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Ordinal Preference (MES)

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Eric080 Posted: Thu, May 26 2011 6:09 PM

I've finally gotten around to reading Man, Economy, and State by Rothbard and I'm reading the accompanying study guide written by Robert Murphy in order to better grasp the concepts (even though Rothbard lays them out fairly simply, I have a tendency to have a short attention span, zone out for about 15 seconds, and then snap back into reality and think to myself, "wow what did I just read?").

 

I was reviewing the questions posted at the end of the first chapter, and I was a bit confused.  Rothbard views value scales as being ordinal and not cardinal, so obviously you can't like something literally "10 times" more than something else because the units to measure value are highly subjective and messy.  So this was the question Murphy posed:

 

Suppose someone says, “I like steak more than burgers, and I like burgers more than hot dogs, but my preference for steak over burgers is definitely stronger than my preference for burgers over hot dogs.” What do you think Rothbard would say about this statement? (pp. 18–19)

I assume this question is tailored to highlight the fact that Rothbard believes that differences in how much you value something is nonsensical.  But it seems to me that this is a valid statement in the context of ordinal preferences.  You could love steak, somewhat enjoy burgers, and merely dislike hot dogs.  If you have a theoretical scale where steak is #2 on your food list, burgers are #76, and hot dogs are #77, then it seems like this is a reasonable statement.  When you consider the option between a steak and a burger, the choice is immediately obvious because the value that you have for each product is not similar whereas if the option were between burgers and hot dogs, the choice is noticably less obvious.

 

Am I missing something?  Maybe Murphy is just making a one-two-three list and didn't mention it in the question.

 

EDIT:  I messed up the food items in the paragraph after Murphy's question, it's fixed now

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I recall Rothbard answering that exact question in an earlier section in the book (I read up to about the end of Chapter 6 so far)... but I can't seem to find the paragraph where I read it.  After a quick search though, on page 258, Rothbard wrote:

Rothbard:
Value scales of each individual are  purely ordinal, and there is no way whatever of measuring the distance between the rankings; indeed, any concept of such distance is a fallacious one.

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Eric080 replied on Thu, May 26 2011 6:24 PM

I understand what Rothbard is getting at.  But I mean if you are faced with Situation A (steak or burgers), the person in question makes an easy choice.  Why is the choice so easy?  Well it seems that they like steak a lot more than they like burgers.  If they are faced with Situation B (burgers or hot dogs), they display no obvious preference towards one or the other, mull it over, and realize that they prefer burgers to hot dogs.  Now I'm not asking this person to quantify how valuable steak is over burgers or how valuable burgers are over hot dogs, but you can have a feel for the distance between their desiredness.  At least that's the way it seems to me.

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But the concept of the "distance" between them ordinal rankings is meaningless. The only thing that matters in assessing human action is what rank the preferences are in.

Begin around page 258, Rothbard goes into much more detail on the topic.

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John James replied on Thu, May 26 2011 11:46 PM

This doesn't answer your question, but I found it interesting because you created this thread only a few days after I was reading Rothbards writings on this very subject in "Toward a Reconstruction of Utility and Welfare Economics".  Actually, come to think of it I never got a chance to finish it, so he may actually get into that...have a look here.

 

 

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bitbutter replied on Wed, Jun 27 2012 9:52 AM

@Eric080: I agree, this was exactly my feeling too. Although the steak lover couldn't legitimately say he liked steak three times as much as he liked burgers, it does seem very reasonable for him to say that his preference for steak over burgers is greater than his preference for burgers over hot dogs.

The (hypothetical) ease or difficulty with which he's able to make the decisions between the pairs of goods is the indicator of how much he prefers one over the other: He may choose steak over burgers without a second's thought, but he has to deliberate for a while before choosing a burger over a hot dog.

I'd be intersted to know what Murphy's answer is.

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Okay, here is how I see what you're saying:

A value scale for an individual is as follows:

  1. A
  2. B
  3. C

It is given that the magnitude of preference for A over C is X. Then we introduce B into the value scale. The magnitude of the preference for A over B will be Y. Therefore, the magnitude of preference for B over C, or Z, will be X - Y. Therefore X>Z (assuming is positive) so our preference for over C is greater than than our preference for  over C.

The problem this reasoning is that the preference for over has no magnitude, so the entire argument falls apart. I hope that isn't to rambly.

 

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I like boring book X a little bit more than boring book Y, but I like fascinating interesting book Z way better than both of them.

Of course this is a valid statement. Anyone who says it is meaningless has obviously missed the boat.

