UTILITARIANISM
IN ECONOMICS
Contrast and Compare
Abstract
Economic science, like any other science, is full of models, assumptions and restrictions. It is a feature of any scientific discipline, though it becomes problematic when we become blind to the assumptions and restrictions that we make. This research seek to answer: what is the normative influence of utilitarianism on the science of economics? It shows that utilitarianism was of significant important during the marginal revolution in economics but lost its
importance in the 20th century. However, by comparing the development of utilitarianism and economics, it becomes clear that normativity is still very much present in economics, and that we should understand this influence in order for blind spots in economic theory to arise.
Index
INDEX ...1 1. INTRODUCTION...2 2. UTILITARIANISM ...5 BASIC PRINCIPLES ...5 CLASSICAL UTILITARIANISM ...6Jeremy Bentham: The Founding Father of Utilitarianism ...6
John Stuart Mill: Bentham’s Successor ... 11
Henry Sidgwick: The Theoretical Revisionist ... 13
Severe Problems in Classical Utilitarianism... 16
CONTEMPORARY UTILITARIANISM... 17
Preference Utilitarianism: Avoiding Hedonism ... 17
3. CONTRAST AND COMPARE OF UTILITARIANISM AND ECONOMICS ... 22
THE HEDONISTIC UTILITARIAN INFLUENCE ON THE MARGINAL REVOLUTION ... 22
William Jevons: Applying Bentham to Welfare Economics ... 22
Francis Ysidro Edgeworth’s: A Mathematical Formulation of Utilitarianism Inspired by Sidgwick ... 25
Difficulties of Hedonistic Utilitarianism in Economics... 29
LOGICAL POSITIVISM:ECONOMICS WITHOUT UTILITARIANISM ... 30
Vilfredo Pareto: Introducing a New Foundation for Economics ... 31
John Hicks: Perfecting Pareto’s Insight ... 32
Lionel Robbins: Turning Economics Into A Theory of Rational Choice ... 33
Paul Samuelson: Revealed Preferences ... 35
PREFERENCE UTILITARIANISM AND MODERN ECONOMICS ... 36
Two Theories on Maximizing Wellbeing ... 36
The Normativity of Rationality ... 38
4. CONCLUSION ... 41
5. DISCUSSION ... 42
1. Introduction
Economic theory is, not uniquely, heavily dependent on models, that are constructed based on assumptions. When assumptions are made in modern economic textbooks, they are often merely stated and barely elaborated on. This might seem like an innocent practice. In
economic textbooks, the assumptions underlying the models are often defended by stating that they are simply there to make the models work and that everybody knows that the real world is more complex. They refer to other sciences doing exactly the same, for example by stating that in anatomy or biology, models on the workings of the body are simplifications of reality too and that this is necessary to allow for the study and comprehension of such difficult real-world phenomenon as the workings of the body and that of the market and economic behavior (see for example, Mankiw & Taylor, 2014; Snyder & Nicholson, 2012).
This becomes problematic though, when economists fail to see the restrictions posed by the assumptions made. This point is sophisticatedly made clear by Ha-Joon Chang when he diffuses the often heard free-market proponents’ argument stating that market intervention inhibits resources to flow to their most efficient use, thereby dis-incentivizing people to invest and innovate. Rules and regulations would, according to the free-market proponents, neglect the full potential of the market and our maximum welfare potential. But free markets do not exist in the real world. Rules and regulations are always present and are always politically motived (Chang, 2011). Free markets are merely theoretically created by assumptions such as perfect competition or zero transaction costs in order to support economic analysis. This all economists supposedly know (again, see for example, Mankiw & Taylor, 2014; Snyder & Nicholson, 2012). However, when we continuously and blindly accept the assumptions underlying our models, we eventually fail to see them. If this happens, our arguments might hold in a fantasy world supported by various unrealistic assumptions, but they will be flawed when applied to the real world.
It is therefore essential to keep reflecting on our assumptions. Economics is a political argument (Chang, 2011) hence in failing to do so, economists face the hazard of interpreting and presenting their value-based arguments as absolute truths.
Surely in some parts of economics, moral insights are of more importance than others. Many economists even argue that economics is a positive science, free of value judgements
(Boumans & Davis, 2010). Influenced by the logical positivists from the Vienna Circle, this standard view holds that science should be purified from philosophical claims about the world that are not true by definition. That is to say, that only analytic and synthetic a posteriori propositions can contain scientific knowledge, and because value-judgements are neither, they have no place in science (Boumans & Davis, 2010). But since the origin of the Vienne Circle in 1920s, it has been shown that this view is flawed in several ways. Moral insights are never irrelevant in situations concerning human choices (Hausman & McPherson, 2006),
economists make methodological value judgements themselves (Boumans & Davis, 2010) and the concepts that the science of economics use are based on certain values (Hausman & McPherson, 2006). Economics is never just calculations. What distinguishes it from
mathematics is precisely that economists interpret their calculations. Interpretations that are based on moral ideas and value judgements that are used as arguments in various domains.
For example, economic analysis is often used to evaluate problems concerning increasing or maintaining the standard of living, trade-offs between environmental protection and economic growth and influencing human decision-making. Additionally, when deciding, on what rules and regulations are appropriate, economic arguments are also omnipresent. In cases like this, the underlying moral values are highly influential in deciding what actions are good or bad, what rules are needed or unwanted so that normativity is always present in such situations (Hausman & McPherson, 2006). This research will argue that normativity is not only present in welfare economics, as commonly acknowledged, but also in so called positive economics. If these normative influences of moral theories are recognized, various blind spots in
economics subsequently become apparent. A recent comparative study of the bachelor curricula in economics in the Netherlands concludes that the programs lack any form of pluralism. “They have an almost exclusive focus on a subset of quantitative methods, which
means that students do not learn to carry out or evaluate research by other methods”.
Moreover, there is insufficient attention for theoretical diversity and critical thinking so that
“this type of education creates a class of armchair economists, unaware of the limitations of their own paradigm” (Rethinking Economics NL, 2016).
The consequences of this type of economic education are glooming. Economics currently plays an important role in politics and policymaking but is simultaneously presented as a highly technical science that is only fit for experts so that the economics outcomes are presented as absolute truths whilst scrutiny or criticism from opponents is dealt with by labeling them as naïve or uninformed (Earle et al., 2017).
To further stress the importance of understanding and reflecting on the assumptions underlying our economic models, this research will review utilitarianism, one of the most influential schools of thought in moral philosophy (Driver, 2014) that preceded and
influenced modern economics (Hausman & McPherson, 2006). By subsequently contrasting and comparing the doctrine with the development of economic theory, this research will try to answer: what is the normative influence of utilitarianism on the science economics? This way, this paper seeks to reveal the blind spots that exist in the science of economics regarding normative influences on economic theory and discusses the consequences hereof. The first chapter reviews the basic principles, origin and further development of utilitarianism, after which these insights will be contrasted and compared with the development of the science of economics starting from the marginal revolution.
2. Utilitarianism
Basic Principles
As with all influential moral theories, utilitarianism has been subject to a lot of debate. Consequentially, there are many different interpretations and forms of it, and the body of literature is ever growing. Before delving into this debate and reviewing the doctrine, it is important to clarify some of the general principles that hold over all different forms.
