1. Before the emergence of the modern school of
utility, thoughts on value, demand, and exchange ordi-
narily reflected the economic conditions prevailing
during each period. A turning point in this respect took
place following the process of mathematization fos-
tered by that school. Utility theory has ever since been
its own source of new ideas, suggested primarily (and,
at times, exclusively) by its mathematical framework.
An excellent illustration is the observation made by
Irving Fisher in his doctoral dissertation (1892). The
pure geometry of Edgeworth's diagram led Fisher to
note that in order to determine the optimal budget
distribution we do not need to know how many utils
each isoline represents: the knowledge of the isolines
as such suffices. This simple geometrical truth caused
the first serious dent in the idea that a cardinally
measurable utility is indispensable for explaining value.
It was, however, Vilfredo Pareto (Manuale di econo-
mia politica, 1905) who first constructed a consumer
theory which does not require the notion of utility at
all. His point of departure is that an individual con-
fronted with two baskets of commodities will always
either prefer one basket or be indifferent as to which
one he gets. Given this faculty of binary choice, Pareto
reasoned that, by asking the individual to choose be-
tween M and every other possible basket, we can
determine an indifference curve, i.e., a curve that rep-
resents the loci of all baskets “indifferent” in relation
to M. The procedure does not refer in any way to
utility. And once the indifference curves are deter-
mined, they help determine the optimal distribution
of any budget in exactly the same manner as the utility
isolines. Furthermore, we can construct a function
V(x1,x2,..., xn) such that its value is constant on each
indifference curve, just as the utility function
U(x1,x2,..., xn) is constant on each isoline. The only
difference is that V is not uniquely determined—any
increasing function of V, say V2, would do.
It is for the function V that Pareto coined the term
“ophelimity.” But, as was argued in subsequent devel-
opments, we may still speak of utility and of V as its
ordinal, instead of cardinal, measure. This means that
the value of V simply orders all baskets according to
the individual's preferences. Today the notion of an
ordinal utility dominates consumer theory, the central
problem of which is how to derive an ophelimity
function from directly observable budget data.
