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Encyclopedia > Marginal utility
“Marginal revolution” redirects here. For the economics weblog, see Marginal Revolution (blog).

In economics, under the mainstream assumptions, the marginal utility of a good or service is the posited increase in utility obtained by consuming or using one more unit of that good or service. The concept grew out of attempts by economists to explain the determination of price. The Austrian economist Friedrich von Wieser coined the term “Grenznutzen” (“border-use”).[1][2] It was translated “marginal utility” in 1889 and credited to Wieser by Alfred Marshall.[3] Image File history File links Broom_icon. ... Marginal Revolution is a blog focused on economics run by economists Tyler Cowen and Alex Tabarrok, both of whom teach at George Mason University. ... Face-to-face trading interactions on the New York Stock Exchange trading floor. ... A good in economics is any physical object (natural or man-made) or service that, upon consumption, increases utility, and therefore can be sold at a price in a market. ... In economics, utility is a measure of the relative happiness or satisfaction (gratification) gained. ... Friedrich von Wieser Friedrich von Wieser (July 10, 1851 - July 22, 1926) was an early member of the Austrian School of economics. ... Alfred Marshall Alfred Marshall (July 26, 1842–July 13, 1924), born in Bermondsey, London, England, became one of the most influential economists of his time. ...


It has been common among economists to describe utility as corresponding to a measure, that is to say, as being quantifiable.[4][5] This has significantly affected the development and reception of theories of marginal utility. However, not all conceptions of marginal utility entail quantification of any sort,[6][7] and those which do not are able to consider rational preferences that would otherwise be excluded.[8] In economics, utility is a measure of the relative happiness or satisfaction (gratification) gained. ... In mathematics the concept of a measure generalizes notions such as length, area, and volume (but not all of its applications have to do with physical sizes). ...


A definition that avoids any assumption of quantifiable utility is the following. First, let the ‘margin of feasible uses’ refer to the highest quantitative utilization of goods (including services), such that the total quantity of one available good is maximized for available total quantities of all but that good. Then the marginal utility for a quantity used of a good (say, the fifth unit) is the utility of that quantity at the margin of feasible uses.[9][2] From the margin of feasible uses, quantities of a good are then posited as selected for successive quantities to the point of equilibrium, beyond which no more feasible quantities would be selected. This may proceed from most-valued (urgent) quantity to successive less-valued quantities (if any). The process ensures that no less-valued quantity will be selected at equilibrium compared to quantities not selected. Marginal utility for the quantity of the good at that point corresponds to the least-valued use that would be selected compared to preceding quantities. In economics, a production possibilities curve (PPC) or “transformation curve” is a graph that shows the different quantities of two goods that an economy could efficiently produce with limited productive resources. ... A good in economics is any physical object (natural or man-made) or service that, upon consumption, increases utility, and therefore can be sold at a price in a market. ...


Under any standard conception, the same object may have different marginal utilities for different people, reflecting different “tastes” or individual circumstances. The term 'marginal change' refers as large a change as the smallest relevant division.[2] For reasons of tractability, it is often assumed in neoclassical analysis that goods and services are continuously divisible. In such context, a marginal change may be an infinitesimal change or a limit. However, strictly speaking, the smallest relevant division may be quite large. Neoclassical economics refers to a general approach (a metatheory) to economics based on supply and demand which depends on individuals (or any economic agent) operating rationally, each seeking to maximize their individual utility or profit by making choices based on available information. ... Continuum theories or models explain variation as involving a gradual quantitative transition without abrupt changes or discontinuities. ... Infinitesimals have been used to express the idea of objects so small that there is no way to see them or to measure them. ... Wikibooks Calculus has a page on the topic of Limits In mathematics, the concept of a limit is used to describe the behavior of a function as its argument either gets close to some point, or as it becomes arbitrarily large; or the behavior of a sequences elements as...

Contents

Placement of margins

The location of the margin for any individual corresponds to his or her endowment, broadly conceived to include opportunities. This endowment is determined by many things including physical laws (which constrain how forms of energy and matter may be transformed), accidents of nature (which determine the presence of natural resources), and the outcomes of past decisions made both by others and by the individual himself or herself.


The Law of Diminishing marginal utility

An individual will typically be able to partially order the potential uses of a good or service. For example, a ration of water might be used to sustain oneself, a dog, or a rose bush. Say that a given person gives her own sustenance highest priority, that of the dog next highest priority, and lowest priority to saving the roses. In that case, if the individual has two rations of water, then the marginal utility of either of those rations is that of sustaining the dog. The marginal utility of a third unit would be that of watering the roses. In mathematics, especially order theory, a partially ordered set (or poset) is a set equipped with a partial order relation. ...


It may be no more than a purely ordinal change.[7][8]) In set theory, ordinal, ordinal number, and transfinite ordinal number refer to a type of number introduced by Georg Cantor in 1897, to accommodate infinite sequences and to classify sets with certain kinds of order structures on them. ...


The notion that marginal utilities are diminishing across the ranges relevant to decision-making is called “the law of diminishing marginal utility” (and also known as a “Gossen's First Law”). However, it will not always hold. The case of the person, dog, and roses is one in which potential uses operate independently — there is no complementarity across the three uses. Sometimes an amount added brings things past a desired tipping point, or an amount subtracted causes them to fall short. In such cases, the marginal utility of a good or service might actually be increasing. Hermann Heinrich Gossen (September 7, 1810 in Düren - February 13, 1858 in Cologne) was a Prussian economist. ... The phrase tipping point or angle of repose is a sociology term that refers to that dramatic moment when something unique becomes common. ...


Independence of the “law” from presumptions of self-interested behavior

While the above example conforms to ordinary notions of self-interested behavior, the concept and logic of marginal utility are independent of the presumption that people pursue self-interest. For example, a different person might give highest priority to the rose bush, next highest to the dog, and last to himself. In that case, if the individual has three rations of water, then the marginal utility of any one of those rations is that watering the person. With just two rations, the person is left unwatered and the marginal utility of either ration is that of the dog. Likewise, a person could give highest priority to the needs of one of her neighbors, next to another, and so forth, placing her own welfare last; the concept of diminishing marginal utility would still apply. Selfishness denotes the precedence given in thought or deed to self interests and self concerns, the act of placing ones own needs or desires above the needs or desires of others. ... Selfishness denotes the precedence given in thought or deed to self interests and self concerns, the act of placing ones own needs or desires above the needs or desires of others. ...


