The Old Welfare Economics Crashed to the Ground When Lionel Robbins Demonstrated That Interpersonal Utility Comparisons Were an Impossibility

When Murray N. Rothbard published his seminal article, "Toward a Reconstruction of Utility and Welfare Economics," these were bold words indeed, considering the disarray into which welfare economics had fallen by 1956. The Old Welfare economics had crashed to the ground decades before when Lionel Robbins, building on the subjective-value foundation laid by Ludwig von Mises, demonstrated that its underpinning--interpersonal utility comparisons--was an impossibility. Being subjective, utility has no cardinal index and, thus, no common cardinal units could possibly exist for the purpose of comparing the utility of different individuals. Since individual ordinal rankings of utility cannot be compared, the argument advanced by Pigouvian welfare theorists, that redistribution of wealth from the rich to the poor would increase social welfare because of diminishing marginal utility of money, fails. To the chagrin of advocates of Old Welfare redistributionist policies, economists conceded that the subjective nature of utility renders cardinal measurement, a necessary requisite of interpersonal utility comparisons, impossible. Moreover, they admitted that advocates of such policies were not value-free economists but ethicists advancing their own, usually egalitarian, ethical biases.

--Jeffrey M. Herbener, "The Pareto Rule and Welfare Economics," Review of Austrian Economics 10, no. 1 (1997): 79-80.