Rothbardian demand: A critique
Published online: 6 April 2011
Springer Science+Business Media, LLC 2011
Abstract This paper refutes Rothbard’s claim that the law of diminishing marginal
utility implies a non-increasing demand curve. It is argued that the law under
Rothbard’s interpretation is, in fact, irrelevant for demand theory. An example of
increasing demand is provided.
JEL Classification B53
This paper refutes Murray Rothbard’s claim that the law of diminishing marginal utility
(LDMU) implies a non-increasing demand curve.
This claim can be divided into two
parts: (1) the demand curve is always non-increasing and (2) this property is ensured
by the LDMU. As for the first part, it is true only as long as the income effect is
neglected, while the second part is false because LDMU, as interpreted by Rothbard,
has no implication for demand theory, since, in order to ensure its universal validity,
Rothbard formulates LDMU in terms of subjective units relevant to the agent. This,
however, is precisely the reason why the law becomes irrelevant for demand theory
because the demand function represents an objective relationship between an amount
of commodity and its price. To prove this irrelevance, an example of Giffen
can be constructed without violating subjectively interpreted LDMU.
The paper proceeds as follows: part I reviews the relevant literature, in part II, the
meaning of the law of marginal utility is discussed and part III criticises Rothbard’s
derivation of demand from the LDMU and provides an example of increasing demand.
Part IV discusses possible objections against the example, while part V concludes.
Rev Austrian Econ (2011) 24:311–318
… because of the law of utility, an individual demand curve must be either “vertical”, as the hypothetical
price declines, or rightward-sloping (i.e. the quantity demanded, as the money price falls, must be either
the same or greater), not leftward-sloping (not a lower quantity demanded)” (Rothbard 2009, p. 240). He
writes further that “this is the necessary configuration of every buyer’s demand schedule (Rothbard 2009,
I accept the arguments of Jensen and Miller (2008, p. 1552) and prefer to talk about Giffen “behaviour”
rather than Giffen “good”. See also Battalio et al. (1991, p. 969).
M. Hudík (*)
University of Economics, Prague, W. Churchill Sq. 4, 130 67 Prague 3, Czech Republic