Marginalist theory

Marginalism explains choice with the hypothesis that people decide whether to effect any given change based on the marginal utility of that change, with rival alternatives being chosen based upon which has the greatest marginal utility. Marginalism is the use of marginal concepts within economics. ...


Market price and diminishing marginal utility

If an individual has a stock or flow of a good or service whose marginal utility is less than would be that of some other good or service for which he or she could trade, then it is in his or her interest to effect that trade. Of course, as one thing is traded-away and another is acquired, the respective marginal gains or losses from further trades are now changed. On the assumption that the marginal utility of one is diminishing, and the other is not increasing, all else being equal, an individual will demand an increasing ratio of that which is acquired to that which is sacrificed. If any trader can better his or her own marginal position by offering a trade more favorable to complementary traders, then he or she will do so.


In an economy with money, the marginal utility of a quantity is simply that of the best good or service that it could purchase. For other uses, see Money (disambiguation). ...


Hence, the “law” of diminishing marginal utility provides an explanation for diminishing marginal rates of substitution and thus for the “laws” of supply and demand, as well as essential aspects of models of “imperfect” competition. In economics, the marginal rate of substitution (MRS for short) is the rate at which consumers are willing to give up units of one good in exchange for more units of another good. ... The supply and demand model describes how prices vary as a result of a balance between product availability at each price (supply) and the desires of those with purchasing power at each price (demand). ... In economic theory, imperfect competition, is the competitive situation in any market where the conditions necessary for perfect competition are not satisfied. ...


The paradox of water and diamonds

Main article: Paradox of value

The “law” of diminishing marginal utility is said to explain the “paradox of water and diamonds”, most commonly associated with Adam Smith[10] (though recognized by earlier thinkers).[11] Human beings cannot even survive without water, whereas diamonds were in Smith's day mere ornamentation or engraving bits. Yet water had a very low price, and diamonds a very high price, by any normal measure. Marginalists explained that it is the marginal usefulness of any given quantity that determines its price, rather than the usefulness of a class or of a totality. For most people, water was sufficiently abundant that the loss or gain of a gallon would withdraw or add only some very minor use if any; whereas diamonds were in much more restricted supply, so that the lost or gained use would be much greater. The paradox of value (also known as the diamond-water paradox) is the apparent contradiction, or paradox, that although water is on the whole more useful, in terms of survival, than diamonds, diamonds command a higher price in the market. ... For other persons named Adam Smith, see Adam Smith (disambiguation). ...


That is not to say that the price of any good or service is simply a function of the marginal utility that it has for any one individual nor for some ostensibly typical individual. Rather, individuals are willing to trade based upon the respective marginal utilities of the goods that they have or desire (with these marginal utilities being distinct for each potential trader), and prices thus develop constrained by these marginal utilities.


The “law” does not tell us such things as why diamonds are naturally less abundant on the earth than is water, but helps us to understand how this affects the value imputed to a given diamond and the price of diamonds in a market.


Criticism of the marginalist explanation of the paradox of water and diamonds

Many critics of marginalism would reply that the reason that diamonds are more expensive than water is not because of their relative natural abundance but because of their cost of production. The reason water is available abundantly and diamonds in relatively smaller quantities is because one is inexpensive to produce and one very expensive. Critics claim that thus the reason water is cheaper than diamonds is simply because it costs less to produce. If diamonds could be produced cheaply from carbon, as modern technology may make possible in the short term, then the price of diamonds will fall, even though the demand for their use has not altered. Therefore, as these critics would claim, it is the cost of production which determines price, not the marginal utility.


Marginalists simply respond that if this were true then, rather than our seeing some goods and services not produced because their costs exceeded their prices, consumers would make a practice of seeking expensive wares without regard to their use. (As proto-marginalist Richard Whately put it, “It is not that pearls fetch a high price because men have dived for them; but on the contrary, men dive for them because they fetch a high price.”[12]) Marginalists explain that costs of production may be what limit supply, but that these costs of production are themselves sacrificed marginal uses, and will not be borne when they are expected to exceed the marginal use of what is produced. In other words, the marginalist certainly does not explain price as a simple function of the marginal utility of a single good for one person or for some “average” person, but nonetheless insists that it results from the trade-offs that each participant would be willing to make for the various goods and services at stake, with those trade-offs being determined by marginal uses. The critics who believe that costs of production determine price, by assuming a demand that will bear the cost, have begged the essential question that the marginalists purport to answer. Richard Whately (February 1, 1787 - October 8, 1863), English logician and theological writer, archbishop of Dublin, was born in London. ...


Quantified marginal utility

Under the special case in which usefulness can be quantified, the change in utility of moving from state S1 to state S2 is A special case is generally an unexpected circumstance which may occur but should usually not. ...

Delta U=U(S_2)-U(S_1),

Moreover, if S1 and S2 are distinguishable by values of just one variable g, which is itself quantified, then it becomes possible to speak of the ratio of the marginal utility of the change in g, to the size of that change:

left.frac{Delta U}{Delta g}right|_{c.p.}

(where “c.p.” indicates that the only independent variable to change is g,). Ceteris paribus is a Latin phrase, literally translated as with other things [being] the same, and usually rendered in English as all other things being equal. ... In mathematics, an independent variable is any of the arguments, i. ...


