PLSC 118: The Moral Foundations of Politics

Lecture 6

 - From Classical to Neoclassical Utilitarianism


In this economics-oriented lecture, Professor Shapiro introduces neoclassical utilitarianism as it was formulated by economist Vilfredo Pareto and further described by Francis Edgeworth, examining such concepts as indifference curves, transitivity, the Pareto principle, and the Edgeworth box diagram. It is revealed that the main departure of neoclassical utilitarianism from classical utilitarianism was that it did away with Bentham’s troublesome interpersonal comparisons of utility. However, Professor Shapiro explains that, if classical utilitarians didn’t take the differences between individuals seriously enough, neoclassical utilitarians take these differences hyper-seriously. If classical utilitarianism can be interpreted as a radically redistributive doctrine, neoclassical utilitarianism becomes the exact opposite–that is, a doctrine that is quite friendly to the status quo.

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PLSC 118 - Lecture 6 - From Classical to Neoclassical Utilitarianism

Chapter 1. Introduction and Class Agenda [00:00:00]

Professor Ian Shapiro: This morning we’re going to begin making the transition from the classical utilitarian doctrine of Jeremy Bentham’s to the neoclassical doctrine that was championed by a number of different figures in the late nineteenth and early twentieth century, and we’re going to end up by focusing on John Stuart Mill as the principle expositor of neoclassical utilitarianism. And where we’re headed is for a doctrine that I’m going to call the rights-utility synthesis. The rights-utility synthesis signals that we’re looking for an attempt to put together both a commitment to utilitarian efficiency that’s grounded in science on the one hand, and respect for individual rights that’s grounded in the workmanship ideal on the other hand.

And we’re not going to actually get to the rights-utility synthesis as it’s expressed in politics by John Stuart Mill until next Monday. What instead I’m going to do today is explain how the transition for classical to neoclassical utilitarianism really went on in all fields of thinking about the human sciences at more or less the same time. There were developments in political theory that we’re going to talk about at considerable length, but there were also, under-girthing that, developments in economics and in philosophy that are going to be my principle focus in today’s lecture.

What you’re also going to get as a by-product of today’s lecture is everything you ever needed to know about neoclassical economics in 45 minutes. That is to say neoclassical economics is a brilliant intellectual creation, to a large extent the creation of Vilfredo Pareto, an Italian economist that I’m going to talk about today, but with important contributions from other figures in the modern history of economics such as Marshall, and I’m going to mention in some detail an economist called Edgeworth. And they developed a system of thinking about economics and the theory of value that was going to be tremendously influential and important not only in the way utilitarianism evolved, but in the way of our thinking about markets, legitimacy, and distributive justice would evolve.

At the same time, more or less, there were very important developments in moral philosophy that I just want to alert you to, that we’re going to return to later when we come to consider Alasdair MacIntyre’s book, After Virtue. And this movement in philosophy that I’m mentioning here is the doctrine that would come to be called emotivism. It was associated with a man by the name of Stevenson who wrote several books advocating the emotivist doctrine when he was an untenured professor in the Yale Philosophy Department, and as a by-product of which, he never became a tenured in the Yale Philosophy Department because his doctrine was thought to be so repugnant. His doctrine was that when we make claims like murder is wrong, we’re making claims that express our emotions, our emotive reactions to propositions just as when we say, “I like ice cream,” or “I prefer chocolate ice cream to strawberry ice cream.” All we’re doing is expressing our tastes, our emotional reactions and that there is nothing more to say about ethics than that.

Now, you could say this emotivist doctrine is an endpoint in a philosophical evolution that really begins in the seventeenth century. Hobbes, who I mentioned to you in our very first lecture, criticized Aristotle for not seeing, as Hobbes thought, that what is desirable for some people is not desirable for others. But Hobbes didn’t, truth be told, take that view that seriously, because he thought for the most part we’re all pretty much the same.

