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Source link: http://archive.mises.org/4536/must-austrians-embrace-indifference/

Must Austrians Embrace Indifference?

January 8, 2006 by

Rothbard and Mises have been criticized by Nozick (1977) and Caplan (1999), for inconsistency in admitting the concept of indifference into economic analysis after all, even if only indirectly. These criticisms have been answered by Block (1980, 1999) and Hülsmann (1999). However, their answers, although largely correct, seem to bring less than full clarity to the matter. Setting out from Nozick’s criticism, I hope to remedy this deficiency here. FULL ARTICLE

{ 25 comments }

iceberg January 8, 2006 at 6:41 pm

Some time ago I emailed this to Professor. Block regarding Buridan’s ass:

Prof. Block,

If I may beg your indulgence, I have read both Rothbard’s, Caplan’s and your treatment of Buridan’s ass. My question is on the treatment which Rothbard claimed that there are three choices involved, not two. According to praxeology, when two
homogeneous units are equally capable of rendering the same
service to the actor, they are considered a supply of the same
good, and therefore indistinguishable to the actor. Why then is
Buridan’s ass seen as being three choices? Praxeology should
view the options being a) starvation and b) a supply of a good, and leave the question of the actor choosing A over B, or vice versa to psychology.

This is what he wrote back to me:

I think there are 3, not 2 choices. 1. Starvation, 2. eat haystack A, 3. eat haystack B. you object, if I understand you, on the ground that 2 and 3 are really the same thing. And they are, in one sense; in that either could satisfy hunger, equally well, since they are but two different units of an otherwise homogeneous or same good.

However, that is true, only, before a choice has to be made between A and B. When push comes to shove, the ass must pick A OR B. Then, A and B are no longer to be considered a supply of the same good, and therefore indistinguishable to the actor. Now, very much to the contrary, the economic actor has to pick A or B.

So, even though, in a sense, there were only two choices before a decision had to be made, there were three at the precise point in time when A or B was selected instead of the other

Larry Ruane January 8, 2006 at 11:38 pm

I appreciate this clarification by Prof. Hoppe. I agree with iceberg. As I understand it, the most important point to keep in mind is that actions (correctly understood) can always be interpreted by others.

Suppose there’s only one haystack; the ass must still decide whether to move toward it by stepping first with its left foot, or its right foot — as I must also if I decide to walk to Hyde Park. But an observer wouldn’t say, “he decided to walk to the haystack (or park) beginning with a step by his left foot,” unless that really was an important aspect (in the mind of the actor, according to the observer) of the journey.

N. Joseph Potts January 9, 2006 at 9:48 am

Indifference is inherently unobservable, as noted. So is equilibrium. Along the way, the question of whether it OCCURS is altogether moot. Viewed QUANTITATIVELY, both are infinitesimal.

Nonetheless, I’ve found both CONCEPTS useful in analysis and discussion.

raul January 9, 2006 at 10:08 am

The fondness for indifference curves is perfectly understandable.

An indifference curve is a fantastic tool.

With just two more tiny hypotheses of continuity and derivability you can objectivate the subjective thanks to the indifference curve.
If you use a budgetary constraint, you can show that in a state of equilibrium along an indifference curve, the marginal rates of substitution are equal to the ratio of prices – an objective quantity..
Since the marginal rate of substitution is related to the – subjective – taste for it is the ratio according to which you can exchange small quantities of goods with no change in your satisfaction, the tastes of all of us are objective and the same, … and they change with prices!

On the other hand you could say that this result is absurd since our tastes are obviously different and rather stable.
So : check you premises. Indifference curve? equilibrium? continuity? derivability?

Choose you side.

billwald January 9, 2006 at 11:27 am

Some decisions are made by tossing a coin or leaving the decision to someone else.

Michael A. Clem January 9, 2006 at 11:49 am

Is this one of those “dancing-on-the-head-of-a-pin” questions? I can’t see the economic significance of recognizing indifference or not.

Dave Scotese January 9, 2006 at 12:42 pm

Yay Michael!

The article made me wonder what actions Nozick and Caplan are undertaking when they challenge Mises’ use of the word “indifference”. I bet that they were choosing to challenge Mises’ use of “a term in economics” rather than “the term ‘indifference’”. Were they indifferent to which term they chose to challenge?