Mainstream neoclassical economics will typically assume that

lim_{Delta gto 0}{left.frac{Delta U}{Delta g}right|_{c.p.}}

is well defined, and use “marginal utility” to refer to a partial derivative In mathematics, a partial derivative of a function of several variables is its derivative with respect to one of those variables with the others held constant (as opposed to the total derivative, in which all variables are allowed to vary). ...

frac{partial U}{partial g}approxleft.frac{Delta U}{Delta g}right|_{c.p.}

and diminishing marginal utility is similarly taken to correspond to

frac{partial^2 U}{partial g^2}<0

History

Proto-marginalist approaches

A great variety of economists concluded that there was some sort of inter-relationship between utility and rarity that effected economic decisions, and in turn informed the determination of prices.[13]


Marginalists before the Revolution

The first published statement of any sort of theory of marginal utility was by Daniel Bernoulli, in “Specimen theoriae novae de mensura sortis”.[14] This paper appeared in 1738, but a draft had been written in 1731 or in 1732.[15][16] In 1728, Gabriel Cramer produced fundamentally the same theory in a private letter.[17] Each had sought to resolve the St. Petersburg paradox, and had concluded that the marginal desirability of money decreased as it was accumulated, more specifically such that the desirability of a sum were the natural logarithm (Bernoulli) or square root (Cramer) thereof. However, the more general implications of this hypothesis were not explicated, and the work fell into obscurity. Daniel Bernoulli Daniel Bernoulli (February 8, 1700 – March 17, 1782) was a Dutch-born mathematician who spent much of his life in Basel, Switzerland where he died. ... Events February 4 - Court Jew Joseph Suss Oppenheimer is executed in Württenberg April 15 - Premiere in London of Serse, an Italian opera by George Frideric Handel. ... Events 10 Downing Street becomes the official residence of the United Kingdoms Prime Minister when Robert Walpole moves in. ... Events February 23 - First performance of Handels Orlando, in London June 9 - James Oglethorpe is granted a royal charter for the colony of Georgia. ... Events Astronomical aberration discovered by the astronomer James Bradley Swedish academy of sciences founded at Uppsala The founding of the University of Havana (Universidad de la Habana), Cubas most well-established university. ... Gabriel Cramer Gabriel Cramer (July 31, 1704 - January 4, 1752) was a Swiss mathematician, born in Geneva. ... In probability theory and decision theory the St. ... The natural logarithm, formerly known as the hyperbolic logarithm, is the logarithm to the base e, where e is an irrational constant approximately equal to 2. ... In mathematics, a square root of a number x is a number r such that , or in words, a number r whose square (the result of multiplying the number by itself) is x. ...


In “A Lecture on the Notion of Value”, delivered in 1833 and included in Lectures on Population, Value, Poor Laws and Rent (1837), William Forster Lloyd explicitly offered a general marginal utility theory, but did not offer its derivation nor elaborate its implications. The importance of his statement seems to have been lost on everyone (including Lloyd) until the early 20th century, by which time others had independently developed and popularized the same insight.[18] Year 1833 (MDCCCXXXIII) was a common year starting on Tuesday (link will display the full calendar) of the Gregorian Calendar (or a common year starting on Sunday of the 12-day slower Julian calendar). ... Queen Victoria, Queen of the United Kingdom (1837 - 1901) 1837 (MDCCCXXXVII) was a common year starting on Sunday (see link for calendar). ... William Forster Lloyd was Drummond Professor at Oxford and a Fellow of the Royal Society. ... (19th century - 20th century - 21st century - more centuries) Decades: 1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s As a means of recording the passage of time, the 20th century was that century which lasted from 1901&#8211;2000 in the sense of the Gregorian calendar (1900&#8211;1999...


In An Outline of the Science of Political Economy (1836), Nassau William Senior asserted that marginal utilities were the ultimate determinant of demand, yet apparently did not pursue implications, though some interpret his work as indeed doing just that.[19] Year 1836 (MDCCCXXXVI) was a leap year starting on Friday (link will display the full calendar) of the Gregorian Calendar (or a leap year starting on Wednesday of the 12-day slower Julian calendar). ... Nassau William Senior (September 26, 1790 - June 4, 1864), English economist, was born at Compton, Berkshire, the eldest son of the Rev. ...


In 1854, Hermann Heinrich Gossen published Die Entwicklung der Gesetze des menschlichen Verkehrs und der daraus fließenden Regeln für menschliches Handeln, which presented a marginal utility theory and to a very large extent worked-out its implications for the behavior of a market economy. However, Gossen's work was not well received in the Germany of his time, most copies were destroyed unsold, and he was virtually forgotten until rediscovered after the so-called Marginal Revolution. 1854 (MDCCCLIV) was a common year starting on Sunday (see link for calendar). ... Hermann Heinrich Gossen (September 7, 1810 in Düren - February 13, 1858 in Cologne) was a Prussian economist. ...


The Marginal Revolution

Marginalism eventually found a foot-hold by way of the work of three economists, Jevons in England, Menger in Austria, and Walras in Switzerland. [William Stanley Jevons] William Stanley Jevons (September 1, 1835 - August 13, 1882), English economist and logician, was born in Liverpool. ... Austrian School economist Carl Menger Carl Menger Carl Menger (February 28, 1840 – February 26, 1921) was the founder of the Austrian School of economics. ... Marie-Ésprit-Léon Walras (December 16, 1834 in Évreux, France - January 5, 1910 in Clarens, near Montreux, Switzerland) was a French economist, considered by Joseph Schumpeter as the greatest of all economists. He was a mathematical economist associated with the creation of the general equilibrium theory. ...


William Stanley Jevons first proposed the theory in “A General Mathematical Theory of Political Economy” (PDF), a paper presented in 1862 and published in 1863, followed by a series of works culminating in his book The Theory of Political Economy in 1871 that established his reputation as a leading political economist and logician of the time. Jevons' conception of utility was in the utilitarian tradition of Jeremy Bentham and of John Stuart Mill, but he differed from his classical predecessors in emphasizing that "value depends entirely upon utility," in particular, on "final utility upon which the theory of Economics will be found to turn."[20] He later qualified this in deriving the result that in a model of exchange equilibrium, price ratios would be proportional to not only to ratios of "final degrees of utility" but costs of production.[21][22] [William Stanley Jevons] William Stanley Jevons (September 1, 1835 - August 13, 1882), English economist and logician, was born in Liverpool. ... This article discusses utilitarian ethical theory. ... Jeremy Bentham (IPA: or ) (February 15, 1748 O.S. (February 26, 1748 N.S.) – June 6, 1832) was an English jurist, philosopher, and legal and social reformer. ... John Stuart Mill (20 May 1806 – 8 May 1873), British philosopher, political economist, civil servant and Member of Parliament, was an influential liberal thinker of the 19th century. ... Classical economics is widely regarded as the first modern school of economic thought. ...


