Comments (20)

• fundamentalist

  I think this is the issue that confuses people about the housing market. The rise and collapse in housing prices did not happen because everyone suddenly valued their house less. It happened because the people active in the market to buy/sell valued houses more and then less. Many of those people were house flippers. It may sound unfair to home owners who have remained in their houses for decades, but the people who determine how much your house is worth are those who are actively buying and selling today, which are a small minority of home owners.

  Published: November 3, 2008 9:18 AM

• I Hate Taxes

  I am all scrambled up, you couldn't make this article clear couldn't you.

  I don't have a wife, daughter and dog and I eat cereal instead of cake or eggs because cereal is cheaper and therefore I can save more money.

  Published: November 3, 2008 9:52 AM

• Yancey Ward

  Before you know it, revenue hungry states will have the cops will ticket you for violating it.

  Published: November 3, 2008 10:37 AM

• greg

  The egg and cake example does not apply because four eggs is only a part of a cake. You need flour, milk, butter, sugar, baking powder and a little flavoring. My guess, most economist are not bakers. And for the guy that has been in the desert for 3 days without water, water is more valuable than diamonds.

  Published: November 3, 2008 10:43 AM

• Stanley Pinchak

  greg,
  water in the desert is a different good than water where it is superabundant. As such, all rational people would place water in the desert when one has no other access to water higher on their value scale than gold baubles and diamonds. In a similar fashion, air is not a good in most cases on earth, but in space, air (oxygen) would be more highly prized than many other goods.

  Published: November 3, 2008 11:08 AM

• Abhilash Nambiar

  I understand what Art Carden is trying to say, but once again I have to say I come out feeling a bit dissatisfied with this essay. There is a difference between knowing something and effectively communicating what you know. For the former you only need the ability to interpret the phenomena you observe in light of your understanding, for the latter one also needs to have a good sense of the misunderstandings that a reader might have. Marginal Utility is a concept that is not easy to internalize and an article like this is more likely than not to confuse as is evident from some comments here.

  Published: November 3, 2008 11:18 AM

• Stanley Pinchak

  Another way to think about circumstances changing the nature of a good is to think of ice. Which is more highly prized ice in the heat of the summer or ice in the middle of a winter snow storm? It is clear that ice itself is not the good, but ice in certain conditions. No one needs more ice in the middle of winter (except for skaters and hockey players), but ice in the middle of summer is highly desired for its coolth. This is not to say that entrepreneurs wouldn't take advantage of this situation and store up ice in the winter, or ship ice to the opposite hemisphere. The point is that goods are liable to changes in valuation depending on their environment and their intrinsic durability (think bread -> moldy bread).

  Published: November 3, 2008 11:23 AM

• Miklos Hollender

  I had long and fruitless debates arguing for marginalism with Ricardists/Marxists, and got quite tired of it.

  Empirically it's very hard to justify because "equal serviceability" is almost never true in real life. What we can observe in real life is trends, vague correlations. But as there are other factors marginalism in itself cannot predict how a trend will develop.

  Praxeologically it's easy to justify, but then you are back to the same problem: how to justify the ideal world of praxeology has anything to do with the real world.

  It's basically the same problem as with geometry: it's easy to prove the Pythagoras-theorem is true on an euclidian plane. However the surfaces we work with are not Euclidian.

  So we always have to decide whether the surface we are working with is "Euclidian enough" for our purposes or not. And there are no hard scientific ways to do that: it's a question of common sense.

  Similarly, to use praxeology and praxeological marginalsm in the real world, you have to use common sense whether it applies or not.

  And this was something my opponents didn't want to accept. They said it's either objective science and therefore it can predict, or not.

  We debated a lot. I told them it's objective science that smoking causes lung cancer but even the best scientist cannot tell when will a 21 years old smoker die, and it's possible he gets lucky and lives until 90.

  I gave up, I just got too tired of it.

  Published: November 3, 2008 11:25 AM

• Inquisitor

  Miklos, do they concede that one can and does rank one's ends ordinally? If so, it follows ineluctably that the means used to achieve a given end will acquire value in accordance with the priority of the end they're conducive towards. If they do not concede this all I can say is they live in an Ivory Tower, divorced from reality. I like hammering it in the mind of individuals like that, who revel in being absurd.

  Published: November 3, 2008 1:06 PM

• mikey

  
  From Miklos:

  
  "Empirically it's very hard to justify because "equal serviceability" is almost never true in real life. What we can observe in real life is trends, vague correlations. But as there are other factors marginalism in itself cannot predict how a trend will develop."

