Reply To: Marginal Utility of Money


Diminishing marginal utility refers only to equally-serviceable, additional units of a particular good that a person could possess at a moment of time. If a person has two iPhone SE instead of one, the value he places on an iPhone SE must be lower. DMU applies to money, since money is also a good that is divisible into equally-serviceable units. If a person selects the possession of $1,000 as suitable to attain an end, then having another $1,000 in his possession he would value less highly than the 1st $1,000.

There are two problems with the claim you refer to. First, money holdings are not the same phenomenon as income. DMU refers to having additional units of a good in your possession. The MU of money is not the subjective value of the goods you can purchase by spending money. It is the subjective value of holding onto money as part of your stock of goods. Second, DMU refers to an amount of a good chosen by the person as suitable to the attainment of his end. A person may consider two iPhone SE as the unit suitable for his end if he wants his aging mother to have a phone also so that the two of them can communicate with each other. Likewise, the amount of money chosen a person as suitable for attaining his end is the unit of money. It is arbitrary, therefore, to conjecture a doubling of a person’s “income” as appropriate to think out the logic of DMU.