People look at the value of what they have just received as income, and they are less impressed than they were with the previous unit of income. They focus on the immediate – "What have you done for me lately?" – rather than the aggregate level of their existing capital. They conclude, "What’s past is past; what matters most is whatever comes next." . . .
There is a major problem in thinking this way. It is the problem of saying "thank you." . . .
The problem is, we look to the present, not to the past. We look at the marginal unit – the unit of economic decision-making – and not at the aggregate that we have accumulated. We assume that whatever we already possess is well-deserved – merited, we might say – and then we focus our attention on that next, hoped-for "util" of income.
As economic actors, we should recognize that the reason why we are allocating our latest unit of income to a satisfaction that is lower on our value scale is because we already possess so much. We are awash in wealth. We are the beneficiaries of a social order based on private ownership and free exchange, a social order that has made middle-class people rich beyond the wildest dreams of kings a century and a half ago. Or, as P. J. O’Rourke has observed, "When you think of the good old days, think one word: dentistry."
Sunday, November 29, 2009
The free market, to the extent it is allowed to exist, provides us with incalculable benefits through the international division of labor. In this land of plenty, people aren't as thankful as they once were. Why? Austrian economists explain it with the principle of marginal utility. As Gary North writes,