As an ass, I would have to choose to move right or left to eat, and I would certainly betray my preference for movement to the right or left when I actually got going toward my meal.

N. Joseph points out that the preference I betray by choosing a direction in which to move is infinitesimal in comparison to the preference I betray when I decide to move. However, despite the tininess of this preference, if the debated indifference were to be used as an example in any point Mises (or Rothbard or Caplan or Nozick or Hoppe) attempted to make which involved some a priori indifference, it would fail for the very reason that I chose one direction over the other.

Likewise, when guidance is sought from those church leaders and theologians who claim to have a decent answer to the question of pinhead real estate for angels, their claim about that subject will prove useless.

Were I the warehouse manager – the one who selected the 72nd of the 100 pounds of butter when it came time to deliver – and the owner asked me to justify my selection of the 72nd pound, I may begin expounding about age or placement or ease of attainment, but wouldn’t it be wiser for me to ask him why he wants to know? Why does it matter to him which pound I deliver? Likewise, I imagine mainstream economists reading Austrian material, looking for places where they might be able to launch an attack.

So… does anyone have any idea why Caplan or Nozick decided to challenge the use of the term ‘indifference’? Rothbard and Hoppe clearly have the motivation of defending Austrian Economics. And I’m too busy to spend my time reading Nozick and Caplan to see if they ever try to make a point that would hinge on the problems they claim to see with Mises’ use of the term.

Caley McKibbin January 9, 2006 at 12:53 pm

Even that explanation by Block doesn’t work. All choices are binary in the process of deduction. It begins by comparing two of the three (or any other number). You have to know the difference between each before you can get down to one.

Michael Rozeff January 9, 2006 at 3:54 pm

Suppose that in my mind any one of the 100 butter packages can achieve my desired value. I select one. Suppose that I know that I could have equally well selected any of the other 99 to achieve that value. Then I am indifferent as to which I choose. It’s true that no one else may know this. There’s no problem here, in my view.

The problem with indifference curves is not that we cannot be indifferent – we can, if we are willing to take the time and trouble to ascertain that we are, which is seldom or never – it’s that we do not routinely possess continuous tradeoffs that provide a continuous curve with stable mathematical properties. Not having the latter is enough to torpedo indifference curves.

The indifference curve relies upon an infinite set of questions that we put to ourselves instantaneously about our tradeoffs of one good for another. It is infinitely costly to find out this information.

If we follow certain axioms of choice (that you may object to) and if we could answer these infinite questions costlessly, then the indifference curve would have a certain shape. That’s basically the idea of them, so they are creatures of highly abstract and impossible real behavior. One or more of the axioms might be objectionable too.

My immediate reaction to Prof. Hoppe’s analysis is a feeling that it does not quite handle the issue. He’s saying that we define the good by our choice. This is true. If we select any pound, then which one it happens to be is not part of the value the good provides us. This is true too. Thus, indifference among them is moot. The number it has is not part of the good.

Yet I think we are still indifferent among them, nonetheless. We could have chosen any one of them. Hence, I have provided my remarks above that focus on what I think might possible be the real problems with indifference curves.

iceberg January 9, 2006 at 7:02 pm

Here is another angle on the whole sordid business- perhaps there is still a demonstrated choice when I randomly select the 72nd unit of butter- there was no “indifference” here because my actions demonstrated my preference for economizing my decision time- isn’t that a choice too?

Larry N. Martin January 10, 2006 at 1:22 pm

So, are Austrians still indifferent to indifference? Or not?
;-)

peter January 10, 2006 at 7:54 pm

One can make choices between two goods for which we feel indifferent, say between vanilla and strawberry ice-cream, what this implies is that the choice is not an economic decision, zero information is communicated, and no coordinated market adjustments will result.

