Economics Dictionary of ArgumentsHome
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| Marginal utility of money: the marginal utility of money in economics refers to the additional satisfaction or benefit derived from spending an extra unit of money. As a person consumes more goods and services, the marginal utility of money typically decreases, meaning each additional unit of money provides less utility. This concept is related to diminishing marginal utility. In the case of money, however, this is controversial. See also Marginal utility, Utility, Money._____________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. | |||
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Murray N. Rothbard on Marginal Utility of Money - Dictionary of Arguments
Rothbard III 260 Marginal Utility of Money/Rothbard: Problem: the ranking of money on the various individual value scales. We know that the ranking of units of goods on these scales is determined by the relative ranking of the marginal utilities of the units. In the case of barter, it was clear that the relative rankings were the result of people’s evaluations of the marginal importance of the direct uses of the various goods. >Marginal utility/Rothbard, >Utility/Rothbard, >Value/Rothbard, >Exchange value, >Use value. Rothbard III 261 In the case of a monetary economy, however, the direct use-value of the money commodity is overshadowed by its exchange-value. Allocation of goods: a man allocates his stock of various units of a good to his most important uses first, and his less important uses in succession, while he gives up his least important uses first. Allocation of money: Now (…) every man allocates his stock of money among the various uses. The money commodity has numerous different uses, and the number of uses multiplies the more highly developed and advanced the money economy, division of labor, and the capital structure. Decisions concerning numerous consumer goods, numerous investment projects, consumption at present versus expected increased returns in the future, and addition to cash balance, must all be made. We say that each individual allocates each unit of the money commodity to its most important use first, then to the next most important use, etc., thus determining the allocation of money in each possible use and line of spending. The least important use is given up first, as with any other commodity. Consumption: We are interested here in the marginal utility of money as relevant to consumption decisions. Every man is a consumer, and therefore the analysis applies to everyone taking part in the nexus of monetary exchange. Each succeeding unit that the consumer allocates among different lines of spending, he wishes to allocate to the most highly valued use that it can serve. His psychic revenue is the marginal utility - the value of the most important use that will be served. Rothbard III 262 His psychic cost is the next most important use that must be for-gone - the use that must be sacrificed in order to attain the most important end. The highest ranked utility forgone, therefore, is defined as the cost of any action. Rothbard III 263 Marginal Utility of Money: (…) money obeys the law of marginal utility, just as any other commodity does. (…) it is true of money, as of any other commodity, that as its stock increases, its marginal utility declines; and that as its stock declines, its marginal utility to the person increases. >Money/Rothbard, >Cash balance/Rothbard. Rothbard III 311 Marginal utility of money/Rothbard: Some writers, while admitting the validity of the law of diminishing marginal utility for all other goods, deny its application to money. Thus, for example, a man may allocate each ounce of money to his most preferred uses. However, suppose that it takes 60 ounces of gold to buy an automobile. Then the acquisition of the 60th ounce, which will enable him to buy an automobile, will have considerably more value than the acquisition of the 58th or of the 59th ounce, which will not enable him to do so. RothbardVs: This argument involves a misconception identical with that of the argument about the "increasing marginal utility of eggs" (…). (…) it is erroneous to argue that because a fourth egg might enable a man to bake a cake, which he could not do with the first three, the marginal utility of the eggs has increased. (…) a "good" and, consequently, the "unit" of a good are defined in terms of whatever quantity ofwhich the units give an equally serviceable supply. Service unit: This last phrase is the key concept. The fourth egg was not equally serviceable as, and therefore not interchangeable with, the first egg, and therefore a single egg could not be taken as the unit. The units of a good must be homogeneous in their serviceability, and it is only to such units that the law ofutility applies. The situation is similar in the case of money. The serviceability of the money commodity lies in its use in exchange rather than in its direct use. Here, therefore, a "unit" of money, in its relevance to individual value scales, must be such as to be homogeneous with every other unit in exchange-value. >Measurements/Rothbard. Rothbard III 314 The fact that the units of a good must be homogeneous in serviceability means, in the case of money, that the given array of money prices remains constant. The serviceability of a unit of money consists in its direct use-value and especially in its exchange-value, which rests on its power to purchase a myriad of different goods. We have seen in our study of the money regression and the marginal utility of money that the evaluation and the marginal utility of the money commodity rests on an already given structure of money prices for the various goods. >Regression theorem. It is clear that, in any given application of the foregoing law, the money prices cannot change in the meantime. If they do, and for example, the fifth unit of money is valued more highly than the fourth unit because of an intervening change in money prices, then the "units" are no longer equally serviceable and therefore cannot be considered as homogeneous. >Purchasing power/Rothbard._____________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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> Counter arguments against Rothbard
> Counter arguments in relation to Marginal Utility of Money
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