  Marginality is a valid concept but it is important to stress 'frame of reference'.
  For example Robert Murphy does a good job with his
  man on a desert island model, each sack of grain having decreasing utility as they are less urgently needed.
  But one day a cruise ship rescues the man.Now each sack of grain has the same marginal utility (ie zero) as as the ships' endless buffets make sacks of dirty old grain look pathetic.
  Of course such an abrupt change in the frame of reference is not too common, they are usually more
  mild,this is what is confusing your Recardian opponents.

  I believe this effect is more common in capital goods.

  
  

  Published: November 3, 2008 2:04 PM

• Henry Miller

  There is a problem with the last part of the essay. Suppose Joe has 8 eggs. Since he obviously values cake more than scrambled eggs (we assume the other ingreadiants in cake are abundant) he makes a cake. However now he is fed his family for the day, so he will not use those remaining eggs for scrambled eggs. By taking choice 1, choice 2 for using the eggs is also removed.

  Joe has to decide if he should save the eggs for tommorow. Or he can trade those eggs to someone else for something he desires. Or he can throw them away (generally his worst option, but at times it might be the best - if there is a glut of eggs on the market his time is more valuable than the time to sell them)
  

  Published: November 3, 2008 5:19 PM

• Mike

  I don't understand how people have trouble with this article.

  Henry,
  I don't think you get what the value scale represents. It's not an either or choice. It's "what would I do with eggs if I had them". Hence:

  If I had 4 eggs - I'd make a cake.
  If I had 4 more eggs - I'd make scrambled eggs
  If I had 4 more eggs - I'd make batter for frying fish
  If I had 4 more eggs - I'd decorate them with dye and glitter

  If I had 16 eggs I'd do all of these things. If you took 4 away (the marginal unit), I'd pass on the decorating. Therefore, decorating is my least valued end and you have arrived at the Law of Diminishing Marginal Utility.

  Published: November 3, 2008 8:14 PM

• Gil

  Isn't the 'law of diminishing marginal utility' simply that of the Law of Diminishing Returns?

  Published: November 3, 2008 10:33 PM

• Mary Diane Dolan

  This article assumes that the reader already knows what "the law of marginal utility" is. I don't. I take it this law has something to do with the fact that the items most necessary for human survival are not necessarily the most expensive. The author seems, unforgivably, not even aware that he has failed to state or to explain what the law is. The author seems to presume, willy-nilly, that whoever will read his article already has heard of the law he is referring to and challenges it. Thus, the writing is more on the order of a letter to a friend of known viewpoint than it is like an article.

  Published: November 3, 2008 11:36 PM

• Outside Observer

  Mary Diana Dolan, I politely disagree. The Mises website is not a general site: it is firmly rooted in a particular school of economics. My nick-name describes what I am: an outsider. My spouse is the one with a background in economics. I read the articles because they interest me, I share my spouse's opinions on economics, and I enjoy learning about how economics works. When I encounter terms with which I am unfamiliar instead of attacking the author I either ask my spouse for an explanation or consult a dictionary. I would rather the articles be shorter than explain every term. I too was unfamiliar with the "law of marginal utility", but I saw this article as an opportunity to learn what it is.

  Published: November 4, 2008 12:40 AM

• Anon

  What of other economic laws? Has anyone thought of a list?

  Published: November 4, 2008 4:16 AM

• Michael A. Clem

  Don't forget that this is the blog section of Mises, and long blog articles tend to be overlooked or remain unread. How many of the Weekend Editions do you actually read? There's plenty of other material in other parts of the Mises site. Head over to Literature, Media, or Community.
  

  Published: November 4, 2008 9:53 AM

• Inquisitor

  "Isn't the 'law of diminishing marginal utility' simply that of the Law of Diminishing Returns?"

  No, strictly speaking the latter applies to production IIRC. The former is to do with consumption and is not a "technical" law. The law of returns has to do with limitations on production due to its involving more than one factor.

  I agree with Outside Observer. If you want to learn economics, read an article or book devoted to that purpose. Do not expect others to educate you for every single blogpost and article on here.

  Published: November 4, 2008 1:27 PM

• Walt D,

  Isn't diminishing marginal utility already a law - Gossen's 1st law?

  Published: November 4, 2008 3:39 PM

• J. Chris Folsom

  Let them eat cake!

  Published: November 5, 2008 10:11 AM