Utility Can be Dropped

Chapter 4, Section 7: Utility Can be Dropped

Let's get back to the concept of "utility". Although it's been popular in economics for quite long a time, I've decided not to use it any more after careful consideration. That's because the concept is a castle in the air, only an imaginary abstraction by economists, and doesn't exist in the real world; invisible means untestable, so it cannot be used in implication validation. From the viewpoint of economic explanation, when one more censer added one more ghost would have to be serviced, unobservable variables thus shall be avoided as much as possible. “Utility" is right so.

Years ago my teacher Alchian was with Becker and Friedman, and insisted "utility" be reserved. His reason was many economic goods, like friendship,  reputation and etc., cannot be traded on the market and therefore unmeasurable with money. Teacher Alchian called them non-pecuniary goods and thought only utility can be used for their measurement. After days of consideration, I had my conclusion for this problem: it's correct that some goods are not exchangeable on the market and thus don't have market price, yet economics has the postulate of substitution, and the so-called non-pecuniary goods can be mutually substituted with other pecuniary goods, so through the price changes of pecuniary goods we can still predict or explain the choice behaviors about those non-pecuniary goods. For example, now revising my Economic Explanations, I've increased my time spending measurable with money, and reduced the time chatting with my children about their life. The latter can be viewed as a loss of care to them, a non-pecuniary good. In the previously mentioned paper I published in 1972, my analysis of phenomena like children property rights, divorce, and child wife in old China all avoided any use of the utility concept.

I think, utility theory is popular in economics is mainly because the theory can provide a large room for the use of math formulas, which make papers look professional and easier to publish. Becker is the best of nowadays at the use of utility functions, and his analysis capability tops everyone I've seen. Yet I don't think good of his explanation capability: his predictions of worldly affairs usually go wrong. Utility is not something real, that makes the theory's implications need more steps before becoming testable, and one is very easy to make tautological mistakes in the course of reasoning. Asserting behaviors like jumping off a building, getting divorced, killing one's children, etc., are utility maximizing, cannot be wrong. But that's just a tautology. Of course Becker can't be this stupid, but you students shall realize in utility analysis it's very very easy to make such mistakes, and in fact gentlemen that's been set up are countless.

Alchian once had it quite right, that to explain human behaviors with utility analysis requires two conditions: first, we need to know how to rank different options with utility numbers; second, we need to know the sacrifice that has to be made for each option. I agreed, yet my reply was: if we know these, we don't need the concept of utility.