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This article examines the practice of the federal reserve banks in requiring eligible or near-eligible paper as so-called "marginal" or "additional collateral," to paper discounted by them, in contradistinction to advances on member bank' notes payable collateraled by United States securities or eligible paper. As a setting for collateraled discounts, the history and purposes of collateraled advances are stated, as well as the reasons for the ascendancy of such advances over discount. In their publications the federal reserve authorities fail to acknowledge any difference between (1) rediscounting and (2) allowing advances against eligible paper pledged; nor do they report separately the absolute or relative amount of discounts to which "additional collateral" is required, nor the "margin" required, nor the number of members putting up such margins, nor any other data relative thereto. There are no provisions in the Federal Reserve act or regulations for the practice; and yet it is no mean method of credit control. The reasons offered by the reserve banks for the practice are: (1) to repress excessive borrowing by the applicant member, in the Interest of the reserve bank, of the applicant member, or of the system as a whole, using this device as a supplement to credit rationing, discount rate variation, and moral suasion; (2) to increase the protection to the reserve banks themselves for credits granted; (8) to compensate for the less rigid insistence by the reserve banks on technical qualifications in credit granting and thus to make possible greater extensions of credit to members than can be had on the strict merit of the paper offered for discount; and (4) to acquiesce in greater degree to the traditional methods of Inter-bank finance and to break down the isolation of the reserve banks from the business and financial world. Each of these reasons is examined and criticized. [ABSTRACT FROM AUTHOR]

Léon Wairas' "Correspondence and Related Papers," edited by W. Jaffé is the source book on the birth of mathematical economics. He himself was first to succeed in breaching the wall of the scornful opposition to the application of mathematics to economics, only at the high cost of forty years of a much-resented exile and of endless struggles with this correspondence as a weapon. Still more important, "Correspondence" provides a fascinating example of the social process of discovery with feedbacks through colleagues engaged in similar endeavors. Such records are of special interest for those blessed periods in the history of a science when ideas have ripened to the point where several scientists discover the same things at the same time. This was certainly the case of economics around the 1870's when ten persons independently discovered marginal utility and its relation to relative prices, and around the 1880's when only a slightly smaller number of economists discovered the similar relation for marginal productivities.

This article presents a comment on a paper that examined the economic variables which explain the required return on stock for the investor. The author's primary concern with the paper deals with the theoretical basis on which the empirical research was conducted. The author addresses the utility function that is presented and discusses two errors that he believes exist in this equation. The first error is related to the function being restricted due the inclusion of only three moments of probability distribution. The second error deals with inconsistencies in the analysis based on the application of a limited utility function.

The article proposes to reformulate portfolio theory under the assumption that investment relatives are lognormally distributed. Portfolio theory is shown to be correct under assumptions that returns are normally distributed and the investor's utility function is quadratic. Several reasons for questioning and challenging these assumptions are discussed, such as the unrealistic implications of the utility function. The authors present an algorithm for determining portfolios in an efficient set theorem and discuss the implications for the marginal utility of investors.

The article discusses an integration hypothesis relating to reluctance elasticity, least cost, and borrowing from the U.S. Federal Reserve System by member banks. Factors influencing member bank borrowing include: need, least-cost spread, and profitability criteria; and discount policies used to control credit since the Department of Treasury-Federal Reserve accord of 1951. The issues are the need versus profitability thesis, how the two concepts can be integrated, and the role of each at different levels of borrowing. Indifference-curve analysis and possible expansion paths of borrowings are explained, as well as data showing the relationship between member-bank borrowings and least-cost spread during the period of 1953 to 1958.