So of course Rothbard would have to acknowledge it. All he is saying is that "a little bit more" and "way better"  cannot be measured [yet]. No reliable way has yet been found to measure intensity of emotion. In our present state of knowledge, it is like asking how many inches taller is Justice than Humor.

Therefore, our study of economics has to be content with working with inequalities. Book Z >Book X > Book Y. Even though this does not capture all we know about this booklover, it's the best we can do.

A corrolary of all this is that any attempts to give numbers to preferences, being based on a huge mistake [=that such numbering can be done], is going to be unreliable. Thus Rothbard's contempt for utils.

Bryan Caplan claims this is understood by the mainstream, and that their use of utils is really a shorthand. That everything they deduce using utils can be deduced without them, in a more tedious way. Bob Murphy agrees. Sadly, I haven't yet seen any links showing how it's done.

 

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gotlucky replied on Wed, Jun 27 2012 3:10 PM

Well put, Dave.

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Thx, gotlucky

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bitbutter replied on Thu, Jun 28 2012 6:10 AM

 

@Smiling Dave. Yes that makes sense to me.

Thus, values cannot be measured; values or utilities cannot be added, subtracted, or mul­tiplied. They can only be ranked as better or worse. A man may know that he is or will be happier or less happy, but not by “how much,” not by a measurable quantity.[17]

(Emphasis mine). This passage from Rothbard, especially the qualifier, does seem to imply that a man can know that he likes steak more than burgers by a greater margin than he likes burgers more than hotdogs.

In the study group yesterday it was interesting to notice that some of the readers had another objection to the claim this hypothetical steak-lover is making. The question again was:

Suppose someone says, “I like steak more than burgers, and I like burgers more than hot dogs, but my preference for steak over burgers is definitely stronger than my preference for burgers over hot dogs.” What do you think Rothbard would say about this statement? (pp. 18–19)
They noticed that the person is expressing his value scale for entire classes of goods, he's not considering concrete quantities/units. So on these grounds Rothbard would likely say that the claim is meaningless anyway, since 'steak in general' cannot legitimately be ranked in comparison to 'burgers in general'.
 
Looks like there was some tricky misdirection built into this question!
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Wheylous replied on Thu, Jun 28 2012 10:44 AM

Ah, nice!

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Smiling Dave:

I like boring book X a little bit more than boring book Y, but I like fascinating interesting book Z way better than both of them.

Of course this is a valid statement. Anyone who says it is meaningless has obviously missed the boat.

So of course Rothbard would have to acknowledge it. All he is saying is that "a little bit more" and "way better"  cannot be measured yet. No reliable way has yet been found to measure intensity of emotion. In our present state of knowledge, it is like asking how many inches taller is Justice than Humor.

Therefore, our study of economics has to be content with working with inequalities. Book Z >Book X > Book Y. Even though this does not capture all we know about this booklover, it's the best we can do.

A corrolary of all this is that any attempts to give numbers to preferences, being based on a huge mistake [=that such numbering can be done], is going to be unreliable. Thus Rothbard's contempt for utils.

Like I said above, the main point your argument rests on is that utility is quantifiable, but we simply cannot measure it and therefore we should just assumeit's ordinal for the sake of practicality. I would claim, on the other hand, that it is nonsensical, from a praxeological point of view, to talk of a quantity of utlility whether it can be feasably measured or not. 

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When I was working through MES a few years ago, I thought I came up with the way to measure "distances" between preferences: to test whether a person prefers steak over burgers more than burgers overhot dogs, just offer him to choose between a steak+hot dogs and two portions of burgers. If he picks former, then, algebraically, steak-burgers>burgers-hot dogs. Almost immediately, however, I realized that this test reveals only the preference between "packages", not between individual goods. From that point it was a short way to recognition that comparing individual goods is an oversimplification, as the same person may prefer either A or B in different situations. People choose between (perceivable and conceivable subsets of) the whole states of the world, so to speak. I hope all this makes sense.

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Evilsceptic,

I would claim...

And your proof is? [After all, claiming something from a praxy point of view means you have a proof for it]. Note that I don't make a praxeological claim, but remain agnostic. I do not know if there will ever be a way of measuring intensity of emotion. I just say maybe there is, but at present we don't have it.

Andris,

The flaw in your reasoning is that the second burger is not necessarily worth as much as the first [given that he has one already]. The ole marginal thing.

Also, some foods don't mix. I mean a person may like pickles more than a glass of water, and a glass of milk more than a glass of water, but would prefer a glass of water to pickles and milk, because the mixture will make him feel sick.

 

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Also, some foods don't mix.

