Uh oh, it’s David R. Henderson and me vs. Tyler Cowen and David Friedman. How do you rank the gladiators? An excerpt:
There has been a flareup in free-market economist circles over the issue of “interpersonal utility comparisons.” First Tyler Cowen wrote a post that took it for granted that a rich man got less utility from an extra dollar than a poor man did (although Cowen didn’t think that justified government redistribution by itself). In response, David R. Henderson expressed puzzlement that Cowen overlooked the fact that such an interpersonal utility comparison (IUC) was nonsense, because utility is an ordinal concept. Then a bunch of people,including David Friedman, jumped into the fray, claiming that Henderson was outdated because von Neumann and Morgenstern had shown how we could in fact construct cardinal, not ordinal, utility functions.
In the present blog post I’ll hit the key points in this dispute. To cut to the chase, I agree with David R. Henderson: The way economists use the term, “utility” is an ordinal concept, which expresses a subjective ranking, not an objective measurement. Therefore it makes no sense to say Jim gets more or fewer utils than Sally. Furthermore, the work of von Neumann and Morgenstern does not alter this basic fact: Whether we “believe in” cardinal utility has nothing to do with their demonstrations.