The Debate on Indifference

In the latest QJAE, there is another debate over the role of indifference in economic analysis. Like the previous debates, this is an outgrowth of the response to Nozick’s critique of Austrian economics. Since Mises, AE has rejected the use of indifference in economic analysis, which also means that indifference curves cannot be used. The reasoning behind this break from the mainstream is this: indifference cannot be demonstrated through action (we always choose something; we cannot choose to be indifferent) and is therefore only a vague psychological concept, not an economic concept.

Suppose that the above reasoning is valid. Nozick points out that we cannot use the concept of marginal utility or other economic concepts, since these depend on a stock of homogeneous goods. The individual must be indifferent between these goods for these concepts to be valid.

Block attempts to solve the problem in a very practical way. Until the moment of choice, the individual is indifferent between the homogeneous goods in a psychological sense. At the point when he chooses, he is no longer indifferent; he picks a specific dollar to trade (even though he valued all his dollars the same previously), for example. This solves the problem, although it seems to be an ad hoc solution.

Hoppe has a more elegant solution to the problem. He says that we are not indifferent between homogeneous goods, it is just that the matter of picking a particular member of that group does not matter for human choice. For example, if I am trading loaves of bread for ounces of butter, I do not care which loaf I trade for the butter. My action shows that I prefer butter to bread, but it does not show that I am indifferent to which loaf I get rid of. The matter of which particular loaf is not relevant for human action. Hoppe gives the example of walking to a park. At the start of my walk, I must either put my left foot or right foot forward. Am I indifferent between them? No, the choice is not one I make. I make a choice of walking to the park; the foot I start with is irrelevant.