And if you look at the other classical utilitarians like David Hume, who we’re not reading in this course but we could read in this course, or Sedgwick who we’re not reading in this course but we would have read in this course, they also basically thought human beings were more or less all alike in their psychological structure in their basic human needs. Hume has a famous line somewhere to the effect that, “If all factual questions were resolved no moral questions would remain.” “If all factual questions were resolved no moral questions would remain.” And it’s not that Hume thought we could derive an ought statement from an is. Hume’s famous for the idea that an ought cannot be derived from an is; that there’s a fact-value problem. But he thought, nonetheless, people are pretty much the same, and so if you can figure out what makes one of them tick you can figure out what makes all of them tick.

And that was most emphatically Jeremy Bentham’s view. It’s presupposed in everything we discussed last time. If you think about the idea of doing interpersonal comparisons of utility, and making the judgment that taking that dollar from Donald Trump and giving it to the bag lady increases her utility more than it decrease his, you’re assuming that they basically all have the same kinds of utility functions.

Stevenson questioned that idea radically. He said, “We don’t actually know. We should take Hobbes much more seriously in his critique of Aristotle than he was willing to take himself. We don’t actually know if people have the same kinds of utility functions. We don’t know whether or not what makes some people happy will make others happy as well.” And so Stevenson was thought to be a proponent of a kind of moral relativism because he linked ethics to our desires, and preferences, and emotions, and nothing else. And then he said, “It’s actually an open question.” Stevenson was criticizing Hume on this point, but he might as well have been criticizing Hobbes or Bentham. Stevenson said, “It’s an open question whether people are alike in their basic psychological structures in the physiology of their human needs.” And so that was thought to be a radically relativist doctrine because it seemed to undermine the possibility of making ethical judgments of any sort across people.

That is a doctrine to which we will return, as I said, when we get to the anti-Enlightenment and, in particular, Alasdair MacIntyre’s book, After Virtue. But today we’re going to focus for the rest of our time on the economics of the transition from classical to neoclassical utilitarianism. And I’m going to ask you to suspend disbelief for the rest of today’s lecture and just trust me, because what I’m going to do is I’m going to go into this backwards. I’m going to come into the transition from classical to neoclassical economics by looking at a very different problem that the neoclassical economists were concerned with that had nothing to do with utilitarianism, or rights, or anything that we’ve been talking about in this lecture. And it’s not until you get to the end of this narrative that you’ll start to see why the transition from classical to neoclassical utilitarianism in economics was essential for the transition in political theory, and indeed for the transition in moral philosophy.

Chapter 2. Neoclassical Theory of Microeconomics [00:09:03]

So, as I said, you’re going to have to suspend your disbelief and just follow me through the ABC’s of neoclassical price theory, which is what we’re going to do now. And as I said, the bonus here, the by-product is, you’re going to get the whole of ECON 101 reduced to a single lecture. Because indeed it is true that enormously complex and subtle, and as sophisticated as the neoclassical theory of microeconomics is, it’s all built out of three ideas. It’s all built out of the three ideas that I’m going to spell out for you in what some of you might initially regard as laborious detail, but I’m going to do it anyway, and I think you’ll see what I’m getting at once we get towards the end of today’s discussion.

So imagine a single person. We’re going to call them A as testimony to my lack of imaginativeness, but you could call them anything you like. And let’s imagine a world in which there are just two commodities; in this case wine and bread. The system of neoclassical utilitarianism invented by Pareto says that, other things being equal, you want more rather than less of any source of utility, right? We know that from classical utilitarianism. But if you have six bottles of wine and only one loaf of bread, bread is comparatively more valuable to you than wine, so that you would exchange a lot of wine to get a second loaf of bread. If, on the other hand, you were choking on your six loaves of bread and dying of thirst the reverse would be true. You would give up a lot of bread in order to get a small amount of wine.

And these are what are called indifference curves in neoclassical economics. And indifference curves basically imply exactly as the name suggests that you would be indifferent among the mixes of bread and wine anywhere on this curve. And this curve is always shaped that way, concave toward the origin. Anybody want to tell us why? What is it reflecting? Why is it that shape? Someone who’s done an econ class, or somebody who remembers Monday’s lecture, yeah?

Student: Because of diminishing marginal utility.