Gregory White January 11, 2006 at 8:13 pm

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One of the mistakes Bryan Caplan (BC) made was to misunderstand the difference between “don’t care” and indifference. The indifference principle is pointed to a difficulty choosing between things desired. But a “don’t care” indicates a quality that may be included, but unimportant (like the blue or green dyed sweater example). The textbooks I’ve looked at (regarding indifference) always put indifference in context of desired characteristics, not characteristics included in the widget, but unimportant to the individual consumer. Hans Hoppe was correct in pointing out that blue or green had no bearing on the decision and was a misapprehension of relevent product character from the perspective of the purchaser. The individual consumer is not required to consider “value adds” important simply because the supplier added them. But since some Economists take the “society’s choices regarding scarce resources” definition of economics so seriously that the individual is obliterated in analysis, we aren’t surprised this happens.

BC also states “The crucial assumption – shared by both Mises and Rothbard – is that all preferences can be revealed in action.” I don’t think that is at all what I read of Rothbard or Mises, and I can’t find BC quoting them where they wrote to that effect. BC also wrote “I have all sorts of preferences that are not – and cannot be – revealed in action.” But Mises wrote “The scale of values manifests itself only in real acting; it can be discerned only from the observation of real acting” and Rothbard wrote “The crucial fallacy is that indifference cannot be a basis for action. If a man were really indifferent between two alternatives, he could not make any choice between them, and therefore the choice could not be revealed in action.” BC completely changed the argument. They were talking about physical manifestation, not some internal dialog of “preferences.” They didn’t say a word about “all preferences” or that an individual might have ideas (dreams?) in their head about “preferences” without acting upon them. I am not clear where BC got this from. If it exists, I am unaware of it.

http://www.gmu.edu/departments/economics/bcaplan/ausfin2.doc

I appreciate BC’s efforts, but I think he is wrong here. And without taking sides otherwise, I think “The Austrians” are decidedly correct on indifference. The case for indifference is very weak.

Marco January 12, 2006 at 4:42 am

I have always been puzzled by the “Austrians’” refusal to accept indifference. This boils down to the claim that indifference, unlike choice, cannot be observed.
First of all, I think the claim is false. Suppose I go to the store and ask for a coffee machine. The store clerk asks me if I want the blue one or the black one. I tell him “it doesn’t matter” and leave the choice to him. It doesn’t matter if the choice is not indifferent to him – it is to me.
Second, even if indifference could not be observed, refusing to consider it for this reason is a quintessentially positivist approach, like that of quantum mechanics, which refuses to consider the position and velocity of an elementary particle, since we cannot measure both at the same time (Heisenberg’s indeterminacy principle). A similar argument applies to “utility”.
So even though Austrians constantly rail against positivism, they are probably the only ones in economics to adopt a positivist approach…

Michael A. Clem January 12, 2006 at 8:37 am

Okay, I’ve been following the comments, trying to figure this one out. I think what it boils down to is that where indifference exists, it is because the difference between the two or more choices are insignificant(duh), and thus, are also economically insignificant. It’s like any number multiplied by one equals that number. It’s a “so what”.

Joshua Katz January 13, 2006 at 2:06 pm

It seems to me that Block and Hoppe offer relatively complex solutions to what appears to be a simple problem. Now, I’m not entirely up on subtle Austrian distinctions, but I don’t think my solution is terribly unattractive to Austrian thinking.
I have in mind the simple formulas Rothbard uses in Man, Economy, and State when discussing diminishing marginal utility. One of the reasons I became an Austrian was that I found this explanation so much more sensible than the silly explanations I had learned in my econ courses, which usually involved a student eating a large number of candies during the lecture. Anyway, we have this supply of butter, and eat pound is doing some task. For simplicity, one pound is being melted in a pan, one is sitting in the fridge supporting another pound, and a third is sitting upon the second. Now, we have to give one up. Each pound of butter has the same intrinsic value to us, since any of the three could be used for a different task – they’re interchangable. This is Nozick’s launching point. However, to do so requires work – we’ll have to take the pound out of the pot, put it in the fridge, take out another, unwrap it…so to minimize unproductive labor (using as an axiom that I prefer to maximize profit) of course I’ll give up the pound which is engaged in the least valuable task, say, being supported by another pound. There is no difference between the butters themselves, but there is a difference in the task they are assigned to at present. This isn’t a new idea, it’s exactly what Rothbard said. I just don’t see why it doesn’t answer the supposed problem.

