Authors including Robert Nozick (1977) and Bryan Caplan (1999) have levied criticism against the treatment of indifference within the Austrian tradition of economic theory. Their attempts to dismiss the Austrian position on this matter as unrealistic and contradictory are unsatisfactory as they fail to properly portray the core differences between the Austrian and neoclassical concepts of goods, utility, and preference, thus rendering their analysis inaccurate.
Subjectivity is the starting point of all concepts in Austrian theory. Unlike neoclassical concepts, concepts in Austrian theory bear no reference to a material or physical objectivity. Since the primary focus of economics is action, which is first and foremost a metaphysical phenomenon, it makes sense that the primary lens through which the concepts are defined is universally applicable to every acting individual, rather than through an artificial omniscient perspective. The underestimation of this distinction is at the core of the inaccuracy.
A good is thus not a definite physical substance but rather derives its essence from its subjectively perceived services of ends.1 In a strict sense, certainty of the existence of definite physical substances is not possible nor relevant at this level. For the sake of practical elucidation, given that definite physical substances exist, the same physical substance may be a good for one individual and not for another. This may be either because they do not share the same end or, if they do share the same end, because they do not both perceive the thing as capable of serving the end.
Utility is thus not a substance (measurable or otherwise) but rather the subjectively perceived capacity of goods to serve ends.2 Preference is thus not a relation between definite physical quantities but rather the necessary result of scarcity and multiple simultaneous ends prompting the action of a given individual. The intent of all human action is to serve subjective ends through subjective means.
Read the full article at the Quarterly Journal of Austrian Economics.