Professor Ian Shapiro: Yes, okay. It reflects the idea of diminishing marginal utility. It reflects the idea of diminishing marginal utility in exactly the sense that I just said: that if you have a huge amount of bread the next loaf of bread is less valuable to you at the margin than the previous loaf of bread was. So if you’ve got a lot of bread you’ll give up a lot of bread in order to get a small amount of wine, okay?

So that is the idea of diminishing marginal utility. And when we call this, what I’ve labeled here I-1, an indifference curve, we’re saying literally you would get the same amount of utility no matter where you were on that curve. So if you have whatever we have here. This isn’t very well-drawn but, say, four bottles of wine and two loaves of bread you would be equally happy as if you had, what does it look like here, four loaves of bread and one and a quarter bottle of wine. You would be equally happy between those two distributions, okay?

What would increase your happiness? What would increase your happiness would be get onto a higher indifference curve. If you could have more bread and more wine of course you’d be happier, right? And so the idea of indifference curves is that you want to go this way. You want to go from P toward Q. You want to get onto, as they put in the jargon of neoclassical theory, you want to get onto as high an indifference curve as you can possibly get. For those of you who like the jargon, this would be a utility function. You want to go up your utility function, all the way to Q if you could. We don’t know where Q is. It’s out in the stratosphere. But wherever you were on your utility function you could draw one of these curves through it in principle, so if you were here, you could find the mix of bread and wine in each instance among which you’re going to be indifferent. So that is the notion of an indifference curve.

Now, an important consideration in the theory of indifference curves was to say that we don’t know — I’ve put these equally apart, but, in a way, I shouldn’t have because it’s misleading. If you get from one to two and then you get from two to three you haven’t increased your utility necessarily by the same amount. These distances don’t mean anything, okay? I could have put three right here because the system of neoclassical utilitarianism, unlike the system of classical utilitarianism, works with ordinal scales, ordinal mathematical scales, and as the word implies it means all we do is rank order. We rank-order our preferences, but we don’t say anything more.

So this individual A prefers four to three, three to two, and two to one, but we can’t say that he prefers or she prefers four to three more than she prefers three to two. We don’t know that. We don’t have a cardinal scale. Remember that in Bentham’s system we had cardinal scales. We were thinking of sort of lumps of utility that could be picked up and moved around and redistributed to people, right?

The neoclassical economists didn’t want to do that, and they didn’t want to do that for a different reason than anything I’ve talked about in these lectures. They didn’t want to do that because they were actually concerned with quite another problem. The problem they wanted to solve was to understand the behavior of markets. They wanted to be able to more precisely to predict what prices were going to be in markets, and they wanted to do that for reasons I’m going to elaborate to you much later on when we come and talk about Marx, and the labor theory of value and its limitations, but that’s for a future lecture.

For today’s lecture all you need to concern yourself with is the fact that they wanted to be able to understand the nature of markets of how market prices move, but they wanted to be able to do this with as little information as possible. They realized that for Bentham’s system to work, for example, the government would have to have a kind of utilitometer and run around sticking it under people’s tongues to measure their utility, right? Very intrusive. You need a lot of information to do Bentham’s system. They wanted to say, “How can we develop a well articulated theory of market prices based on as little information about people and their preferences as possible?” And Pareto, and Marshall, and Edgeworth, and others who were in their circle, thought you could do this just with ordinal utility. So moving from cardinal to ordinal utility is going to turn out to have huge ideological consequences, which I’m going to unpack for you towards the end of today’s lecture.

But as an analytic matter, looking at this from the inside, it had the great virtue of providing the building blocks for a theory of price behavior in market systems that required almost no information about people. All we would know about this person A, as I said, is that they prefer four to three, three to two, two to one, one to zero, but we can’t say anything about how much they prefer those things because these distances don’t actually mean anything. All we get is an ordered ranking.

Now, there is one other thing we can say. One other thing we can say is, that this is a no-no. These indifference curves cannot cross. Can anybody tell us why? Why can’t they cross? Wait for the mic.

Student: Because at the intersection they should have the same utility even though they’re different indifference curves.

Professor Ian Shapiro: You’re on the right track, but what’s the problem with their crossing?

