Ordinal Preference (MES)

Economics Economics Questions
21

I would say: “The discomfort, uneasiness, inconvenience or pain” compared to what?

It is certainly possible to convert disutility from relative property to absolute by fixing some benchmark state of the world (codenamed “leisure”) and declaring all states preferrable to it as bringing utility, while all states to which it is preferrable as bringing disutility. I just do not see how this is required for any part of Misesian analysis (I am not saying it is not required, will be obliged if I am disproved on this point).

Even your quotes contain sentences: “There is no phenomenon that introduces itself as disutility of labor. There are only data of experience which are interpreted, on the ground of aprioristic knowledge, to mean that men consider leisure?–i.e., the absence of labor?–other things being equal, as a more desirable condition than the expenditure of labor.” (emphasis mine).

Also, “Men prefer the absence of labor, i.e., leisure, to labor” - this is as relative as it gets.

So this boils down to a question - is notion of leisure treated by Mises somehow differently from other actions, and if yes, is this significant for his results.

22

Good to see you you widening your horizons, FOTH.

Even with an ordinal ranking it is possible. To choose a concrete instance, let us say A<B if a person would rather have B than A, given he could only have one of them. We could then order everythig in the universe in a great chain, A<B<C<D etc. We find the thing that has the highest letter that a person actually doesn’t like, but would prefer it to anything of lower letter in the chain. Anything from that letter and lower is siad to have disutility.

In your example, we would have Root Canal<Work < Swimming< Sex. The highest thing on the chain he doesn’t like would be Work. We then say that anything from Work and to the left of the chain has disutility.

If I understand you right, you’re saying that whether we like something or not is independent of our ordinal ranking (though of course we would never rank a dislike above a like). So from a praxeological perspective, how do we determine whether someone likes something or not? Andris makes a good point about that Mises quote. But nevertheless, Mises does tell us that "experience teaches that there is disutility of labor." What sort of experience is he talking about? It seems important to Mises to counter the socialist argument that it is possible to have a world where labor is a joy.

Earlier, someone said that it doesn’t make sense to say that one prefers one thing in “general” to another thing in “general.” I wonder if the same applies to “liking” things. If I have to choose between the actions of A and B for a given time period, and I choose B, what does it mean to say that I “like A”?

23

If I have to choose between the actions of A and B for a given time period, and I choose B, what does it mean to say that I “like A”?

A quick way to formalise this would be: “I prefer doing nothing interspersed with occassional A to doing nothing non-stop” where “doing nothing” is a codename for whatever is deamed a fully neutral action. It’s a codename because some people like doing nothing…

24

Fool on the Hill - I suppose labour can perhaps be defined as something that is done not as an end in itself but as a means to another end only - i.e. that it by definition is something accompanied by disutility. It brings about something that one would rather have without having to do the labour itself at all. Mises is talking about this experience: would you prefer to go into work today or to just earn the money without working and without any other detrimental consequences?

The three categories - things done as ends in themselves only, things done as means only to bring about further ends (labour, the bitter pill etc.), things done as ends in themselves and to bring about further ends - were realised and discussed all the way back in Plato’s Republic. What you don’t see here is ‘things done for their disutility only’ - it seems that the axiom of action was obvious to the Greeks.

25

A quick way to formalise this would be: “I prefer doing nothing interspersed with occassional A to doing nothing non-stop” where “doing nothing” is a codename for whatever is deamed a fully neutral action. It’s a codename because some people like doing nothing…

If “nothing” means a neutral action, then it doesn’t really get us anywhere. If we were trying to figure out what a negative temperature means, it wouldn’t help to say that it is less than a neutral temperature. What does help, would be to say that it is less than the freezing point of water (in the Celsius scale, anyway). That’s a quality that’s independently verifiable without reference to the temperature.

26

Fool on the Hill - I suppose labour can perhaps be defined as something that is done not as an end in itself but as a means to another end only - i.e. that it by definition is something accompanied by disutility. It brings about something that one would rather have without having to do the labour itself at all. Mises is talking about this experience: would you prefer to go into work today or to just earn the money without working and without any other detrimental consequences?

