Marginalism

Why marginalism is a must.

Category:

Education

Tags:

• human
• action
• Mises
• Menger
• Rothbard
• austrian
• school
• economics
• marginal
• utility

[PolemicalCommentary]

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.

[Austrolibertarian]

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.

[mrtyles]

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.

[Austrolibertarian]

"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.

[MirageScience]

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.

[edwardpf123]

This was a crucial discovery to overturn the classical view that linked price to the cost of the product.

[PolemicalCommentary]

Given that marginality utility was meant to explain those prices, the theory can essentially be said to have failed.

[PolemicalCommentary]

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]

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.

[antigonish3]

Somebody didn't make it to the chapter on consumer choice theory in their microeconomics textbook.

[KruZer7]

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.