Student: Because you say I-2 has utility of two, I-2.5 has utility of two-point-five, but at that point where they intersect they both have to have the same utility.

Professor Ian Shapiro: So you’ve got a kind of contradiction on your hands, is that right?

Student: Yeah.

Professor Ian Shapiro: Okay, and just to spell out the contradiction more emphatically — I think you basically made the point. If we’re saying that we’re indifferent among all the things on this curve and we’re indifferent among all the things on this curve we can’t have it cross because then we’re saying here, right, two-point-five is preferred to two, but here we’re saying the opposite. We’re saying two is preferred to two-point-five, okay? The jargon, anybody happen to know? Yell it out. We don’t need the mic. Does anybody know the jargon for this?

Student: Transitivity.

Professor Ian Shapiro: Transitivity. The preferences are assumed to be transitive. So if you prefer A to B and B to C, you must prefer A to C. That’s all that transitive means, okay? If you prefer A to B and B to C, it must be the case that you also prefer A to C, otherwise you’re contradicting the principle of transitivity, okay? So we cannot have these indifference curves crossing one another.

Chapter 3. Analysis of the Distribution of Utility between Two People [00:20:58]

Now, what we’re going to do here, instead of one person and two commodities, we’re going to think about two people, okay? We’re creating a diagram with two people on it. As I promised you earlier in the semester, anything I do with a diagram I will also do verbally, so if you find this in any way confusing just listen to the narrative and then we’ll see whether you get it that way.

But so now we have a diagram with two people on it, okay? So this is person A, and this is person B. And these axes, the X-axis, here, is A’s utility function. Remember A in the previous slide was trying to get from P towards Q, right? A was trying to go up here. So this, on this slide, is the same thing as this, on this slide. So A is trying to go this way and B is trying to go this way, okay? And what we imagine is some distribution of utility between them. So A has this much utility — if this is the status quo X, okay? A has this much utility and B has this much utility. A’s happier than B, right? Wrong, A’s not. We don’t know that A’s happier than B from what I just said, right? These distances don’t mean anything, right? So it looks like A’s happier than B, but that’s misleading. If the different distances are taken to imply in your mind that A’s happier than B disabuse yourself of that thought right away, okay?

So we have a distribution here, okay? Now what Pareto said, he said, “Let’s draw a line north-south through the status quo, and let’s draw a line east-west though the status quo,” okay? And we’ll imagine that there’s a finite source of utility. It gets called in the econ textbooks the Pareto possibility frontier, so there’s not an infinite source of utility. Now, Pareto said, “Well, if we draw the north-south and the east-west we get four quadrants. We get this one. We get this one. We get this one, and we get this one,” right? And what Pareto said is, “Well, that’s interesting because we can say different things about them.”

One thing we can say is if you can anywhere into the northeast quadrant both of them are better off, right? So if we go from X to Y we know A’s utility has gone up, and we know B’s utility has gone up, right? We don’t know by how much, but we know it’s gone up so they’re both better off. On the other hand, if we went anywhere in here, this quadrant, southwest as it were, obviously they’re both worse off, okay? Because if I put a point here, Q, we’ll let’s not use Q — J, let’s not use, yeah, let’s use J. If I put a point here, J, we would say that A’s gone down and B’s gone down.

Now, to make this a bit more real imagine in here this is the sphere of market transactions. This is where A and B will go voluntarily, right? So A will say to B, “Well, I have all this wine, and you have all that bread, how about I swap you a bottle of wine for a loaf of bread?” And you say, “Okay.” You give it to them, both people are better off, okay? And we know they’re both better off because they did it voluntarily, and we know they’re both trying to get onto as high an indifference curve as possible, right? So they swap their wine, they swap their bread, and both of them are happier. A little more tipsy, but also a little better fed, okay?

A move into here would be as if the government taxes them both and uses the money to spend on foreign aid to a country they both despise, let’s say. So they both paid a tax and the money has gone to something they don’t support. We can say that’s Pareto inferior. Pareto superior, Pareto inferior, right? It’s Pareto inferior because they both don’t want it, and both of them would resist it if the government tried to do it. Obviously they wouldn’t go there through a market transaction because it puts both of them on a lower indifference curve, okay?

