that it is quite possible to return to a world when such weights will once again be the unit of account and the medium of monetary exchanges. A gold standard, far from being a barbarous fetish or another arbitrary device of government, is seen able to provide a money produced solely on the market and not subject to the inherent inflationary and redistributive tendencies of coercive government. A sound, non-governmental money would mean a world where prices and costs would once more be falling in response to increases in productivity. >Gold standard/Mises, >Marginal Utility/Austrian School. Rothbard IV 19/20 Marginal utility/Mises/Rothbard: Building on the insight of his fellow student at the Böhm-Bawerk seminar, the Czech, Franz Cuhel, Mises devastatingly refuted the idea of marginal utility being in any sense measurable, and showed that marginal utility is a strictly ordinal ranking, in which the individual lists his values by preference ranks (“I prefer A to B, and B to C”), without assuming any mythological unit or quantity of utility. Rothbard IV 20 If it makes no sense to say that an individual can “measure his own utility,” then it makes even less sense to try to compare utilities between people in society. Yet statists and egalitarians have been trying to use utility theory in this way throughout this century. If you can say that each man’s marginal utility of a dollar falls as he accumulates more money, then cannot you say also that the government can increase “social utility,” by taking a dollar away from a rich man who values it little and giving it to a poor man who will value it highly? Mises/Rothbard: Mises’s demonstration that utilities cannot be measured completely eliminates the marginal utility case for egalitarian policies by the State. And yet, while economists generally pay lip service to the idea that utility cannot be compared between individuals, they presume to go ahead and try to compare and sum up “social benefits” and “social costs.” Rothbard IV 58 Thus, if we take the utility to the consumer of a carton of a dozen eggs, it is impermissible to make this utility some sort Rothbard IV 59 of a "total utility," in some mathematical relation to the "marginal utility of one egg." Instead, we are merely dealing with marginal utilities of different-sized units. In one case a dozen-egg package, in the other case of one egg. The only thing we can say about the two marginal utilities is that the marginal utility of a dozen eggs is worth more than one egg. Period. Mises's correction of his mentors was consistent with the fundamental Austrian methodology of focusing always on the real actions of individuals, and allowing no drift into relying on mechanistic aggregates.(2) >Individuals/Austrian School. 1. Ludwig von Mises. 1912. The Theory of Money and Credit (Theorie des Geldes und der Umlaufsmittel, Translated by H.E. Batson in 1934; reprinted with “Monetary Reconstruction» (New Haven, Conn.: Yale University Press, 1953). Reprinted by the Foundation for Economic Education, 1971; reprinted with an Introduction by Murray N. Rothbard, Liberty Press Liberty Classics, 1989. 2. For a discussion of this point, see Murray N. Rothbard, Toward a Reconstruction of Utility and Welfare Economics (New York: Center for Libertarian Studies, [1956] 19 77), pp. 9-15. Franz Cuhel's contribution is in his Zur Lehre von den Bedürfnissen (Innsbruck, 1906), pp. 186ff. Böhm-Bawerk's attempt to refute Cuhel can be found in Eugen von Böhm-Bawerk, Capital and Interest (South Holland, 111.: Libertarian Press, 1959), 111, pp. 124-36._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
EconMises I Ludwig von Mises Die Gemeinwirtschaft Jena 1922 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
||
> Counter arguments against Mises
> Counter arguments in relation to Marginal Utility
Authors A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Concepts A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
