Wildstar,
Am I close?
Yes.
Subjective marginal utility and diminishing marginal utility always appear tied together as a pair, and are irrevocably entangled with economic goods that are valued by direct subjective use-value. The first unit of such a good is always applied to satisfy a more urgent need or satisfaction than the second such unit.
Although it would appear otherwise, the concept of marginal utility doesn't directly apply to exchange valued goods, but only indirectly as those goods can be used to acquire the subjective use-value goods. The exchange valued goods could have no value at all if the use-value goods did not exist.
If we call this indirect (diminishing) marginal utility, that is a property of exchange valued goods, quasi-marginal utility, it has a couple of novel characteristics.
As you note, the rate of diminishment of quasi-marginal utility as additional units are added must be slower than the rate of fall of the actual marginal utility of subjective use-value goods.
If the underlying use-value good is a breakfast order of ham and eggs, a second order will be subjectively valued less than the first order for tomorrow's breakfast. If this were the only available good, the quasi-marginal utility of the exchange value good would fall at exactly the same rate.
However, if there existed a second use-value good, such as breakfast sausages, the first sausage for tomorrow's breakfast could have a higher subjective value than the second order of ham and eggs. This would retard the fall in quasi-marginal utility of the exchange good.
In addition, the second unit of the exchange value good could be saved for the first order of ham and eggs for the day after tomorrow. This would presumably be as highly valued as the first order of ham and eggs, except for suffering a discount due to the rate of time preference for
tomorrow's satisfaction over that of the following day.
In sum, the possibility of exchange value goods being applied to both a variety of goods and over a variety of times in the future together means that the quasi-marginal utility of exchange goods must diminish at a relatively slow rate as compared to individual use-value goods.
There is still another factor that must come into play. If we want to talk about the quasi-marginal utility of a specific exchange good, such as dollars, the relevant supply is not the dollars themselves, or even the purchasing power of the dollars, but is the sum of all of purchasing powers of all of the exchange goods possessed.
From the law of diminishing marginal utility, the (quasi) marginal utility of dollars would decrease as the number of dollars increased. But the same effective decrease would occur if the equivalent number of dollars worth of euros or gold or some other exchange value good were increased.
If I have a total of $10K worth of dollars, euros and gold together, then, ignoring timing complications, the marginal utility of dollars will not depend on how the total of $10K in purchasing power is allocated between actual dollars, euros and gold, but just depends on the total.
Spreads and transaction costs do not affect this result as long as we use the net number of dollars that would be yielded by actual conversions of euros and gold to dollars.
I have not yet found anything in the literature that would support quasi-marginal utility or the combination of purchasing power from various exchange value goods, but I can't imagine that these are anything but logical consequences.
The fact that the purchasing power of all exchange goods will vary independently as the future unfolds ( as do the market prices of all goods themselves) is a separate issue of asset allocation, and needs not be confused with the theory of marginal utility itself.
Regards, Don |
