Analysis of “The Limitations of Marginal Utility” by Thorstein Veblen
Marginal Utility by definition is the additional satisfaction a consumer gains from consuming one more unit of a good or service, which is usually positive, but can be negative. The concept implies that the utility or benefit to a consumer of an additional unit of a product is inversely related to the number of units of that product he already owns. The notion of marginal utility originated with attempts by 19th-century economists to examine and describe the economic validity of price. They believed price was partially determined by a commodity’s utility, which led to a paradox when applied to predominant price ...view middle of the document...
Veblen criticized this notion, stating, “Within this limited range marginal utility theory is of a wholly statical character. It offers no theory of a movement of any kind, being occupied with the adjustment of values to a given situation.”
His greatest critiques were generally its unrealistic assumptions of human nature and its lack of an evolutionary approach to economic occurrences. He believed many people often tend to overextend the use of the principle beyond this range, and apply it to questions of production, but not effect. He objected to its conception of a passive, adaptive man. He believed that people were able to make conscious decisions about their consumption practices. He wanted a theory as to why innovations take place; not how things stabilize themselves in a static state, but how they endlessly grow and change. Veblen wanted to explain that men change surrounding conditions rather than simply adapting to them.
I agree with Thorstein Veblen’s critiques. I believe he is correct in his assumptions. As Veblen said, and I agree, often times, rather than just conforming, people choose to change their surroundings. They are not just passive and adapt to whatever is around them, they choose what they want and make the changes necessary to make that change happen.
The primary limitation in my opinion with marginal utility is it is purely subjective, and therefore not measurable by any constant method. Utility is a concept, not a form of currency. Besides this though, there are numerous other problems with the theory of marginal utility.
According to the marginal utility theory, all people are considered to want very similar things, and react the same way to those things. The law does not take into consideration that the income of the consumer doesn’t remain constant throughout their whole life. Early in life, they may be just starting out and not have a lot of disposable income. A few years later, as the person get a better, steadier job, they may have more money to spend. Marginal utility for a product or service that used to increase your marginal utility when you had less money may no longer do so. Likewise, products that increased utility when you have more money may have mot increased your marginal utility in the past.