The international economist's traditional way of evaluating general equilibrium situations away from Pareto optimum is either to use a utility possibility approach and a neoclassical general equilibrium model (see, for example, Vanek 1965), or to use Professor Meade's second-best index. Meade developed the latter in his Theory of Customs Unions (1955) for a situation where many individuals are producers and consumers simultaneously of all products; the productive process in the form of a production function of one kind or another is never explicitly introduced. The purpose of this paper is to generalize Meade's method to include explicitly the technological conditions, and in particular to allow the model to include interindustry flows. The obvious first application of the generalized results is the evaluation of the impact of alternative patterns of effective protection in international trade. However, the results are perfectly general and can be applied to any suboptinal situations; that is, situations where there are divergences between marginal disutilities in production and marginal utilities in consumption. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to study some problems which are related to the recent controversy about the inefficiency of a monetary equilibrium and the so-called" Optimum Quantity of Money". First, we would like to make more precise an argument which is commonly used in the literature when" proving "the inefficiency ora (stationary) monetary equilibrium (see, e.g. R. W. Clower, M. Friedman, H. G. Johnson, P. A. Samuelson). This argument can be paraphrased as follows. "In a stationary monetary equilibrium, traders' marginal utility (or yield) of real balances must be positive if the traders discount the future. On the other hand, it costs nothing to provide an extra unit of real cash balances at the level of the whole society: it suffices to lower the price level slightly. As a result of this discrepancy between marginal utility and marginal cost of real balances, a stationary monetary equilibrium is inefficient when traders discount the future". While this argument is an intuitively appealing shortcut, it seems desirable to make it a bit more precise, for the concept of "marginal utility of real balances" is rather ambiguous. The need for greater precision can be best illustrated by the fact that some writers on the subject have tried to "explain" the gap between the private and social cost of real balances by the existence of hypothetical and ill-defined "externalities" (see, e.g. M. Friedman, H. G. Johnson). Secondly, we would like to study a proposition put forward by M. Friedman and others: when the traders discount the future in the same way, it is possible to induce a (properly chosen) steady decrease of the total money stock by imposing lump sum taxes on traders so that, in the long run, any steady market equilibrium is efficient. In addition, some economists claim that an alternative way to achieve the same result would be to pay a (properly chosen) nominal rate of interest on cash balances (see, e.g., H. G. Johnson, S. C. Kolm). This is the third issue we shall attempt to clarify in this paper. [ABSTRACT FROM AUTHOR]

Non-profit institutions must make many kinds of decisions about allocations of resources. The theory is clear: allocate so that the marginal utility is equal in all uses. But this is more easily said than done. This paper suggests a series of heuristic steps by which real-life non-profit allocation situations can be coordinated to the marginal analysis. It discusses the assumptions that must and should be made and sets forth a conceptual framework for the analytic decisions. The process is illustrated with an example from library research--the decision about how many books should be placed into storage libraries to maximize the welfare of a university community. [ABSTRACT FROM AUTHOR]

This paper describes the application of the technique of simple "marginal analysis" to an Air Force problem and suggests that a similar application may be useful in many industrial situations. Examples of such industrial problems are also presented. The class of problems discussed can be described as those in which the demand or need for each of several alternative commodities during a specified period of time can be expressed in terms of a probability distribution. Given that the needs can only be met from a package of such commodities of specified total cost, the problem is to select the composition of commodities to be put into the package so that the number of unsatisfied demands or shortages will be minimized. [ABSTRACT FROM AUTHOR]

An intertemporal optimization condition follows from any model of optimal growth. Such an equation usually contains two parameters which cannot be directly observed, the discount rate of future utility and the elasticity of marginal utility. These two parameters can be empirically estimated if they remain constant over time and if the assumed criterion function is maximized in the real economic system. In this paper, a method of estimating these two parameters is presented and it is applied to the U.S., Japan, and Canada. Although the results are not conclusive, in view of the assumptions involved, they tend to confirm the hypothesis that they are fairly stable over time, at least during a sociologically well-defined short period. The analysis in this paper, although heavily constrained by the shortage of data on capital stocks, has shown that the elasticity of marginal utility and the discount rate of future utility are fairly stable over time in normal years, particularly for a short period in which the society as a whole remains essentially unchanged.

The article examines the conditions necessary to make a cardinal utility concept of consumers' surplus. Only one essential assumption is necessary to find this consumer's surplus. It is the same assumption needed to establish an unambiguous cardinal utility for each separate commodity in the first place: that the marginal utility of a commodity depends solely on the amount of that commodity, that it is independent of the amounts of other commodities consumed by individual and of the amounts of all commodities consumed by other individuals. The article concludes that indifference varieties provide a useful theoretical schema; so may cardinal utilities deduced from these ordinal utility functions. Cardinal utilities add nothing to the mere description of consumer behavior. But they may produce useful generalizations for welfare economics, which ordinal utilities have voluntarily declined to produce. Further, cardinal utilities may now be restored to the classroom for many quite complicated cases of complementarity and competitiveness. Finally, it is hoped that the discussion of consumer's surplus in the early part of the paper has succeeded in improving and clarifying that concept for the only cases in which it makes any sense.

This article extends the analysis of durability in several directions. The choice of durability may be related to other aspects of the cost of using the good in addition to the economic life. Transaction costs are introduced as an important feature in markets for durable goods, and the effect of transaction costs on the demand for durables is derived. The relationship between durability and parameters of the operating cost structure is developed. Moreover, the marginal utility of consumption at any point in time for either type of good must be proportional to the appropriate forward price.

