Talk:Marginal utility/Archive 1

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The criticism of Marginal utility and its explanation of the diamond water paradox is clearly ignorant and misses the nuance in marginal utility completely. Marginal utility is certainly not a perfect theory, but to say that it cannot explain prices, supply, or demand is just wrong. The logic in that passage does not make sense. This article needs a more sophisticated critique of marginal utility. For example, in the diamond water paradox criticism section, it says that classical economists would explain the cost of diamonds by the production process. While this is the classical argument, it does not account for the fact that if water was scarce, it could very likely be expensive, at least more expensive. See Menger's distinction between economic goods and non-economic goods, also Jevon's theory of pleasure and pain, chaper 4. the criticism section's "therefore it is the cost of production which determines price, not marginal utility" is too simplistic. The quality of the argument does not justify its confident, repeated use of "therefore blah blah blah" in both criticism sections. Someone please write a better critique of marginal utility. Both the neutrality and nuance of this article has been compromised. Xiaoxitu 23:04, 20 December 2006 (UTC)

Clearly ignorant? I don't think so. Marginal utility asserts that the usefulness of an object determines its price. Take Jevons for example: "Repeated reflection and inquiry have led me to the somewhat novel opinion, that value depends entirely upon utility." The Theory of Political Economy chapter 1 [1]

Rejecting the labour theory of value he asserts: "I show, on the contrary, that we have only to trace out carefully the natural laws of the variation of utility, as depending upon the quantity of commodity in our possession, in order to arrive at a satisfactory theory of exchange, of which the ordinary laws of supply and demand are a necessary consequence." (ibid)

Marginal utility theory determines the laws of supply and demand from the utility of the commodity without reference to its price. Its price, the theory of exchange is a product of its utility. Menger's qualification is that imperfect information may mean that consumers do not have adequate knowledge of their desires to express their needs in their choice of consumption:

"(2.7) There are two kinds of knowledge that men must possess as a prerequisite for any successful attempt to provide in advance for the satisfaction of their needs. They must become clear: (a) about their requirements­that is, about the quantities of goods they will need to satisfy their needs during the time period over which their plans extend, and (b) about the quantities of goods at their disposal for the purpose of meeting these requirements." (Chapter 2. Economy and Economic Goods)[2]

For Menger the decisive factor determining the choices of consumers in the market is their knowledge of their needs, but in a market economy a knowledge of need is not enough. Commodities are use values sold on a market, they have a price, in order to fulfil their desires consumers must be able to back up their desires with money. The question is then can marginal utility, i.e. the usefulness of a commodity explain its price?

The usual example of a small producer sited by Bohm-Bawerk for example, where the producer proceeds to choose whether they consume or sell their output based on its usefulness completely ignores the fact that if say, they could sell their water in the market for such a high price that it would allow them to buy champagne instead of water, they may well would do so, even though the relative usefulness of the water has not changed at all (the quantity and quality of its usefulness are identical - but the decision to consume it is determined by its price separate from its usefulness), so it is the price of the commodity which determines whether it is consumed - not its usefulness.

Even a small simple commodity producer (hardly typical of contemporary global capitalism), would consume their output, only on condition that they could produce it cheaper than they could buy alternatives on the market. For the producer in a capitalist economy, namely the capitalist, their entire output consists of non-use values for them but use values for other people. The only useful quality of their output is its price. Hence the the usefulness of the object cannot determine the price as the usefulness is irrelevent for them. For the purchaser, the commodity brought to the market by the manufacturer may be useful, otherwise they would not buy it, but their decision whether or not to buy it is not determined by its use alone, but by its price relative to other similar commodities (indeed identical commodities supplied by rival manufacturers), therefore the usefulness of the object cannot determine its price as the price determines their decision to purchase, it is a cause not a consequence of their decision whether or not to buy. If for some reason there was an essential commodity, with a monopoly supplier, it is true that the supplier could sell their product above its natural price, although even then that price would be limited by the amount of effective demand available to buy it, but what would be the result of this situation? New manufacturers, attracted by the super profits yielded by the monopolist would enter the field of production, the scale of supply would increase and consequently the price of the commodity would fall, until such point as the super profits, the extra high price allowed by the manufacturers monopoly position were competed away, in other words at the point at which it the price fell to its cost of production. In other words the laws of competition in a market economy, mean that prices will always oscillate around their price of production, even if they never actually meet it. Therefore marginal utility theory, which treats usefulness separate from price, cannot explain either the supply or demand of a commodity in a market economy and therefore cannot explain price. So what determines the price of the rival commodities? For classical economic theorists, i.e. adam smith, david ricardo and Karl Marx, the cost of production and they would further assert the labour time they cost to produce, as labour is the only common factor in the production of all commodities under capitalism. (Bill j 13:32, 22 December 2006 (UTC))

Bill j, you plainly haven't read the works of the marginalists except to the extent that you've found them heavily edited — crippled — by hostile secondary, tertiary, or quaternary sources. And your misrepresentation will not transcend to truth by way of your verbosity. —SlamDiego 20:46, 25 December 2006 (UTC)

[edit] Grammar

Is this grammatically correct?

"...in a period when psychologists were much interested in the Weber-Fechner law of sensation."

I was just going to change it, but I didn't want to be ignorant of a possible strange use of grammar.

Thoughts? —Preceding unsigned comment added by 134.71.132.121 (talk • contribs)

Seems to be correct to me. I just restored this article, but the "law of senation" is actually pretty irrelevant for the discussion of marginal utility (at least within economics). Intangible 11:06, 23 October 2006 (UTC)

I thought the article was problematic because it did not include Jevons or the origin of Marginal Uility theory as a reaction to Labour Theories of Value, so have added a section which deals with both.

And distorted things horribly (as well as consistently misspelling “Wieser” as “Weiser”). You tried to erase Menger, as if the Austrian school began with Wieser, to make the time-line fit Marxian myth. (And you ought to actually read Ricardo some day. He offered the labor theory of value as a useful approximation; it was vulgar Ricardians who made it dogma.) —SlamDiego 16:18, 27 December 2006 (UTC)

[edit] Bad

This article is terrible. Every paragraph at which I looked needed or needs to be rewritten. (I have already rewritten a couple, but I so despair of this mess that it may be a while before I can bring myself to wrestle with more.) —SlamDiego 19:44, 25 December 2006 (UTC)

[edit] No longer utterly awful

There is still much more work that can or should be done, but this article is no longer truly awful.

One thing about which I will probably write is the eclipsing of the theory of marginal utility resulting (in the context of presumptions of quantification) from the works of Hicks and Allen, followed by its revival (quantified) with the work of v. Neumann & Morgenstern and with that of Savage. (Some mention of Ramsey should be made.) —SlamDiego 16:10, 27 December 2006 (UTC)