Towards a View of Cardinal Utility Approach

 The cardinal utility approach was first put forward in 1873 by Richard cardinal. The cardinal utility theory postulates a self-interest amongst individuals to choose what they value most. This means that if one person values something extremely highly, he will do all he can to get that thing and give up anything else that he does not value as much. This leads to the maxim "the pleasure of the Gainful" which states that people should work to gain the highest utility value out of the good or service they receive. The cardinal utility theory is therefore propounded by neo-Classical economists and is grounded on the assumption that utility or the satisfaction derived from consuming a good and service is measured and is expressed in absolute and/or quotient numbers.

The cardinal utility approach has been criticized on several counts. One criticism is that it assumes that consumption is an action or task and as such it cannot be controlled or influenced. Another point of contention is that the approach assumes that individual utility and personal preferences are wholly objective, irrespective of the state of the economy. While it is true that individual preferences may vary depending on the state of the economy, there is still a lot of scope for bargaining and other forms of non-price coordination among consumers, particularly when these consumers have relatively equal potential buying power.

It is important to understand that there is a possibility for a bargaining process to occur even in a depressed economy; depressed economies result mainly from the absence of demand for certain goods and services, of course with the presence of excessive unemployment. In such cases, the cardinal utility approach may not apply at all because the demand for commodities is indeed very high. However, even in such instances, some form of demand-side management is usually necessary. For instance, when the distribution of income is altered by way of tax increases or decreases, a cardinal utility approach may be applied to determine where the increased expenditure comes from.

For many years, the cardinal utility concept has been criticized on the grounds that it reduces the subjective value of the consumer's choices. cardinal utility theory maintains that, because the consumer has an interest in maximizing consumption, his choices will tend to reflect his utility and preference for that commodity. With this view, consumers will tend to choose commodities that maximize their own utility and personal preferences; they will not, for example, choose to buy a new car because it is cheaper than an old one. If they do choose to buy the new car, they will not choose it on the basis of its appearance (i.e., its color, model, etc. ); they will, rather, choose it on the basis of how much they think they will get from it (i.e., its mileage, popularity, etc. ).

Critics argue, however, that they are not measuring the utility of a commodity but measuring the level of demand for it. By offering a definition of what is "comfortable," they maintain that the cardinal rule can provide a useful starting point for determining what the level of demand for something is. By choosing, for example, a commodity that is "comfortable" for me to be a part of my leisure time, then it follows that commodity must also be "comfortable" for you to enjoy the same level of leisure time. By offering a definition of comfort as a measure of the level of demand, critics argue, the cardinal utility approach prevents the introduction of "fallings of the market" by providing a standard for deciding when a commodity is over-produced and under-produced.

Critics of cardinal utility also argue that because utility is a concept that pertains only to consumption, and not production, there is no way to measure the level of consumption. After all, if consumption is the only basis for classifying economic activity, then how can the government tell whether a corporation is making profits or losing them? Moreover, if utility is a concept that relates only to consumption, it makes it impossible to tell what is happening in the economy as a whole. Rather, every economic activity is merely part of a generalized "production relation."

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