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The Austrian Theory of the Marginal Use And of Ordinal Marginal Utility

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  • J. Huston McCulloch

Abstract

The Austrian theory of the "marginal use" is restated and extended. It is found that the Austrian concept of marginal utility (as derived from the marginal use) is not dependent on cardinal utility, and indeed is consistent with "intrinsically ordinal" utility. In this system, diminishing (ordinal) marginal utility is an implication of rational choice, rather than an assumption. Examples of the rank-ordering on commodity space, derived from the underlying rank ordering on want-set space in conjunction with the technological relationship between goods and wants, are given in the cases of independent, rival, and complementary goods. In each case the derived commodity preferences are quasi-concave, which suggests that the Hicksian assumption of quasi-concavity is superfluous. In each case, the Auspitz and Lieben-Edgeworth-Pareto criterion for net complementarity or rivalness emerges. It is shown that while a negative cross substitution elasticity is not a necessary condition for net complementarity, it is a sufficient condition under not very restrictive conditions.

Suggested Citation

  • J. Huston McCulloch, 1977. "The Austrian Theory of the Marginal Use And of Ordinal Marginal Utility," NBER Working Papers 0170, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0170
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    3. Jönsson, Kristian, 2004. "Effective Consumption and Non-Keynesian Effects of Fiscal Policy," Working Papers 2004:26, Lund University, Department of Economics.
    4. Li, Jiawei & Pollard, Simon & Kendall, Graham & Soane, Emma & Davies, Gareth, 2009. "Optimising risk reduction: An expected utility approach for marginal risk reduction during regulatory decision making," Reliability Engineering and System Safety, Elsevier, vol. 94(11), pages 1729-1734.
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