Economics Dictionary of ArgumentsHome
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Murray N. Rothbard on Utility - Dictionary of Arguments
Rothbard III 134 Utility/demand/supply/equilibirum price/price/Rothbard: The actions of both buyers and sellers on the market may be related to the concepts of psychic revenue, profit, and cost. We remember that the aim of every actor is the highest position of psychic revenue and thus the making of a psychic profit compared to his next best alternative - his cost. Whether or not an individual buys depends on whether it is his best alternative with his given resources (…). Revenue: His expected revenue in any action will be balanced against his expected cost - his next best alternative. In this case, the revenue will be either (a) the satisfaction of ends from the direct use of the [good] or (b) expected resale of the [good] at a higher price - whichever has the highest utility to him. greater. The expected revenue is the marginal utility of the added [good] for the buyer; Cost: the expected cost is the marginal utility of the [good] given up. For either revenue or cost, the higher value in direct use or in exchange will be chosen as the marginal utility of the good. Rothbard III 135 Supply: The seller, as well as the buyer, attempts to maximize his psychic revenue by trying to attain a revenue higher than his psychic cost - the utility of the next best alternative he will have to forgo in taking his action. The seller will weigh the marginal utility of the added sale-good (…) against the marginal utility of the purchase-good given up (…), in deciding whether or not to make the sale at any particular price. Revenue: The psychic revenue for the seller will be the higher of the utilities stemming from one of the following sources: (a) the value in direct use of the sale-good (…) or (b) the speculative value of re-exchanging the [good] for the [good] at a lower price in the future. Cost: The cost of the seller’s action will be the highest utility forgone among the following alternatives: (a) the value in direct use of the [good] given up or (b) the speculative value of selling at a higher price in the future or (c) the exchange-value of acquiring some other good for the [good]. Utility/Rothbard: it is, for every good, utility and utility alone that determines the price and the quantity exchanged. Utility and utility alone determines the nature of the supply and demand schedules. RothbardVsTradition: It is therefore clearly fallacious to believe, as has been the popular assumption, that utility and “costs” are equally and independently potent in determining price. “Cost” is simply the utility of the next best alternative that must be forgone in any action, and it is therefore part and parcel of utility on the individual’s value scale. This cost is, of course, always a present consideration of a future event, even if this “future” is a very near one. >Price/Rothbard, >Market/Rothbard, >Marginal Utility/Rothbard. Rothbard III 305 Utility/Rothbard: Many errors in discussions of utility stem from an assumption that it is some sort of quantity, measurable at least in principle. >Marginal utility/Jevons. When we refer to a consumer’s “maximization” of utility, for example, we are not referring to a definite stock or quantity of something to be maximized. We refer to the highest-ranking position on the individual’s value scale. Similarly, it is the assumption of the infinitely small, added to the belief in utility as a quantity, that leads to the error of treating marginal utility as the mathematical derivative of the integral “total utility” of several units of a good. Actually, there is no such relation, and there is no such thing as “total utility,” only the marginal utility of a larger-sized unit. The size of the unit depends on its relevance to the particular action. This illustrates one of the grave dangers of the mathematical method in economics, since this method carries with it the bias of the assumption of continuity, or the infinitely small step. >Marginal utility/Rothbard, >Purchasing power/Rothbard, >Action/Rothbard. Rothbard III 306 Measuring/praxeology: The key problem in utility theory, neglected by the mathematical writers, has been the size of the unit. Under the assumption of mathematical continuity, this is not a problem at all; it could hardly be when the mathematically conceived unit is infinitely small and therefore literally sizeless. In a praxeological analysis of human action, however, this becomes a basic question. The relevant size of the unit varies according to the particular situation, and in each of these situations this relevant unit becomes the marginal unit. There is none but a simple ordinal relation among the utilities of the variously sized units. Rothbard III 314 There are, then, two laws ofutility, both following from the apodictic conditions of human action: first, that given the size of a unit of a good, the (marginal) utility of each unit decreases as the supply of units increases; second, that the (marginal) utility of a larger-sized unit is greater than the (marginal) utility of a smaller-sized unit. The first is the law of diminishing marginal utility. The second has been called the law of increasing total utility. The relationship between the two laws and between the items considered in both is purely one of rank, i.e., ordinal. >Measurements/Rothbard, >Value/Mises._____________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. |
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 |
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