Diminishing marginal utility of money for individuals != Diminishing marginal utility of money for societies

The conventional view is that the marginal value of each additional dollar of income tends to decrease quite sharply. Going from $2 a day to $5 a day is the difference between malnutrition and enough food. Going from $5000 to $6000 just means a slightly larger apartment.

There are some argument against the conventional view that I find reasonably persuasive. The two most important are

• you can save money, so going from 5k to 6k means potentially retiring a decade earlier
• you can donate money to charity, which for the amounts any normal person will donate will have almost flat marginal value per dollar spent

I think a third, potentially far more interesting objection is that this is the wrong frame to think about. It can be true that income has sharply diminishing returns at the individual level but also false, or far less true, at the societal level. Why? Imagine you’re a billionaire.

• you use a high brand IPhone or Android. The same as most middle class professionals.
• you drive a car. It’s a nice car, but it’s still just a car
• You can pay for the best healthcare and specialists, but by and large your life expectancy is not much higher than a middle class person
• You can rent a private jet, but still your travel time from most major cities to other major cities isn’t that much faster than for the average person.

I think that most goods and services are created by and for the mass market. They also rely on a host of inputs stretching back through a long and complex chain that’s almost impossible to grasp. Each good in that chain of inputs is also typically made for a mass market. Hence, the overall quality and scope of goods you can access is determined far, far more by the kind of society you live in than by how much money you individually have. A unemployed factory worker today is better off materially than a king in the past.

I think that higher individual spending on consumption probably has fairly sharp diminishing marginal returns. I think that societal wealth/affluence has diminishing returns too, but that the slope is far gentler.