To begin with, utilitarian ideas are commonly founded upon the belief that actions are self-interested by nature1 (Driver, 2014) implying that we as individuals seek to maximize our
own wellbeing. This view on human nature is subsequently combined with principles of impartiality, meaning that everyone counts for one and none for more than one, and agent-neutrality, meaning that the reason someone has to promote his wellbeing is not the same reason for everyone; it is not agent-specific (Baujard, 2013). The combination of our self-interested nature with these principles brings forth the most important postulation of
utilitarianism, namely that the morally right action is the action that maximizes the overall good. Here, ‘overall’ is an important adjective since it implies that one should consider the good of others in addition to one’s own good (Driver, 2014). The seemingly paradoxical combination of self-interest and overall wellbeing is the result of combining a ‘factual statement2’ on the nature of our actions with a normative statement on what is morally right.
Lastly, utilitarianism is always a form of consequentialism which means that whether an action is the morally right action to take is determined by the consequences is produces (Driver, 2014).
This chapter will set out to review some of the most important developments of utilitarianism in relation to its influence on the science of economics. It will start with an elaboration on classical utilitarianism, followed by Henry Sidgwick’s contributions that were produced same time as the classical utilitarian’s ideas. Afterwards, preference utilitarian, the most popular contemporary variant that is also the most relevant for this thesis will be treated.
1 Throughout the history of utilitarianism, human actions have been explained predominantly by self-interested ‘motives’. Although most utilitarians admit of self-interest not being the only incentive for action, they commonly explain that our actions are best explained by them (see Bentham, 1789; Sidgwick, 2011).
2 The view on human nature many utilitarians held is nowadays not acceptable anymore but in their time, it was considered a factual statement; a scientific statement about human nature.
Classical Utilitarianism
The classical utilitarians, Jeremy Bentham and John Stuart Mill, lived during the Industrial Revolution (1760-1840) characterized by a great economic and social shift and a rising middle class (Crimmins, 2018). During the Revolution, the western world was a harsh place where inhumane practices such as sixteen-hour work days and child labor were accepted as the natural order of events (Heilbronner, 2000). It is therefore not surprising that scholars of the time were eventually becoming concerned with the issue, and so Bentham and Mill were concerned with legal and social reform. They were driven to see useless, corrupt laws and social practices changed (Driver,2014; Heilbronner, 2000), and in order to do so, they needed a normative ethical theory that could be used as a critical tool to evaluate what the truth is about what actions or policies are morally good or morally right? (Driver, 2014).
Jeremy Bentham: The Founding Father of Utilitarianism
Jeremy Bentham formulated a seemingly straight forward principle to serve as his critical tool. In determining whether an action is morally right, one should consult the principle of utility, being “the principle which approves or disapproves of every action whatsoever,
according to the tendency it appears to have to augment or diminish the happiness of the party whose interest is in question” (Bentham, 1789, p.14). In spite of its seeming simplicity,
we should not be too blunt in comparing this principle with some inspirational happiness quote, for it is based upon various underlying theories. Moreover, the implications of this principle have sparked much of the utilitarian debate (Peterson, 2014).
Why the utility principle?
To understand how Bentham came up with the utility principle, it is important to
understand some important influences on him and his moral theory. Due to the scope of this research, only the most relevant theories and ideas that contributed to Bentham’s
utilitarianism and the utility principle will be included.
Firstly, Bentham was greatly influenced by Thomas Hobbes’ ideas on human nature (Driver, 2014), who, in his masterpiece ‘The Leviathan’, criticized the belief that we should guide our actions based on some ‘greatest good’ or ‘natural good’ that moral philosopher before him spoke of. Instead, Hobbes believed that the only motive behind our actions is to satisfy our desires in order to bring us happiness. If people behave differently this is due to them having
different passions, different preferences (Hobbes, 1651). This account of human nature is called psychological egoism (Driver, 2014). But there is also a great difference to be
recognized compared to Hobbes’ thinking. Keeping in mind the influence of The Revolution, Bentham’s moral theory needed to be able to scrutinize the inhumane practices of the time. Hobbes’ psychological egoism obviously does not materialize here since it only considers individual desires. Consequently, Bentham required an account on morality compatible with his belief on human nature and his goal of social justice. To this end, he found inspiration in David Hume. Like Hume, Bentham was an empiricist believing that all knowledge is derived from sensation (Crimmins, 2018). Though Hume rejected the egoistic account of human nature (Driver, 2014), he was on the same page as Hobbes regarding the idea that what is morally right cannot be determined by reasoning on some ‘natural good’. Hume went even further though, by stating that what is morally right is determined by the senses. These
senses can subsequently be reduced to pain and pleasure so that, if we observe an action from a general point of view, it can be judged as morally right if it produces a pleasurable response. It is morally wrong if it produces a ‘painful’ response (Hume, 2007).
Now that the influences on Bentham’s ideas on the natural origins of our moral values have been introduced, the utility principle that has been previously mentioned can be understood in its context. Though before we head on to its implications, one more clarification is
required. From Hume, Bentham took the notion of social utility, thereby departing from Hobbes’ psychological egoism. This means that, when considering morality, according to Bentham, one ought to maximize overall happiness, not just one’s own. However, he
interpreted this focus on social utility differently. Contradictory to Hume, Bentham believed that the consequences of one’s actions determine what is right, not the motives
(Driver, 2014). Because Bentham believed that all knowledge is derived from the senses and did not believe in some ‘natural good’, analyzing and judging the motives of an action was futile to him. The only right indicator of whether an action is morally right is the
consequences it produces in terms of the effect on overall happiness. Bentham’s moral theory is therefore a consequentialist theory, which puts him in contrast with most philosophers before him who were absolutist that considered some actions to be intrinsically wrong (Kenny, 2006).
Bentham did not only sharply criticize the claim to a higher power or ‘greater good’ that was used to justify the inhumane social practices of the time, he also formulated an alternative. A moral theory based on the principle of utility that could function as his critical tool that would become the foundation of utilitarianism. A critical tool aimed at the presence of fictions, especially legal fictions (Crimmens, 2018).
Implications of Benham’s critical tool
It is not hard to see how Bentham’s theory could cope with some issues of his time.
Explaining human behavior in terms to the utility principle meant that individuals simply seek to maximize pleasure and minimize pain, and the consequentialist nature provided a degree of practicality in evaluating actions. By extrapolating this line of reasoning into the moral
domain he could also argue, based on principles of agent-neutrality and impartiality that we also ought to take into account the happiness of others (Peterson, 2014). However, upon further investigation, Bentham’s theory provides several problems. Following the principle of utility which states that we ought to maximize overall happiness, the consequentialist
approach, although very practical, has its limitations as has been illustrated by the famous trolley paradox.
“Suppose you are the driver of a trolley car hurtling down the track at sixty miles an hour. Up ahead you see five workers standing on the track, tools in hand. You try to stop, but you can’t. The brakes don’t work. You feel desperate, because you know that if you crash into these five workers, they will all die. (Let’s assume you know that for sure.) Suddenly, you notice a side track, onto the right. There is a worker on that track, too, but only one. You realize that you can turn the trolley car onto the side track, killing the one worker, but sparing the five. What should you do? Most people would say turn. Tragic though it is to kill one innocent person, it’s even worse to kill five. Sacrificing one life in order to save five does seem the right thing to do”.
