Mmutilitarianism: The accidental ethical foundation of economics and business.

Everyone has some sort of moral philosophy whether they realize it or not.  The three major schools of ethics are deontology, consequentialism, and virtue ethics.  Deontology is an ethical system based on legalistic rules that impose a duty on everyone’s actions.  Consequentialism or teleological ethics judges actions based on whether they produce good outcomes.  The most influential school of consequentialism is utilitarianism which aims to maximize the average utility (happiness or wellbeing) of all people.  Utilitarianism is the idea associated with Jeremy Bentham who argued that we should try to achieve “the greatest happiness of the greatest number” of people.  Virtue ethics says that people should act in ways that demonstrate virtues and/or improve their character.  Christian ethicists have  tended to favor deontological and virtue ethical reasoning, but all three systems are sometimes used by nearly everyone in different kinds of contexts.

When push comes to shove, and people are faced with an immediate decision that requires action, most people throw out these systems of moral reasoning and act according to how their gut or emotions are pushing them. at the time.  Because people’s emotions are inconsistent, we tend to act inconsistently and that makes us look like moral relativists.

Moral relativism isn’t really a moral philosophy because it is the negation of each moral system (such as listed above).  It is the idea that there is no ethical system that universally applies in all circumstances to decide right from wrong.  Many ethicists criticize moral relativism as nhilism, but even if it isn’t an attractive goal, it is a pretty good way of describing how people usually behave.  Most people decide what is right and wrong based on their contemporary feelings, personal circumstances and social pressures.

For one dramatic example, the official position of the Southern Baptist Church is now staunchly anti-abortion, but it was markedly pro-choice until years after the landmark 1973 Roe v. Wade ruling.  The contemporary Baptist church press praised the ruling at the time, but by 2003, the church had changed and they officially apologized for their earlier position.  This might look a lot like moral relativism to a critic, but the Southern Baptists have always been trying to follow the word of God and as context changes, all humans are prone to be influenced and change our moral judgements.  The Southern Baptists reversed their policy because they are humans and everyone takes self-contradictory ethical stances at different points in their lives so it shouldn’t be surprising and many Christians have gone the other direction in their moral reasoning.

In my experience, most Americans are inconsistent in their moral reasoning regarding abortion from minute to minute depending on how circumstances are described.  Furthermore, most Americans seem to prefer to have some ambiguity in the matter and are actually uncomfortable with the moral absolutists on both sides who are always consistent and don’t nuance their moral judgements from situation to situation.

Most people simply go with whatever their gut tells them is right or wrong.  People’s guts often lead them to make morally relativistic judgments that are bigger than the various flip flops on abortion.   The Bible teaches that we are all sinners and cognitive dissonance theory teaches that we tend to go to great lengths to try to justify our moral sentiments and feel good about ourselves.

Economists are moral relativists like everyone else, but two philosophical schools combined into the history of economic thought to produce a peculiar result.  Today many economists and business scholars are unwitting followers of mmutilitarianism which is the bastard child of classical utilitarianism and positivism.

First neoclassical economics was founded within utilitarianism in the 1800s.  But many elites hated utilitarianism because of the law of diminishing marginal utility of money.  This is the idea that an additional dollar gives more bang for the buck for poor people than for rich people.  For example, if a twenty-dollar bill was blowing down a street where both a homeless guy and Bill Gates were walking, who would be more excited to run after it?  To most people, it is obvious that the homeless guy would value the money more because it could alleviate his hunger pangs for days whereas it would just add an unnoticeably small amount to what Bill Gates is already giving away to philanthropies every day.   Bill Gates has so many billions of dollars that he would hardly notice any marginal benefit from yet another $20, and it probably would not even be worth his time to chase it down in the wind.  That demonstrates diminishing marginal utility because the amount of utility (or value) that an additional dollar produces diminishes the more dollars of wealth that the person already has.

The sum of global utility would thereby increase if Bill Gates lost a $20-bill and the homeless guy found it.  This is why diminishing marginal utility has always been such a politically controversial idea.  Some elites consider the discussion of the concept to be tantamount to class warfare because it gives a clear justification for progressive taxation and safety-net social programs to help the less fortunate.  Diminishing marginal utility is so controversial that the few people who still identify as utilitarians mostly seem shy about discussing the political implications of diminishing marginal utility.

