The Austrian Rejection of Indifference: The Caplan-Callahan Debate

In "Why I am not an Austrian Economist," the neoclassicist Bryan Caplan objects to the Austrian School's rejection of the concept of indifference in economic analysis-which by implication denies the use of indifference curves as economic models. According to the Austrians, action can only demonstrate preference-not indifference-and the situation of an actor being indifferent among several alternatives is outside the scope of praxeological economics.

Caplan interprets the Austrian view of indifference as an assertion that no preference can exist except as manifested in action. Caplan sees here a contradiction in Austrian theory-which purports to be anti-behaviorist but employs the allegedly behaviorist assumption that only preference embodied in action can be known. Caplan compares the Austrians to behaviorists in that they do not believe that there is more to one's preferences than one's action indicates. Caplan alleges that there exist preferences incapable of being revealed in action. His preference for an ice cream cone yesterday cannot be revealed by action, for example, because any present action would be an indication of present-not past-preference. Furthermore, Caplan claims that he can be indifferent among colors of clothes; he nonetheless picks one of the colors but knows that he would have picked the other if prices were not equal.

Caplan also alleges that Ludwig von Mises and Murray Rothbard themselves frequently referred to hypothetical preference. Rothbard often drew demand curves in his treatise in order to show the possible valuations of economic actors at other points than that representing the equilibrium price and quantity-at which the exchange actually occurred.