1 of 1

Write now Article Tools

To understand a set of universal truths concerning diverse individuals' valuations of economic goods and how these valuations are reflected in practice, one needs to turn to the Austrian School of Economics and its analysis of marginal utility.

The Austrian School considers utility from the viewpoint of the individual economic actor. That is, for the purposes of economic analysis, it views utility as subjective and dependent on the value hierarchy of the actor in question. An individual's true hierarchy of values is demonstrated, in the Austrian view, not through his stated convictions, though these might affect the true manifestation of his values. Rather, the only way to discern an individual's true values is through his actual choices. An individual, Jim, is confronted with a choice of whether to purchase an apple or a pear using his scarce resources. Though Jim might espouse in great depth the objective esthetic superiority of pears, his purchase of the apple will mean that he valued the apple more highly than the pear, within the context of the situation in which he made his economic decision. The reality of Jim's actions demonstrates that, at the moment, he places a greater utility on the apple.

Furthermore, the utility a given actor attributes to a good can differ dramatically from the utility others attribute to the same good. Consider two computers, X and Y, priced, respectively, at $1000 and $2000. From the viewpoint of Murray Rothbard, economist of the Austrian tradition, the market prices of X and Y do not necessarily indicate the utility a given economic actor will attribute to them. Certainly, the prices do not imply that, to Jim, the actor in question, Y will have twice the utility of X. Although the market price of Y is twice that of X, Jim might attach a higher value to older model computers, like X, due to simple nostalgia. Or Jim might be a miser for whom utility in purchasing Y is outweighed by the disutility of the displeasure produced by his conscience nagging him about overspending. Utility is ultimately an individual consideration, and market prices for a good might only reflect the average of the widely differing utilities various customers attribute to that good. Prices do not themselves bestow on some goods an objectively higher utility independent of individual preferences. A scenario is even conceivable wherein not one of the customers interested in Y is also remotely interested in X, and vice versa. Nonetheless, a substantial number

• 1
• 2
• 3
• next page >>

Add your voice

Know something about Austrian economics and marginal utility?
We want to hear your view. Write now!