The three categories - things done as ends in themselves only, things done as means only to bring about further ends (labour, the bitter pill etc.), things done as ends in themselves and to bring about further ends - were realised and discussed all the way back in Plato’s Republic. What you don’t see here is ‘things done for their disutility only’ - it seems that the axiom of action was obvious to the Greeks.

I think I like your answer. What it shows is that utility/disutility really doesn’t equal satisfaction/dissatisfaction or pleasure/pain. I could come up with an ordinal ranking of what I want to do tomorrow afternoon. My first choice might be to ride my bike and my second choice could be to go to the beach with a friend. So given this, I would choose to spend my time riding my bike. But suppose my friend offers to buy me some beers afterward if I go to the beach with her. Now I choose to go to the beach. But I would choose to ride my bike and have her buy me beers if I could. So going to the beach with her must be a disutility for me. I don’t have a problem calling this a disutility, but I would be opposed to saying this somehow makes the experience dissatisfying or unpleasurable.

I’m also tempted to say that disutility only involves the means/ends that are separable via the social division on labor. The efficient cause of physical fitness is exercise and dieting. While one might prefer to become fit without having to exercise, it’s not (yet) physically possible. Thus, it doesn’t make much sense to me to say that exercising is a disutility. People don’t get paid to exercise, they pay to exercise.

The introduction of teleology (or final causes) is where I think disutility comes in. It is then possible to split up certain (efficient ) causal chains among more than one actor. While food must still be grown to be eaten, the person growing the food doesn’t have to be the one eating it. Or to use another example, I now have the choice of cutting my grass myself or paying someone to do it. The choice involves how I want to spend equivalent time periods. Cutting the grass would take one hour of my time. If I paid someone to do it, I could then do something else for that same hour. However, what I give up in payment also affects what I do with my time. If I cut the grass myself, I will use X dollars to go to the movies later that night for two hours. If I pay someone X dollars to cut the grass for me, I must find something else to do for those two hours–perhaps I’ll watch a movie at home. So my choice for the three combined hours comes down to: cut the grass and go to the movie theater, or pay someone to cut the grass and watch a movie at home.

An interesting observation can be made: the disutility of any object given up in trade is less than the disutility of the labor necessary for producing the object traded for. And, an object only has utility insofar as the labor necessary to create it has disutility. If the disutility of labor decreases, the price that one is willing to pay for the product goes down, and vice versa.

(BTW, do you happen to remember where in the Republic this was discussed? It’s been awhile since I’ve read it.)

27

I also like the idea of using differentiation between means and ends to define disutility.

However, I think it cannot be used as a practical method - you really need to get into the mind of the acting person to understand, whether a thing is done for its own sake or as a means.

One can certainly use this method to analyze one’s own actions and their motives, and then to project the results on the other persons (“ok, this guy is bringing garbage out probably because he prefers it out, not because he enjoys the process”).

28

Why? It might take the same disutility to pick up an apple as it does to pick up a rock. But I happened to pick up the apple rather than pick up the rock - I prefer the apple to the rock, i.e. it has a greater marginal utility than the rock in this case. Furthermore, I would prefer to have the apple in my hand than pick it up at all - for me to acquire utility from the apple does not require an act of disutility. If you’re extending the concept of disutility to all use of means then essentially you are just pointing out that the categories of economics are based on the scarcity of means.

It’s at the beginning of Book II.

Yes, you’re right - determining means vs. ends in particular cases is a thymological rather than a praxeological problem.

29

Andris: However, I think it cannot be used as a practical method - you really need to get into the mind of the acting person to understand, whether a thing is done for its own sake or as a means.

Aristippus: Yes, you’re right - determining means vs. ends in particular cases is a thymological rather than a praxeological problem.

