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.
I don't see how any of this constitutes an argument against indifference analysis, I mean, you'd have to prove that indifference doesn't exist at all in order to argue against indifference analysis. Indifference analysis is an analytical and pedagogical tool, and personally I find it quite useful. Somebody said that they don't understand how people choose according to indifference analysis and the answer is quite simple, for a given budget constraint there is (usually) only one choice they could make.
Block would say that although you were indifferent before the action, at the moment you called Heads, you considered Heads and Tails to be two different goods, and valued one over the other, for some reason. What reason? Who knows? Is Heads slightly easier to say than Tails??!! This is indeed weird and cumbersome.
Although it might be weird to think about, it still is an example of preference. You picked Heads. Not tails. We could go into why someone does something, but it seems like that borders on psychology. In economics, you picked heads. Whats more important, is that you picked the action that went along with heads. You could easily flip a coin about which movie to go see (The Expendables or The Other Guys) flip the coin, and when heads comes up (The Other Guys), you could think in your mind "Ehhh...I'll flip it one more time". Or another scenario involving you picking heads as the decider of a particular action.
Hoppe would say that the question doesn't really make sense, since "choosing Heads" was not the actual action, i.e. not the preferred description of the action. The preferred description was "choosing Heads or Tails". The reason for this action was to try to win a coin-toss; simple. So to the question "Why choose Heads?", the answer is "Because this will enable me to achieve my end of choosing Heads or Tails". Is this skirting the issue? I don't think so, because it is very easy to ask a question by giving a non-preferred description of an action, and getting an answer similar to this. For example, the preferred description of the action I am doing right now is posting in an internet forum. Ask me why I am doing this and you will get a meaningful, interesting answer. Ask me why I am sitting at my desk, or why am I pressing buttons on a keyboard, or why I am looking at a computer screen, and the answer will be "Because they are means to enable me to achieve my end of posting in an internet forum."
Is this skirting the issue? I don't think so, because it is very easy to ask a question by giving a non-preferred description of an action, and getting an answer similar to this. For example, the preferred description of the action I am doing right now is posting in an internet forum. Ask me why I am doing this and you will get a meaningful, interesting answer. Ask me why I am sitting at my desk, or why am I pressing buttons on a keyboard, or why I am looking at a computer screen, and the answer will be "Because they are means to enable me to achieve my end of posting in an internet forum."
But you still have to choose the best method of achieving your end. I think it still skirts the issue, because it doesn't really describe what mean the individual will choose. And by choosing heads, you signifiy that at the time you thought that heads would be the best option for your coin toss (either as a leisure game or to decide something). If you want to acheive your end on posting on an internet forum, you still have to economize and choose among the means you have available. You could drive down to an internet caffe, you could use your old computer in the basement, etc etc. Even sitting on the ground or standing while you surf the web is an option, but they are clearly inferior. You could technically even bring a chair from downstairs upstairs to your computer and type. But alas, you sit on your normal computer chair with your best computer and go on Mises. You preferred that to your other alternatives.
While Austrians might say indifference can exist in someones mind (before they make an action), and even is needed to inorder to create a supply of a good, generally Austrians deny that indifference can exist in action. Once an individual acts towards one alternative, then they are no longer indifferent to it compared to other alternatives. If an individual picks a basket with 9 bikes and 5 oranges intead of 8 bikes and 6 oranges, then an individual prefers basket A to basket B. If an individual was "trully" indifferent, then it couldn't choose either of them and would do something else.
EconomistInTraining, you're right. That's all I'm going to say.
And, critically, so was Nozick.
"I'm not a fan of Murray Rothbard." -- David D. Friedman
Once an individual acts towards one alternative, then they are no longer indifferent to it compared to other alternatives
That's not in dispute, the point is that it's an analytical tool used to understand and illustrate various concepts. As I said, people can't choose between different points on an indifference curve, because most of the time there's only one single point along said cuves that they can choose. They chose between indifference curves, consuming on a point (the only possible point) on the highest difference curve possible given their budget constraint.
As far as I can tell the only way Austrians can wholesale reject indifference analysis is by claiming that indifference doesn't exist. I remember one Austrian claiming that indifference doesn't exist because we don't observe it. Needless to say, that's a strange position for an Austrian to take.
That's not in dispute, the point is that it's an analytical tool used to understand and illustrate various concepts. As I said, people can't choose between different points on an indifference curve, because most of the time there's only one single point along said cuves that they can choose. They chose between indifference curves, consuming on a point (the only possible point) on the highest difference curve possible given their budget constraint. As far as I can tell the only way Austrians can wholesale reject indifference analysis is by claiming that indifference doesn't exist. I remember one Austrian claiming that indifference doesn't exist because we don't observe it. Needless to say, that's a strange position for an Austrian to take.
Although indifference curve graphs are analytical tools used to illustrate various concepts, Austrians would disagree with modern neoclassical consumer choice theory for a number of reasons, such as 1)Indifference expressed in action 2)Circularity 3)Mathematical contunity of utility curves 4)Cardinal Utility 5)Inherent unrealism.
According to the theory, on a given indifference curve with a certain level of utility and a supposed budget line, if the solution is an "interior optimum" agents are supposed to choose the basket where the BL is tangent to the indifference curve, where the marginal rate of substitution equals the two prices of the good (what you said earlier). The indifference curve is supposed to be a continous curve (meaning solutions can be like 4.3573 apples) of baskets of goods where an individual is indifferent between choosing among them. He certainly could "choose" a basket that doesn't maximize utility, but in the solution he is always suppposed to choose the optimal basket, aka the basket that he prefers. By choosing one basket over the others, they no longer have the same "level of utility" and can be on the same indifferent curve, so the whole apparatus falls apart.