“The marginal utility of a thing to anyone diminishes with every increase in the amount of it he already has.Robinson notes that this restriction makes testing of the law of diminishing marginal utility rather difficult (Robinson 1964: 50): for how do we know preferences did not change from one time to the next when a person consumes the same good?
There is however an implicit condition in this law which should be made clear. It is that we do not suppose time to be allowed for any alteration in the character or tastes of the man himself. It is therefore no exception to the law that the more good music a man hears, the stronger is his taste for it likely to become; that avarice and ambition are often insatiable; or that the virtue of cleanliness and the vice of drunkenness alike grow on what they feed upon. For in such cases our observations range over some period of time; and the man is not the same at the beginning as at the end of it. If we take a man as he is, without allowing time for any change in his character, the marginal utility of a thing to him diminishes steadily with every increase in his supply of it.”
Marshall, Principles of Economics (8th edn.), 1920.
Marshall’s requirement of no “alteration in the character or tastes” of the person supposedly subject to the law of diminishing marginal utility is akin to the ceteris paribus assumption of the law of demand: what we have here is a restriction that, as noted by Hans Albert, comes to immunise the law against empirical testing, and effectively renders it an analytic a priori proposition, which is true merely by definition.
For example, if a person becomes serially addicted to an arcade game after the first game, and appears to derive greater utility from each successive computer game (as he does better at it), then this appears to be an exception to the law of diminishing marginal utility.
But presumably if Marshall lived today he would say that the new addiction altered the man’s “character or tastes” so that he is a different person from the one who played the first game: therefore the law of diminishing marginal utility is not violated.
But now the law has become effectively immune to any testing and a tautologous statement.
And, furthermore, since time must always intervene between one purchase of a good and an additional purchase of the same good, one must wonder how anyone at all can be known to have the same character, tastes or preferences over time given that, technically speaking, even a small or minute change in the latter qualities would render them unstable, under Marshall’s view.
Marshall, Alfred. 1920. Principles of Economics (8th edn.). Macmillan and Co., Ltd. London.
Robinson, Joan. 1964. Economic Philosophy. Penguin, Harmondsworth.