But isn’t the means/ends distinction important for defining Mises’s economic categories? If we can’t determine what specifically a productive good is (e.g. if we can’t say that a tractor is a productive good), then how useful is the economic theory?

30

Why? It might take the same disutility to pick up an apple as it does to pick up a rock. But I happened to pick up the apple rather than pick up the rock - I prefer the apple to the rock, i.e. it has a greater marginal utility than the rock in this case. Furthermore, I would prefer to have the apple in my hand than pick it up at all - for me to acquire utility from the apple does not require an act of disutility. If you’re extending the concept of disutility to all use of means then essentially you are just pointing out that the categories of economics are based on the scarcity of means.

You’re right. I think I misspoke. I should have said an object only has price-value insofar as the labor necessary to create it has disutility. The way I am now conceiving of the terms, utility/disutility refer to the discrepancy in expected satisfaction between two possible states over a given time. The thing chosen always has utility and the thing not chosen always has disutility. The level of variation–which one might call marginal utility–is important because it tells us what is necessary to change a disutility into a utility. In this way, unrewarded labor has disutility. It is not chosen. However, once the reward offered is large enough to exceed the discrepancy, then labor becomes a utility and is chosen.

I’ll use your example to expand on what I was trying to say about the relation to price-value. First, it’s necessary to break the scenario into three time periods:

A----B----C----D

or AB, BC, and CD

Let’s first consider the rock. We’ll suppose that I want the rock in my hand so that I can look at it. In order to do that, I have to pick it up. The time period where I may pick it up constitutes AB. The period where I look at it then corresponds to BC. Now, let’s say I have a third end in mind for CD. Suppose I have three cups of water and would prefer to drink all of them during this period. At this point, each activity has utility as it is the top ranked possible activity for each time period. But what if we add a person who could put the rock in my hand? Now I might consider a different activity for AB. If the other person is willing to put the rock in my hand without requiring any payment, then I will choose to stretch my arms over my head during AB. So the labor required to pick up the rock now has disutility, but that doesn’t mean that it is dissatisfying. It just means that it is less satisfying than stretching my arms.

OK, so what if the other person is willing to pick up the rock only if they are paid? Here’s where period CD comes in. Let’s say the other person will put the rock in my hand if I give him 1 cup of water. We see that the utility of periods AB and CD are directly related. I will trade 1 cup of water provided the disparity in satisfaction between 2 and 3 cups of water is less than the disparity in satisfaction between picking up the rock and stretching my arms when considering AD as a whole. If I preferred picking up the rock to stretching my arms, then I obviously wouldn’t be willing to pay anything for the service.

Now we take the same scenario but consider the possibility of holding an apple (and presumably eating it) instead of the rock during period BC. The apple is much more satisfying to me than the rock, so I will in fact choose it for period BC. Now here’s the interesting conclusion. What impact does the relative increase in satisfaction of holding the apple have on my willingness to pay the other person to pick up the apple? If we look at marginal utility theory, it says that the expected disparity in satisfaction between the object I own and the expected satisfaction I will have if I don’t have it is less than the expected disparity in satisfaction between the object I trade for and the expected satisfaction I will have if I don’t trade for it. Therefore, since the apple provides more satisfaction than the rock, and given that I am willing to pay only 1 cup of water for the rock, one might expect that I would be willing to pay 2 or 3 cups of water for the apple. But the example makes it clear that this is not the case. The price is determined by AB and CD, BC has no role. If the other person demands 2 cups of water for picking up the apple, then I will simply pick up the apple myself–regardless of how satisfying I find holding the apple to be.

It’s at the beginning of Book II.

Thanks.

31

Interpreting data is the task of economic history, and not economic theory. It is therefore less precise than theory, but not impossible.

Sure, in a situation in which foregoing the cups of water is a greater loss than engaging in the disutility of picking up the object, that is indeed the case. But how does this mean that disutility determines prices?

32

Interpreting data is the task of economic history, and not economic theory. It is therefore less precise than theory, but not impossible.

Right, I agree.