Excerpt 1: The Trolley Paradox (Sandel, 2009).
The paradox lays in comparing this story with an altered version which requires the same type of action to lead to the same outcome. For example, consider a doctor that has five patients that are very ill and all require a different organ in order to survive. If a new patient comes in with exactly the right organs for the five other patients, what should the doctor do? We just
determined that sacrificing one life in order to save five is the right thing to do from a utilitarian perspective. However it is very difficult to accept that this time, the doctor should kill sixth patient because for most of us, some actions are inherently wrong, regardless of the outcome.
Another problem with Bentham’s utilitarianism is that the focus on maximizing overall happiness is quite demanding and might even be impossible due to various problems.
Bentham recognized that we are often, though not always, driven by self-interest. After all, it is what guides us towards seeking pleasure and avoiding pain (Crimmens, 2018). But if we ought to maximize overall happiness, this means that on some occasions, we ought to
sacrifice our own happiness for that of the overall happiness. To what extent is that possible? Let’s consider the trolley paradox again. We established that in the first version we ought to turn in order to sacrifice one life to save five. If this time, in the alternative version, a trolley is running down the track again towards the same five workers. You look to the side and see a side track with only one person standing on it, but as you come closer, you see that it is your own child. From an overall happiness perspective nothing has changed, and the morally right action still is to steer onto the other track to kill only one person instead of five. Surely you would not do it. You are not willing to sacrifice your own happiness for the overall happiness.
A second problem that Bentham faced was that evaluating the influence actions have on overall happiness in real life situations is very complex (Kenny, 2006). Bentham’s hedonistic approach to this was to calculate the value of net pains and pleasures according to several factors such as intensity, duration, certainty or uncertainty, propinquity or remoteness, fecundity, purity and extent (Bentham, 1789, p.32). He spent a lot of his time on perfecting and performing such utility calculations (Peterson, 2014), an approach that is now well known as the felicific calculus. Interestingly enough, as opposed to most of his moral theory,
Bentham’s calculus was very impractical, something he himself realized as well (Crimmens, 2018). It might have been an impossible task. Among several limitations of the calculus are that, although Bentham believed that our feelings are complexes that can be reduced to simple elements of pains and pleasure, he failed in providing a way to dissect the different types of pains and pleasures (Mitchell, 1918). Furthermore, he could not come up with a technique to measure the quantities of pleasure and pain (Viner, 1949). This was very problematic, since Bentham believed that there are no qualitative differences between pleasures; the ‘good’ derived from an action is only determined by its quantity (Driver, 2014). This is the simplest
type of hedonism that has several problems of its own. For example, since only the quantity of a pleasure matters, it implies that we might as well run around all day chasing the most basic pleasures (Crisp, 2017). Consequentially, some of Bentham’s critics referred to his
philosophy as a ‘swinish doctrine’ (Viner, 1949). Roger Crisp illustrates this point
sophistically in his anecdote of Haydn and the Oyster in which, if Bentham was right, one ought to choose the infinite life of the oyster relative to that of Haydn, the great composer, since quantity determines which action is the good action.
You are a soul in heaven waiting to be allocated a life on Earth. It is late Friday afternoon, and you watch anxiously as the supply of available lives dwindles. When your turn comes, the angel in charge offers you a choice between two lives, that of the composer Joseph Haydn and that of an oyster. Besides composing some wonderful music and influencing the evolution of the symphony, Haydn will meet with success and honor in his own lifetime, be cheerful and popular, travel and gain much enjoyment from field sports. The oyster's life is far less exciting. Though this is rather a sophisticated oyster, its life will consist only of mild sensual pleasure, rather like that experienced by humans when floating very drunk in a warm bath. When you request the life of Haydn, the angel sighs, ‘I'll never get rid of this oyster life. It's been hanging around for ages. Look, I'll offer you a special deal. Haydn will die at the age of seventy-seven. But I'll make the oyster life as long as you like...’
Excerpt 2: Haydn’s Paradox (Crisp, 1997)
Closely related to this issue is another problem that Bentham was confronted with. Who do we include when we talk about overall happiness? After all, if happiness is reduced to pains and pleasures this implies that all sentient beings should be included in evaluating overall happiness (Kenny, 2006). Though in recent times, utilitarianism has provided a fruitful theory for animal right advocacies (Singer, 1989), this was an unpopular thought in Bentham’s time and definitely did not help to alleviate the criticism of being called a pig philosophy.
And thus, in conclusion, it becomes clear that Bentham’s critical tool, though appealing and practical, gave rise to various problems and limitations. His utilitarianism was a crude theory in need of refinement.
John Stuart Mill: Bentham’s Successor
One of Bentham’s close friends’ son, John Stuart Mill provided some of the necessary
refinement. His father, James Mill, was more than a close friend to Bentham and shared many of his ideas. He was very strict on education and therefore taught his son, John Stuart Mill about almost everything there was to learn (Heilbronner, 2000). Bentham’s influence most definitely rubbed off. His influence is visible in many of Mill’s work and at the age of 55 Mill even wrote a defense on Bentham’s theory simply titled ‘Utilitarianism’. Here, he formulates the greatest happiness principle, which similarly to Bentham’s utility principle states that
“actions are right in proportion as they tend to promote happiness, wrong as they tend to produce the reverse of happiness. By happiness is intended pleasure, and the absence of pain; by unhappiness, pain, and the privation of pleasure” (Mill, 1863, p.5).
Mill’s additions and refinements
Like Bentham, Mill’s happiness principle is focused on overall happiness whereby happiness is obtained via pleasures. His interpretation of pleasures is different though (Driver, 2014). According to Mill, when evaluating actions, not only the quantity, but also the quality of the pleasure derived from it determines the ‘good’ (Macleod, 2018). Influenced by Plato’s distinction between higher and lower pleasures (Crisp, 2017), he is hereby trying to avoid the critique of utilitarianism being a ‘swinish doctrine’ (Driver, 2014). The distinction Mill makes is quite straight forward. A pleasure is of a higher quality if everyone or almost everyone who has experienced two different pleasures, without taking quantity into account, indicates that one of the two is more pleasurable (Macleod, 2018). Everyone would prefer the pleasures derived from being Haydn compared to those of being an idle oyster in the ocean and
therefore the former is a higher pleasure. Or, as he famously said: “It is better to be Socrates
dissatisfied than a fool satisfied” (Mill, 1863, p.7). Mill’s argumentation here is definitely not
waterproof and gave rise to several discussions. Riley (2003) for example, believed that Mill’s formulation meant that even the smallest quantity of a higher pleasure was preferable over an infinite amount of a lower pleasure, and according to some (Moore, 1903; Crisp, 2017) Mill’s explanation cannot even be called hedonistic because it assumes some intrinsic or natural quality of pleasures. It is not relevant to dive into the entire discussion on this subject for the purpose of this research. According to Macleod (2018) Mill himself did not even really go into depth on the topic. What is important to take away here is to realize that Mill was trying to order different values of pleasures.
