On the Marginal Utility of Money and Its Application

Professor Ragnar Frisch has recently published an important book in which he develops the concept of the marginal utility of money.1 The title adopted is, however, an inadequate indication of the scope of the work, and a more comprehensive description would read: the notions of money marginal utility and of money flexibility; statistical methods for the measurement of money flexibility and their application to actual data; the application of the notion of money marginal utility to certain theoretical problems, i.e. the problems of the price of living index number, of the supply curve of labour and of the income tax. It cannot be said that the importance of the work is due to the actual statistical results achieved, for they are based on data which are admittedly rough and inadequate. Nor is it due to any new light thrown on the more fundamental problems of economic theory, for most of the purely theoretical background has been omitted, deliberately it would seem, by the author. It is the fact that almost limitless fields are opened up for discussion by economists interested in what is now called " econometrics " which makes the work of such importance. The following observations are, for this reason, something more than criticisms of detail. In particular, the purely theoretical bases of the problems considered (omitted by Professor Frisch) seem to be of great importance and an attempt will be made to supply them. It will then be seen that Professor Frisch's discussions suffer from the indefiniteness of the theoretical notions and from the lack of explicit statement of the assumptions involved, not only because the reader is confused, but also because flaws and weaknesses are thereby much more difficult to detect. This is particularly noticeable in the rather sketchy chapter on the price of living index number. A division into three sections has been found convenient. The first section discusses the notion of money utility with particular