Carl Menger presented the theory in Grundsätze der Volkswirtschaftslehre (translated as Principles of Economics) in 1871. Menger's presentation is peculiarly notable on two points. First, he took special pains to explain why individuals should be expected to rank possible uses and then to use marginal utility to decide amongst trade-offs. (For this reason, Menger and his followers are sometimes called “the Psychological School”, though they are more frequently known as “the Austrian School” or as “the Vienna School”.) Second, while his illustrative examples present utility as quantified, his essential assumptions do not.[7] Menger's work found a significant and appreciative audience. Austrian School economist Carl Menger Carl Menger Carl Menger (February 28, 1840 – February 26, 1921) was the founder of the Austrian School of economics. ... The Austrian School, also known as the “Vienna School” or the “Psychological School”, is a heterodox school of economic thought that advocates adherence to strict methodological individualism. ...


Marie-Esprit-Léon Walras introduced the theory in Éléments d'économie politique pure, the first part of which was published in 1874 in a relatively mathematical exposition. Walras's work found relatively few readers at the time but was recognized and incorporated two decades later in the work of Pareto and Barone.[23] Marie-Ésprit-Léon Walras (December 16, 1834 in Évreux, France - January 5, 1910 in Clarens, near Montreux, Switzerland) was a French economist, considered by Joseph Schumpeter as the greatest of all economists. He was a mathematical economist associated with the creation of the general equilibrium theory. ... Vilfredo Pareto Vilfredo Federico Damaso Pareto [vilfre:do pare:to] (July 15, 1848, Paris – August 19, 1923, Geneva) was a French-Italian sociologist, economist and philosopher. ... Enrico Barone (b. ...


An American, John Bates Clark, is sometimes also mentioned. But, while Clark independently arrived at a marginal utility theory, he did little to advance it until it was clear that the followers of Jevons, Menger, and Walras were revolutionizing economics. Nonetheless, his contributions thereafter were profound. John Bates Clark John Bates Clark (26 January 1847 – 21 March 1938) was an American neo-classical economist. ...


The second generation

Although the Marginal Revolution flowed from the work of Jevons, Menger, and Walras, their work might have failed to enter the mainstream were it not for a second generation of economists. In England, the second generation were exemplified by Philip Henry Wicksteed, by William Smart, and by Alfred Marshall; in Austria by Eugen von Böhm-Bawerk and by Friedrich von Wieser; in Switzerland by Vilfredo Pareto; and in America by Herbert Joseph Davenport and by Frank A. Fetter. Philip Wicksteed (October 25, 1844 - March 18, 1927) was an English economist closely associated with the Austrian School. ... William Smart (10 April 1853 – 19 March 1915) was a British economist. ... Alfred Marshall Alfred Marshall (July 26, 1842–July 13, 1924), born in Bermondsey, London, England, became one of the most influential economists of his time. ... Eugen von Böhm-Bawerk Eugen von Böhm-Bawerk (February 12, 1851 – August 27, 1914) made important contributions to the development of Austrian economics. ... Friedrich von Wieser Friedrich von Wieser (July 10, 1851 - July 22, 1926) was an early member of the Austrian School of economics. ... Vilfredo Pareto Vilfredo Federico Damaso Pareto [vilfre:do pare:to] (July 15, 1848, Paris – August 19, 1923, Geneva) was a French-Italian sociologist, economist and philosopher. ... Herbert Joseph Davenport (1861-1931) was an American economist. ... Frank A. Fetter Frank Albert Fetter (8 March 1863–1949) was an American economist of the Austrian School. ...


There were significant, distinguishing features amongst the approaches of Jevons, Menger, and Walras, but the second generation did not maintain distinctions along national or linguistic lines. The work of von Wieser was heavily influenced by that of Walras. Wicksteed was heavily influenced by Menger. Fetter referred to himself and Davenport as part of “the American Psychological School”, named in imitation of the Austrian “Psychological School”. (And Clark's work from this period onward similarly shows heavy influence by Menger.) William Smart began as a conveyor of Austrian School theory to English-language readers, though he fell increasingly under the influence of Marshall.[24]


Böhm-Bawerk was perhaps the most able expositor of Menger's conception.[25][24] He was further noted for producing a theory of interest and of profit in equilibrium based upon the interaction of diminishing marginal utility with diminishing marginal productivity of time and with time preference.[26] (This theory was adopted in full and then further developed by Knut Wicksell[27] and, with modifications including formal disregard for time-preference, by Wicksell's American rival Irving Fisher.[28]) In economics, the marginal product or marginal physical product of an input to production during a specific time period is as follows, assuming that no other inputs to production change: marginal product of X used in producing Y = ΔY/ΔX = (the change of Y)/(the change of X). ... Time preference is the economists assumption that a consumer will place a premium on enjoyment nearer in time over more remote enjoyment. ... Knut Wicksell, Swedish economist Johan Gustaf Knut Wicksell, (December 20, 1851 Stockholm -May 3, 1926 Stocksund ) was a Swedish economist. ... Irving Fisher (February 27, 1867 Saugerties, New York — April 29, 1947, New York) was an American economist, health campaigner, and eugenicist. ...


Marshall was the second-generation marginalist whose work on marginal utility came most to inform the mainstream of neoclassical economics, especially by way of his Principles of Economics, the first volume of which was published in 1890. Marshall constructed the demand curve with the aid of assumptions that utility was quantified, and that the marginal utility of money was constant (or nearly so). Like Jevons, Marshall did not see an explanation for supply in the theory of marginal utility, so he synthesized an explanation of demand thus explained with supply explained in a more classical manner, determined by costs which were taken to be objectively determined. (Marshall later actively mischaracterized the criticism that these costs were themselves ultimately determined by marginal utilities.[29]) Year 1890 (MDCCCXC) was a common year starting on Wednesday (link will display the full calendar) of the Gregorian calendar (or a common year starting on Monday of the Julian calendar). ... Classical economics is widely regarded as the first modern school of economic thought. ...


