Yeah. My previous version of this idea was “the free market maximizes money-weighted utility instead of utility”, but the one with recursion is nicer because it evokes a dynamic picture.
The word “blame” is a bit is-ought to begin with :-) Still, it seems like less disposable income leads to fewer jobs which leads to less disposable income etc, so at least part of unemployment should be blamed on the recursive effect and not on individuals.
Incidentally, Gary Drescher makes the same (citation free) statement in a footnote in Chapter 7 - Deriving Ought from Is:
Utilitarian bases for capitalism—arguments that market forces promote the greatest
good—are another matter, best suited for other books. For here, suffice it to note
that even in theory, an unconstrained market does not promote the greatest good
overall, but rather the greatest good weighted by the participants’ relative wealth.
I remember asking for a reference about a year ago on LWIRC, but that didn’t help much.
Brad DeLong wrote in 2003 that “the market system’s social welfare function gives each individual a weight inversely proportional to his or her marginal utility of wealth”, which he found “a completely trivial result”! Here is his algebra. Last year he pointed to Takashi Negishi as someone who published the result in 1960.
Edit: though to get the result that the weights are proportional to relative wealth you have to add the assumption that utility goes as log wealth.
Perhaps you want to point out that the only demand the market cares about is the demand supported by purchasing power (aka money)? That is true. If you want bread but have no money, the market will not help you.
less disposable income leads to fewer jobs
That’s straight-up Keynesianism which isn’t quite the generally accepted consensus.
Yeah. My previous version of this idea was “the free market maximizes money-weighted utility instead of utility”, but the one with recursion is nicer because it evokes a dynamic picture.
The word “blame” is a bit is-ought to begin with :-) Still, it seems like less disposable income leads to fewer jobs which leads to less disposable income etc, so at least part of unemployment should be blamed on the recursive effect and not on individuals.
Incidentally, Gary Drescher makes the same (citation free) statement in a footnote in Chapter 7 - Deriving Ought from Is:
I remember asking for a reference about a year ago on LWIRC, but that didn’t help much.
Brad DeLong wrote in 2003 that “the market system’s social welfare function gives each individual a weight inversely proportional to his or her marginal utility of wealth”, which he found “a completely trivial result”! Here is his algebra. Last year he pointed to Takashi Negishi as someone who published the result in 1960.
Edit: though to get the result that the weights are proportional to relative wealth you have to add the assumption that utility goes as log wealth.
Nice find. Yeah, Gary and I are often in agreement :-)
The free market doesn’t maximize any utility.
Perhaps you want to point out that the only demand the market cares about is the demand supported by purchasing power (aka money)? That is true. If you want bread but have no money, the market will not help you.
That’s straight-up Keynesianism which isn’t quite the generally accepted consensus.