Another important contribution of Mill is his reconciliation of utilitarianism with
libertarianism (Kenny, 2006). In his work ‘On Liberty’ he formulated the well-known harm principle which states that power can only rightfully be exercised over someone against his will in order to prevent harm being done to others (Mill, 2001). He used the principle to advocate for various freedoms including the right of individuality3 (Macleod, 2018).
Admittedly, the harm principle is accompanied by a substantial amount of vagueness when truly diving into it, but in light of the discussion concerning utilitarianism it did provide some clarity. If we remember the trolley paradox, Bentham’s formulation of utilitarianism implied that we even ought to give up our own life if we can thereby save the life of five others, though we established that no one could truly be content with such a conclusion. Mill’s harm principle provided a way out. According to his harm principle, over actions concerning only an individual himself, no one can rightfully exert any power (Mill, 2001). Therefore no one can rightfully exert power over someone, nor can it be expected of that person, to give up his life in order to save that of five others. In this statement Mill talks of rights, such as that of individuality, whilst Bentham’s utilitarianism arose from the belief that there are no such things as natural rights. But this does not mean that Mill is anti-utilitarian (Kenny, 2006) because Mill is not talking about natural rights but about rights based upon utility (Peterson, 2014). A society that guarantees your right to live is definitely better – in terms of overall utility – than one in which you can be expected or forced to give up this right to save the life of others. Mill’s utilitarianism is therefore subtler than that of Bentham (Kenny, 2006). He held that the first principle of utility is the protection of the rights of all (Driver, 2014).
Altogether, the classical utilitarians posed different variants of hedonistic utilitarianism in which happiness considered as a pleasurable state of mind is the ‘good’ in itself and our actions should be guided as to maximize that type of happiness for everyone. Though Mill was able to refine some aspects Bentham’s work, classical utilitarianism still faced severe difficulties. This gave rise to various other forms and interpretations of utilitarianism. What ties them together is that they all have a theory on what the ‘good’ is and how this ought to be maximized; about what actions are right or wrong (Peterson, 2014). Henry Sidgwick, a British philosopher from Bentham and Mill’s time offered thought provoking insights on
utilitarianism that sparked much of the contemporary debate (Schultz, 2015).
3 This principle is very similar to that of impartiality and agent-neutrality combined mentioned at the beginning of this chapter. It states that everyone counts for one and that no one is the same or should be expected to have the same desires or interests.
Henry Sidgwick: The Theoretical Revisionist
The scholarly opinion on whether Sidgwick is a classical utilitarian or not differs. He is from the same era as Bentham and Mill and his thoughts arose out of their ideas which could classify him as a classical utilitarian (Driver, 2014; Sinnott-Armstrong, 2015). His main work, a voluminous book titled ‘The Methods of Ethics’ (1874) treats many utilitarian ideas,
implications and challenges and in the end even offers a defense of the doctrine, but is also very much concerned with the theoretical, methodological aspect of ethics (Schultz, 2015). This focus on theoretical knowledge as opposed to the practical implications of utilitarianism divides him from his predecessors Bentham and Mill. Because his analysis served as an influence for modern utilitarians and for many of its critics (Schultz, 2015) that will be addressed later on, he deserves his own section in this review. It is important to briefly mention that his defense of utilitarianism did, like that of Bentham and Mill, was founded upon a hedonistic account of human nature, and fulfilled the general features of utilitarianism described in the beginning of this paragraph. The principles of impartiality and
agent-neutrality become clear when he states that "the good of any one individual is of no more
importance, from the point of view (if I may say so) of the Universe, than the good of any other” (Sidgwick, 2011, p.382). Additionally, his theory was consequentialist and formulated
a belief on what ‘the good’ is that we ought to maximize as shall become clear after by elaborating on some of the problems that faced the classical utilitarians.
What does ‘overall happiness’ mean?
One of the problems Sidgwick addressed now seems to be an evident one that was overlooked by Bentham and Mill and is concerned with the vagueness surrounding the notion of overall happiness. By applying the notion in light of a central discussion of his time, population growth (Heilbronner, 2000), he showed that there are two ways in defining overall happiness with very different implications (Peterson, 2014). Because utilitarianism strives for the greatest happiness for the greatest number, this means that we should keep increasing our population if we take overall happiness to be an aggregate. However, an increase in numbers at the same time results in a decrease in average happiness (Sidgwick, 2011). Which of the two do we ought to focus on? Surely, an extremely large population with very low average happiness does not seem very attractive even though it could produce more overall happiness (Hausman & McPherson, 2006). Nowadays it is widely acknowledged that infinite population growth would lead to a lower standard of living due to the pressure this exerts on the planet and depletion of our resources. Sidgwick’s argument showed the discrepancy in utilitarian
thinking that overlooked such a possibility. It led Peterson (2014) to categorize him as an ‘average utilitarian’, though others are not so keen of dividing utilitarian thinkers in such sub-categories (Schultz, 2015). Sidgwick believed that we ought to maximize the product of the number of people times the average happiness (Sidgwick, 2011), so he held more of a hybrid total-average view (Driver, 2014). Therefore, the term ‘average utilitarian’ does not fit him very well.
What is ‘the good’ that we should maximize?
Next there is the question on what that ‘good’ is that we ought to maximize. Sidgwick’s theoretical approach to this question, influenced by Aristotle’s ‘Ethics’ (Schultz, 2015) is different from Bentham’s and Mill’s approach. In his ‘Methods’ he sets out to discover “the
notion of good across the whole range of its application” (Sidgwick, 2011, p.49) or the
‘ultimate good’. Aristotle’s influence is very recognizable here. Sidgwick stresses that the ethical debate in his time is too much concerned with what is right, but that righteousness is only one ‘species’ of good, not its entire ‘genus’ (Sidgwick, 2011). Aristotle also used these terms in his search to discover what was truly ‘is’ something (good in this case) in itself, referred to as the genus, and to distinguish this from things simply having qualities or components of that thing that ‘is’, called its species (Aristotle, n.d.). Sidgwick’s theoretical analysis on what the ‘good’ is also deals with the question of how we should guide our actions towards it. In doing so, he tried to counter the most often-heard type of critique against utilitarianism in which opponents show that utilitarian reasoning results in counterintuitive results (Simmons, 1992), similar to the trolley paradox (see page 8).
Sidgwick explains that in everyday situations, we often call something ‘good’ due to the pleasures we derive or expect to derive from it. We have seen how, based on such a premise, Bentham and Mill came to support a hedonistic view in which we ought to maximize the pleasures derived from our actions. With a central thesis in his work, Sidgwick scrutinizes their view. The thesis is that morality of commons sense is “inchoately and imperfectly
utilitarian” (Gibbard, 1982) meaning that, when using common sense, the classical hedonistic
utilitarian view cannot be directly supported (Sidgwick, 2011). The elaboration on this thesis boils down to the following: our common sense moral decision-making process is not, and should not be expected to be, consciously utilitarian (Simmons, 1992). People attach great
value to things, such as promise keeping for example, that are not directly utilitarian4. Instead,
the purpose of utilitarianism as an ethical theory is to show us how over time, our common-sense morality has been shaped unconsciously by the utilitarian principle of maximizing overall happiness. If keeping a certain kind of promise keeps leading to negative results for overall happiness, the value we attach to keeping such a promise would eventually fade and our belief would change. We would no longer want to keep such a promise (Gibbard, 1982). Although establishing ‘the good’ is, according to Sidgwick, still related to the expectation of pleasure derived from an action, Sidgwick argues that it is also not as straight forward as Bentham and Mill put it. Here, the argument is that only specific kinds of pleasure would lead us to call something good. If an action or object brings forth in us a different pleasure than expected, it would not be called ‘good’. “We wouldn’t call a wine ‘good’ solely because it
was very wholesome” (Sidgwick, 2011, p.50). Thus, Sidgwick says, pleasures do inform us5
on what can be ‘good’, but this does not mean that estimates of the goodness of our actions are simply estimates of the amount of pleasure derived from our actions (Sidgwick, 2011).
