Robert Nosick's criticism of Austrianism and Indifference

Economics Economics Questions
1

I was fumbling around through a couple of lectures on the Mises website, and I ran into one of Robert Nozick’s criticisms about Austrian economics. One of the things he deals with is how the Austrian concept of indifference is incompatible with the law of marginal utility. I read Block’s reply to this, and personally, along with Block I find it “one of the most brilliant and creative criticisms that has ever been
levelled against any aspect of Austrian theory.”

“the Austrian theorists need the notion of indifference to explain and mark off the notion of a commodity, and of a unit of a commodity. . . . Without the notion of indifference, and, hence, of an equivalence class of things, we cannot have the notion of a commodity, or of a unit of a commodity; without the notion of a unit (“an interchangeable unit”) of a commodity, we have no way to state the law of (diminishing) marginal utility. (1977, pp. 370–71)”

Essentially Nozick is saying that the without the concept of indifference, Austrians can’t say two means constitute the same good. Since Rothbard classifies goods as two things of “equal servicability”, doesn’t choosing one of the goods imply that you are either 1)indiferent about which one you choose, or 2)preferring one over the other, implying that one gives greater utility and that they are not the same good? If you reply to Nozick with 1, it means you are accepting indifference, and if you reply with 2, you are basically saying that there is no such thing as a good in economics, which would tear the entire Austrian edifice down.

My own fashioned reply to this is that classifying two means as the same “good” is to rank them on a value scale while preferring one of the same units of a good (A) to another (B) is to choose between them. For example, someone is making a sandwich and needs two loaves of bread (considering two loaves of bread as one good), and opens up the plastic containing the bread and picks two loaves from it. In his mind, since each two loaves of bread is one good, there are five interchangeable units of the good in the container. So he ranks the 1st unit of the good on the top of his value scale, right under the distutility of utilizing labor/time in taking the bread out, and then the other bread goods ranked under it, implying that he will only take one unit of the bread because he does not need the others since the effort/time is too much (in essence he’s plain saving the rest, but that deals with time preference, which doesn’t really pertain to the situation). Since the goods give equal servicability, he ranks them accordingly and in this particular situation he only needs one since the benefits are greater than the costs (he doesn’t need any more sandwiches, so he ranks additional units of the bread lower since the servicability they provide to his specific ends get less and less).

But when he chooses the 1st unit of the good, he prefers unit of bread good A to the others (lets simply say the utility of choosing A was greater because it was on top of the others). In order for him to choose between the two goods, he must rank them in terms of utility (he can’t be indifferent or else the Austrians would lose the argument) with bread good A providing a greater service of utility (its closer) to the other bread goods (it takes time to fish through the wrapper and get the others). Clearly he prefers one unit of bread to the other unit of bread, implying choice and two different levels of utility, but when he considers them the same good he ranks them according to their equal servicability as he is not choosing between units of the good.

Anyway, I’d be interested to hear other’s people’s replies. From looking at some of the Austrians who’ve replied to Nozick’s conundrum, it seems to be a question they had to think about and reformulate the Austrian approach to counter. Most criticisms are responded by Austrians like “You don’t understand this, and this is why…”, whereas this is something that they actually had to think about because I don’t think Mises or Rothbard ever considered Nozick’s question.

2

That’s like saying that I can’t measure/analyze/introduce/ponder “my” distance to the Sun because my left eye lash may be couple of inches further/closer to the Sun than my right one.

Z.

3

Where is this paper and Block’s reply?

4

Austrians believe in the law of diminishing marginal utility?

5

Austrians believe in the law of diminishing marginal utility?

yes

6

Wiki says

Sounds like psychological speculation. Someone educate me.

7

One may ask ‘what is the utility of all apples?’ one may baulk at the question as being ridiculous. one then curtails oneself to asking sensible questions.. (one hopes [:)]). what is the value of this particular apple to this particular person ? This is taking a marginal approach.

Does a person value the ‘3rd’ ‘identical’ apple they are given (in a ‘batch of 3 apples’ more or less than the 2nd?, than the 1st? well, they use the 3rd apple for the next highest preference, after that of the first and that of the second, so the services it renders are diminished in comparison to those apples that came ‘logically’ prior. of course given that each apple is perffectly servicable vis the others, each apple’s marginal utility is diminished.

These are formal concepts since, if i give you a batch of apples the choice of which apple is assigned to serving the 1st highest valued end and of which apple should be the means to the 2nd apple services and which the 3rd is arbitrary…

8

So taking an apple signifies that the agent has some want/need to be fulfilled, and the order in which they are taken is determined by his preference’s strengths

Forgive me for backpeddling onto the OP, but can’t we reject this in some special situations? If i need to eat two sammiches a day to live, the first sammich I take does not give me life. But the second does, and is therefore the utility of the second action is so much higher than the first, despite them being identitcal goods.

I’m sure this will be rebutted easily… I’m just confused about definitions or something.

9

Try Joseph Salerno for some history and theory here: http://www.youtube.com/watch?v=DFe-PRKud5g

10

http://mises.org/daily/3100

11

http://picasaweb.google.com/Lilburne2/HumanActionComics3?feat=directlink#

http://picasaweb.google.com/Lilburne2/HumanActionComicsDiminishingMarginalUtility?feat=directlink#

12

For anyone who was following my line of logic:

13

Any replies or counters to Nozick’s argument? He brings up a good point imo, its something Austrians never considered.

