Saturday, April 9, 2011

money income and utlity

its a great magic trick of econ con to conflate these two
a cardinal utlity ie a phlogiston with the humble market based  cash income of a household

the medium of exchange has certain very useful characteristics
that even a well behaved utlity function cardinal or ordinal lacks

money value = utility value

much mischief starts with this only semi concious  act
that the firm which is motivated by net income max
is somehow analogous to a household that is utliity maximizing
takes a certain rationalized stylized "realism " and makes it dissapear
the for proft firm mediating exchange gets vanished
in particular  if the market system can  zero out  profits at equilibrium
even if equilibrium is only at the end of a path of accumulation


firms are reduced to the socially  minimzed cost of transactions
the transactions that are producing by exchange pareto improving
maybe even socially maximized  prior constrained aggregate utlity

now if in the market place one can only bring ones laboring capacity
skilled or not
then pareto improvement occurs at any hiring above some dreadful minimum