This paper shows how the problem of predicting traveler behavior may be approached in terms of economic utility theory. A general utility maximization model on the level of individual trip-making decisions is developed from basic hypotheses regarding the costs and benefits attributed to travel disaggregated into individual trips. For predictive purposes the form of the utility functions involved must be specified, and several possibilities are explored. The functional forms of the resulting travel demand functions are then derived. In order to pursue an analysis of variations in traveler behavior and in order to perform aggregation over individuals, disturbances in the parameters of the utility functions are considered. The parameters investigated are marginal utilities and the distributions used are normal distributions. In considering binary choices, a trip demand model, a modal split model, and a destination split model are obtained from the same basic methodology. Finally, possible approaches to testing the functional relations involved and to measuring marginal utilities are discussed. [ABSTRACT FROM AUTHOR]

John R. Commons' book, The Distribution of Wealth, was a failure when it was first published in 1893. Now Augustus Kelley has reprinted it including an introductory essay by Joseph Dorfman on "The Foundations of Commons' Economics." It is well that Kelley and Dorfman have made this effort, because the book contains material not adequately appreciated up to now. Commons' treatment of monopoly theory deserves at least a more prominent footnote in the history of economic thought. Commons displayed his early interest in the subject of monopoly during the 1892 conference of the American Economic Association. During one of the sessions, J. B. Clark read a paper explaining part of his distribution theory. When the discussion period began, Commons asked him how monopoly fitted into his theory. Richard T. Ely, Commons' teacher, was not satisfied with Clark's answer and said so. Commons himself did not enter into the discussions but offered, in effect, a rejoinder in his book, The Distribution of Wealth, published in the following year. [ABSTRACT FROM AUTHOR]

In the present stage ot the discussion on the problem of social choice, it should be common knowledge that the General Impossibility Theorem holds because only the ordinal preferences is or can be taken into account. If the intensity of preference or cardinal utility[4] can be known or is reflected in social choice, the paradox of social choice can be solved (cf. Kemp and Asimakopulos 1952; Coleman 1966; Mueller 1967). I hasten to add that cardinal utility as used here subsumes some sort of interpersonal comparison. The problem of social choice is to formulate a social preference or choice function from those of the preferences of various individuals. Thus, if there is no way to compare the preference intensities among the individuals, the knowledge of these intensities alone gives little help.[5] However, it is difficult to know and compare the preference intensities of different individuals. Liberalism may be regarded as a partial solution to the problem of social choice in view of these difficulties. Thus, whether you sleep on your back or belly is a matter in which you. [ABSTRACT FROM AUTHOR]

The five experiments described in this paper are the modest final product of an initially ambitious attempt to verify a theory of choice under uncertainty. Yaari [5] in 1965 reported the results of some experiments he had performed in which he attempted to show that the acceptance of unfair gambles is better explained by the assumption that gamblers are optimistic about the occurrence of low probability events, than by the assumption of increasing marginal utility of wealth as postulated by Friedman and Savage [1] and as demonstrated experimentally by Mosteller and Nogee [2]. The hypotheses I attempted to test in these five experiments all rest on the assumption that a subject faced with a choice under uncertainty will calculate the expected utility of each alternative, in the sense of yon Neumann and Morgenstern [3], and will choose that alternative for which the expectation is greatest. In the first and second experiments I was testing a theory having to do with the formation, by the subject, of his beliefs as to the proper probabilities to use in the calculation. In the third I was interested in verifying Yaari's experimental findings, and in the fourth and fifth experiments I was trying merely to obtain very weak evidence to support the hypothesis that decisions are made under uncertainty so as to maximize expected utility. [ABSTRACT FROM AUTHOR]

Most economists, when forced to use a cardinal function, assume that the marginal utility of wealth declines continuously as wealth increases. This assumption is intuitively acceptable and mathematically convenient in many contexts. However, the fact that people gamble casts doubt on the validity of this assumption [3, 6, 1]. Richardson [9], in a discussion of Friedman and Savage [3], argues that their analysis ignores the factors which make planning important in the real world, and that they therefore overlook the "dislocation costs" associated with unanticipated changes in wealth which necessitate plan revision. In this paper models are considered in which a dislocation cost is formally incorporated; this is achieved by limiting consumption to the services of a single durable good which has a selling price, for the consumer, below its purchase price. If the consumer desires to consume more, or less, he must "trade in" his current "model" for a larger or smaller one. This terminology is clearly influenced by the automobile market: houses are a more important source of the effects we are studying. Although it is hard to imagine a world in which such goods are the only consumer goods there might be some demi-paradise in which all non-durables were free goods. [ABSTRACT FROM AUTHOR]