When Sidgwick subsequently treats what ‘the good’ is, or ‘the ultimate good’ as he put it, that we ought to maximize, he gives a very vague explanation (Schultz, 2005). It has been neatly summarized by Rawls (1999, p.366): “Sidgwick characterizes a person's future good on the
whole as what he would now desire and seek if the consequences of all the various courses of conduct open to him were, at the present point of time, accurately foreseen by him and adequately realized in imagination. This account of the ‘ultimate good’ is often referred to as
a ‘naturalistic full-information’ account of the ‘good’ and has, like he himself realized, very little practical implications (Schultz, 2015). To him, it was the philosophical precision that was the most important (Sidgwick, 2011). According to Sidgwick, aggregating happiness on a practical level was impossible due to our common sense being inchoately and imperfectly utilitarian, but he suggested that it could be possible on a theoretical account (Kaminitz, 2013). He set out to unravel this theoretical definition of the good to the best of his abilities (Sidgwick, 2011) and many contemporary writers have studied the implications of it (Schultz, 2015). It is not relevant for this thesis to delve into this theoretical debate any further, but it is important to take away that as opposed to Bentham and Mill’s simple and practical
utilitarianism, Sidgwick approach came from a different perspective.
4 Promise-keeping is not always the right action from a utilitarian perspective because situations exist in which overall happiness can be maximized if promises are broken.
Difficulties with Sidgwick’s Reasoning
In his work, Sidgwick tried to derive utilitarianism from intuitions concerning the nature of rationality (Schultz, 2005). However, in the end, he has to conclude that egoism is just as rational as utilitarianism is (Hausman & McPherson, 2006). Sidgwick thus could not
theoretically resolve the paradoxical combination of self-interest and overall happiness that is present in utilitarianism in order to put the theory on firmer grounds. Although his analysis on what the ‘overall happiness’ is that we should maximize was very elaborate and inspired many scholars, his complex conclusion did not aid in clarifying or solving the questions he set out to answer. In the end, he marks the peak of the classical utilitarian tradition in the 19th
century (Schultz, 2015). Hedonistic utilitarianism faced several severe problems that appeared to be unsolvable.
Severe Problems in Classical Utilitarianism
One such significant difficulty that all classical utilitarians faced is how to make interpersonal comparisons of happiness or wellbeing, which is necessary if the effect of certain actions or policies on overall happiness is to be estimated (Hausman & McPherson, 2006). For the classical utilitarians with their hedonistic variants of utilitarianism, interpersonal comparisons had to be made regarding the different mental-states that are influenced by pleasures and pains. Since all the classical utilitarians adhered to the principle of individuality – that everyone is different and has different desires – this seemed an impossible difficult task, because what makes one person happy might not apply to someone else.
In addition to this problem, strong critique came from Rawls who showed that, although utilitarians prescribe to the principles of impartiality and agent-neutrality, combining all desires in one system of desires, like Bentham did for example, fails to take them seriously (Yaari, 1981). That is to say that it does not truly represent the differences between persons. In his Theory of Justice, Rawls (1999) subsequently posed an alternative moral theory that avoided this problem (Hausman & McPherson, 2006).
It can be concluded that classical hedonistic utilitarianism lost its popularity after Sidgwick and was not to be taken very seriously again until after the 1980’s (Hausman & McPherson, 2006). Some even forecasted the death of utilitarianism all together (Williams, 1973). They were wrong though, since the discussion on utilitarianism is still very much alive today (Peterson, 2014). For example, The UCL’s Bentham Project is producing a new collection of
Bentham’s collected works (UCL, 2018) and of a recent survey among philosophers, a quarter of the respondents indicated to hold a consequentialist approach to normative ethics (Van Someren Gréve, 2014). Admittedly though, consequentialism is a broader theory than utilitarianism, so it cannot be said that 25% of the respondents are also utilitarians.
Contemporary Utilitarianism
Several modern variants of utilitarian interpretations of consequentialism have been brought up over the past few decades (Peterson, 2014). For example, some modern ‘ideal utilitarian’s’ argue that happiness or wellbeing cannot be reduced to simplified concepts. According to them, there are other important values such as beauty or truth in addition to pleasure (Sinnott-Armstrong, 2015). Though hard to put into practice, this type of utilitarianism is founded on the belief that values cannot be reduced to a single denominator. Another variant, called ‘rule utilitarianism’ holds that an action is morally right if it is in accordance with some optimal set of rules that is generally accepted (Van Someren Gréve, 2014).Though all very interesting, the one most relevant for the aim of this research is the most popular variant of preference utilitarianism because it bears close resemblance to the commonly held preference satisfaction view in economics (Hausman & McPherson, 2006). Therefore, this section will focus on an elaboration of what preference utilitarianism entails.
Preference Utilitarianism: Avoiding Hedonism
In avoiding some of the problems related to the hedonistic approach of the classical
utilitarians, most contemporary utilitarians substitute pleasures with, preferences or interests. This leads to the right action being determined by evaluating which one satisfies more preferences, adjusted for their weight (Sloane, 1999). As opposed to the hedonistic approach wherein happiness, derived from pleasures, is conceived as a state of mind, the preference utilitarian approach evaluates happiness based on states of affairs (Sinnott-Armstrong, 2015). That is to say that, on the individual level, a situation that satisfies more of my preferences is more desirable. On the level of society, if one can choose between two situations, and if the first situation satisfies more people’s preferences, than the morally right action is to choose that situation. In modern utilitarian philosophy, this view of preference satisfaction is the most commonly held (Brandt, 1992; Hausman & McPherson, 2006). What are the implications and how does it address certain problems that faced the classical utilitarians? What problems arise when adhering to this type of utilitarianism?
What is a desire and when is it satisfied?
Though the preference satisfaction view avoids the struggle that the hedonistic utilitarians faced of having to quantify and qualify different sensations, it faces the challenge of discovering what a preference for something is and when we can say that it is satisfied. Hereto, Brandt (1992) gives a convenient explanation.
“Let us suppose a person at a time t has a desire for a state of affair S to occur. Then we can suppose that6:
- there is a disposition at t to tend more to perform an action A, if the person judges
that doing A will make the occurrence of S more likely;
- he tends to be pleased, if he learns that S is going to be the case when he has been
supposing it would not be the case;
- he tends to be disappointed, if he hears that S is not going to be the case when he
has been supposing it would be the case;
- and so on,
We can then say that a person wants S more than he wants S’, or prefers S to S if and only if, other things being equal, he would tend more to perform A.
Subsequently, a desire or preference is satisfied when S occurs or is obtained.