So that’s all well and good. Well, that leaves these two other quadrants. And about those two quadrants Pareto says we can say nothing at all. We can say nothing at all, at least nothing scientific. And then he says in his famous 700-page book called The Manual of Political Economy, he says, “People are going to misinterpret me. People are going to interpret me as saying we should never move into either of these quadrants. I’m not saying that. All I’m saying is we will never have a scientific reason for moving into either of these quadrants. Because if we were to move from X to G, so that we tax A by that amount and we give it to B, we cannot say that B’s gain is greater than A’s loss because these distances don’t mean anything despite where I put the G. We just have no way of knowing because we don’t allow interpersonal comparisons of utility.

And that’s the link to Stevenson in philosophy that I was talking to you about earlier. There’s no way of knowing whether B’s loss is as big as A’s gain or the reverse, because we can’t make comparisons across individuals. There’s no scientific way to do it. We can’t assume with Bentham, and with Hume, and with Sedgwick, we can’t assume that everybody’s basically the same. Perhaps they are, perhaps they aren’t, but we just don’t know, okay? So that is the Pareto principle. The Pareto principle out of which the whole of neoclassical economic theory was constructed depends on this idea of indifference curves. A is trying to get up on those indifference curves. B is trying to get along on these indifference curves. And we have Pareto superior, Pareto inferior, and then these two which he called Pareto-undecidable because you can’t decide, not because you’re a ditherer, but because there’s no scientific way to tell whether, in this case, B’s loss exceeds A’s gain, and if we went up here it would be an analogous problem.

Now, let’s just suppose we go back that A proposes to B swapping a loaf of bread for a bottle of wine and B agrees. They go to Y, and then A says, “Well, I’ll give you another loaf of bread for another bottle of wine.” And B says, “Forget it.” He says, “Well, come on, how about a half a bottle of wine?” He says, “Okay,” and then they go to Z, okay? And if they then get to a point at which no matter what swap A is willing to propose, B says no, and no matter what swap B is willing to propose A says no, then you know they’ve hit that frontier, what’s called the Pareto possibility frontier. Because now there’s no way to make B better off without making A worse off, okay? They will — “What about a half a bottle? What about a quarter of a bottle? Well, then I want two-thirds of a loaf. No, that’s too much,” blah, blah, blah, back and forth, “Forget it, I’m off,” okay? When no transaction occurs, you know they’ve hit that frontier.

So, the Pareto principle says that in a market system they’ll move toward the frontier and when they get there, they’ll stop. Now, of course, they may have gotten there some way else. They might have gone from X to G over here, and then they would have done a new one, and then they might have gone to here, and so on. And that would just reflect shrewdness in bargaining, or how much people cared lower down their indifference curves, or other idiosyncrasies. But once they wind up anywhere on this indifference curve they’re not going to move off of it because now there is no way of improving one person’s utility without diminishing the next person’s utility, and that is what is called Pareto optimal, okay? So Y is Pareto superior to X, and Z is Pareto optimal, can’t be improved upon. It’s an optimum in that sense.

That’s it. That is neoclassical economic theory in a nutshell.

Chapter 4. The Edgeworth Box Diagram and Pareto Possibility Frontier [00:31:51]

Now, I’m going to show you one more diagram that will possibly look intimidating when I first put it up, but all it does is put the preceding diagrams that we’ve just looked at together.  And this is what in the econ literature — it was invented by an economist called Edgeworth, and it’s called an Edgeworth box diagram. And let me explain for you diagrammatically, and then if anybody doesn’t get it we’ll wait up and I’ll go through it more slowly.

But think about the diagram we just did, okay? Think about A is here in the corner, okay? But basically now we’re putting the two previous diagrams together. Maybe I’ll just go back so everybody’s clear what we’re doing. We’re putting this diagram, where we have two commodities and one person, and this diagram where we have two people and just utility we’re putting it all together, okay, into one big picture. And so you’ll see why this is helpful once we get to the end of it.