The Marginal Revolution and Marxism

In his critique of political economy, Marx discussed “use-value”, a concept analogous to utility: Image File history File links Emblem-important. ... The Politics series Politics Portal This box:      Political economy was the original term for the study of production, the acts of buying and selling, and their relationships to laws, customs and government. ...

A use-value has value only in use, and is realized only in the process of consumption. One and the same use-value can be used in various ways. But the extent of its possible application is limited by its existence as an object with distinct properties. It is, moreover, determined not only qualitatively but also quantitatively. Different use-values have different measures appropriate to their physical characteristics; for example, a bushel of wheat, a quire of paper, a yard of linen.[30]

He acknowledged that the value of a commodity is dependent on the use that can be garnered from it,[31] but, in his analysis, utility was considered as all or nothing; it was unnecessary to describe variable use-value; to Marx labor was the ultimate source of value.


The doctrines of marginalism and the Marginal Revolution are often interpreted as somehow a response to Marxist economics. In fact, the first volume of Das Kapital was not published until 1867, after the works of Jevons, Menger, and Walras were written or well under way; and Marx was still a relatively obscure figure when these works were completed. It is unlikely that any of them knew anything of him. Marxism is both the theory and the political practice (that is, the praxis) derived from the work of Karl Marx and Friedrich Engels. ... Das Kapital (Capital, in the English translation) is an extensive treatise on political economy written by Karl Marx in German. ... Year 1867 (MDCCCLXVII) was a common year starting on Tuesday (link will display the full calendar) of the Gregorian calendar (or a common year starting on Sunday of the 12-day slower Julian calendar). ...


A number of those who followed the preceptors of the Revolution formulated responses to Marxist economic theory. The most famous of these was that of Böhm-Bawerk, “Zum Abschluss des Marxschen Systems” (1896),[32] but the first was Wicksteed's “The Marxian Theory of Value. Das Kapital: a criticism” (1884,[33] followed by “The Jevonian criticism of Marx: a rejoinder” in 1885[34]). Only a few Marxist replies were made to marginalism, of which the most famous were Rudolf Hilferding's Böhm-Bawerks Marx-Kritik (1904)[35] and Политической экономии рантье (1914) by Никола́й Ива́нович Буха́рин (Nikolai Bukharin).[36] Year 1896 (MDCCCXCVI) was a leap year starting on Wednesday (link will display calendar). ... Year 1884 (MDCCCLXXXIV) was a leap year starting on Tuesday (link will display the full calendar) of the Gregorian calendar (or a leap year starting on Sunday of the 12-day-slower Julian calendar). ... 1885 (MDCCCLXXXV) is a common year starting on Thursday of the Gregorian calendar (or a common year starting on Saturday of the 12-day slower Julian calendar). ... Rudolf Hilferding (1877 - 1941) was an Austrian Marxist economist and a popularizer of the economic reading of Karl Marx. ... 1904 (MCMIV) was a leap year starting on a Friday (see link for calendar). ... Year 1914 (MCMXIV) was a common year starting on Thursday (link will display the full calendar) of the Gregorian calendar (or a common year starting on Wednesday of the 13-day-slower Julian calendar). ... Nikolai Bukharin Nikolai Ivanovich Bukharin (Russian: ), (October 9 [O.S. September 27] 1888 â€“ March 15, 1938) was a Bolshevik revolutionary and intellectual, and later a Soviet politician. ...


(It might also be noted that some followers of Henry George similarly consider marginalism and neoclassical economics a reaction to Progress and Poverty, which was published in 1879.[37]) Henry George Henry George (September 2, 1839 – October 29, 1897) was an American political economist and the most influential proponent of the Single Tax on land. ... Progress and Poverty was written by Henry George in 1879. ... Year 1879 (MDCCCLXXIX) was a common year starting on Wednesday (link will display the full calendar) of the Gregorian calendar (or a common year starting on Monday of the 12-day slower Julian calendar). ...


Eclipse

In his 1881 work Mathematical Psychics, Francis Ysidro Edgeworth presented the indifference curve, deriving its properties from marginalist theory which assumed utility to be a differentiable function of quantified goods and services. Later work attempted to generalize the indifference-curve formulation of utility and marginal utility. Year 1881 (MDCCCLXXXI) was a common year starting on Saturday (link will display the full calendar) of the Gregorian calendar (or a common year starting on Thursday of the 12-day slower Julian calendar). ... Edgeworth Francis Ysidro Edgeworth (né Ysidro Francis Edgeworth, February 8, 1845 - February 13, 1926) was an Irish polymath who studied at Trinity College, Dublin before obtaining a scholarship to Balliol College, Oxford where he subsequently became a professor. ... An indifference curve is a graph showing different bundles of goods, each measured as to quantity, to which a consumer is That is, at each point on the curve, the consumer has no preference for one bundle over another, as they render the same level of satisfaction (utility) for the...


In 1915, Евгений Евгениевич Слуцкий (Eugen Slutsky) derived a theory of consumer choice solely from properties of indifference curves.[38] Because of the World War, the Bolshevik Revolution, and his own subsequent loss of interest, Slutsky's work drew almost no notice, but similar work in 1934 by John Richard Hicks and R. G. D. Allen[39] derived much the same results and found a significant audience. (Allen subsequently drew attention to Slutsky's earlier accomplishment.) Year 1915 (MCMXV) was a common year starting on Friday (link will display the full calendar) of the Gregorian calendar (or a common year starting on Thursday[1] of the 13-day-slower Julian calendar). ... Eugen E. Slutsky (Ukr: Євген Євгенович Слуцький) (April 7, 1880, Ukraine - March 10, 1948) was an early-twentieth-century Ukrainian-Russian/Soviet mathematical statistician, economist and political economist. ... “The Great War ” redirects here. ... For other uses, see October Revolution (disambiguation). ... Year 1934 (MCMXXXIV) was a common year starting on Monday (link will display full 1934 calendar) of the Gregorian calendar. ... For other persons named John Hicks, see John Hicks (disambiguation). ... Sir Roy George Douglas Allen, CBE, FBA (1906 - 1983) was a British economist and mathematician. ...


