You identify a serious problem with the theory of marginal utility. Examples of the theory that I have run across typically view economic actors as mere consumers, hence the use of the example of a hamburger. "How many hamburgers would a person like to consume?" is the starting point. Obviously, one hamburger satisfies one's hunger, a second one makes him uncomfortably full, and a third one might cause him to throw up. This, it is claimed, demonstrates that each additional unit of a good must necessarily fall in terms of utility. I always found this example very strange. When you frame the issue in terms of economic actors as producers, there's no conceivable reason why additional units of output would fall in terms of utility. They would rise, in fact, since they increase one's standard of living.
Economic actors, being producers, have earned the means to be consumers as well. The hamburger example disingenuously ignores the issue of time; more specifically, that consumption does not occur all at once, but takes place over a period of time. If one eats one hamburger a week, instead of three all at once, then there's no reason for the marginal utility of a hamburger to decline.
I think that the theory of marginal utility treats economics and economic actors as if they were in a "steady state" situation. Hence the hamburger example which supposes that economic actors, if presented with a good for consumption, are somehow compelled to consume as many of them as they can as quickly as possible.
Then there's the issue of the marginal investor, or marginal consumer. They're not an identifiable thing, but rather a negative; the negation of a thing. The entrepreneur knows how many customers came through the door today, but the marginal consumer is the one who didn't, apparently. But how can you identify them? They are literally the entire sum of all those who did not purchase your goods or invest in your business etc. It seem that this theory is based on the concept of a zero.
Further to that, anyone's business functions across time. It's not in a steady state, or frozen in time. It's a dynamic process. Customers and investors are not a one time event, but a series of events taking place across time. The term "marginal" investor or "marginal" consumer sounds like these are your last investor or customer, after which your business will fail.
This is why later on Mises dispensed with any psychological or biological explanation for marginal utility and came up instead with his "praxeology." The theory became an a priori "truth" that boils down to decision making within a given moment (frozen out of time) among any given quantities. In other words, the theory became: do you prefer good A or good B? That's it.
And you nailed it with the zero. This is the meaning of opportunity costs. That which doesn't exist defines the value that you did choose to pay for.
I just encountered this from Alfred Marshall that connects to our discussion:
“There is however an implicit condition in this law which should be made clear. It is that we do not suppose time to be allowed for any alteration in the character or tastes of the man himself. It is therefore no exception to the law that the more good music a man hears, the stronger is his taste for it likely to become; that avarice and ambition are often insatiable; or that the virtue of cleanliness and the vice of drunkenness alike grow on what they feed upon. For in such cases our observations range over some period of time; and the man is not the same at the beginning as at the end of it. If we take a man as he is, without allowing time for any change in his character, the marginal utility of a thing to him diminishes steadily with every increase in his supply of it.”
Although he does not relate this to the issue of production, he does admit that the theory freezes time.
This seems like a misunderstanding of marginal utility. Say you have enough money for 1 hamburger. You could eat that hamburger now, or eat it in a week, or save the money in an account and have the hamburger in a year. Which of these do you choose?
Assuming you are a rational consumer, you will choose the one you find gives you the most value. It doesn't matter which one it is; that you would prefer one to the other shows that the other is less valuable. A burger in a week might not seem much different than a burger now. It may only be marginally different. But then, that's the entire point.
It's trivial to see how your billionth hamburger in a year is useless. At a certain point increasing hamburgers becomes completely worthless. I fail to see how connecting consumption to production makes any difference to that.
You've moved the goal posts from MU as a causal explanation of value to MU as demonstrated preference (via decision making). This is a different argument. Still wrong, but different.
All I'll say for now is that the claim that whatever you choose in the present proves that you prefer or value it most is an empty tautology.
That's fair. I just think you're kind of defining away declining marginal utility if you say a burger next week is equally valuable to a burger today. That just does not seem like it would be plausibly true in most cases. I do not believe people would be indifferent between those options in most situations.
But the price of a hamburger is mostly the same a week later.
MU started by describing a static event with imaginary added units. This was never a good place to start with because it cuts the present from past and future. As the theory developed, it started applying MU to time, to heterogeneous goods, to bundles, to decision making, etc. adding more complex formulations—while abandoning some early ones (like "utils"). But all this complexity was due to a wrong starting point.