So A is here, and A has indifference curves. This is our first picture, right? So A is tying to go northeast. We have A. We have wine. We have bread. A’s indifference curves are the dotted lines, okay? A is trying to get that way, that way, that way, and to keep going all that way, right? And what Edgeworth did — it wasn’t that it was a late night or anything that I put this writing upside down — he said, “Just imagine a mirror going down here.” B is coming at A from the other corner, okay? So B is looking at bottles of wine, loaves of bread, and B has now got the solid indifference curves, and B is trying to go this way, right? B is trying to go this way. So A would improve if he went this way, and B would improve if she went this way, okay? So this is an indifference curve for B. Now, it’s going southwest instead of northeast just because it’s looking in the mirror. B is A looking in the mirror, get it, okay? So B wants to go this way, as I said, southwest; A wants to go northeast.

So if you imagine that this were the status quo from right where A has almost all of the bread, right, and B has almost all of the wine, then this shaded area here, this big football, is the Pareto superior set on the previous diagram. Because if you think about it, it’s the set that if you move anywhere in the biggest football I’ve shaded here — let’s say we started here at X where A had almost all the wine and B had almost all of the bread. If they went from X to Y, A would be on a higher indifference curve because A would have gone from here to here, and B coming the other way would also be on a higher indifference curve, and you could draw a new football, right? It would be a smaller football within the bigger football. 

And then they haggle again. And A says, “Well, what about half a bottle?” B says, “Well, then I want three-quarters of a loaf,” blah, blah, back and forth, and they wind up at Z. And you know Z is on the Pareto possibility frontier because every proposal that one makes, the other rejects, right? And so you capture it in an Edgeworth box by having their indifference curves be points of tangency. So at Z, A wants to go this way, but the only way that A can go this way would move B off his or her indifference curve, which is this one coming this way, okay?

So the Edgeworth box diagram just puts all of the pictures together. There’s nothing conceptually new in it at all, and it only becomes relevant to our purposes because it will enable us to start thinking about distributive questions, which I will get to in a minute.

Okay, let me pause because I want to be sure — have I gone through his too quickly? Would anyone like me to walk through it again? If you think you would want me to walk through it again probably half the people in the room do, so don’t feel awkward. It’s actually a lot simpler than it looks, right? I mean, all you have to do is take the previous, the Pareto principle diagram and imagine it with a mirror and think of B as upside down coming toward A, and then it just all fits together. Very clever.

Okay and the one thing I would say, this line here is what on the previous diagram was the Pareto possibility frontier, right? This line is all the points of tangency between — like there is one, there is one, there is one. So you join up all the points at which the indifference curves are at tangents to one another. That is the line where if they get onto this line they won’t move off of it voluntarily, right? By definition. So they went from X, to Y, to Z, but perhaps if A had driven a harder bargain early on, they might have gone by a different path and would have wound up at a different point.

This is the Pareto possibility frontier which Edgeworth called the contract curve. It’s the same thing. It’s where they will make a contract to get to. They will agree to transactions that get them onto that curve, but once they’re on it they stay there, okay? That’s the basic intuition. So market transactions into the Pareto superior zone, and eventually they stop when things are Pareto optimal.

Chapter 5. Comparing Classical and Neoclassical Utilitarianism [00:39:42]

Now, let’s think about comparing classical and neoclassical utilitarianism. If you think back to Monday’s lecture we said with Bentham’s utility anything — this isn’t a very good forty-five degrees is it? I guess it is. It just depends where you stand. With Bentham’s utility we said that anything in this whole area, the first shaded area, maximizes the greatest happiness of the greatest number, right? That was his imperative. The Pareto principle, we now know, singles out this Pareto superior area as unambiguously better because people will go there voluntarily. So everything that is Pareto superior is Bentham superior, right? Everything that’s Pareto inferior is Bentham inferior, right? This is uninteresting. It’s unambiguously worse whether you’re a classical or a neoclassical utilitarian, right?