Although some of the third generation of Austrian School economists had by 1911 rejected the quantification of utility while continuing to think in terms of marginal utility,[40] most economists presumed that utility must be a sort of quantity. Indifference curve analysis seemed to represent a way of dispensing with quantification, with decreasing marginal rates of substitution (in convex preferences) replacing the notion of diminishing marginal utility to describe the average agent as preferring non-extreme bundles of commodities for changes in relative prices. Year 1911 (MCMXI) was a common year starting on Sunday (link will display the full calendar) of the Gregorian calendar (or a common year starting on Saturday of the 13-day-slower Julian calendar). ... An indifference curve is a graph showing different bundles of goods, each measured as to quantity, to which a consumer is That is, at each point on the curve, the consumer has no preference for one bundle over another, as they render the same level of satisfaction (utility) for the... Convex preferences refer to a property of utility functions commonly represented in an indifference curve as a bulge toward the origin. ...


For those who accepted that indifference curve analysis superseded marginal utility analysis, the latter became at best perhaps pedagogically useful, but unnecessary and ultimately meaningless.


Revival

When Cramer and Bernoulli introduced the notion of diminishing marginal utility, it had been to address a paradox of gambling, rather than the paradox of value. The marginalists of the revolution, however, had been formally concerned with problems in which there was neither risk nor uncertainty. So too with the indifference curve analysis of Slutsky, Hicks, and Allen. In probability theory and decision theory the St. ... The paradox of value (also known as the diamond-water paradox) is the apparent contradiction, or paradox, that although water is on the whole more useful, in terms of survival, than diamonds, diamonds command a higher price in the market. ... Lets talk about risk control strategies, anyone with more information and willing to share, please do so. ... “Uncertain” redirects here. ...


The expected utility hypothesis of Bernoulli et alii was revived by various 20th century thinkers, with early contributions by Ramsey (1926),[41] v. Neumann and Morgenstern (1944),[42] and Savage (1954).[43] Although this hypothesis remains controversial, it not only brings utility, but a quantified conception of utility, back into the mainstream of economic thought. It has been suggested that Neumann-Morgenstern utility be merged into this article or section. ... (19th century - 20th century - 21st century - more centuries) Decades: 1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s As a means of recording the passage of time, the 20th century was that century which lasted from 1901&#8211;2000 in the sense of the Gregorian calendar (1900&#8211;1999... Frank Plumpton Ramsey (February 22, 1903 – January 19, 1930) was a British mathematician who, in addition to mathematics, made significant contributions in philosophy and economics. ... Year 1926 (MCMXXVI) was a common year starting on Friday (link will display the full calendar) of the Gregorian calendar. ... For other persons named John Neumann, see John Neumann (disambiguation). ... Oskar Morgenstern (January 24, 1902 - July 26, 1977) was an German- American economist who, working with John von Neumann, helped found the mathematical field of game theory. ... Year 1944 (MCMXLIV) was a leap year starting on Saturday (link will display full calendar) of the Gregorian calendar. ... Leonard Jimmie Savage (20 November 1917 - 1 November 1971) was a US mathematician and statistician. ... Year 1954 (MCMLIV) was a common year starting on Friday (link will display full calendar) of the Gregorian calendar. ...


A major reason why quantified models of utility are influential today is that risk and uncertainty have been recognized as central topics in contemporary economic theory.[44] Quantified utility models simplify the analysis of risky decisions, because under quantified utility, diminishing marginal utility is equivalent to “risk aversion”.[45] In fact, many contemporary analyses of saving and portfolio choice require stronger assumptions than diminishing marginal utility, such as the assumption of “prudence”, which means convex marginal utility.[46] Risk aversion is a concept in economics and finance theory explaining the behaviour of consumers and investors under uncertainty. ... In mathematics, convex function is a real-valued function f defined on an interval (or on any convex subset C of some vector space), if for any two points x and y in its domain C and any t in [0,1], we have Convex function on an interval. ...


Meanwhile, the Austrian School continues to develop its ordinalist notions of marginal utility analysis, formally demonstrating that from them proceed the decreasing marginal rates of substitution of indifference curves.[8]


