Criticism of the Law of Diminishing Marginal Utility
Criticism of the law of Diminishing Marginal utility
Now let us consider the objections raised against this law and how far these objections are valid.
According to the Law of Diminishing Marginal Utility, as we have more and more of a particular commodity, its marginal utility (i.e., additional utility from successive units) goes on falling. The main objections leveled against this law are as under:
1. Utility is Relative. The law of Diminishing Marginal Utility is based on the assumption of independence of utilities, i.e., the utility which a consumer derives from a commodity depends on the quantity of that commodity only. In this world, where quantity of one commodity bought depends not only on its own quantity and price but also on the quantities and prices of other commodities needed. It is hardly real to say that the desire to have still more of a particular commodity, as we have more and more of it, is simply the result of its own influence on satisfactions. In this view utility is relative and not independent as the law of Diminishing Marginal Utility assumes.
2. Utility is Immeasurable. One of the pivotal assumptions of the law of Diminishing Marginal Utility is that utility is measurable. In other words, it is assumed that it is possible to express the utility or satisfaction which a person derives from a good in quantitative terms. Accordingly, a person can say that he gets utility equal to 15 units from the consumption of the first unit of a commodity and 10 units from the second unit of it, and so on. But it has been contended by modern economists that utility relates to the state of mind of an individual. Thus it is a subjective concept and is incapable of being measured quantitatively.
3. Marginal Utility of Money Variable. Another pillar on which the law of Diminishing Marginal Utility stands is that the marginal utility of money is constant. Thus the law assumes that while the marginal utilities of commodities diminish as more and more of them are consumed, the marginal utility of money remains constant throughout the process of consumption. But this is contrary to what happens actually. As more and more is spent on the purchase of a commodity, and less and less of money is left with the purchase, the marginal utility of money goes on increasing. Thus the init of measurement itself is variable. In this context it is fallacious to use money as the measuring rod of utility.
4. The law of Diminishing Marginal Utility is not universally applicable. The law does not apply to all types of commodities and persons. A drunkard gets more satisfaction on taking ‘successive’ cups of wine. Greed increase with more money (with some people).
In short, the fundamental defect in the law of Diminishing Marginal Utility is that all its attention is focused on a single commodity. Actually a consumer is thinking of many other things that he could buy with the same sum of money. That is why it is more proper to express consumer’s demand in terms of his scale of preferences.