Joshua Katz January 13, 2006 at 2:12 pm

Quick note – Marco, please don’t tar all of us philosophers of science with the Copenhagen brush.

peter January 13, 2006 at 10:11 pm

The point is whether all choices, or all action reveal a preference. The answer is no. For instance, if someone is indifferent between flavors of ice cream, but does want ice cream they will choice one. But the chosen flavor does not reveal a preference and should not be considered an economic decision. Now from the producer’s point of view, one must assume the decision was an economic one, and production plans (say upping production of the chosen flavor) must accommodate that assumption. It will only be through repeated purchases that the producer will “learn” that no preference was revealed and thus no alteration of production plans were necessary. And thus, we should see where the role of indifference comes into play, i.e. had the choice actually revealed a preference then production plans would have altered, or prices adjusted, until the agent was just indifferent again to the choice.

Dennis Sperduto January 14, 2006 at 10:39 am

Most of this comment does not address the specific arguments of Nozick and Caplan and the responses of Hoppe, Block, and Hülsmann, but instead involves a few related issues. My understanding of the Mises/Rothbard position is that indifference can not be demonstrated by or manifested in action; indifference is a psychological concept. As Hoppe noted above, Mises and especially Rothbard have made this point amply clear. And if one accepts the Misesian/Rothbardian definitions of praxeology*, it unequivocally follows that, as far as human action/economics is concerned, indifference is a useless concept. Indifference may have significance in psychological studies and in explaining why individuals choose or do not choose specific ends, but it has no importance in economics as, again, indifference can not be demonstrated by action, and human action is the subject matter of praxeology and economics. Conflating economics with psychology only seems to muddle the analysis. Maybe part of the criticism that Nozick, Caplan, and others have with the Austrian position regarding indifference flows from their differing concept as to what constitutes the subject matter of economics.

Furthermore, from a related methodological perspective, I always considered that, in typical neoclassical style, indifference and indifference curve analysis utilize the specious (as far as the sciences of human action are concerned) methodology of mutual determination, as opposed to the cause and effect process analysis of the Austrian School. However, indifference does lend itself to mathematical exposition, which fits well with the dominant neoclassical methodological approach to economics. A look at the typical intermediate or advanced microeconomics textbook illustrates this point.

Finally, the concept of several units of the same good means, by definition, that each unit of the good is considered identical and interchangeable in the evaluation of an individual. I do not believe that this is the same concept as indifference. Indifference is a psychological concept involving two goods that are considered as categorically different goods by an individual, e.g. X and Y, and that the individual can not choose between.

*Mises defined praxeology as the science or general theory of purposeful (as opposed to physiologically reflexive) human action, while Rothbard defined the term as the science of the formal implications of the fact that men utilize means to attain various chosen ends.

Gregory White January 14, 2006 at 4:46 pm

Upon further rumination, I need to candy-ass this one and half-reverse myself. So, here I go…

A review and agreement of the language is requisite before proceeding further.

1. Austrians reject indifference, so they don’t have a definition to consider.

2. Colloquial indifference tends to conflate “I don’t care” with “I care, but I am having extraordinary difficulties deciding/choosing.” Moreover, colloquial indifference does not require non-homogeneity between the things considered. This discussion is not about colloquial indifference.

The point being contended is the neoclassical economist’s definition of indifference. What is neoclassical indifference (NCI)? (I take mine as it is represented in a couple of modern introductory econ textbooks; Dolan-and-Lindsey (1994), and McConnell-and-Brue (2004).)


3.1 NCI always involves a subjective comparison between two (or more) different things. This is the non-homogeneity requirement regarding the things being considered.

3.2 NCI is purely concerned with valued things. This is the valued requirement. Things not valued do not fall under the rubric of NCI. (Not-valued-things are the I-do-not-care’s of colloquial indifference.)

Summarizing NCI, it is about different but valued things, and in particular it is pointed towards increasing subjective difficulty on the part of an individual in choosing between mutually exclusive opportunities. It is claimed to be at the limit of choice, where the individual can’t decide between the options. We see the NCI definition is narrower than the colloquial definition.