References

See also works named in body of article.
  1. ^ von Wieser, Friedrich; Über den Ursprung und die Hauptgesetze des wirtschaftlichen Wertes.[The Nature and Essence of Theoretical Economics] (1884)
  2. ^ a b c Wieser, Friedrich von; Der natürliche Werth [Natural Value] (1889), Bk I Ch V “Marginal Utility” (HTML).
  3. ^ Streissler, E., “Wieser, Friedrich, Freiherr von”, The New Palgrave: A Dictionary of Economics, v. 4 (1987), p. 921.
  4. ^ Stigler, George Joseph; “The Development of Utility Theory”, I and II, Journal of Political Economy (1950), issues 3 and 4.
  5. ^ Stigler, George Joseph; “The Adoption of Marginal Utility Theory” History of Political Economy (1972).
  6. ^ von Mises, Ludwig Heinrich; Theorie des Geldes und der Umlaufsmittel (1912).
  7. ^ a b c Georgescu-Roegen, Nicholas; “Utility”, International Encyclopedia of the Social Sciences (1968).
  8. ^ a b c Mc Culloch, James Huston; “The Austrian Theory of the Marginal Use and of Ordinal Marginal Utility”, Zeitschrift für Nationalökonomie 37 (1977) #3&4 (September).
  9. ^ von Wieser, Friedrich; Über den Ursprung und die Hauptgesetze des wirtschaftlichen Wertes.[The Nature and Essence of Theoretical Economics] (1884), p. 128.
  10. ^ Smith, Adam; An Inquiry into the Nature and Causes of the Wealth of Nations (1776) Chapter IV. “Of the Origin and Use of Money”.
  11. ^ Gordon, Scott (1991). "The Scottish Enlightenment of the eighteenth century", History and Philosophy of Social Science: An Introduction. Routledge. ISBN 0-415-09670-7. 
  12. ^ Whately, Richard; Introductory Lectures on Political Economy, Being part of a course delivered in the Easter term (1832).
  13. ^ Přibram, Karl; A History of Economic Reasoning (1983).
  14. ^ Bernoulli, Daniel; “Specimen theoriae novae de mensura sortis” in Commentarii Academiae Scientiarum Imperialis Petropolitanae 5 (1738); reprinted in translation as “Exposition of a new theory on the measurement of risk” in Econometrica 22 (1954).
  15. ^ Bernoulli, Daniel; letter of 4 July 1731 to Nicolas Bernoulli (excerpted in PDF).
  16. ^ Bernoulli, Nicolas; letter of 5 April 1732, acknowledging receipt of “Specimen theoriae novae metiendi sortem pecuniariam” (excerpted in PDF).
  17. ^ Cramer, Garbriel; letter of 21 May 1728 to Nicolaus Bernoulli (excerpted in PDF).
  18. ^ Seligman, Edwin Robert Anderson; “On some neglected British economists”, Economic Journal v. 13 (September 1903).
  19. ^ White, Michael V; “Diamonds Are Forever(?): Nassau Senior and Utility Theory” in The Manchester School of Economic & Social Studies 60 (1992) #1 (March).
  20. ^ W. Stanley Jevons (1871), The Theory of Political Economy, p. 111.
  21. ^ W. Stanley Jevons (1879, 2nd ed.), The Theory of Political Economy, pp. 208.
  22. ^ R.D. Collison Brown (1987), "Jevons, William Stanley," The New Palgrave: A Dictionary of Economics, v. 2, pp. 1008-09.
  23. ^ Donald A. Walker (1987), "Walras, Léon" The New Palgrave: A Dictionary of Economics]], v. 4, p. 862.
  24. ^ a b Salerno, Joseph T. 1999; “The Place of Mises’s Human Action in the Development of Modern Economic Thought.” Quarterly Journal of Economic Thought v. 2 (1).
  25. ^ Böhm-Bawerk, Eugen Ritter von. “Grundzüge der Theorie des wirtschaftlichen Güterwerthes”, Jahrbüche für Nationalökonomie und Statistik v 13 (1886). Translated as Basic Principles of Economic Value.
  26. ^ Böhm-Bawerk, Eugen Ritter von; Kapital Und Kapitalizns. Zweite Abteilung: Positive Theorie des Kapitales (1889). Translated as Capital and Interest. II: Positive Theory of Capital with appendices rendered as Further Essays on Capital and Interest.
  27. ^ Wicksell, Johan Gustaf Knut; Über Wert, Kapital unde Rente (1893). Translated as Value, Capital and Rent.
  28. ^ Fisher, Irving; Theory of Interest (1930).
  29. ^ Schumpeter, Joseph Alois; History of Economic Analysis (1954) p 922-3.
  30. ^ Marx, Karl; Critique of Political Economy (1859).
  31. ^ Marx, Karl; Grundrisse (completed in 1857 though not published until much later).
  32. ^ Böhm-Bawerk, Eugen Ritter von; “Zum Abschluss des Marxschen Systems” [“On the Closure of the Marxist System”], Staatswiss. Arbeiten. Festgabe für K. Knies (1896).
  33. ^ Wicksteed, Philip Henry; “Das Kapital: A Criticism”, To-day 2 (1884) p. 388-409.
  34. ^ Wicksteed, Philip Henry; “The Jevonian criticism of Marx: a rejoinder”, To-day 3 (1885) p. 177-9.
  35. ^ Hilferding, Rudolf; Böhm-Bawerks Marx-Kritik (1904). Translated as Böhm-Bawerk's Criticism of Marx.
  36. ^ Буха́рин, Никола́й Ива́нович (Nikolai Ivanovich Bukharin); Политической экономии рантье (1914). Translated as The Economic Theory of the Leisure Class.
  37. ^ Gaffney, Mason, and Fred Harrison; The Corruption of Economics (1994).
  38. ^ Слуцкий, Евгений Евгениевич (Slutsky, Eugen E.); “Sulla teoria del bilancio del consumatore”, Giornale degli Economisti 51 (1915).
  39. ^ Hicks, John Richard, and Roy George Douglas Allen; “A Reconsideration of the Theory of Value”, Economica 54 (1934).
  40. ^ von Mises, Ludwig Heinrich; Theorie des Geldes und der Umlaufsmittel (1912).
  41. ^ Ramsey, Frank Plumpton; “Truth and Probability” (PDF), Chapter VII in The Foundations of Mathematics and other Logical Essays (1931).
  42. ^ von Neumann, John and Oskar Morgenstern; Theory of Games and Economic Behavior (1944).
  43. ^ Savage, Leonard Jimmie; Foundations of Statistics (1954).
  44. ^ Diamond, Peter, and Michael Rothschild, eds.; Uncertainty in Economics (1989). Academic Press.
  45. ^ Demange, Gabriel, and Guy Laroque; Finance and the Economics of Uncertainty (2006), Ch. 3, pp. 71-72. Blackwell Publishing.
  46. ^ Kimball, Miles (1990), “Precautionary Saving in the Small and in the Large”, Econometrica, 58 (1) pp. 53-73.

