Online presentation at the Oct. 24 meeting of Triglav Zoom meeting.
Hideo Shingu Ph.D
Representative Kyoto Energy and Environment Research Association
Professor emeritus Kyoto University
TEL&FAX 075-722-1223 shingu@enekan.jp http://en.enekan.jp/
[ Reduction of marginal supply by keeping away from the rule of “invisible hand”]
The basic cause of the plight of the nature of earth, which has been built through the past millions of years, is the extravagant usage of energy by us human beings. Each of us can live with a BMR (basal metabolic rate) of 2000 kcal/day while in “advanced” countries people use over 40,000 kcal/day which nearly equals the BMR of an elephant!
Imagine if the population of elephants is 7 billion, and devouring nature on earth – one could then easily understand the difficulty of preserving nature anywhere on earth.
Honestly speaking in present society people act freely world over in limitless pursuit of utility led by an invisible hand.
Economic growth is always praised and expected without any perspective considerations.
- Marginal utility
Utility means the joy of obtaining whatever one wants. Money is a typical example, as the more you earn the more your joy increases. However, there exists an unavoidable natural rule concerning how much joy you can obtain as the result of getting more money.
This unavoidable rule is stated simply “The more you get, the less you can enjoy what you get.”
If you get 1 dollar when you have 1 dollar in your purse, what you have is doubled and you can feel the full utility of 1 dollar. While, if you get the same 1 dollar when you have 1000 dollars in your purse, the joy by getting the same 1 dollar becomes very small (it can be 1/1000 of the joy you get when you have 1 dollar in your purse).
Such a way of decreasing obtainable joy due to the increase of obtained money is termed as the “diminishing marginal utility” and understood as a basic rule of economics.
The diminishing marginal utility is expressible mathematically as:
dU/dN = 1/N ……(1)
where U is utility, N is the amount of supply of anything (money, materials, stimulus, heat, space etc.). Thus, the more one gets N the less the increase rate of U is, as eq. (1) tells. Hence, the total U when one has N becomes as:
The function log in eq. (2) means logarithms, which indicates counting N not by the number itself but by the exponent with some base number, for instance number 10.
If the base is 10, log10 = 1, log100 = 2, log1000 = 3 and so on.
Aside from such mathematics, the point is that N and U increase as:
N = 1, 10, 100, 1000, …… , and so on. …..(3)
logN = 0, 1, 2, 3, ……. , and so on. …..(4)
meaning that as N (supply) gets bigger in normal pace, U (utility) gets bigger very slowly.
- Marginal supply
It is human nature to look for the joy of getting utility constantly.
However, if the supply increase is in constant pace as in eq. (3), it is not possible to maintain the continuous acquisition of joy of utility, as it is clear from the eq. (4).
So that in order to fulfill the basic human nature the supply must be increased at a much greater pace than the constant rate as expressed in eq. (4)
What kind of rate of supply increase is desirable for getting constant increase of utility? The answer is the exponential increase of the pace.
The mathematical expression, exponential increase, means nothing but the principle of compound interest rate of money deposited in a bank.
The exponential is just the inverse function of logarithm, so that in order to cancel the decrease of marginal utility, the maintenance of marginal supply becomes necessary.
The reason why the maintenance of economic growth rate is the primary aim of governments world over, something accepted from the public without much debate, exists in this simple rule of nature that the more one gets, the less the utility of things becomes. So that in order to maintain the feeling of utility the marginal supply must be maintained.
Conclusion
Everybody understands the formidable power of a compound interest rate. If the supply of things is kept increasing in a compound rate, the supply limit of earth will inevitably be surpassed in due course.
What we must do is to understand the impossibility of keeping the marginal supply of things and rediscover the joy and happiness in scarcity.
Everybody must remind oneself that one humble meal provided for a Rohingya refugee child will give an infinitely happy time to him/her while a luxury dinner at a 5-star restaurant in Tokyo can only give a wealthy couple ordinary contentment for the evening.
Now is the time to wake up from the old dream of classical economics to rediscover ourselves the fact that happiness does not exist in the limitless pursuit of marginal supply guided by an invisible hand under the belief of “laissez faire” principle. The old proverb says “Satisfaction is going backward, movement of mind is going forward”.
The Covid epidemic proved in many countries that we can live happily or even happier in a world of restrained luxury for the sake of caring for others.
How long can our future generations enjoy the lovely songs of uguis in wonderful cherry blossoms in Kyoto? It is the responsibility belonging to all of us.
( written on 2020/10/10)