Excerpt 3: Desires: how and when they are satisfied (Brandt, 1992, p.160-161).
A lot more has been written on desires and their satisfaction since various desire theories of good are widely held among philosophers, utilitarian and nonutilitarian (Brandt, 1992). The debate covers many different aspects, of which only the ones most applicable to preference utilitarian and its influence in economics will be treated below.
A Solution To Interpersonal Comparisons?
Some contemporary philosophers still argue that interpersonal comparisons are possible within the classical view, but they are forced to acknowledge that, at best, they will be very rough estimates of reality (Brandt, 1992). Most modern utilitarians abandoned the hedonistic
view, partially because of this difficulty7, and hold a preference-based view in which
interpersonal comparisons appear to be easier to make, because, as opposed to the hedonistic view, interpersonal comparison then no longer entails comparing how much satisfaction people feel, but rather how well satisfied people’s preferences are (Hausman & McPherson, 2006). Hence, if people’s preferences are known or can be inferred8, this means that
interpersonal comparisons can be made. In addition, this view no longer requires a
philosophical inquiry on what ‘the good’ is that we ought to maximize, another question that troubled previous utilitarians, because ‘the good’ is simply substituted by satisfying one’s preferences (Hausman & McPherson, 2006).
An Answer on Who to Include when Considering Overall Happiness?
Another difficulty that faced the classical utilitarians was on who to include in overall happiness. Within the preference satisfaction approach, the answer might seem straight forward: anyone or anything that can have preferences. Peter Singer, a prominent philosopher and preference utilitarian is well known for applying preference utilitarianism to advocate for animal rights. Bentham was already an early supporter of animal rights and believed that an animal’s ability to suffer should grant it some rights (Bentham, 1781). Influenced by
Bentham, Singer (1989) holds that this capacity for suffering is a prerequisite for having interests. Because animals can suffer, they have interests or preferences and therefore we should grand them rights, albeit not the same ones as humans. The question on who to include when we speak of overall happiness seems thereby neatly answered. “A stone does not have
interests because it cannot suffer” (Singer, 1989, p.4). But if we stick to sentient beings, this
still gives rise to severe difficulties as can be seen when Singer extrapolates this line of reasoning to several issues resulting in controversial conclusions. He, for example, holds that in some situations, defective newborns do not have a right to live. The reasoning for this is that, although they are sentient and therefore should not suffer, they are not persons because they cannot communicate, are irrational and have no sense of identity. Thus, if their coming into existence as a defective being sufficiently harms the parents, that is to say neglects their preferences, then killing them is justified (Sloane, 1999). Although sentience seems to be a proper condition for having interest or preferences and therefore not to let those who do
7 And because of other objections directly aimed towards hedonistic views (Crips, 2017).
8 Note that this is by no means an easy task. Further in this section some relevant problems that arise when estimating people’s preferences will be elaborated on. The chapter on utilitarianism in economics will subsequently deal with how economists try to do this.
suffer, the distribution and weight we ought to put on different people’s or creature’s interest still remains unclear.
Preference Problems and Limitations
Although on first sight it might seem as if the preference satisfaction view can sail free of some philosophical difficulties, upon further investigation it becomes clear that one cannot get rid of normative, philosophical implications that arise when assuming that happiness is a mental state, by simply substituting it with preference satisfaction (Hausman & McPherson, 2006). There are some severe limitations to preference utilitarianism that need to be
considered. The first has just been treated in relation to the question on who to include in overall happiness. It became clear that the preference satisfaction view on its own does not provide a definitive answer on who’s preferences should or can be given priority.
Furthermore, whereas the classical utilitarians had difficulty figuring out how pleasure and pain precisely guide our actions, the preference satisfaction view faces difficulties in trying to establish or infer what people’s preferences are and how they guide our actions. A common way to go about this problem is to include the notion that people are rational. Put simply, it implies that certain conditions apply to our preferences, and that we subsequently guide our actions as to be consistent with our preferences (Hausman & McPherson, 2006). Further implications will be dealt with at the end of chapter 3.
Another related and significant limitation is that, most philosophers only talk about self-interested preferences (Brandt, 1992; Overvold; 1992; Hausman & McPherson, 2006). Granted, this is an understandable limitation because it clarifies the analysis, but as a result, preference satisfaction fails to explain several reasons for human action in the real world. For instance, Parfit (1982) argues that people are not purely selfish. His argument is laid out in several chapters, but for the purpose of this research it suffices to imagine a situation in which what will be best for an individual is worse for the one’s he loves. If, in the preference
satisfaction view, only self-interested preferences are taken into account, then this view cannot explain actions that people perform based selfishness. A common way to avoid this limitation is to include the possibility of altruistic preferences. However, Hausman & McPherson (2006) show that this leads to bizarre conclusions:
“If it is rational to choose whatever one prefers, then rational choices are determined by one’s own preferences rather than by anyone else’s. So, it sounds as if rational choices are interest and thus, insofar as it is rational, altruistic or moral behavior is actually self-interested. The individual who drowns rather than stealing another’s life jacket does what he most prefers and hence acts in his own interest. So, the person who steals someone’s else’s lifejacket is no more self-interested than the one who chooses death over immorality”
Excerpt 4: Strange conclusions regarding self-interested preferences. (Hausman & McPherson, 2006, p.80).
We humans do not act solely based on self-interest. If we are to make a distinction between interest and sacrifice, it is necessary some preferences exist that are not in my self-interest to satisfy (Brandt, 1992). Otherwise, we get what Hausman & McPherson show to be a very skewed way of reasoning over how we as social beings care about other people in society than ourselves.
Additionally, it can be argued that satisfying your preferences is not necessarily good for your wellbeing for several reasons. Schwartz (1992) provides some good examples, among which are the possibilities that preferences are ill-informed so that a person prefers something that is essentially bad for him or her. Smoking is a good example of such a case. Moreover,
preferences can be malconditioned of which propaganda is a good example. It can cause someone to prefer a political situation that in fact suppresses his or hers ability to flourish.
3. Contrast and Compare of
Utilitarianism and Economics
“Utilitarianism preceded and influenced the development of contemporary economics”
(Hausman & McPherson, 2006). On plain sight, one can already see a link between the widely used notion of ‘utility’ in economics and the name of the moral doctrine that has just been reviewed. This chapter will set out to investigate how utilitarian ideas and beliefs came to influence economic theory during the marginal revolution in the 19th century. Subsequently, it
will treat how during the logical positivist movement that started in the 1920s, the utilitarian influence lost its prominent role in economics, followed by a comparison of modern
economics with preference utilitarianism to show how normativity and is still present in modern economics. In doing so, this research will seek to discover what blind spots exist in economic thinking when the [normative] implications [of utilitarianism] are neglected and what can be learned from giving sufficient attention to the moral theories that underlie the science of economics.
The Hedonistic Utilitarian Influence on The Marginal
Revolution
As we have seen in the previous chapter, the classical utilitarians lived in, and were influenced by, The Industrial Revolution. Not much later in time, their works were of
significant importance for another revolution, albeit a theoretical one; the marginal revolution in economics that took place during the 19th century (Mosselmans, 2017)
William Jevons: Applying Bentham to Welfare Economics
One of the main contributors to this revolution in economic theory is William Jevons, who is commonly seen as one of the founders of modern economics (Maas, 2001; Mosselmans, 2017). His main work, the Theory of Political Economy, originally published in 1871, marks a turning point in economic thinking due to two important characteristics (Black, 1972). First of all, by introducing psychological hedonism in economics, Jevons believed he could explain market mechanics by looking at the operations of the mind, and secondly, the method he used allowed him to put his conclusions in mathematical terms (Maas, 2001).