Sure, in a situation in which foregoing the cups of water is a greater loss than engaging in the disutility of picking up the object, that is indeed the case. But how does this mean that disutility determines prices?

Because changes in the disutility of the labor will change the price. We also have to consider the disutility of acquiring a cup of water. If the disutility of the cup of water decreases relative to the utility of the water, then I will acquire a new cup of water to trade rather than trading one of my current cups. In fact, my current cups must have been acquired through labor at some point, so I in effect have already made such a choice. And the disutility of labor for both tasks from the other person’s perspective also plays an important role in price determination. Together, they set an upward and lower bound of possible prices. It’s like marginal utility theory in this way, except instead of taking trade as a given and basing the values off of the marginal utility of the objects, it considers every trade as an evaluation between the relative costs of acquiring the object through trade vs. the costs of acquiring it through something other than trade (i.e. labor). In this way it avoids circularity.

33

But there is obviously an opportunity cost in creating the goods himself rather than in creating other goods with which to trade for them. Now if we assume that the actor is already engaged in his most productive employment, he will still have greater utility gains through trade than through creating the particular good for himself, in accordance with the law of association (and obviously the use of money greatly lowers the transaction costs associated with barter). So it is highly questionable to what extent this kind of competition effects prices where there is money and any kind of division of labour. I think it would be much more accurate to say that it might have some effect on certain prices, e.g. in the case of fixing a drain myself rather than hiring a plumber, than it is to say that it determines prices. Furthermore, it seems that this effect is ultimately due to transaction costs. Am I missing something?

34

I don’t think the division of labor contradicts what I am saying at all. The disutility of labor still determines prices. Consider a scenario where 1 hour of fishing and 1 hour of wood chopping have the same disutility for all members of society. In other word, no one has much of a preference for doing one activity over the other apart from the gains through trade. Now person A can catch 2 fish per hour and can chop 1 stack of wood per hour. Person B can catch only 1 fish per hour but can cut 2 stacks of wood per hour. Person A then would be willing to trade 2 fish for 1 stack of wood. Person B would be willing to trade 2 stacks of wood for 1 fish. In this case, the comparative productive advantage of each person cancels the other out, and 1 fish trades for 1 stack of wood.

Now suppose that B becomes more efficient, so that she can chop 4 stacks of wood in 1 hour. Now B is willing to trade 4 stacks of wood for 1 fish. However, A is still willing to trade 1 fish for 2 stacks of wood, so that is what becomes the new trade ratio. Each person works an equivalent amount of time for each other. If A improves her wood chopping ability to 3 stacks per hour, a new ratio emerges. A is willing to trade 2 fish for 3 stacks of wood, or 1 for 1.5. B is also willing to do that.

Let’s return to where A can only chop 1 stack of wood per hour and B can do 4. And let’s introduce C, who can also chop 4 stacks per hour and catch 1 fish per hour. In this case, the competition between B and C forces the price down to 4 stack to 1 fish. Now A and C work 2 hours for every hour A works for them. But now suppose that both B and C improve their efficiency at fishing to 4 fish per hour. Now they are only willing to trade 1 stack of wood for 1 fish. The situation has reversed: A now works 2 hours for B and C for every hour that she works for herself.

So you can see that the disutility of labor is still very much in play when things become expanded and specialized. In fact, this explains why corporations make profits. Having access to land and natural resources where others do not changes the relative disutility of labor versus goods produced. The competition between corporation B and corporation C helps reduce the price for consumers, but the fact that corporation B can produce the goods of corporation C (and vice versa) more efficiently than the consumers ensures that their profits remain.

This example also shows that simultaneous increases in productivity among competitors of a certain good do not increase profits. Their productivity must also increase in regards to (other) consumer goods. This seems to indicate that specialization is not the recipe for wealth after all. Though it might have seemed for B and C that sticking to wood cutting would be most profitable, improving their skill at fishing turned out to be the better strategy. This might have meant that they took losses temporarily as they practiced and presumably restricted their purchases from A.

