Relay-Version: version B 2.10 5/3/83; site utzoo.UUCP Posting-Version: version B 2.10.2 9/18/84; site gargoyle.UUCP Path: utzoo!watmath!clyde!burl!ulysses!mhuxr!mhuxn!ihnp4!gargoyle!carnes From: carnes@gargoyle.UUCP (Richard Carnes) Newsgroups: net.politics.theory Subject: Re: Redistribution of income and wealth Message-ID: <196@gargoyle.UUCP> Date: Wed, 18-Sep-85 21:08:32 EDT Article-I.D.: gargoyle.196 Posted: Wed Sep 18 21:08:32 1985 Date-Received: Fri, 20-Sep-85 04:40:16 EDT References: <186@gargoyle.UUCP> <10415@ucbvax.ARPA> Reply-To: carnes@gargoyle.UUCP (Richard Carnes) Organization: U. of Chicago, Computer Science Dept. Lines: 131 Rick McGeer writes: >Pigou wasn't exactly what I had in mind. It's not one of the basic >texts, and I think many or most economists would disagree with this >statement. The "aggregate sum of satisfactions" is thought to be a >pretty meaningless phrase since satisfaction, or utility, is thought >of as a cardinal rather than an ordinal quantity. The relative >intensity of wants of one individual can always be measured, but I >think that almost all economists would agree that determining the >intensity of A's wants vs B's is a very chancy game. We can debate >debate whether the determination can be made, if you like, but the >point here is that if there is a consensus among economists in the >matter, it is on the negative. Uh, strike that. Economists will >agree that there is such a thing as the "aggregate sum of >satisfactions": Alchian and Allen claim it is that quantity which is >maximized by the free exchange of commodities in an open market. Now I'm confused, Rick. First you say that "aggregate sum of satisfactions" [ASS] is a "pretty meaningless phrase," since most economists don't think you can compare the utilities of different persons. Then you say that Alchian and Allen say that the ASS is maximized by the free market. Then you say >I don't understand what the "aggregate sum of satisfactions" is. Then you say >I don't know of any evidence which shows that any >transaction increases or decreases such a thing but then you say that any voluntary transaction increases the ASS by definition, but you don't know how this would be measured. So I suspect that we are both confused by this point. If I were you, I would first get my head out of Alchian & Allen. I suppose it is a useful textbook, but they spend a lot of time grinding their ideological axe. Everything say should be taken with heaping spoonfuls of salt. One of their exercise questions quotes Einstein (who was sympathetic to socialist ideas) and says "Prove your superiority to Einstein" by refuting Einstein's statement. My recollection is that the quote shows Einstein's superiority to Alchian and Allen. Back to utility theory and the ASS. I can't improve on N. Georgescu-Roegen's discussion of "Utility" in the *International Encyclopedia of the Social Sciences*, so I will just quote an excerpt: ____________ The endeavors to explain economic value by a single "cause" have followed two trails. In the chronological order, it was Marx, in his labor theory of value, who first claimed to have disovered the same thing that Aristotle asserted exists in every exchangeable good. Marx did see that for such a claim it is necessary, first of all, to bring ALL FORMS of labor to a common denominator.... The founders of the utility theory, on the other hand, steamrollered over the parallel issue of whether every concrete want is only a particular form of a general abstract want -- utility. For, in essence, this is the meaning of utility. The fact that at one time economists held that utility is measurable, although no one could devise a hedonimeter, led them to defend their position by arguing that a cardinal scale exists only for the utility of an individual person, not for the utilities of all persons. The dogma of the interpersonal noncomparability of utility has ever since been strongly advocated. But if this dogma is accepted, economics must reconcile itself to being a science (perhaps the only one) unable to recognize at least a modicum of standards in the phenomenal domain which it purports to study. Fortunately, the dogma flies in the face of two irresistible forces: the faculty of man called empathy, without which "there is really no game we can play at all, whether in philosophy, literature, science, or family"; and the hierarchy of wants. To be sure, the interpersonal comparison of wants does not always work. At the same time, it can hardly be denied that it makes objective ECONOMIC sense to help starving people by taxing those who spend their summers at luxurious resorts. There is economic sense even in taxing the latter more heavily than those who cannot afford any luxuries. However, in view of the absence of any order among the luxury wants, there is no objective justification for taxing those who have motorboats and using the money to help others buy hunting equipment. The fact that the advocates of the interpersonal noncomparability of utility had in front of their eyes only a society of relatively high incomes is certainly responsible for their view. _____________ Georgescu-Roegen goes on to say that the hierarchy of wants can explain some phenomena that utility theory cannot, such as why central planning works poorly in any advanced economy and why rising personal incomes in the Soviet Union have resulted in increasing decentralization in the production of "luxuries." >(any transaction >which is voluntary axiomatically increases [ASS], but who knows by how >much...what are the units?), and I don't understand the relationship >of such a thing to any measurable quantity. Unless and until I do >understand these things, or you can explain them to me, I'm really >not interested. This raises some rather large questions. Why should we not be interested in something unless we can measure it? Not everything can be reduced to numbers, as far as I know. >And in both physics and economics, arguments "by >common sense" should be regarded as guilty until proven innocent. >After all "by common sense" if the cost of a factor in the production >of a commodity A goes up, then the price of A must go up. (Hint: >wrong). This isn't what I meant by "common sense." You are talking about a mistaken deduction, I am talking about our everyday knowledge of the world: e.g., if you drop something, it falls down. Science is built on this basic knowledge. An economic science that adheres to a dogmatic principle (the interpersonal noncomparability of utility) that may have served a useful theoretical function in the past, at the expense of our common-sense knowledge of the faculty of empathy and the hierarchy of wants, condemns itself. However, it is not coincidental that this principle forbids us to say that there is any objective sense in which a group of people in the aggregate are better off if the wealth is distributed equally than if one person has most of it: such a position obviously legitimizes the existing inequalities in the distribution of wealth, and I believe that this apologetic function is part of the reason that the dogma is adhered to. If you don't believe there is any sense in the statement that the world would be worse off if one person possessed all the wealth that now exists and everyone else was starving to death than if the wealth were distributed more equally, then I don't know what I can say to you. But if you do believe there is some sense in the statement, you should try to make sense of it in terms of economic theory. -- Richard Carnes, ihnp4!gargoyle!carnes