Praxis

June 15, 2007

Utilitarianism

Filed under: Economics — duncan @ 7:57 pm

God knows there are all kinds of horrifying problems with economics; but one of the biggest is: utilitarianism.

Your basic classical economists – your Adam Smith, Ricardo, Marx – didn’t have much time for demand. They focused on the supply side of the economy, emphasising the role that the costs of production played in the creation of economic value. Then, in the late 19th century, various clever people independently came up with the idea of marginal utility (Jevons, Menger, Clark). These folk tended to overemphasise the role that demand played in the creation of price. Two strands of economics, the supply side and the demand side, move towards each other, finding synthesis in the good old supply and demand cross of Marshall’s ‘Principles’.

One of the big ironies here is that the most mathematically literate economists tended to be those who focused on demand. This is ironic because, to put it bluntly, commodities are quantifiable, whereas desire is not. Marx couldn’t care less about maths; but Marx is robustly materialist. Cournot, on the other hand, who was the first to bring the differential calculus into economics, did so by drawing a demand curve.

Passions can’t be measured. The idea that pleasure and pain are even homogenous enough phenomena to be placed on a single scale is ludicrous. How exactly (to take only the most obvious example) is an index of quantifiable pleasure supposed to measure masochism?

But economics is bound to this idea. Perhaps it’s unfair to call it ‘utilitarianism’. Still, it’s no accident of history that the philosophical doctrine of utilitarianism rose to prominence just as economics achieved its breakthrough into academic recognition. (John Stuart Mill was regarded by contemporaries as the leading economist of his day).

If our economic theories presuppose quantifiable utility, and if this utility can’t be measured (because there’s no such thing), how can economics, as a discipline, survive? It survives by finding utility-substitutes: economic behaviours that can be regarded as more or less directly linked to the unknowable fluctuations of our souls’ spreadsheets.

Chief among these behaviours is spending. We can’t know what fevers actually grip the human heart; so we take consumer spending patterns as evidence enough. The result is that all economic measurement of ‘utility’ is driven by whatever forces of power and prejudice influence the movements of our chosen substitute(s). If we choose spending as our measure of utility, our conclusion will be: the wealthy value things more than (and are thus more important than) the poor.

Of course economists are aware of these problems; but they aren’t all necessarily aware enough. I remember an Economist article that unfortunately I can’t now trace. It concerned the efforts of British football clubs to keep tickets out of the hands of touts. The Economist’s argument: ticket touts are responding to a market need; they (the touts, representatives of the market) are raising prices that have been kept artificially low by clubs. This is arguably more just than the present arrangement, because it redistributes commodities from “those who value them little to those who value them a lot.”

I’ve been to precisely one football match in my entire life. I barely know who David Beckham is. (A goalkeeper?) If anybody wants to enlighten me about the economics of the beautiful game, I’d be more than grateful. But surely a non-negligible proportion of football fans aren’t going to be able to afford tickets at ‘market’ price. I’d imagine that’s why many prices are kept (comparatively) low, and why efforts are made to keep many tickets out of the hands of touts. The idea would be: ability to pay for something does not correspond to how much one values it. This idea seems to be obvious; but it didn’t feature in that articles reasoning (as I recall it).

Changing tack, there are other problems with utilitarianism. To take just one example, from close to hand: I’ve been deriving my glib historical summaries from Steven Pressman’s ‘Fifty Major Economists’. On page 87 of that book (in the piece on Jevons), we find the following passage:

“[E]mploying utility theory to study labor casts doubt on the classical theory of wages… Humans were not at the mercy of a subsistence wage; rather, the labour supply depended upon the going wage. If wages got too low, workers would withdraw from the market and enjoy leisure.”

No, honestly. I’ll type it again. “If wages got too low, workers would withdraw from the market and enjoy leisure.” It doesn’t happen often, but this actually made me laugh out loud.

2 Comments

  1. “…economic behaviours that can be regarded as more or less directly linked to the unknowable fluctuations of our souls’ spreadsheets.”

    I hope you did a little dance of joy when you came up with this sentence. You certainly should have done, it’s a very fine sentence.

    As far as football goes: I don’t know, The Economist may think that prices are kept artificially low, but that’s not the opinion of most other people. British football clubs – especially the prestige clubs at the top of the league – are by far the most expensive in Europe to buy tickets for, and have been consistently for many years, with regular season-by-season above-inflation price rises. Certainly, this prices many fans out of the game (as long as the clubs can regularly sell out, this matters little to them); however, it’s also clear that many fans on low wages value the tickets very highly, as they will still shell out the hundreds of pounds required for a season ticket.

    Why the clubs want to stamp out touts is unclear (assuming that they actually do – there certainly is a lobbying effort on the part of some sporting authorities to make touting illegal, although it’s not really a huge priority for them). One reason is simply that it messes with their control over who gets into the ground, which is important for keeping known hooligans out, maintaining segregation between rival fans, etc. Another may be simple PR reasons – it makes the clubs look bad for the fans to get scalped like that. But as for a pure, self-interested economic reason why they object to tickets they’ve already sold being re-sold at a profit? No idea, I’m afraid.

    Comment by Tom — June 16, 2007 @ 12:23 am

  2. Hmmm. This is very informative, and makes me think I’ve got my facts wrong. I really ought to track down years-old articles before I summarise their arguments based on hazy memory and prejudice. Maybe I’ll do some research and get back to you. Meantime, thanks for the info.

    Comment by praxisblog — June 17, 2007 @ 2:47 pm


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