35

Your problem comes from not having a common unit of measurement for the value of these goods. Just because B can put out 4 ‘wood’ per hour and only 1 ‘fish’ per hour does not necessarily mean that producing wood would seem to be the most profitable option at all. This is obviously because price depends on subjective valuation of wood and fish rather than on the time it takes to produce them. Suppose that in an hour B can dig 200 holes and fill them up again, but can only create 1 ounce of gold per hour. Based on today’s market prices, which do you think might be more profitable?

That they are profitable from the sale of these items does not mean that they can produce them more efficiently than all consumers. Some consumers might be able to produce them even more efficiently than those corporations, but are more efficient still at producing some other good.

I don’t even seen how your scenarios talk about disutility determining price, since you’ve already granted that the disutility in the creation of goods is the same for all goods!! Wouldn’t the price for all goods be the same, then?? In your scenario you are just talking about basic supply and demand and competition, and are in fact focusing on efficiency as the determinant of price. How does disutility determine price in these scenarios or, more importantly, in an actual market?

36
  1. Andris,

I would say: “The discomfort, uneasiness, inconvenience or pain” compared to what?

Compared to not having that discomfort etc when not laboring.

It is certainly possible to convert disutility from relative property to absolute by fixing some benchmark state of the world (codenamed “leisure”) and declaring all states preferrable to it as bringing utility, while all states to which it is preferrable as bringing disutility.

I don’t think that is what is going on at all. What Mises means is simple. Say you want to see a new movie. You have a good time watching it, but you had to pay $5 for it. Going to the movie thus had utility [=brought enjoyment] and disutilty [=cost you money]. The bottom line is that you wanted to go to the movie, because the utility was more than the disutility. But both are there.

Mises is saying that odd things are happening in the world. People work and make money, so they must consider working a good thing. And yet, at some point, they stop working voluntarily. Why should they do this if working is so great? We are forced to conclude that working has a negative side to it, which is always weighed by individual to see if it the benefit of working outweighs the negative aspect of it. In other words, labor has a disutility attched to it. Sometimes the utility attached to it is more in the eyes of the individual, sometimes it isn’t.

This is required in Misesian analysis to explain why people don’t just work forever, given that they work sometimes.

  1. FOTH,

Rethinking your original question, I think we can all agree that every person can say about something “I like it” or “I dislike it” or “I am indifferent to it”. “Disutility of X” then means “that aspect of X that I don’t like.”

Mises destroyed socialism did not introduce disutility of labor to counter the socialist argument that men can be programmed to love working. His arguments against socialism are of a different kind. He introduced disutility of labor to explain why people sometimes work and sometimes don’t.

  1. To FOTH,

In your latest post you write

So you can see that the disutility of labor is still very much in play when things become expanded and specialized.

Not at all. The efficiency is very much in play, but not the disutility. You did not mention at all what happens when B starts getting more efficient. Does B like or dislike working the efficient way more than the inefficient way? You did not say, and with good reason. Because it doesn’t matter.

Corporations making profits have nothing do with the disutility of labor. And having access to land etc. where others do not does not guarentee a profit. A profit comes from meeting the needs of consumers.

You also write:

This seems to indicate that specialization is not the recipe for wealth after all.

I don’t follow. What is your disproof of the law of comparative advantage? If B can make 4 stacks in an hour, and A can only make 2, what is the logic that says B should not be doing the stacking for them both? And if A catches 2 fish an hour, but B only one, why should A not be doing the fishing for them both?

If A stacks and B fishes, after an hour we have a fish and a stack. If we reverse, after an hour we have 2 fish and 4 stacks. Which method is the recipe for wealth?

37

I see Aristippus has got this.

Bowing out.

38

This is required in Misesian analysis to explain why people don’t just work forever, given that they work sometimes.

I do not think disutility is required for that. Even diminishing returns from work are not required.

People work to get resources, which they intend to consume. Consumption requires time, so there is some distribution of time between work and consumption that maximizes utility in whatever sense we choose.

