7 replies to this topic

[Murphy]

How did Mises differ from Menger and Bohm-Bawerk on the nature of utility?

[Rune]

Although Menger and Böhm-Bahwerk may not have stated it explicitly, they seemed to believe that utility could be measured. Mises made it clear that utility cannot be measured/quantified and that valuation of means and ends is subjective and that means and ends only can be ranked using an ordinal, not a cardinal, scale.

[Murphy]

Rune, on Apr 21 2006, 07:18 AM, said:

Although Menger and Böhm-Bahwerk may not have stated it explicitly, they seemed to believe that utility could be measured. Mises made it clear that utility cannot be measured/quantified and that valuation of means and ends is subjective and that means and ends only can be ranked using an ordinal, not a cardinal, scale.

That's right. Many Austrians are surprised to hear this.

I'm not as familiar with Menger's work, so I can't say if he was just vague on this topic or not, but clearly Bohm-Bawerk in several places explicitly uses cardinal numbers for utility. E.g. when discusses the effects of time, he might say that consuming an apple now will give a utility of 100, while consuming it in one year will (at that point) give a utility of 80 because of increased wealth.

[Joanne]

Murphy, on Sep 4 2005, 02:52 PM, said:

How did Mises differ from Menger and Bohm-Bawerk on the nature of utility?

BB thought that utility could be measured in a cardinal way. For example, if one egg brought x units of utility, then a dozen would be twelve times better, that the sum of marginal utilities equalled "total utility". This did not take the amounts needed by consumers into account. vMises recognized that utility is an ordinal ranking defined in the quantities in which the consumer is interested at that point in time, not more or less.

[Murphy]

Doug K, on Apr 10 2007, 06:43 PM, said:

Mises asserted that ultility can not be measured at all. It is ordinal and not cardinal. I can speak to Menger, but with Bohm-Bawerk it seems clear that he accepted a cardinal value for utility - although he could not seem to prove it.

I found the following example in "The Positive Theory of Capital" Book 3 Chapter 9: "For instance, suppose, as before, that there are only three similar goods, and three buyers each wishing to acquire just one such good, with the view of using it in employments that will yield 50, 20, and 10. Then, if one of these goods be withdrawn from the market to serve in a complementary employment, the two remaining goods are bought for the employments indicated by 50 and 20, and—according to laws which will be explained in next book—the purchase price must be fixed between 10 and 20, say at 15. But if now the complementary employment fails, and the third good also is thrown on the market, it must—if it is to find a sale at all—fall to the buyer who can get 10 by employing it, and the result is that the market price is in all cases fixed below the level of 10. Here, then, the price—and the subjective exchange value based on it—varies not inconsiderably."

The implication is that the three buyers could somehow rank their utility at 50, 20, or 10 - and consequently "do the math" at some point (trade a couple 10s for a 50) Mises rejected any sort of numerical value for utility, preserved the universal principles of utility theory, and prevented the theory from getting lost in the mathematical back alleys.

That's right. Yes, I'm glad you found those quotes from BB. A lot of Austrians are surprised when I tell them that BB explicitly believed in cardinal utility (at least in his expositions). It's even more pronounced in his discounting discussion, where a "true" future utility of 100 is only now perceived as a utility of 50, etc.

[Murphy]

Mart Grams, on Jul 7 2008, 04:44 PM, said:

Like Rune said above, it seemed that Mises' predessors felt that there was a "total utility" of some sorts, but if it can't be added, subtracted, etc, or even compared, how can there be a totality???

That's what I'm saying--I think BB believed utility was cardinal. At least, in some of his passages, it has to be cardinal for him to make any sense.