I do not believe “The Austrians” claim psychological NCI does not exist; as far as I know they accept the notion. But what they do claim is inner psychological dialog is not a concern of economics, since according to their paradigm, economics is only concerned with human action. They claim that since action always involves a choice (a decision) to act, action cannot say anything about indecisiveness. It appears to be simple and straightforward logic. Is there a way to get past this seemingly obvious conclusion?

Before answering that directly, let’s exercise a couple of the examples that have shown up in arguments about indifference.

First up is Buridan’s Ass, a parable about an ass who sees two identical and desirous water holes (or bales of hay) equidistant from the ass’s position. The ass is said to die of thirst trying to make a decision because the distance is identical and the water holes are identical (it can’t make up its mind). This example is not NCI: the two water holes are identical, and the distance to them is identical. That is, the example fails 3.1 because the things are identical (homogeneous); by technicality, this is not a case to disprove NCI. We would further note that the distance-to-waterhole portion also fails under 3.2. The ass does not value the distance, it is merely a price to be paid for water. The ass has already allocated the distance expense for acquiring water; the ass just can’t decide which direction to go.

Even though the Buridan’s ass example (or the homogeneous sticks of butter example) can be technically tossed out as a valid reproof of NCI, there are in these examples some useful lines-of-thought when considering true and compliant arguments about NCI. Since innumerous real examples exist where asses and humans make “difficult decisions” and consequently act, Rothbard makes the common sense claim that some choice will indeed be made because neither asses nor humans die of thirst with good water a mere (say) 10 paces away — something will break the deadlock. Rothbard says the ass will exercise this other choice; it will perhaps use some random selector — say flip a coin — so it could make a decision and manifest this decision in action by walking to one of the water holes and then drinking.

That is okay as far as it goes, Rothbard is saying the ass decided not to wait (and agonize about the water choice anymore). The coin flip and subsequent action was a manifestation of this choice to not wait. I reckon very few people would, or even could, argue this. But since the “no more waiting” choice was not the topic “which water,” Rothbard’s answer appears to leave the (colloquial) indifference question hanging. But is it really still hanging?

It is possible that it is not still hanging. The human action that is the coin flip could represent, and probably does, two choices rather than only one. (Is there not general agreement that actions such as coin flips are random selectors?) I am not aware of a “uniqueness theorem” of human action. Uniqueness of preference-action would be:

     one preference &lt=&gt one action,   only.

Rothbard seems to be making a psychological assumption of uniqueness. We would say he does not believe that “two birds can be killed with one stone.” Perhaps he would disallow:

     multiple preferences &lt=&gt one action. 

If he has analytically handled this, I don’t know about it. It is not established that the choice not-waiting is a complete solution to (or explanation of) the coin flip action. It could be a partial solution. A random selector was demonstrated in human action — the action was plainly observable. It is amusing to see that the difficulty now lies in determining what the observed action means in the mind of the observer! We still have a psychological problem, except in a different location. The sequence is

   (a) psychological preference of actor
   (b) consequent action of actor
   (c) psychological evaluation of the action by the observer.

Generally speaking, what could a coin flip action mean? Here are some possibilities:

   (d) The actor was neo-classically indifferent, and demonstrated
       this by using a random selector.  (In addition to choosing 
       not-waiting.)
   (e) The actor did not care, and demonstrated this by using a 
       random selector.  (In addition to choosing not-waiting.)
   (f) The actor's name is Bryan Caplan.  Caplan flips a coin and puts
       on his green sweater instead of his blue sweater; the preference 
       demonstrated in his action is the tormenting of Austrian Economists.

Perhaps some would say the uncertain meaning of this action kills the contention that NCI can be demonstrated by the action of using a random selector. This would not be very persuasive — interpretation of events, and consequent response (action) is an ever present human problem. Saying “the observer is not certain of how to interpret a given action” is not a sufficient argument to say it did not in fact mean some very particular thing — regarding preferences — to the actor. It would seem rather to say only that the observer has his/her own limitations.

Therefore I contend that the observed use (human action) of random selectors opens at least the theoretical possibility of demonstrated NCI. I make no statement regarding its importance as a theoretical building block, or any other practical usefulness.