Psychological Hedonism: Mechanical Reasoning in Economics
Jevons’ introduction of psychological hedonism into economics can be directly traced back to Bentham (Black, 1972). This is evident in the introduction of his Theory where he dedicates a paragraph to the relation of economics to ethics which he begins by stating that “The Theory
which follows is entirely based on a calculus of pleasure and pain; and the object of
Economics is to maximize happiness by purchasing pleasure as it were, at the lowest cost of pain” (Jevons, 1957, p.23). In elaborating on what he means by this, he simply cites the work
of Bentham because “his words are too grand and too full of truth to be omitted” (Jevons, 1957, p.23). In the section on Bentham we have already seen how, in this view, pleasure is regarded as positive utility and pain as negative utility. Many economic textbooks argue that only this simple hedonism of Bentham influenced Jevons (Black, 1972), probably because after the 1930’s, utilitarianism appeared to be a lost moral theory (Hausman & McPherson, 2006). However, this comparison does not properly reflect the situation. In addition to
Bentham’s formulation of psychological hedonism, his complete theory on utilitarianism was generally accepted among scholars and of significant influence on many economists in the 19th century (Black, 1972; Read, 2004). Jevons also openly admits to accepting the utilitarian
moral theory himself (Jevons, 1957). Therefore, we have a great piece of economic theory in front of us that was undoubtedly strongly influenced by Bentham’s utilitarianism. How exactly did the utilitarian ideas of Bentham enter modern economic theory?
Utility as a determinant of Value
In Jevons’ time, developments in psychophysiology and mechanics led the formerly strong distinction between mind and matter to be questioned (Kaminitz, 2013). In this context Jevons argued that the ‘laws of human enjoyment9’ as put forth by Bentham are fundamental
prerequisites for the laws of supply that lead to market exchanges (Maas, 2001). The argument goes as follows. Commodities are goods that can cause pain or pleasure and therefore have the capacity of bringing us utility (Jevons, 1957). Our will is a force that automatically causes us to perform certain actions, moved by pain and pleasure; moved by utility (Maas, 2001). Therefore, the utility we derive from commodities determines their value. However, people’s utility is affected in differentiating degrees, which is to say that the utility we derive from objects or situations is relative. This is due to people simply having
9 This refers to Bentham’s psychological hedonism in which happiness is conceived of as a state of mind. Pleasure brings positive, and pain negative utility, and this is determined only by the quantitative aspects of those feelings such as, duration, intensity, certainty and propinquity (Bentham, 2000; Jevons, 1957).
different interest, so to one, a diamond might be worth a lot whereas someone else might not value it at all. It also explains the notion of diminishing utility that Bentham was also
preoccupied with in its work (Bentham, 2000, Jevons, 1957). Economic value must therefore also be relative and therefore, to understand economics, we need consumer theory that is aimed at understanding the exact nature and conditions of utility (Jevons, 1957).
One of those conditions that provided great insights is that utility is marginal. It led Jevons’ to be able to resolve the classic value paradox, also known as the diamond-water paradox. This paradox arose from the belief that value was determined by a commodity’s use. Since water has a much lower price than diamonds although it is of a lot more use to people, this seemed incompatible. Jevons answer here is that, although essential to human survival, water is abundant, and beyond a certain quantity, it provides us no more utility (Jevons, 1957). Since diamonds are scarce, obtaining one is rare and thus the utility gained is a lot higher. And because commodity prices are determined by utility, the price of water is a lot lower than the price of diamonds. Hence, due to Jevons’ work, value was no longer based directly on a commodity’s use or scarcity but on its utility, so that use and scarcity now are considered to indirectly determine value.
Jevons’ contributions to economics furthermore led to various actors in the economy to be considered as basing their behavior on the same type of deliberations on a marginal level (Black, 1972). For example, using the Law of Indifference10, Jevons derives an equilibrium in
which no more exchange takes place. Imagine a two-party (A & B), two-good (x & y)
exchange situation in which A owns all x and B owns all y. A is willing to trade a unit of x for y if that brings him additional utility up until the point where trading an extra unit of x for y does not bring him more utility. The same holds for B in the opposite direction. Hence, the equilibrium is reached and “the ratio of exchange of any two commodities will be the
reciprocal of the ratio of the final degrees of utility of the quantities of commodity available for consumption after the exchange is completed” (Jevons, 1957, p.96).
10 Jevons’ Law of Indifference is similar to Walras’ Law of One Price according to which, if two products are identical, their price will be the same; people will value them the same. This Law was especially important due to its mathematical implication according to which equilibria could be explained. Jevons (1957) treats the Law of Indifference on page 92 and onwards.
From Bentham’s Impossible Felicific Calculus to Quantitative Welfare Economics
Just like Bentham spent a lot of time on perfecting his felicific calculus, Jevons focused on utility calculations. He strongly believed that political economy should be quantitative in nature, although some commentators indicate that he could not really prove why (Maas, 2001). For his mathematical inquiry, Jevons could not find answers in Bentham’s work, because numerical data on units of pleasure and pain could not be found anywhere and, in his opinion, probably never could be (Black, 1972). However, by connecting the ‘laws of
enjoyment’ to market exchange mechanisms as has been shown above, Jevons argues that there is enough data available on the quantitative effects of our feelings, namely the effect it has on people’s behavior in terms of buying and selling, borrowing and lending, laboring and resting, producing and consuming (Jevons, 1957). His belief that we can take such data as proxies for our pleasures and pains is founded on the belief that “we cannot make a choice, or
manifest the will in any way, without indicating thereby an excess of pleasure in some direction” (Jevons, 1957, p.13). Or, as Maas (2001) neatly put it, Jevons conceives of
mankind to be subject to a very mechanical type of reasoning. It is crucial to note here that Jevons explicitly mentions that he does not attempt to estimate the entire pleasures gained from exchange, or to compare the pleasures from different people (Jevons, 1957). Rather, it is these mechanical operations of the mind that show how we make choices on the margin11.
Francis Ysidro Edgeworth’s: A Mathematical Formulation of Utilitarianism
Inspired by Sidgwick
Another prominent economist who set out to develop a mathematical account of utilitarianism is Francis Edgeworth (Kaminitz, 2013). He is famous for first introducing indifference curves to economics (Yaari, 1981) and his Edgeworth’s box is a concept still used in modern
economics (Kaminitz, 2013). It lays beyond the scope of this paper to address the
mathematics of Jevons and Edgeworth. However, the following is important to take away. Due to Jevons, influenced by Bentham’s mechanical view on the operations of our mind, “it
became feasible to consider human deliberations in relation to price formation in terms of the calculus” (Black, 1972, p.221). As an acquaintance of Jevons, Edgeworth shared the view
that individual deliberations are essential to understanding economics and that this should be studied in a mathematical form, but his calculus ranged further than the ‘lower pleasures’ in
11 This approach to studying individual behavior is commonly found in microeconomics. For example, in Samuelson’s revealed preference theory (Samuelson, 1948).