You identify a serious problem with the theory of marginal utility. Examples of the theory that I have run across typically view economic actors as mere consumers, hence the use of the example of a hamburger. "How many hamburgers would a person like to consume?" is the starting point. Obviously, one hamburger satisfies one's hunger, a second one makes him uncomfortably full, and a third one might cause him to throw up. This, it is claimed, demonstrates that each additional unit of a good must necessarily fall in terms of utility. I always found this example very strange. When you frame the issue in terms of economic actors as producers, there's no conceivable reason why additional units of output would fall in terms of utility. They would rise, in fact, since they increase one's standard of living.
Economic actors, being producers, have earned the means to be consumers as well. The hamburger example disingenuously ignores the issue of time; more specifically, that consumption does not occur all at once, but takes place over a period of time. If one eats one hamburger a week, instead of three all at once, then there's no reason for the marginal utility of a hamburger to decline.
Perfectly stated.
I think that the theory of marginal utility treats economics and economic actors as if they were in a "steady state" situation. Hence the hamburger example which supposes that economic actors, if presented with a good for consumption, are somehow compelled to consume as many of them as they can as quickly as possible.
Then there's the issue of the marginal investor, or marginal consumer. They're not an identifiable thing, but rather a negative; the negation of a thing. The entrepreneur knows how many customers came through the door today, but the marginal consumer is the one who didn't, apparently. But how can you identify them? They are literally the entire sum of all those who did not purchase your goods or invest in your business etc. It seem that this theory is based on the concept of a zero.
Further to that, anyone's business functions across time. It's not in a steady state, or frozen in time. It's a dynamic process. Customers and investors are not a one time event, but a series of events taking place across time. The term "marginal" investor or "marginal" consumer sounds like these are your last investor or customer, after which your business will fail.
This is why later on Mises dispensed with any psychological or biological explanation for marginal utility and came up instead with his "praxeology." The theory became an a priori "truth" that boils down to decision making within a given moment (frozen out of time) among any given quantities. In other words, the theory became: do you prefer good A or good B? That's it.
And you nailed it with the zero. This is the meaning of opportunity costs. That which doesn't exist defines the value that you did choose to pay for.
I just encountered this from Alfred Marshall that connects to our discussion:
“There is however an implicit condition in this law which should be made clear. It is that we do not suppose time to be allowed for any alteration in the character or tastes of the man himself. It is therefore no exception to the law that the more good music a man hears, the stronger is his taste for it likely to become; that avarice and ambition are often insatiable; or that the virtue of cleanliness and the vice of drunkenness alike grow on what they feed upon. For in such cases our observations range over some period of time; and the man is not the same at the beginning as at the end of it. If we take a man as he is, without allowing time for any change in his character, the marginal utility of a thing to him diminishes steadily with every increase in his supply of it.”
Although he does not relate this to the issue of production, he does admit that the theory freezes time.
This seems like a misunderstanding of marginal utility. Say you have enough money for 1 hamburger. You could eat that hamburger now, or eat it in a week, or save the money in an account and have the hamburger in a year. Which of these do you choose?
Assuming you are a rational consumer, you will choose the one you find gives you the most value. It doesn't matter which one it is; that you would prefer one to the other shows that the other is less valuable. A burger in a week might not seem much different than a burger now. It may only be marginally different. But then, that's the entire point.
It's trivial to see how your billionth hamburger in a year is useless. At a certain point increasing hamburgers becomes completely worthless. I fail to see how connecting consumption to production makes any difference to that.
You've moved the goal posts from MU as a causal explanation of value to MU as demonstrated preference (via decision making). This is a different argument. Still wrong, but different.
All I'll say for now is that the claim that whatever you choose in the present proves that you prefer or value it most is an empty tautology.
That's fair. I just think you're kind of defining away declining marginal utility if you say a burger next week is equally valuable to a burger today. That just does not seem like it would be plausibly true in most cases. I do not believe people would be indifferent between those options in most situations.
But the price of a hamburger is mostly the same a week later.
MU started by describing a static event with imaginary added units. This was never a good place to start with because it cuts the present from past and future. As the theory developed, it started applying MU to time, to heterogeneous goods, to bundles, to decision making, etc. adding more complex formulations—while abandoning some early ones (like "utils"). But all this complexity was due to a wrong starting point.