by Philip Pilkington
In her excellent book Economic Philosophy (available as a PDF here) Joan Robinson undertakes an extensive discussion of marginal utility theory. Here I will be more so interested in her technical criticisms. But before going into these it should be noted that Robinson characterises the impetus of marginal utility theory in a way many might find unusual.
Basically, she claims that it is a revolutionary leftist doctrine. The reason she makes this claim is because if we apply the law of diminishing returns to income it soon becomes clear that radical egalitarianism — indeed, some sort of socialism or communism — is the best manner in which to maximise the utility of society as a whole. Robinson points out that the early marginalists — many of whom, like Walras, were socialists — recognised this full well. She quotes Alfred Marshall in this regard,
Next we must take account of the fact that a stronger incentive will be required to induce a person to pay a given price for anything if he is poor than if he is rich. A shilling is the measure of less pleasure, or satisfaction of any kind, to a rich man than to a poor one. A rich man in doubt whether to spend a shilling on a single cigar, is weighing against one another smaller pleasures than a poor man, who is doubting whether to spend a shilling on a supply of tobacco that will last him for a month. The clerk with £100 a-year will walk to business in a much heavier rain than the clerk with £300 a-year; for the cost of a ride by tram or omnibus measures a greater benefit to the poorer man than to the richer. If the poorer man spends the money, he will suffer more from the want of it afterwards than the richer would. The benefit that is measured in the poorer man’s mind by the cost is greater than that measured by it in the richer man’s mind. (pp52-53)
She also points out that Wicksell — another socialist — considered marginalist economics to be a “thoroughly revolutionary program”. I think Robinson is correct. Marginalist doctrines fit market socialist or market communist societies better than they do capitalist ones. That today’s marginalist economists think otherwise is merely indicative of their extreme lack of imagination: there are no Marshalls or Wicksells among today’s oh-so vapid marginalists.
For this reason Robinson’s criticisms of marginalism should not be read as being politically motivated. Indeed, criticisms of marginalism should be insulated from all politics. The simple fact is that marginalism is wrong not because it leads to right-wing politics — this simply isn’t true — but because it is a logical mess. This is where Robinson’s more technical criticisms come into play.
First she lays of what the term ‘utility’ means to marginalists. In doing so she quotes Marshall once again.
Utility is taken to be correlative to Desire or Want. (p48)
Actually it is slightly more complicated than this because, as Robinson points out, utility is also tied up with satisfaction. If we agree that we should have economic agents maximise utility then we assume that their Desires or Wants are leading to some sort of satisfaction. If we did not implicitly think this then the principle of utility maximisation would not be socially desirable. Robinson raises the examples of the drug addict and children who dislike school; are we really to say that these people should be allowed maximise their utility? Presumably not.
These are interesting points — although I’m sure that marginalists could concoct a scheme to reintegrate such anomalies into their vacuous framework — but this is not the key problem with marginalism for Robinson. In order to highlight this problem she again quotes Marshall to make clear the marginalist position.
There is however an implicit condition in [the law of diminishing utility] which should be made clear. It is that we do not suppose time to be allowed for any alteration in the character or tastes of the man himself. It is therefore no exception to the law that the more good music a man hears, the stronger his taste for it likely becomes; that avarice and ambition are insatiable; or that the virtue of cleanliness and the vice of drunkenness alike grow on what they feed upon. (p50 — My Emphasis)
Robinson might equally well have quoted Samuelson who in his famous textbook Economics wrote,
What is assumed is that consumers are fairly consistent in their tastes and actions – that they do not flail around in unpredictable ways, making themselves miserable by persistent errors of judgement or arithmetic. (p78)
Robinson doesn’t let the marginalists get away with this rather obvious blunder. She is quick to point out that this condition, one which is absolutely essential for marginalism to function, turns the theory into vacuous babble.
We can observes the reaction of an individual to two different sets of prices only at two different times. How can we tell what part of the difference in his purchases is due to the difference in prices and what part to the change in his preferences that has taken place meanwhile? There is certainly no presumption that his character has not changed, for soap and whisky are not the only goods whose use affects tastes. Practically everything develops either an inertia of habit or a desire for change. (p51)
This is a damning indictment of marginalist theory. It means that, in a very real sense, the framework cannot be applied to empirical material. Because it necessarily assumes fixed preferences it cannot deal with changes in these preferences. And due to this it cannot conceive, in experimental settings, of how much consumer activity responds to price fluctuations simply because it does not — and, indeed, cannot — assign any numerical value to preferences that are in a constant state of flux. Robinson continues,
We have got one equation for two unknowns. Unless we can get some independent evidence about preferences the experiment is no good. But it was the experiment that we were supposed to rely on to observe the preferences. (p51)
Let me just restate what Robinson has just pointed out so that people are crystal clear on this point. Marginalist doctrine claims that we cannot measure utility directly. We know of a person’s utility only due to the fact that they buy something — this is called ‘revealed preferences‘ in the literature. So, we only know the cause — i.e. the utility of a purchase — by the effect it produces — i.e. the actual purchase that is made by the consumer. If we consider preferences as being fixed then this makes some sense. But if we allow that preferences fluctuate the whole edifice falls apart because now we cannot be sure to what extent consumer decisions have changed due to price changes and to what extent they have changed due to a change in preferences.
My feeling is that if this was pointed out to, for example, Marshall or Samuelson they would have conceded the problem to undermine marginal utility theory as they had sharp minds and actually understood the structure of theories that they were dealing with. Most marginalists today, who tend to be exceptionally poor at basic logic, cannot understand this criticism at all. They convince themselves that they can integrate changing preferences blissfully unaware that if they do so the entire framework collapses because it becomes impossible to determine which change in consumer behavior emanates from the changed preferences and which change emanates from price changes.
In reality the theory of marginal utility is entirely without substance. All it provides is a set of puzzles that would-be economists spend vast amounts of time trying to solve. The theory of marginal utility is not, despite appearances, an economic theory. At best it is a parlor game played by economists; at worst it is a doctrine which seeks to morally shape the minds of men.
What’s worse today, since the so-called microfoundations critiques (another doctrine that is internally logically inconsistent), economics is using utility nonsense even in the sphere of macroeconomics. Meanwhile, figures like Gary Becker are attempting to colonise other social sciences with these incoherent dogmas. Unfortunately, Robinson didn’t see just how polluting the marginalist doctrines could possibly be.
Addendum: I have written extensively on marginal utility theory before. Here are what I consider to be the most important things I have written — I list them in order of importance.