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Title : Problems Amongst Bryan Caplan's Why I'm Non An Austrian Economist: Caplan Supports Laughable Indifference Crease Theory (Part 3)

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Problems Amongst Bryan Caplan's Why I'm Non An Austrian Economist: Caplan Supports Laughable Indifference Crease Theory (Part 3)

By Robert Wenzel

Part 3 of my continuing serial on Bryan Caplan's essay "Why I'm non an Austrian Economist." volition attempt out the so-called indifference curve.

Remarkably, Caplan attacks Murray Rothbard for rejecting indifference theory:

 The utility utilisation approach has a concluding implication that Rothbard rejected. Recall that using criterion neoclassical definitions, U(a)>U(b) exactly agency that given the selection of a as well as b, a volition last chosen, acre U(a)<U(b) agency that b would last selected. But what if U(a)=U(b); i.e., what if an agent is indifferent betwixt 2 alternatives? Rothbard elaborated upon Mises past times rejecting the real possibility as incoherent - as well as past times implication rejecting the real utilisation of indifference curves, a fundamental edifice block of modern neoclassical theory.

Rothbard was right inwards rejecting the indifference bend when he wrote:

The vogue to process problems of human activity inwards price of equality of utility as well as of infinitely pocket-size steps is also apparent inwards recent writings on “indifference maps.” Almost the entire edifice of contemporary mathematical economic science inwards consumption theory has been built on the “indifference” assumption. Its footing is the handling of large-sized classes of combinations of 2 goods, betwixt which the private is indifferent inwards his valuations. Furthermore, the differences betwixt them are infinitely small, so that smoothen lines as well as tangents tin ambit the axe last drawn. The crucial fallacy is that “indifference” cannot last a footing for action. If a homo were actually indifferent betwixt 2 alternatives, he could non brand whatsoever selection betwixt them, as well as thus the selection could non last revealed inwards action. We are interested inwards analyzing human action. Any activity demonstrates selection based on preference: preference for 1 option over others. There is thus no utilisation for the concept of indifference inwards economic science or inwards whatsoever other praxeological science. If it is a affair of indifference for a homo whether he uses 5.1 or 5.2 ounces of butter for example, because the unit of measurement is likewise pocket-size for him to accept into consideration, so in that place volition last no occasion for him to human activity on this alternative. He volition utilisation butter inwards ounce units, instead of tenths of an ounce. For the same reason, in that place are no infinitely pocket-size steps inwards human action. Steps are alone those that are pregnant to human beings; hence, they volition ever last finite as well as discrete.

But I believe that in that place is an fifty-fifty simpler way to present the absurdity of indifference curve theory as well as that it hardly ever exists as well as it tells us nothing. 

Let us accept the intelligence of indifference curves that is included inwards Harvard Professor Greg Mankiw's Principles of Economics (one of the most pop introductory economical textbooks of all-time).

Mankiw explains:

The consumer's preferences let him to select amid dissimilar bundles of pizza as well as Pepsi. If you lot offering the consumer 2 dissimilar bundles, he chooses the bundles that suits his taste. If the 2 bundles adjust his sense of savor as good nosotros tell the consumer is indifferent betwixt the 2 bundles. 

Just as nosotros conduct keep represented the consumer's budget constraint graphically, nosotros tin ambit the axe also correspond his preferences graphically. We exercise this amongst indifference curves. An indifference bend shows the bundles of consumption to brand the consumer as happy. In this case, the indifference bend shows the combinations of pizza as well as Pepsi amongst which the consumer is as satisfied.

Figure 2 shows 2 of the consumer's many indifference curves. The consumer is inwards dissimilar combinations of A, B, as well as C because they are all on the same curve. Not surprisingly, if the consumers consumption of pizza is reduced say from hollo for Influenza A virus subtype H5N1 to hollo for B, consumption of Pepsi must increase to leave of absence along him as happy. If consumption of pizza is reduced again, from hollo for B to hollo for C the amount of Pepsi consumed must increment even so again.

This is Figure 2 which is on the same page as the text higher upwardly as well as referenced by Mankiw:

Now, how idiotic tin ambit the axe you lot get?

This theory is a serious instance of the Emperor has no clothes. Compared to this, Keynesian nonsense looks similar pure genius.

Let's take a existent life await at Mankiw's example.

Suppose that later a long nighttime out on the town, I halt into a local pizza store for a Pepsi as well as a piece of pizza. I house my order. It's a special, a piece as well as Pepsi outpouring gulp for $5.00.

But they are out of pizza, so the clerk, who is a pupil at Harvard as well as who exactly took Mankiw's intro class,  looks at me as well as says, "I'm sorry, nosotros are out of pizza. How many Pepsis would you lot similar instead?"

I say, "What?"

He says, "Where are you lot on the indifference bend betwixt pizzas as well as Pepsis. We are out of pizzas, so how many Pepsi outpouring drinks exercise you lot desire to substitute for the pizza, three, four, what?"

My choice: I walk out.

Another example, a adult woman walks into the business office where her medical grouping operates from for her annual female checkup which includes a pectus scan as well as a gynecological exam. And nosotros encounter closed to other Mankiw pupil at the front end desk.

She says to the woman, "I'm sorry. Our pectus scan machine is down. How many gynecological exams would you lot similar today instead, two, three?"

The adult woman says, "What?"

The Harvard pupil says, "What is your indifference betwixt gynecological exams as well as breast scans?"

She walks out on this Mankiw nutjob.

The fact is that most bundles exist, at whatsoever specific time, inwards isolation, where no substitutes betwixt 2 goods make any sense. For the most part, in that place are no indifference curves.

It is an extremely isolated occurrence (which Rothbard recognizes, see his intelligence of Buridan's ass). Say, individual owes me $10,000 as well as he has 2 stacks of 1 hundred dollar bills inwards front end of him as well as that each stack contains 100 bills. He may tell "Which exercise you lot want?" At that point, I may last genuinely indifferent as to which 1 I larn as long as I larn one. But this is non a foundation upon which to laid upwardly economical theory, when most of reality is non nearly indifference.

So at 1 time nosotros conduct keep Caplan throwing Rothbard as well as Austrian economic science nether the motorcoach because of their rejection of indifference theory that doesn't be inwards most situations fifty-fifty if nosotros ignore Rothbard's right technical objection. How absurd.

Part 4 on Thursday.

The total "Problems With Bryan Caplan's 'Why I'm Not an Austrian Economist'" serial is here.

Robert Wenzel is Editor & Publisher of

and Target Liberty. 

More nearly Wenzel here. 

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