A Challenge to Rozeff on Interpersonal Comparisons of Utility

Dear Stefano:

Brilliant. I am greatly in your debt for this. I didn’t realize that Mike and I were passing like ships in the night on this matter of utility. No wonder we disagreed: we each had different concepts of utility in mind. Yes of course, as a matter of economic history, a law against theft will increase utility in the GDP sense. This is an empirical claim in economics, not a praxeological one. On the other hand, praxeology, that is, economics, not economic history, speaks out with a clear voice that social welfare cannot increase thereby, unless we engage in the praxeological verboten concept of interpersonal comparisons of utility. I took Mike to be claiming that ICUs were valid, which is obviously erroneous.

I have but one minor criticism of your magnificent comment. You say this: “It is clear to me that ‘society’ is not an amorphous blob, but a shorthand for the sum of all members of a given group. As such, there can be no demonstrated preference by society, given its non-existence.” Of course there can be no demonstrated preference by society, without invalid ICUs. But it EXISTS. Of course, it exists only as a shorthand, but, still, it exists. I regard this as no more than a typographical error on your part.

I tried and tried to convince Mike of the error of his ways. I failed. I think you’ve succeeded.

Best regards,

Walter

From: Stefano Rondelli

To: msroz@buffalo.eduwblock@loyno.edu

Subject: On social utility

Esteemed doctors Rozeff and Block,

I have read your exchange and doctor Rozeff’s latest blogpost, and I would like to offer some points based on my – admittedly not as extensive and deep as yours – understanding of economics from an austrian standpoint. I hope I will be forgiven any imprecisions and honest mistakes.

First, I believe doctor Rozeff is employing the term utility to mean two different things, and this confusion heavily influences his arguments. In economics, the term “utility” refers to the satisfaction that an actor feels when his ends are realized or his interests are furthered; on the other hand, there is another meaning that can be attached to it, which refers to the material well-being of the actor. It is referring to this second meaning that Ludwig von Mises can call himself a utilitarian without resorting to any interpersonal comparison of utility (ICU). In the view of Mises, social utility refers then to the material condition of society at large, and he correctly identifies laissez-faire as the supreme tool of choice to the furtherance of that end; however, in his writings, he also recognizes that there are many individuals who are plagued by resentment toward those who prosper under a regime of private property, as he thoroughly analyzes in his “The anti-capitalistic mentality”.

Clearly, Mises understands the difference between affluence and utility. What doctor Rozeff is attempting to do is conflating these two views and then claiming something that doesn’t follow. Given that utility is not subject to ICU, and that there is no way to clearly quantify, it may well be the case that the foregone utility from the thieves is magnitudes Greater that the utility gained by the rest of society. I think that this is the point that doctor Block is getting at: from the standpoint of pure economics, we cannot say whether the sum of utility has increased or decreased. However, in defense of doctor Rozeff, we can follow Rothbard when he says that “no act of government whatever can increase social utility” (in his essay on welfare economics), provided that we conceive of social utility under the constraints of demonstrated preference and the unanimity principle. This effectively circumvents the ICU problem: it simply recognizes that if someone loses, then social utility has not been maximized or furthered, unlike what happens on the free market, where Rothbard affirms that it benefits all its participants.

This reference to demonstrated preference brings us to doctor Rozeff’s point about “society’s” demonstrated preference, which I find highly muddled and confused. It is clear to me that “society” is not an amorphous blob, but a shorthand for the sum of all members of a given group. As such, there can be no demonstrated preference by society, given its non-existence. Moreover, I fail to see how the acceptance of a law against stealing “reveals” any – constant, at least – preference. It would appear that doctor Rozeff is committing the fallacy of assuming constancy, while in human action there are no such material constants. It is perfectly conceivable that an individual might support a prohibition of theft at a certain time and reject it a moment later when it suits him, in the classic “rules for me thee but not for thee” phenomenon. This is exactly what a thief wants: his desire is to be the only one exempt from the law. Clearly, then, at least one member of society does not prefer a wholesale law against theft. In his response to Bryan Caplan’s famous essay, doctor Hulsmann hints at the opportunity of excluding the thief from the count of utility referring to the argumentation ethics approach to justice. This, however, is a stealthy smuggling of an ethical assumption into a purely economic matter. Moreover, many members of society do, in fact, support subsidies, quotas and the like: are they also to be excluded from “society”? This strikes me as an absurd proposition, given that we are redefining society to cut off all the elements that do not conform to the conclusion that we want to draw, instead of confronting them head on.

This brings us to doctor Rozeff’s next point, about the short-sightedness of the economist when he focuses exclusively on the two parties concerned – in the case of theft – while ignoring the rest of society and how the wrongful sentence of the judge impacts it. The way he construes his argument, however, is fallacious. When doctor Rozeff says that “society, because it has this law against theft, is telling us that this or any particular theft lowers its utility, even when an interpersonal transfer occurs within the society”, is committing another fallacy. Specifically, he is yet again treating society as a blob with a unitary will, while it couldn’t be further from the truth, as I hope I have shown. “Society” cannot judge anything because it doesn’t – and cannot – act. There is no way around methodological individualism. If doctor Rozeff has a way to get around this problem, he is welcome to present his argument, but I do not believe he has offered a valid one. This criticism of mine is also reinforced when doctor Rozeff says that “society has already compared the utility gain of the thief to the utility loss of the victim”, which from a praxeological standpoint is simply impossible, and even meaningless. Again, “society” does not exist, other philosopher’s criticism notwithstanding.

It should also be noted that, if we were obligated to consider every single possible ramification of a single exchange, we might even have to concede that the free market does not, in fact, maximize social utility, in the first acceptation. One could imagine a society deeply envious, who resents any and all attempt at bettering one’s condition, something that any reader of Helmut Schoeck would be very familiar with. It really doesn’t matter if the societies described by Schoeck fit the criteria of “demonstrated preference” with regards to law as formulated by doctor Rozeff, because there is no non-arbitrary way to confine social welfare analysis to a given society without accepting the position that yes, only the people directly related to a certain exchange are to be considered relevant. One of the ways out, namely social contract theory, is fraught with problems and contradictions, as exposed by a multitude of authors, like Lysander Spooner.

What are we to make of all this? I suggest that doctor Block’s position is largely correct, while doctor Rozeff can be right if we think of the scenario he proposes along the lines of Ludwig von Mises’ brand of utilitarianism. What is clear, however, is that this is not exactly a strictly economic argument.

Best regard,

Stefano Rondelli

Share

2:34 am on July 23, 2020