f Year 1884 (MDCCCLXXXIV) was a leap year starting on Tuesday (link will display the full calendar) of the Gregorian calendar (or a leap year starting on Sunday of the 12-day-slower Julian calendar). ... Year 1889 (MDCCCLXXXIX) was a common year starting on Tuesday (link will display the full calendar) of the Gregorian calendar (or a common year starting on Sunday of the 12-day slower Julian calendar). ... George Joseph Stigler (1911 - 1991) was a U.S. economist. ... Year 1950 (MCML) was a common year starting on Sunday (link will display the full calendar) of the Gregorian calendar. ... George Joseph Stigler (1911 - 1991) was a U.S. economist. ... Year 1972 (MCMLXXII) was a leap year starting on Saturday (link will display full calendar) of the Gregorian calendar. ... Ludwig Heinrich Edler von Mises (September 29, 1881 – October 10, 1973) (pronounced was a notable economist and a major influence on the modern libertarian movement. ... 1912 (MCMXII) was a leap year starting on Monday in the Gregorian calendar (or a leap year starting on Tuesday in the 13-day-slower Julian calendar). ... Nicholas Georgescu-Roegen, born Nicolae Georgescu (ConstanÅ£a, Romania, 4 February 1906 – Nashville, Tennessee, 30 October 1994) was a Romanian mathematician, statistician and economist. ... Year 1968 (MCMLXVIII) was a leap year starting on Monday (link will display full calendar) of the Gregorian calendar. ... Also: 1977 (album) by Ash. ... Year 1884 (MDCCCLXXXIV) was a leap year starting on Tuesday (link will display the full calendar) of the Gregorian calendar (or a leap year starting on Sunday of the 12-day-slower Julian calendar). ... Year 1776 (MDCCLXXVI) was a leap year starting on Monday (link will display the full calendar) of the Gregorian calendar (or a leap year starting on Thursday of the 11-day slower Julian calendar). ... Routledge is an imprint for books in the humanities part of the Taylor & Francis Group, which also has Brunner-Routledge, RoutledgeCurzon and RoutledgeFalmer divisions. ... Karl PÅ™ibram or Karl Kribram (December 22, 1877 – July 15, 1973) was an Austrian-born economist. ... Year 1983 (MCMLXXXIII) was a common year starting on Saturday (link displays the 1983 Gregorian calendar). ... Events February 4 - Court Jew Joseph Suss Oppenheimer is executed in Württenberg April 15 - Premiere in London of Serse, an Italian opera by George Frideric Handel. ... is the 185th day of the year (186th in leap years) in the Gregorian calendar. ... Events 10 Downing Street becomes the official residence of the United Kingdoms Prime Minister when Robert Walpole moves in. ... is the 95th day of the year (96th in leap years) in the Gregorian calendar. ... Events February 23 - First performance of Handels Orlando, in London June 9 - James Oglethorpe is granted a royal charter for the colony of Georgia. ... is the 141st day of the year (142nd in leap years) in the Gregorian calendar. ... Events Astronomical aberration discovered by the astronomer James Bradley Swedish academy of sciences founded at Uppsala The founding of the University of Havana (Universidad de la Habana), Cubas most well-established university. ... Nicolaus Bernoulli may refer to either of two Swiss mathematicians: Nicolaus I Bernoulli (1687-1759) Nicolaus II Bernoulli (1695-1726) Category: ... Edwin Robert Anderson Seligman (April 28, 1861 - July 8, 1939), American economist, was born at New York. ... Year 1893 (MDCCCXCIII) was a common year starting on Sunday (link will display the full calendar) of the Gregorian calendar (or a common year starting on Tuesday of the 12-day slower Julian calendar). ... Year 1930 (MCMXXX) was a common year starting on Wednesday (link will display 1930 calendar) of the Gregorian calendar. ... Joseph Schumpeter Joseph Alois Schumpeter (February 8, 1883 – January 8, 1950) was an economist from Austria and an influential political scientist. ... Year 1859 (MDCCCLIX) was a common year starting on Saturday (link will display the full calendar) of the Gregorian calendar (or a common year starting on Thursday of the 12-day slower Julian calendar). ... 1857 was a common year starting on Thursday (see link for calendar). ... Karl Gustav Adolf Knies (1821-1898) was a German economist. ... Year 1896 (MDCCCXCVI) was a leap year starting on Wednesday (link will display calendar). ... 1904 (MCMIV) was a leap year starting on a Friday (see link for calendar). ... Nikolai Bukharin Nikolai Ivanovich Bukharin (Russian: ), (October 9 [O.S. September 27] 1888 â€“ March 15, 1938) was a Bolshevik revolutionary and intellectual, and later a Soviet politician. ... Year 1914 (MCMXIV) was a common year starting on Thursday (link will display the full calendar) of the Gregorian calendar (or a common year starting on Wednesday of the 13-day-slower Julian calendar). ... Mason Gaffney is an American economist, and critic of neo-classical economics. ... Year 1994 (MCMXCIV) The year 1994 was designated as the International Year of the Family and the International Year of the Sport and the Olympic Ideal by the United Nations. ... Eugen E. Slutsky (Ukr: Євген Євгенович Слуцький) (April 7, 1880, Ukraine - March 10, 1948) was an early-twentieth-century Ukrainian-Russian/Soviet mathematical statistician, economist and political economist. ... Year 1915 (MCMXV) was a common year starting on Friday (link will display the full calendar) of the Gregorian calendar (or a common year starting on Thursday[1] of the 13-day-slower Julian calendar). ... Year 1934 (MCMXXXIV) was a common year starting on Monday (link will display full 1934 calendar) of the Gregorian calendar. ... Ludwig Heinrich Edler von Mises (September 29, 1881 – October 10, 1973) (pronounced was a notable economist and a major influence on the modern libertarian movement. ... 1912 (MCMXII) was a leap year starting on Monday in the Gregorian calendar (or a leap year starting on Tuesday in the 13-day-slower Julian calendar). ... In 1944 Princeton University Press published Theory of Games and Economic Behavior, a book by the mathematician John von Neumann and economist Oskar Morgenstern. ... Year 1944 (MCMXLIV) was a leap year starting on Saturday (link will display full calendar) of the Gregorian calendar. ... Year 1954 (MCMLIV) was a common year starting on Friday (link will display full calendar) of the Gregorian calendar. ... Year 1989 (MCMLXXXIX) was a common year starting on Sunday (link displays 1989 Gregorian calendar). ... Year 2006 (MMVI) was a common year starting on Sunday of the Gregorian calendar. ... Econometrica is a prestigious academic journal of economics, publishing articles in not only econometrics but in many areas of economics. ...


See also


  Results from FactBites:
 
Corn Law II (4104 words)
In all this the marginal utility school is substantially at one with the classical economics of the nineteenth century, the difference between the two being that the former is confined within narrower limits and sticks more consistently to its teleological premises.
Both the classical school is general and its specialized variant, the marginal utility school, in particular, take as their common point of departure the traditional psychology of the early nineteenth century hedonists, which is accepted as a matter of course or of common notoriety and is held quite uncritically.
The postulates of marginal utility, and the hedonistic preconceptions generally, fail at this point in that they confine the attention to such bearings of economic conduct as are conceived not to be conditioned by habitual standards and ideals and to have no effect in the way of habituation.
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