The article discusses the structure of utility functions. It began by discussing the reference vector for all separable sets. Since inessential sets affect nothing, they can be neglected. Accordingly, it assumes throughout the paper that each sector is essential. In appropriate utilization, each set of sectors were shown to be separable. It demonstrates that the partial ordering of the complete collection determines the structure of the utility tree. An analysis of the theorems on separability and additive separability are also presented. Results are then applied to the theory of decisions over time and to the aggregation of production relations. An alternative approach is also presented which is easier to apply in the case of complete additive separability.

This article discusses some applications and limitations of analysis based on the concept of consumer's surplus. It is appropriate to remind the reader of two points. First, we have dealt very little on some of the problems associated with the aggregation of results. Secondly, although we have talked of aggregate benefits or losses, these have only been considered in respect of consumption behavior and have ignored the shadow concept of producer's surplus. Any analysis of the type presented here, if used to evaluate benefits or losses accruing to the community as a whole, must incorporate the appropriate producer's surplus effects. The income equivalent of a utility change effected either by a ceteris paribus price change, or by small multiple price and income changes, is an entirely valid construct and may be measured accurately from observations of price, income, and quantity. The income equivalent of a utility change effected by large multiple price and income changes is a useful construct, and may also be measured accurately from observable data. Providing economists understand the concepts involved and the limitations and restrictions implicit in their use, the notions of consumer's and producer's surplus have a wide range of useful and illuminating applications in the fields of economic analysis and policy.

Comments on the futility of Pareto-efficient distributions. Marginal utility of real income; Optimization of society's totality through equality of income; Economic justice on the people.

This paper presents what is apparently the first published specific utility function, together with its associated demand functions to illustrate the case of a commodity with a negatively sloping income consumption curve. This specific utility function can be subjected to a monotonic transformation by squaring it, such a transformation leaves the demand functions unchanged and will produce an illustration of the case of an inferior good based on an assumption of dependence of the marginal utilities. The analysis in the article provides an answer to the question of the type of utility function necessary to produce a case of an income consumption curve for a good which is normal at low levels of income but inferior at high levels of income, as depicted in several price theory books. If the utility index is additive, such a case must involve the existence of one commodity with decreasing marginal utility and another whose marginal utility function first decreases, next reaches a minimum and then increases.

This article presents a list of periodicals on economics published in June 1, 1954 issue of the journal "American Economic Review." Some of them are "Capital Maintenance and the Concept of Income," by G.F. Break; "Some Comments on the Current State of Price Theory," by C.M.F. Bruce; "An Investigation into the Dynamics of Investment," by R.W. Clower; "The Theory of Effective Demand in the 1920's," by D.J. Coppock; "Price Policies and Theory," by E.R. Hawkins; "The Retarded Acceptance of the Marginal Utility Theory," by E. Kauder; "Concerning Utility," by C. Kennedy; "Replacement in the Theory of the Firm," by G.A.D. Preinreich; "The Production Function and the Theory of Capital," by J. Robinson; "Prices of Factors and Goods in General Equilibrium," by P.A. Samuelson; "Static Equilibrium Theories of Saving," by B.R. Shenoy; "A note on Depreciation, Replacement, and Growth," by E. Schiff; "A Note on the Price Level and Interest Rate in a Growth Model," by R. Solow; "Some Questions About Growth Economics," by L.B. Yeager; "The Role of the State in Underdeveloped Areas," by C. Gamba.

A natural science viewpoint requires important modifications of neo-classical economic theory. Theories should be adapted to empirical testing. The article suggests some changes in neo-classical theory. These are: standard of social policy should be put into statistical terms; marginal utility theory is a psychological hypothesis and is controversial. The law of supply and demand applies to some markets approximately. In others it applies only to some price movements. Some markets are neither perfect competitive markets nor perfect monopolies, they are complex of competing monopolies. Accounting theory offers a basis for including fiscal policy in the theory of cost and price. Institutionalism as an approach which stresses the interactions between social institutions and economic relationships and aspects of behavior, aims to present an orderly arrangement of economic phenomena in which institutions arc elevated from the status of the exception and the footnote, and integrated with the main body of economics.

