Prices are supposed to measure the "marginal utility" of the commodity, yet consumers need to know the price first in order to evaluate how best to maximize their satisfaction. Hence it obviously rests on circular reasoning. Although it tries to explain prices, prices are necessary to explain marginal utility. In the end, the price of a commodity is the only test we have of the utility of the commodity to the producer.
Not really. The price of any commodity can be the exchange ratio of it in relation to every other good, i.e. if you exchange 5 apples for a barrel of wheat, the barrel of wheat's price is 5 apples, while each apple is priced at 1/5 of a barrel of wheat. When you throw in money, it is simply a medium of exchange to facilitate trade. You can trace the exchange ratios in terms of money back to the exchange ratios in terms of each particular commodity. In that way, it is not circular reasoning.
This conclusion was quickly seized upon by numerous critics of capitalism, including Proudhon and Marx. The rise of marginal utility theory meant that such critiques could be ignored.
Neoclassical theory argues that marginal utility determines demand and price, i.e. the price of a good is dependent on the intensity of demand for the marginal unit consumed. This was in contrast to classic economics, which argued that price was regulated by the cost of production, ultimately the amount of labor used to create it. While realistic, this had the political drawback of implying that profit, rent and interest were the product of unpaid labor and so capitalism was exploitative.
Marginalism is only logically consistent when it comes to one human actor. Market demand curves cannot be consistently derived from marginalism, as two different people place different values on the same commodity. Marginalism fails on its own terms.
you explain this concept very well. does this mean that when people have more money, they spend it on stuff they don't need? that seems pretty obvious.
"Need" is subjective. As their stock of money increases, the marginal utility of each monetary unit falls, meaning they can now satisfy more of their wants than before. If that means they start buying hundreds of toasters, it could be seen as things they don't "need," if you think having a bunch of toasters is useless, that is.
Let's say that there is a market for widgets in a free economy. Many producers manufacture widgets. None of them would sell their widgets for less than what they think the cost of production (labor, land, capital, etc.) is worth, and none would sell for more than the cost of production, lest they be out-competed by the other two. Ergo, the cost of production theory of value. This is not a physical absolute, just a praxeological tendency to which there are exceptions.
That just begs the question "What is the value of the good and services used to produce that good or service". A cost of production theory of value is subject to the infinite regression problem (or even circular reasoning).
I see what you're saying, but I fully acknowledge that the producer's evaluation of the cost of production is completely subjective. Obviously, the producer is not going to trace back the value of his capital to all the way to the Stone Age, he will simply calculate it based on the immediate cost to him (what the producer actually paid and labored for.)
Any other way rationally. Humans are not always rational, but I wouldn't say that much of an argument for applying or supposing marginal utility.
MirageScience 3 weeks ago in playlist Private Playlist 2
This was a crucial discovery to overturn the classical view that linked price to the cost of the product.
edwardpf123 9 months ago
Given that marginality utility was meant to explain those prices, the theory can essentially be said to have failed.
PolemicalCommentary 2 years ago
Prices are supposed to measure the "marginal utility" of the commodity, yet consumers need to know the price first in order to evaluate how best to maximize their satisfaction. Hence it obviously rests on circular reasoning. Although it tries to explain prices, prices are necessary to explain marginal utility. In the end, the price of a commodity is the only test we have of the utility of the commodity to the producer.
PolemicalCommentary 2 years ago
Not really. The price of any commodity can be the exchange ratio of it in relation to every other good, i.e. if you exchange 5 apples for a barrel of wheat, the barrel of wheat's price is 5 apples, while each apple is priced at 1/5 of a barrel of wheat. When you throw in money, it is simply a medium of exchange to facilitate trade. You can trace the exchange ratios in terms of money back to the exchange ratios in terms of each particular commodity. In that way, it is not circular reasoning.
Austrolibertarian 2 years ago
This conclusion was quickly seized upon by numerous critics of capitalism, including Proudhon and Marx. The rise of marginal utility theory meant that such critiques could be ignored.
PolemicalCommentary 2 years ago
Neoclassical theory argues that marginal utility determines demand and price, i.e. the price of a good is dependent on the intensity of demand for the marginal unit consumed. This was in contrast to classic economics, which argued that price was regulated by the cost of production, ultimately the amount of labor used to create it. While realistic, this had the political drawback of implying that profit, rent and interest were the product of unpaid labor and so capitalism was exploitative.
PolemicalCommentary 2 years ago
Marginalism is only logically consistent when it comes to one human actor. Market demand curves cannot be consistently derived from marginalism, as two different people place different values on the same commodity. Marginalism fails on its own terms.
KruZer7 2 years ago
Somebody didn't make it to the chapter on consumer choice theory in their microeconomics textbook.
antigonish3 2 years ago
you explain this concept very well. does this mean that when people have more money, they spend it on stuff they don't need? that seems pretty obvious.
mrtyles 2 years ago
"Need" is subjective. As their stock of money increases, the marginal utility of each monetary unit falls, meaning they can now satisfy more of their wants than before. If that means they start buying hundreds of toasters, it could be seen as things they don't "need," if you think having a bunch of toasters is useless, that is.
Austrolibertarian 2 years ago
excellent video
thorsmitersaw 2 years ago
Let's say that there is a market for widgets in a free economy. Many producers manufacture widgets. None of them would sell their widgets for less than what they think the cost of production (labor, land, capital, etc.) is worth, and none would sell for more than the cost of production, lest they be out-competed by the other two. Ergo, the cost of production theory of value. This is not a physical absolute, just a praxeological tendency to which there are exceptions.
rainskullvids 2 years ago
a cost principle
thorsmitersaw 2 years ago
That just begs the question "What is the value of the good and services used to produce that good or service". A cost of production theory of value is subject to the infinite regression problem (or even circular reasoning).
DaveDoggOwns 2 years ago
I see what you're saying, but I fully acknowledge that the producer's evaluation of the cost of production is completely subjective. Obviously, the producer is not going to trace back the value of his capital to all the way to the Stone Age, he will simply calculate it based on the immediate cost to him (what the producer actually paid and labored for.)
rainskullvids 2 years ago
Interesting.
I would look into this more but I'm way too FUCKING lazy to do any research.
Tis a shame.
Anon1696 2 years ago