Friday, May 08, 2009

Is Utility Theory Tautological? An Old Argument

"What does [Jevon's theory] really amount to? In my apprehension to this, and no more - that value depends upon utility, and that utility is whatever effects value. In other words, the name 'utility' is given to the aggregate of unknown conditions which determine the phenomenon, and then the phenomenon is stated to depend upon what this name stands for." -- J. E. Cairnes, Some Leading Principles of Political Economy (1874) (quoted by G. Myrdal in The Politcal Element in the Development of Economic Theory)

"...that value was determined by the conditions which determine it - an announcement, the importance of which, even though presented under the form of abtruse mathematical symbols, I must own myself unable to discern." -- J. E. Cairnes, Some Leading Principles of Political Economy (1874) (quoted by G. Myrdal in The Politcal Element in the Development of Economic Theory)


Anonymous said...

Steve Keen has some interesting comments on the evolution of utility in his Debunking Economics, noting how it went from cardinal to ordinal once social reformers made the obvious point that cardinal utility justified taxation and redistribution of wealth.

The "science" of economics promptly moved from cardinal to ordinal utility and all was fine with the world -- until someone pointed out that with ordinal utility you cannot say whether taxation and redistribution reduced or increased social utility and so marginalism cannot say that taxation and redistribution were bad...

Harry Cleaver has material on this as well (here).

An Anarchist FAQ

Patch said...


that might be the reason why today's economic - at least that's my impression - has moved far away from welfare economics and more to efficiency and maximizing "production".

Robert Vienneau said...

Some funders of research in economics were paying for predetermined results and flatterly for the very rich. But I find it hard to credit that the connections between political implications and the perverse development of economic doctrines are as direct as I read Iain as saying. It's curious that one can tell the story that way, though.

Anonymous said...

"It's curious that one can tell the story that way, though."Obviously you can argue that it is all a coincidence, but it does seem somewhat strange that the evolution of economics took that direction...

First, there was classical economics and the labour theory of value. That was quickly used by socialists (like Thompson, Proudhon, Marx) to show that capitalism was exploitative.

Then there was the marginalist revolution, rooted in cardinal utility. Social reformers quickly noted that justified redistribution of income.

Then neo-classical economists argued that cardinal utility was not scientific and replaced it with ordinal utility. This just happened to undercut the case of social reformers that redistribution of income increased social utility.

That, I guess, could happen just by accident by it seems strange that at every turn the "scientific" thing to do also just happened to be what defended the status quo...

But as Keen notes, that turn to ordinal utility means that the impact of redistribution becomes indeterminate -- economics cannot say that income redistribution always decreases social utility (and that applies to "Austrian" economics as well, as Rothbard simply assumes that taxation reduces social utility).

As Keen notes, that is somewhat ironic... but, yes, "the perverse development of economic doctrines" could just be an accident of history -- but, that implies a hell of a lot of coincidences, surely?

An Anarchist FAQ