Jevons’ calculus (Kaminitz, 2013). Why did Edgeworth go further than Jevons? To understand this, it is important to first understand the limitations of Jevons’ work.
Jevons’ Limitations in Applying Utilitarianism in Welfare Economics
Jevons was very much occupied with turning economics into a proper science and believed that this entailed that it was to be made quantifiable (Black, 1972). It is therefore unsurprising that some aspects of the utilitarian doctrine did not make it into his Theory. Firstly, Bentham’s utilitarianism started out with how self-interested individuals behave as to maximize their happiness according to the utility principle. When the utilitarians extrapolate this line of thinking to also consider other people’s happiness, this makes the theory a lot more
complicated. Its seemingly factual appearance of what ‘is’, then enters the domain of morals of what ‘ought’. This latter aspect is lost when Jevons’ work when he applies Bentham’s utilitarianism in trying to make economics a proper science based on quantitative methods (Black, 1972).
Secondly, an important limitation is that, according to Jevons, economics only deals with the lower pleasures; the ordinary, selfish desires of men at the lowest cost of labor. All other types of ‘higher pleasures’, such as might overrule these desires, but these are not the subject of economics (Jevons, 1957). This distinction represents a distinguishing feature of welfare economics, namely that economic states of affairs are only evaluated in terms of their consequences for the welfare of individuals (Hausman & McPherson, 2006). Jevons’ utility calculus was thus only aimed at how to maximize overall material wealth, according to the utility principle put forth by Bentham. In applying utilitarianism to economics, the problem of what is to be included when we talk of overall happiness that the utilitarians faced is hereby avoided by reducing it to individual wealth. Consequentially, the conclusions Jevons’ reached have to be understood within this framework. For example, he argues that, since people themselves know best how to distribute commodities as to produce the maximum benefit,
“perfect freedom of exchange must be to the advantage of all” (Jevons, 1957, p.142). Such a
statement makes perfect sense within his framework, but it is important to understand its limitations. Jevons was very explicit herein. His Theory is not concerned with what is morally right or wrong, only with the mechanics of utility and self-interest (Jevons, 1957). When questions about morality come into play, we ought to refer to “a higher calculus of moral
right and wrong …, we need the lower calculus to gain us the utmost good in matters of moral indifference (Jevons, 1957, p.27).
In conclusion, it is therefore the utility principle of utilitarianism and its classical hedonistic aspect that significantly shaped Jevons economics. Although he was a believer in
utilitarianism, the moral considerations on that we ought to maximize overall happiness was treated as something separate from economics (Jevons, 1957; Kaminitz, 2013).
Edgeworth’s Different Approach to Unifying Utilitarianism and Economics
As opposed to Jevons, who admired the work of Jeremy Bentham, it was Sidgwick that strongly influenced Edgeworth (Kaminitz, 2013). The difference we have seen in chapter 2, between Bentham’s simple hedonism relative to Sidgwick’s theoretical investigation is very recognizable when comparing Jevons’ and Edgeworth’s work. Edgeworth was driven to advance Sidgwick’s work (Edgeworth, 1881) and saw an opportunity to, confirming to Sidgwick’s philosophical account of the theory, create a mathematical implementation of utilitarianism (Kaminitz, 2013). Whereas Bentham stuck to simple, quantitative pleasures, Sidgwick hedonism ranged further than that, which we can recognize in Edgeworth’s work.
In his Mathematical Physics, he distinguishes between two calculi: “The Economical
Calculus investigates the equilibrium of a system of hedonic forces that tend to maximum individual utility and The Utilitarian Calculus which is the equilibrium of a system in which each and all tend to maximum universal utility” (Edgeworth, 1881, p.15). These two calculi
are in line with two methods that Sidgwick treated in his work, namely egoism and utilitarianism12 respectively. The economical calculus bears close resemblance to Jevons’
calculus. It is concerned with utility calculations of self-interested individuals that compete in markets (Edgeworth, 1881) and often praises Jevons’ work (Kaminitz, 2013). A striking difference appears however, at the end of the chapter on the Economic Calculus where Edgeworth argues that, under certain imperfections, the market is not able to reach a unique equilibrium13, and that therefore, an arbitration principle is required (Edgeworth, 1881). It
should come as no surprise that Edgeworth puts forth, in his characteristic poetical manner14,
utilitarianism is best arbitration principle.
12 Sidgwick calls this universal hedonism but it is essentially the same as utilitarianism.
13 Kaminitz (2013, p.503) neatly shows how, using the Edgeworth’s box, a situation can arise in which certain market failures prevent the existence of a unique optimum.
14 Edgeworth writing is often criticized by its obscure and misplaced poetical writing (Bowley, 1934). Even Jevons commentated that his style was too implicit and puzzling in a cynic remark: “may we not apply the
author his own theorem already quoted showing that the best distribution of labour “generally is such that the most capable of work do more work” (Jevons, 1881).
“The star of justice affords no certain guidance – for those who have loosened from the moorings of custom – unless it reflect the rays of the superior luminary – utilitarianism”
(Edgeworth, 1881, p.52).
Thus, where Sidgwick had to conclude that egoism was just as rational as utilitarianism as we have seen in chapter 2, Edgeworth first applied egoism to economics in order to explain the mechanisms in economics, and subsequently argued that if these mechanisms fail, then utilitarianism is the most rational method to follow. Thus, he heads on to develop the
utilitarian calculus. It is in this mixture of egoism and utilitarianism that Sidgwick’s influence on Edgeworth becomes very clear (Kaminitz, 2013).
The mathematics behind the utilitarian calculus are of no primary interest for this thesis. Rather it is important to understand how it was influenced by Sidgwick’s philosophy. It has already been mentioned how Sidgwick’s theoretical account of utilitarianism inspired
Edgeworth. Additionally, the hybrid total-average view on utilitarianism of Sidgwick that we treated in chapter 2 is one of the starting points for Edgeworth’s utilitarian calculus. Its aim is to find a distribution of scarce resources and the quality and number of population in order to find the greatest possible happiness (Edgworth, 1881) and in the mathematical formulation of this problem, greatest possible happiness is interpreted as the weighted average happiness (Yaari, 1981). Furthermore, the maximization of happiness takes place under two constraints; the ‘capacity for happiness’ and the ‘means of happiness’, two terms that are taken over from Sidgwick (Yaari, 1981). The former constraint is brought up due to the belief on the
hedonistic account on human nature. An important characteristic of this capacity is something similar to diminishing marginal utility, something which was back established by Fechner’s law of diminishing ability to perceive incremental stimuli of constant magnitude. The second constraint represents scarcity of resources because otherwise infinitely many people would be able to be infinitely happy (Yaari, 1981). Recognize how this latter constraint bears close resemblance to modern restrictions like budget constraints or production frontiers.
We have seen how Jevons said that if the ‘lower calculus’ fails or if it cannot be applied, a ‘higher calculus’ of moral right or wrong was needed. He never set out to develop such a calculus, but Edgeworth did. The difference is explainable through the different utilitarian influences on Jevons and Edgeworth. If Bentham is taken to be right, the simple hedonism