A brief side-track to the blue or green sweaters example is now taken. Caplan writes “Rather than having no strong feelings about green versus blue sweaters, for example, I might have intense but conflicting feelings about both, which coincidentally leave me indifferent.”[1] Now I am first very tempted to ask “what kind of man has intense but conflicting feelings about green v blue sweaters?,” but that is really not endemic to this discussion. This is an NCI question/example because the sweaters have the element (color) of non-homogeneity (rule 3.1) and the color is a valued characteristic (rule 3.2). It wouldn’t even matter if the feelings were not “intense,” they must merely exist (they simply can’t be zero; they simply can’t be a do-not-care).

If Bryan Caplan uses a random selector (a coin flip) to pick the a sweater, and crucially its color, then this human action may indeed mean that he was neoclassically indifferent in that particular time and place about blue v green sweaters. That he jointly (non-uniquely) used the coin flip to satisfy another preference — not agonizing forever over his “intense but conflicting feelings” — is notwithstanding.

We might wonder how often random selectors are used to break deadlocks — including those occurances which do not fall under NCI. My common sense tells me that as far as NCI goes, random selector usage for all but very low valued preferences is exceedingly rare. (That said, low value is not zero value; low value is not a do-not-care.) Put another way, when the stakes are high, people think hard and decide without a random selector, which is by definition not an actioned case of NCI or proof of its existance. Only a freak or a fool would cast fate to a coin flip when the stakes are high. I expect that any demonstrated indifference must be overwhelmingly constrained to trivia. In this way, Austrian condemnation of the concept may well be warranted on that merit alone. I don’t know, and perusing that question has been outside my current investigation.

Again, I believe demonstration of NCI is theoretically possible. That demonstrable range is exceedingly narrow, though. Non-uniqueness has to exist for demonstrated NCI (recall the not-waiting choice was present along with indifference resolution). I cannot think of how NCI could possibly be demonstrated in action outside the usage of some manner of random selector.

   1  http://www.gmu.edu/departments/economics/bcaplan/sejreply.doc  p.15of27.

Peter January 14, 2006 at 8:21 pm

Only a freak or a fool would cast fate to a coin flip when the stakes are high.

If he’s genuinely “indifferent” between the choices, then the stakes are never high, by definition – if he doesn’t care which choice is made, why should he be hesitant to trust to a coin-toss?

I don’t think I understand what you mean about the “multiple preference < => one action” thing. AFAIK, nobody posits your “uniqueness” criterion – that one action may simultaneously satisfy several preferences seems too obvious to comment on – but what preference other than “not waiting” are you saying the coin toss manifests?

Gregory White January 15, 2006 at 10:12 am

Peter> “If he’s genuinely ‘indifferent’ between the choices, then the stakes are never high, by definition…”

I would not go that far to make it “definitional.” There is no absolutely clear boundary. If I were to revise I would strike “Only a freak or a fool would cast fate to a coin flip when the stakes are high.”

Peter> “…if he doesn’t care which choice is made,…”

I’m saying there is “care,” just not “how much.” Like I said, if there is no-caring the case says nothing about NCI; it neither confirms nor denies NCI.

Peter> “…nobody posits your ‘uniqueness’ criterion.”

It isn’t “mine” — it is something Rothbard would have needed to shore up his argument. I wrote “I am not aware of a ‘uniqueness theorem’ of human action.”

Peter> “…what preference other than ‘not waiting’ are you saying the coin toss manifests?”

By definition of NCI, there was a preference for blue and green sweaters over all other actions. These preferences were knotted (tied). The coin flip was action that demonstrated a preference of not-waiting and blue (or green) sweaters. The coin flip was an observable demonstration of NCI — something the Austrians say can’t happen. An observer may or may not know what the tied preference was that the random selector did not pick.

Sasha Radeta January 15, 2006 at 11:40 am

“If I were to revise I would strike “Only a freak or a fool would cast fate to a coin flip when the stakes are high.”
++++++++++++++++++++++++++++++++++++++++++++++

Well, stakes aren’t high if two alternatives are so close to each that a consumer is indifferent. If he/she chooses one or another, he/she is not worse-off. And any difficulty in choosing between two equally satisfying bundles will normally be resolved by a random choice.