That's why I said people choose between whole states of the world. Marginalism went only halfway - not only do not people choose between diamonds and water as classes, but they also do not choose between n-th diamond and m-th bucket of water separately from their other possessions. They choose between having everything they have (let call it X) + n-th diamond and X + m-th bucket of water. Given different X, they will choose differently. Crusoe may choose between a can opener and a corkscrew depending on whether he's found a lot of cans of beans or bottles of wine.

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I was just thinking of a related question. If utility is ordinal, then where does the concept of disutility come from? When thinking in cardinal terms, its easy to think of disutility as a negative number. But an ordinal ranking doesn't make it so obvious. I could rank the potential activities for tomorrow as follows:

1. Have sex

2. Go swimming

3. Go to work

4. Have a root canal

But this doesn't tell us that 1 and 2 are utilities and 3 and 4 are disutilities. Obviously, disutility is an important concept in Austrian economics (see the section of Human Action on the disutility of labor, for example). So how do we determine it?

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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.

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But this doesn't tell us that 1 and 2 are utilities and 3 and 4 are disutilities

Why should it? My reading of HA is that disutility is just a decrease of utility; in other words, replacement of a more preferred by a less preferred. It is NOT a property of a good or a need. It is a property of change between the states of the world - replacing 2 by 3 increases disutility, but so does replacing 1 by 2.

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Andris,

What have you to say about this line from Mises Made Easy:

Disutility of labor. The discomfort, uneasiness, inconvenience or pain inherent in human effort. Because of this quality men regard labor as a burden and prefer leisure to toil or labor. HA. 65,131-38,611-17.

Here are the quotes from HA she cites:

The disutility of labor is not of a categorial and aprioristic character. We can without contradiction think of a world in which labor does not cause uneasiness, and we can depict the state of affairs prevailing in such a world.[23] But the real world is conditioned by the disutility of labor. Only theorems based on the assumption that labor is a source of uneasiness are applicable for the comprehension of what is going on in this world.

Experience teaches that there is disutility of labor. But it does not teach it directly. 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. 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. But for previous praxeological insight, we would never be in a position to reach this conclusion.

And:

In our actual world things are different. The expenditure of labor is deemed painful. Not to work is considered a state of affairs more satisfactory than working. Leisure is, other things being equal, preferred to travail. People work only when they value the return of labor higher than the decrease in satisfaction brought about by the curtailment of leisure. To work involves disutility.

Psychology and physiology may try to explain this fact. There is no need for praxeology to investigate whether or not they can succeed in such endeavors. For praxeology it is a datum that men are eager to enjoy leisure and therefore look upon their own capacity to bring about effects with feelings different from those with which they look upon the capacity of material factors of production. Man in considering an expenditure of his own labor investigates not only whether there is no more desirable end for the employment of the quantity of labor in question, but no less whether it would not be more desirable to abstain from any further expenditure of labor. We can express this fact also in calling the attainment of leisure an end of purposeful activity, or an economic good of the first order. In employing this somewhat sophisticated terminology, we must view leisure as any other economic good from the aspect of marginal utility. We must conclude that the first unit of leisure satisfies a desire more urgently felt than the second one, the second one a more urgent desire than the third one, and so on. Reversing this proposition, we get the statement that the disutility of labor felt by the worker increases in a greater proportion than the amount of labor expended.

Finally:

The fundamental facts affecting the supply of labor are:

1. bla bla bla

.

.

.

6. Men prefer the absence of labor, i.e., leisure, to labor, or as the economists put it: they attach disutility to labor.

The self-sufficient man who works in economic isolation for the direct satisfaction of his own needs only, stops working at the point at which he begins to value leisure, the absence of labor's disutility, more highly than the increment in satisfaction expected from working more. Having satisfied his most urgent needs, he considers the satisfaction of the still unsatisfied needs less desirable than the satisfaction of his striving after leisure.

Bottom line, it sounds like he is saying that disutility means a negative aspect of something, meaning a property of the good called labor.

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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.

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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"?

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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...

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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.

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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. 

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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.)

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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").

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an object only has utility insofar as the labor necessary to create it has disutility.

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.

BTW, do you happen to remember where in the Republic this was discussed?

It's at the beginning of Book II.

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.

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

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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?

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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.

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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?

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

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.

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?

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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.

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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?

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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. 

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Aristippus replied on Sun, Jul 22 2012 11:21 PM

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.

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?

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.

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?

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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.

2. 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.

3. 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? 

 

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I see Aristippus has got this.

Bowing out.

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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?]

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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.

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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.

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