Important economics stuff

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Originally posted by MrCoffee
So how does the keynesian frame of thought view the idea of luxuries and extravagances? Heres is a tidbit from something I  found on that subject. Wonder what miko might have to say to further enlighten on the subject.

Mill takes it for granted that individuals act rationally in their pursuit of wealth and luxury and avoidance of labor, rather than in a disjointed or erratic way, but since he does not have a theory of consumption, he develops no explicit theory of rational economic choice. Such theories were developed only in the wake of the so-called neoclassical revolution, which linked choice (and price) of some object of consumption not to its total utility but to its marginal utility. For example, nothing could be more useful than water. But in much of the world water is plentiful enough that another glass more or less matters little to an agent. So water is cheap. Early “neoclassical" economists such as Jevons held that agents make consumption choices so as to maximize their own happiness (1871). This implies that they distribute their expenditures so that a dollar's worth of water or porridge or upholstery makes the same contribution to their happiness. The “marginal utility” of a dollar's worth of each good is the same.

I dont understand any of this, I do know that the world in mostly ocean and we have alot of water. Water is cheap so who cares.

[miko2d]

MrCoffee: So how does the keynesian frame of thought view the idea of luxuries and extravagances?

 I did read the General Theory and some other works of Keynes and all I can tell you that often either his following sentence directly contradicts the preceding one or you woudl find opposite views in different works/pages.

 So he could think everything and anything but the "theory" is total mumbo-jumbo of high-sounding nuicance. The man could not figure out how a person withdrawing from consumption contributes to saving and investment...

 Anyway, the Austrian theory only recognises devision of econimic goods into consumer goods and production goods - where the division is strictly subjective and can change even for the same physical object. There is no special place for luxuries in the fundamental theory, though one can make informed judjements on the behaviour of prices for such goods in various circumstances.

Early “neoclassical" economists such as Jevons held that agents make consumption choices so as to maximize their own happiness (1871).

 Amazingly, Jevons, Walras and Menger made and published that discovery in the same year - 1871, but since Menger was instrumantal in the development of the subjective theory of value, he is considered the founder of the modern Austian school.

The “marginal utility” of a dollar's worth of each good is the same.

 According to Menger, the subjective value is an ordinal rather than a cardinal value. One can rank them but not numerically express their value. You can never say that value of some good is the same as some other one, just lower or higher. If you trade a dollar for some good, it just means that you actually value that good higher than the dollar. If the value was equal, why would you trade?

 miko