How Economists Bastardized The Concept of Utility and Became Shills For The Wealthy
Excerpted Introduction (via Professor Reinhardt @ Princeton)
Bentham, Mill and their disciples believed that the pleasure and/or pain begotten by an act could be quantified and measured as “utility” or “disutility,” which is why they are also known by the more common label of “utilitarians.” They argued that public policy – in local commerce, international trade and in the law — should be conducted so as to maximize the sum of utility in society which, you will quickly recognize, is very much the same idea that drives modern welfare economics as well. In fact, 19th century utilitarianism can be regarded as the intellectual foundation for what we now know as “welfare economics” or “benefit cost analysis. Modern welfare economists are Consequentialists par excellence. The practical problem with utilitarianism – and with its modern successor, the modern welfare economics we teach you — is how to quantify and measure utility and disutility, especially in a manner that allows one to make inter-personal utility comparisons and to sum utiliy across different individuals into what we economists call “social welfare.”
Interesting Excerpts (via Professor Reinhardt @ Princeton)
If you read the writings of the 19th century utilitarians, especially of Bentham, you will discover that they were not at all cavalier about the cardinality of utility in practice (where by “cardinality” is meant that utility or disutility could be quantified and measured so that, say, 150 utils represented 50% more pleasure than 100 utils, and so on.)1 Furthermore, they recognized that there existed inter-personal dependencies of utility – what we have called externalities in consumption – and that it would be extraordinarily difficult in practice to make inter-personal utility comparisons, or to sum utilities over different people, without attaching additive weights to individuals. Such weights, for example, might count the utils of some person as more than those of others.
Very Important Excerpts!!! (via Professor Reinhardt @ Princeton)
To apply Bentham’s utilitarian construct to their analyses, as they do, modern welfare economists make two highly dubious assumptions, to wit:
1. First, economists assume that the pleasure (or ”economic welfare”) that a person derives from a good thing can be measured cardinally by the money price he or she is willing to bid for the thing. Conversely, they assume that the disutility (loss of “economic welfare”) that a bad thing visits on a person can be measured cardinally by the minimum money price he or she would have to be paid to put up with that bad thing (For example, economists assume that work begets disutility and measure it by the minimum wage (sometimes called “reservation wage”) that a worker needs to be offered to put up with the disutility of working rather than enjoying leisure.
2. Second, economists assume that the marginal utility of wealth is constant at all levels of wealth. Practically, this means that an additional $100 gain will yield the same pleasure to a billionaire as it would to a pauper, and that a $100 loss will visit on the billionaire the same degree and intensity of pain as it would on the pauper. This assumption quite obviously departs sharply from Bentham’s conception of human nature.
In their normative analyses, economists usually do not advertise explicitly that their social welfare calculus and the assumption of constant marginal utility of money on which it is based implicitly make the value of a thing in good part a function of the wealth of its recipient, as can be illustrated with the standard demand-supply diagram so often used to that end.
Excerpted Conclusion (via Professor Reinhardt @ Princeton)
It should be clear to you now that modern economic welfare analysis based on willingness to pay criteria – or simply on market principles — consistently applied in the evaluation of public policy, can easily end up favoring wealthier people who can bid higher money prices for a thing in question than can poorer people.
In this sense, then, by bastardizing Benthamite utilitarianism as economists have done, they deliberately or inadvertently tend to shill for the more privileged classes in society. No economics text is likely ever to apprise you of this Achilles heel of normative economics. I hold it to be self-evident.
