Murray Rothbard's Ideas of Demonstrated Preference and Their Use in Defense of a Free Market

In "Toward a Reconstruction of Utility and Welfare Economics," Austrian-school economist MurrayRothbard (1926-1995) describes "demonstrated preference" as the idea that a man's actual choices in action indicate to praxeological economists what he genuinely values. If a man in a given situation chooses A over B, this means that he values A more than B in that situation. When a man expends given resources on accomplishing a satisfaction, the principle of demonstrated preference implies that he prefers that satisfaction over any alternative use of those resources. A corollary to demonstrated preference is the recognition that we can never-in our capacity as praxeologists-know another's valuations except as he displays them through his actions.

Rothbard's view of "demonstrated preference" should not be confused with "mainstream" economist Paul Samuelson's idea of "revealed preference." Samuelson presumes that all of a man's actions are based on an underlying preference scale that remains constant over time. The sum total of a man's observed actions can then be used, according to Samuelson, to "map" his preference scale using mathematical techniques. Rothbard disagrees; he sees no reason to assume the value scale's constancy over time. Rothbard's view of demonstrated preference is thus more limiting than Samuelson's; it only allows the economist to state that a given actor valued A over B at the time he made his choice. The economist can legitimately reconstruct only an extremely small part of the actor's preference scale-not, as Samuelson suggests, the entire scale.