14

Hoppe and Block have both offered responses to Nozick

http://mises.org/journals/qjae/pdf/qjae8_4_6.pdf

15

I actually feel the entire debate over indifference is much ado over nothing and pretty pointless, since it seems to be resulting from a confusion of means and ends. Only ends are actually exchanged through action and of course have unequal valuations attached to them. Means, which are valued relative to their perceived abillity to achieve ends may be unequal in this regard or equally serviceable toward achieving a particular end. I’ve made more elaborate notes just now on this subject, after mentioning it in my recent thread on marginal utility. In any case, to flesh out what I’ve concluded a bit more, here’s my comment from that thread on this subject:

"I was thinking as soon as I made my post of a solution similar to the one you’ve sketched out, and instead of thinking of levels of utility, I simply thought of ends. I did so, because I see it as the way of resolving other similar puzzles, for instance Robert Nozick’s confusion over an alleged contradiction in utility theory.

This is since what are actually exchanged are possible ends, not means. Action is a demonstration preference of one end over another, it is perfectly consistent therefore, that means are equally substitutable for one another in the actor’s point of view, if they can produce the same ends to the same efficacy. Since the value of objects is ultimately evaluated by the subjective use value perceived by the individual, which may or not be dependent on their objective use value, it is therefore perfectly possible that 2 different means could be viwed as equally serviceable for the execution of an end, just like we reason 2 of the same means probably will be seen in such a way(though they may not be). It doesn’t follow from this however, that action is a demonstration of indifference, since it is still a demonstration of preference over alternative ends."

I was thinking of writing a comment paper on the debate between Block, Hoppe and recently Ben O’Neill, I was partly dissuaded however, since I thought the journal editors might be a bit offended at me making a one paragraph submission to what has consumed the authors in such a lengthy debate. The neoclassicals still fail to justify indifference curves since properly understood man acts to achieve more highly valued ends, whether or not he perceives A and B as equally valuable and serviceable in their abillity to achieve the marginal end. It does not follow from this however, that already having A and applying it to the marginal end, that the man would commit action to exchange A for B, since he would not change his situation, and would not achieve anything, and would of course expend effort to actually make the trade, though that’s besides the point. So therefore, I think the Nozick-Caplan objection on this part of Austrian theory is toothless.

16

Can someone briefly explain to me why mainstream economists think indifference is a relevant concept?

Also, I don’t see why this…

… poses a problem for Austrians. I mean, why can’t we just accept this, and say two goods are homogenous if the actor is indifferent between them. Why does this even need a rebuttal?

17

If two things are the same commodity, they must be equivalent, and consumers MUST be indifferent with respect to their choice of either. Austrians reject this, asserting that a consumer’s choice is an ad hoc display of preference. But if two commodities are equivalent, you can’t have a greater preference for either.

The answer is that "commodity’ is a convenient abstraction. Widgits may be equivalent in make, but are not equivalent in accessibility or other factors. Even choosing between two widgits on my right or left is not a choice between two equivalent commodities because I’m right handed. Its up to consumers to decide what counts as a “commodity”.

18

Equivalent in the mind of the actor involved, I agree. Equal serviceability.

I don’t see how this is a rejection of the first point. I want a sweater, but I am indifferent to whether it is blue or green. In my mind, they are goods of equal serviceability (the colour has no relevance for how much utility they will bring me). So the law of marginal utility applies to sweaters as a homogenous class. The fact that I bought the blue sweater is not a display of my preference for a blue sweater over a green one. It is a display of my preference for a sweater over no sweater. By observing me, you don’t know whether my preference was for a blue sweater, or just any sweater.

I don’t think this is the “answer” (in fact, I don’t see what the problem is). I don’t see how the law of marginal utility can work without the idea of commodity. If you prefer the widgit on your right because its easier for you to reach, then this means we can’t consider the two widgits as units of the same good (they are not of equal serviceability to you). So the law of marginal utility doesn’t apply (and never applies), and we can’t say anything about the utility you will receive if you pick up the left widgit after you have picked up the right one. It might as well be two completely different objects we are talking about. That cannot be right. Commodity must be a real category, not a ‘convenient abstraction’.

19

I’ve just re-read Hoppe’s note again (I read it last night). What I’ve said above is a paraphrase of what he is saying. The answer you gave was Block’s answer. I prefer Hoppe’s. As he says though, this is a useful note of clarification, a slight improvement on Rothbard and Mises. I was imagining some major hole in Austrian theory that Nozick had found, but Hoppe’s clarification is how I always understood it anyway. No observer of an action can fully understand the nature of that action, because he cannot know the actor’s purpose.

Just as we apply praxeology to a world where humans exist, and there is diversity of people and land, and leisure is prefered to labor, etc, we also are applying it to a world where some objects, in the mind of humans, form a class of goods of equal serviceability. In this real world, where people do think in this way, the law of marginal utility applies. If we lived in a world where humans never consider two objects to have equal serviceability, then in that world there would be no law of marginal utility, because there would be no concept of homogenous goods.

20

A commodity is a homogenous class of goods. Marginalist theory needs there to be differentiation between goods in order for agents to choose. Therefore, an actor cannot ever pick between two members of a same commodity. If they appear to do so, it is because our categorization of goods into commodities is wrong.

Correct. It is up to the actor to determine what goods are interchangeable. Consumers pick the sweaters on top of the piles because they are different in perceived utility from those at the bottom; they are more accessible. Accessibility is one quality of a good.

Correct. We know that you prefer a sweater to no sweater, but we can go no further.

I don’t understand. Why not? My conception of commodities is consumer differentiation among different products?