I am not saying this is what happens in real world, but it is a self-sufficient minimal model in which people would not work forever - and no disutility is needed (only lost opportunity of consumption).

[EDIT: you may be right that Misesian analysis requires disutility - I will have to reread his works. Could you pinpoint some relevant passages?]

39

Andris,

I meant that even after time off for consumption, they sometimes choose not to work. Must be because it is unpleasant.

To quote Mises: We see that men renounce advantages which they could get by working more–that is, that they are ready to make sacrifices for the attainment of leisure. We infer from this fact that leisure is valued as a good and that labor is regarded as a burden.

As for relevant passages, I guess the Index to HA under Labor, disutility of, would be the place to look.

I notice he has a whole Chapter XXI about it.

Which leads to

FOTH,

I have to retract something I wrote. Mises in HA, late in the book, indeed refutes some Marxist ideas based on disutility of labor. I’m impressed by your connecting the dots.

Well, my work is cut out for me. I see that Chapter XXI is chock full of important stuff. Haven’t got around to reading it yet.

40

Aristippus: Your problem comes from not having a common unit of measurement for the value of these goods. Just because B can put out 4 ‘wood’ per hour and only 1 ‘fish’ per hour does not necessarily mean that producing wood would seem to be the most profitable option at all. This is obviously because price depends on subjective valuation of wood and fish rather than on the time it takes to produce them.

Well, B and C were previously getting 1 fish for 2 stacks of wood, or 1 hour of work. They might think that doubling their productivity would double the amount of fish they receive–i.e. 4 stacks would get them 2 fish. Even supposing the additional stacks provide the same satisfaction for A, the price still changes to 4:1. Of course it doesn’t have to seem to B and C that profits (in terms of labor time saved/received) will increase with increased productivty. It’s to your credit if you recognized that it wouldn’t.

Suppose that in an hour B can dig 200 holes and fill them up again, but can only create 1 ounce of gold per hour. Based on today’s market prices, which do you think might be more profitable?

Obviously, the good has to be actually bought. But supposing that someone wants holes to be dug and filled in, it could be more profitable. After all, many more people want water than gold, but my ability to mine 100 lb. of gold per hour as opposed to 100 lb. of water per hour would make it more profitable for me to mine gold. While something obviously has to be wanted in order for me to sell it, it is not the level of desire that determines the price, but the disutilty of labor.

That they are profitable from the sale of these items does not mean that they can produce them more efficiently than all consumers. Some consumers might be able to produce them even more efficiently than those corporations, but are more efficient still at producing some other good.

In that case, those consumers would be making a bigger profit than those corporations. In other words, provided these two parties traded with one another, those corporations would be working more hours for these super consumers than these super consumers would be working for them. In other words, the corporations’ profits only derive from the other consumers.

I don’t even seen how your scenarios talk about disutility determining price, since you’ve already granted that the disutility in the creation of goods is the same for all goods!! Wouldn’t the price for all goods be the same, then??

No, the disutility isn’t the same for each unit of goods. The disutility is the same for each hour of labor for each type of good. One hour of fishing and one hour of chopping wood is equally disatisfying. And weather I can chop 2 stacks of wood in an hour or 4 stacks in an hour, the job is still equally disatisfying per hour. But you see that the disutility of each item changes. First, 1 stack of wood requires 30 minutes of disutility. After I improve my efficiency, 1 stack of wood requires only 15 minutes of disutility. Thus the tendency for the price to decrease (the price also depends on the disutility of other people).

In your scenario you are just talking about basic supply and demand and competition, and are in fact focusing on efficiency as the determinant of price. How does disutility determine price in these scenarios or, more importantly, in an actual market?

Efficiency means less (social) disutility per unit of a good. So to say that efficiency determines price, is to say the same thing. And I should make it clear that the price doesn’t go down because the supply goes up. An increase in efficiency might mean that people work less while producing the same amount of goods. The price still goes down even though the supply remains the same.