So everything that’s Pareto superior is Bentham superior. Everything that’s Pareto inferior is Bentham inferior. But now the interesting stuff, which is where all of redistributive politics goes on, and all the battles in politics go on, are in the two Pareto undecidable quadrants, right? This one and this one, about which Pareto says, as a matter of science, we can say nothing, and Bentham disagrees, right? Bentham’s principle bisects these Pareto undecidable quadrants because Bentham makes his interpersonal judgments of utility. And so Bentham says, if you go into this area, it’s a Bentham improvement, though it’s Pareto undecidable, whereas if you go into this area, it’s not a Bentham improvement even though it’s Pareto undecidable.

So Bentham and Sedgwick, and Hume, and the classical utilitarians think we can make interpersonal judgments which allow us to say when it will make sense for the government to tax A, and benefit B, whereas Pareto says there’s no way to tell. Again, he says, “People are going to interpret me as saying the government should never redistribute. I’m not saying that, and it’s a misuse of my doctrine to say that. All I’m saying is if the government chooses to redistribute, there’s not going to be a scientific principle to tell them how.”

So just to make the point dramatic let’s suppose — we’re going back to the Edgeworth diagram. Let’s suppose this is the status quo. That is, let’s suppose B has everything and A has nothing. B has all the wine and all the bread. We know they’re on the contract curve because B has nothing that A wants, right? So if you think, again, of Trump and the bag lady, she has nothing that he wants, so the Pareto efficient outcome is for the bag lady to starve. It might not be morally defensible, but it’s the Pareto efficient outcome. They’re on the contract curve. There is nothing you can do to improve the bag lady’s utility that will not diminish Trump’s utility, right?

Now you could say, “But of course, she’s on the verge of starvation. How can that possibly be the case,” but notice we’ve ruled out interpersonal comparisons of utility now. And so proponents of neoclassical utilitarianism have no way to make interpersonal judgments of utility. So the Pareto efficient transaction is no transaction, and the bag lady starves to death.

You’ll see when we come to read John Rawls later in the semester he says the trouble with utilitarianism is that it doesn’t take seriously the differences among persons. The trouble with utilitarianism, says John Rawls in His Theory of Justice, is that is doesn’t take seriously the differences among persons. You now know enough to see that actually Rawls’s argument is half-right, because the truth is that’s the problem with classical utilitarianism. Classical utilitarianism says, “Well, if taking all of your utility and giving it to me increases overall net utility then we should do that, because you improve the greatest happiness of the greatest number.” We don’t care who has the utility, right?

So classical utilitarianism is indeed vulnerable to Rawls’s critique, it doesn’t take seriously the differences between persons, right? And we saw that when you allow interpersonal judgments of utility and interpersonal comparisons you get the radically redistributive doctrine that Bentham then tries to fend off with his distinction between absolute and practical equality that we talked about last time.

But Rawls’s point doesn’t actually apply. The problem with neoclassical utilitarianism is that it takes the differences between individuals hyper-seriously, so seriously that you would say the bag lady should starve in this example rather than have something redistributed to her by the state, forcibly taken from Trump. So classical utilitarianism ignores the differences among individuals; neoclassical utilitarianism fetishizes the differences among people to an incredible extreme so that proponents of neoclassical utilitarianism, like Richard Posner in his book The Economics of Justice, concedes that it’s a problem with your neoclassical utilitarianism that if you have a disabled person who’s not capable of working for anybody else there’s no reason, or as he puts it, “contributing to anybody else’s utility function,” there’s no reason that that person shouldn’t be allowed to die. And Posner says, “Well, that’s a problem with utilitarianism.” And he throws ups his hands and says, “I don’t really know what to do about it,” and he moves one. It’s a deep problem with neoclassical utilitarianism.

But notice from the point of view of the history of ideologies what has happened in this transition from classical to neoclassical utilitarianism. We’ve gone from a world in which the doctrine of classical utilitarianism was a very radical idea that would legitimate huge redistribution by the state, into a world in which the radical fangs of classical utilitarianism have been ripped out and it is now a doctrine that is very friendly to whatever status quo happens to be generated in a market system. So it ceases to be this radically redistributive doctrine, and in the process imports into utilitarianism a very robust, some would say, hyper-robust doctrine of individual rights, and we’ll see how that played out in political theory when we come to look at John Stuart Mills’ harm principle next Monday. See you then.

[end of transcript]

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