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Princeton ECO 100 - BECAMESHILLS FOR THE WEALTHY

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ECON 100 REINHARDT HOW WE ECONOMISTS BASTARDIZED BENTHAMITE UTILITARIANISM AND BECAMESHILLS FOR THE WEALTHY A. BENTHAMITE UTILITARIANISM Jeremy Bentham (1748-1832), an English philosopher, would have been any ambitious, neurotic, Princeton parent’s dream. Young Jeremy studied history and Latin at age four, probably without even attending the British analogue of those upscale Upper East Side Kindergartens for which particularly upscale New York babies are coached and prepped from the minute they are born – nay, conceived. Bentham entered Oxford University at age 12 and graduated from there at age 15. He was, like, the perfect geek. He is not known to have engaged in binge-drinking or stuff like that. He and John Stuart Mill (1806-1873) are widely regarded as the founders of the controversial philosophical school on Consequentialists. Consequentialists hold that the merits or demerits of human acts – business decisions, legislation, crime and punishment – should be judged strictly by the pleasure or pain, or both, that these acts visit on human beings (or animals), rather than by some other intrinsic merit or demerit of those acts (e.g., some religious merit). Bentham called the attempt to value the total consequences of pleasure and pain of an act as the felicific calculus. You have had occasion to engage in felicific calculus on your homework assignments, and some day you will hire economists who will perform it for you. Jeremy Bentham 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-2 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.” 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. Finally, and very importantly, the utilitarians assumed that the marginal utility of wealth was strongly diminishing with increases in wealth. In Jeremy Bentham’s words: Of two people having unequal fortunes, he who has most wealth must by a legislator be regarded as having most happiness. But the quantity of happiness will not go on increasing in anything near the same proportion as the quantity of wealth:– ten thousand times the quantity of wealth will not bring with it ten thousand times the quantity of happiness. It will even be matter of doubt, whether ten thousand times the wealth will in general bring with it twice the happiness. The effect of wealth in the production of happiness goes on diminishing, as the quantity by which the wealth of one man exceeds that of another goes on increasing: In other words, the quantity of happiness produced by a particle of wealth (each particle being of the same magnitude) will be less at every particle; the second will produce less than the first, the third than the second, and so on.2 The practical implication of the hypothesis of diminishing marginal utility of wealth in the context of Benthamite utilitarianism is momentous. It implies, inter alia, that public policy should achieve a more equal distribution of wealth than would be begotten by a market system left to its own devices. The hypothesis, for example, has been used by Benthamite philosophers to advocate progressive taxation, on the “equal sacrifice” principle—equal in terms of disutility of taxes, that is. 1 In modern consumer choice theory, we deal with ordinal utility. It means that we merely can say that a person prefers a thing to something else. Thus, if a person assigns 150 utils to good A and only 100 utils to good B, we can merely say that good A is preferred by the person to B, but we cannot say that the person derives 50% more happiness from good A than from good B. 2 http://highered.mcgraw-hill.com/sites/0072875577/student_view0/chapter3/origin_of_the_idea.html#2. By the way, as is mentioned in this source “Bentham donated his own body for dissection, largely to promote acceptance of the practice. This, however, was not the end of Jeremy Bentham. He also left his estate to University College, London, but under the condition that his remains be present at all board meetings. His padded and dressed skeleton still sits (in a glass case) at the college. A wax head sits atop the body, and his actual head was preserved using South American headhunting techniques. Bentham's real head used to sit on a plate between his feet, but in recent years has been relocated to a safe at the college, presumably to protect it from would-be pranksters using it on the soccer pitch or in other unspeakable ways.”3 B. MODERN WELFARE ECONOMICS AND BENEFIT- COST ANALYSIS Modern welfare economics, as we have studied it in this course, can be viewed as an offshoot of Benthamite utilitarianism, albeit one that has made modern welfare economics the handmaiden of the privileged classes. Let us see why this is so. To


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Princeton ECO 100 - BECAMESHILLS FOR THE WEALTHY

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