Consideration is given to problems of choosing the order of issue of items from a stockpile of material whose utility characteristics are changing with time. Conditions are given under which either LIFO (last in, first out) or FIFO (first in, first out) is an optimal issue policy. [ABSTRACT FROM AUTHOR]

The aim of this paper is to show that if the case is reexamined in a different light than that of the strict rigor of mathematics, it is possible to vindicate Marshall at least for his intuition of the economic reality of which he was a witness. And surprising though it may seem, the diagrammatic analysis, so dear to Marshall, will prove a safer method for probing this position than the purely mathematical apparatus.
The argument will center upon two omissions in the mathematical writs by which Marshall now stands indicted.[1] The first omission concerns the fact that Marshall held that the marginal utility of money is quasi-constant, not a constant in the mathematical sense. The second is that these writs implicitly assume that the utility structure is such that in absolutely any situation the optimal budget includes every commodity available on the market.[2] It is natural then that an analysis based on such a highly restrictive (and unrealistic) assumption should produce the strong conclusions against Marshall's position. [ABSTRACT FROM AUTHOR]

The article focuses on the efficiency and equity in the optimal supply of a public good. Even under the stringent assumptions of constant marginal cost for the public good, and constant marginal utility of income for all consumers, allocative efficiency in no way logically determines how cost burdens should be shared even when the income distribution, before taxes and before public good production, is considered just. As a result, public authorities are generally denied the luxury of sequential, independent, or separable decision rules for allocative efficiency and distributional equity. An omniscient decision maker, interested in maximizing social welfare as defined by some social welfare function, must simultaneously determine the quantity of the public good to produce, the share of the cost burden so generated to be charged each person, and income transfers among individuals or groups. The authors states that their purpose of this paper is to demonstrate the foregoing propositions. This is done in part I with the aid of ordinary box diagrams. In part II, the demonstration is repeated with simple mathematics. Part III summarizes the implications of the foregoing for the theory of taxation and expenditure and particularly for the viability of the theory of the public household as containing separable allocation and distribution branches.

The article comments on marginal utilities of money. The author mentions that the assumption of constant marginal utility of money is ambiguous without further qualifications. He considers separately the two possible cases, according to whether the constancy refers to a variation of income or to a variation of prices. One point has however been overlooked by him. It is that the constancy of marginal utility of money is not equivalent to saying that this is a mathematical constant. In their sense, a function is regarded as a quasi-constant if its elasticity can be taken, in a first approximation, as equal to zero. That the author assumes such a constancy only is clearly shown by the footnote on Economics of Welfare. While the treatment of the marginal utility of money as a mathematical constant does not lead to any important difficulties, the adoption of the other point of view makes the problem far more delicate and gives rise to complications which, the author ventures to say, lies at the bottom of the misunderstandings on the matter.

The article discusses issues concerning the emergence and interpretation of the idea of marginalism or marginal revolution in relation to political economy. It highlights the original provocative work of economist Mark Blaug entitled "There Never Was a Marginal Revolution" as well as the contributions of economists William Stanley Jevons, Carl Menger, and Leon Walras in the development of economic theory. It discusses the critical role of utilitarianism as stressed by economist Robert Black and George Stigler.

The article profiles economist Léon Walras, highlighting his role in the marginal revolution of the 1870s. The successive and frequently contradictory reevaluations of the marginal revolution of the 1870s leave the historian of economics in the 1970s perplexed, wondering whether it is more suitable to commemorate the marginal revolution as a disaster or to celebrate the event as heralding a great leap forward in the development of economics. The evaluation of Walras's virtues was one thing at one time when the marginal revolution was described as the overthrow of the labor or cost-of-production theory of value by the marginal utility theory.

The article provides information concerning the history of marginalism in relation to political economy. The term marginalism was formed by John A. Hobson in his book "Work and Wealth" when he needed an expression to cover the acceptance by economists of both marginal utility and marginal productivity and the word was infrequently applied in the twenty-five years after Hobson's innovation The widespread employment of marginal cost, marginal revenue, and marginal propensity to consume in economic analysis during the 1930's caused Richard A. Lester to complain that the details of marginalism were consuming one-half to one-third of the leading American textbooks. A recognizable and continuous history of marginalism started with the advent of the quality termed as marginal utility.

The article profiles economist William Stanley Jevons and highlights the establishment of modern economics. It examines the special qualities which Jevons brought to the study of political economy as well as considers the effect which they may have had in forming his approach to the subject and the character of his contribution to it especially the contribution which he made in 1871. It compares Jevons' expectations regarding the future development of economics with the development which has in fact taken place in the intervening century. Topics such as marginalism and macroeconomic are discussed.