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.
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.
Where is this paper and Block's reply?
Government Explained 2: The Special Piece of Paper
Law without Government
Austrians believe in the law of diminishing marginal utility?
>>Austrians believe in the law of diminishing marginal utility?
yes
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
Wiki says
That is, the first unit of consumption of a good or service yields more utility than the second and subsequent units.
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....
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,
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.
Try Joseph Salerno for some history and theory here: http://www.youtube.com/watch?v=DFe-PRKud5g
http://mises.org/daily/3100
http://picasaweb.google.com/Lilburne2/HumanActionComics3?feat=directlink#
http://picasaweb.google.com/Lilburne2/HumanActionComicsDiminishingMarginalUtility?feat=directlink#
For anyone who was following my line of logic:
Water is super-abundant while diamonds are not; this is one reason why a diamond is so expensive while water is not. This also illustrates an important point about decision making. Instead of "setting priorities" and viewing things in terms of all-or-nothing decisions, we should look at trade-offs.
This line of reasoning neglects a crucial point: the fourth egg can only be used to bake a cake in the presence of the first three eggs. Since "marginal utility" is a concept that can only be applied to homogeneous units of a given supply, "one egg" is no longer the relevant unit of analysis. The homogeneity of units is determined by the set of wants that can be satisfied with a unit of a good; in this case, the relevant unit of analysis becomes "1 unit=a set of four eggs."
The astute reader will notice that the value scales listed above were listed according to the wants satisfied by the marginal unit of a given good, not by the good itself after the fashion of Rothbard in "Toward A Reconstruction." Our hero Joe didn't prefer the first egg to the second in and of itself; he preferred feeding his daughter to feeding his wife. If only one egg is available, he must choose between competing ends, and the end that satisfies him most is feeding his daughter.
Any replies or counters to Nozick's argument? He brings up a good point imo, its something Austrians never considered.
Hoppe and Block have both offered responses to Nozick
http://mises.org/journals/qjae/pdf/qjae8_4_6.pdf
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.
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For Alexander Zinoviev and the free market there is a shared delight:
"Where there are problems there is life."