Are you suggesting that a logical individual will not consume anything and have zero utility – rather than “suffer” a choice between two equally satisfying bundles? Just because the opportunity cost equals the value of your choice (economic profit from your choice equals zero), does not mean that you will choose to have an economic loss (when you consider the opportunity cost of foregone consumption).

david January 16, 2006 at 5:03 am

I think theres far too much attention being given to the INDIFFERENCE component of ‘indifference preference analysis’. Within this model, for all its faults, the analysis is about the consumer’s PREFERENCE between alternative goods and the resulting effects of that preference. The point where indifference between the two goods is identified is merely an abstraction describing a sort of boundary or a ‘switching’ point – it is doubtful if you could ever identify a real indifference curve for any individual real person.

For similar reasons, this same problem arises with the (neo)classical fetish with equilibrium. At best, equilibrium is an hypothetical , potential state of affairs that the market ( ‘scuse the anthromorphism) ‘aspires’ to, given the current state of affairs, and the collected desired state of affairs among all the participants, but with every subsequent event, that potential point would shift, so equilibrium is never achieved.

But a whole theoretical economic edifice was built around this abstraction, and it has been used to prescribe ‘what ought to be’ ever since. ANd with equilibrium ( popularly equated with ‘stability’) ‘failing’ to be achieved in market after market, we get state intervention to force it – hence antitrust, administered pricing et al. So, What was once a useful, if limited, modelling technique that yielded useful insights about what people are likely to do in response to price changes, has become the centrepiece of a largely bankrupt body of thought.

Bala March 8, 2011 at 1:08 am

I see that Caplan made the following statement in his “PROBABILITY, COMMON SENSE, AND REALISM: A REPLY TO HÜLSMANN AND BLOCK”

http://mises.org/journals/qjae/pdf/qjae4_2_6.pdf

I was in the middle of a debate on indifference when I searched through what mises.org had to offer in the form of references and found this piece. As I was reading it, my eyes stopped at a point and I decided not to read this piece any further. I felt that at that very point, Caplan stopped making sense to me. I hope someone will address this.

Citing Mises

“Acting requires and presupposes the category of causality. Only a man who sees the world in the light of causality is fitted to act. In this sense we may say that causality is a category of action. The category means and ends presupposes the category cause and effect. In a world without causality and regularity of phenomena there would be no field for human reasoning and human action. Such a world would be a chaos in which man would be at a loss to find any orientation and guidance. Man is not even capable of imagining the conditions of such a chaotic universe. (1966, p. 22)”

Caplan goes on to say

“But is causality really implicit in the axiom of action? Is it really the case that “[I]n order to act, man must know the causal relationship between events, processes, or states of affairs” (Mises 1966, p. 23)? Not quite. Mises’s claim is too strong; what action really supposes is not causality but probability. In order to act, one merely needs to believe that one’s action produces a better distribution of outcomes than any alternative action. There is no need to believe that one’s action will succeed, or is even very likely to succeed.”

I have a fundamental problem with this and believe Caplan gravely misinterprets Mises. I also find his statement “what action really supposes is not causality but probability” highly objectionable and consider that his argument falls apart at this very point.

As I understand Mises, the causality he is referring to is a knowledge of causality, especially the causal link between the desired end and the means proposed and available to be applied. Even here, we need to understand that man is probably aware of the fallibility of his knowledge and knows that he may not hold any certainty as the outcome. However, man can only act on the basis of his own knowledge. His knowledge tells him that his action will result in the outcome if his knowledge were true but he also knows that his knowledge could be erroneous or incomplete. There are 2 options. The first is that his knowledge is completely wrong, in which case action is pointless. The second is that his knowledge is incomplete and that other factors could frustrate the outcome. In this scenario, action is possible, could be aimed at the desired end but may not be under an assumption of certainty of the outcome.

In other words, I am trying to say that acting man does not need to and does not assume that his action is sufficient to satisfy the desired end. All he needs to know is that his action is NECESSARY for satisfaction of the desired end. Probability is irrelevant. A belief in the necessity of the action grounded in acting man’s available knowledge is sufficient.

I feel that If I am right, the rest of Caplan’s argument may not make much sense, given that he makes a case for indifference. Frankly, that’s why I stopped reading that note right there. I would be happy if someone could point out if I am right or wrong in my understanding.

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