Plus, utilitarians also have additional worries about redistribution.  They worry about whether taking $20 from Bill Gates would reduce his incentive to work and produce new goods that would benefit the poor.  They worry about how to redistribute money fairly so that it doesn’t create corruption and inefficient dependency.  But diminishing marginal utility is a powerful reason to think about economic class differences so that resources can get the most bang for the buck.

Elites attacked utilitarianism from the beginnings of its rise to prominence in the early 1800s, and they finally succeeded in driving it out of economics in what became known as “the ordinal revolution” of the 1930s and 40s.   They were aided by the contemporary fashion in philosophy called logical positivism that was nihilistic towards ethics.  The logical positivists simply rejected all ethics as unscientific and rejected utilitarianism on this ground.  They suggested that economics should be split between normative economics and positive economics.  And then they argued that normative economics is unscientific because it has to do with ethical goals and that academics should focus on positive economics which is true science because it only describes how the world actually works and not how it should work.

This false dichotomy between positive and normative economics is a mistake known as the positivist fallacy.  It is impossible for scientists to avoid ethics.  When economists tried to avoid ethics, they ended up developing an accidental ethical system: mmutilitarianism.   For example, the positivists’ own argument against normative reasoning was itself based on normative reasoning. They said that ethics is bad for science which is ironic because ‘bad’ is an inherently normative judgement.

Mmutilitarianism is an abbreviation for “money-metric utilitarianism” that is just like utilitarianism except that it is simpler.  One of the problems of utilitarianism is that nobody (except God) can really measure how much utility different people are getting, so all we can do is guess about what would maximize utility.  Mmutilitarianism simplifies things by assuming that utility can be perfectly measured in dollars which everyone can observe.  That also solves the problem of diminishing marginal utility because a dollar is always a dollar.  Under mmutilitarianism, it doesn’t matter if Bill Gates or the homeless guy gets the dollar.  All that matters is that somebody gets it.

Mmutilitarianism is the byproduct of a torturous intellectual history.  Utilitarianism was the dominant ethical system until the logical positivist intellectual fad of the 1920s rejected normative (ethical) concerns as metaphysical and unscientific.  That led economists to try to eliminate ethics from economics and the result illustrates the impossibility of eliminating ethics from human endeavors. Instead of eliminating ethics from economics, the positivists unwittingly turned economists into disciples of mmutilitarianism, which filled the ethical vacuum.  All communities need some kind of ethical basis to be able to organize around and build common agreements, and mmutilitarianism filled this niche in economics.  It has been encroaching on business schools, legal judgments, and public sentiment ever since.

The positivists also disliked subjectivity.  For example, they attacked psychology for trying to study cognition and perception because these are inherently subjective and only measurable from a 1st-person perspective.  The positivists argued that subjective experience is unscientific because scientific evidence must be verifiable to 3rd parties.  They attacked the entire concept of utility for being a form of cognition and perception that they considered unobjective like psychology.

The economists who attacked utilitarianism in the ordinal revolution ended up developing what they called the “new welfare economics” which is mmutilitarianism.  It greatly simplified economic prescriptions.  They unwittingly assumed constant marginal utility of money which means that all we have to do to achieve “the greatest happiness of the greatest number” of people is to count up the total amount of money that people earn every year.  This is what gross domestic product (GDP) is.  Mmutilitarianism is the moral philosophy which gives GDP so much heft and GDP became by far the most important measure of economic welfare in the world.  Oddly mmutilitarianism was more satisfactory for the positivists perhaps because, unlike utility, everyone agrees that it is possible to fairly objectively measure money.  They were able to overlook the obvious normative problems of the “new welfare economics” partly because counting money just seems a lot more objective than arguing about how much utility it produces for different people.

But nobody likes the name mmutilitarianism.  Even though it is a mutation of utilitarianism, self-described utilitarians completely reject mmutilitarianism because they reject the idea that a dollar gives the same amount of utility to everyone.  Economists who are unwitting devotees of mmutilitarianism reject the term because it reminds them of an ethical system (utilitarianism) that they thought that they rejected when they became positivists over a half century ago. They don’t realize that they using any ethical system when they make judgements based on “efficiency” and cost-benefit analysis.  But economists are always using mmutilitarian criteria to make normative judgements.  For example, more than 95% of economists (including myself) use mmutilitarian reasoning to judge that free trade is generally good, rent control is generally bad, monetary stimulus during a recession is good, and raising gas taxes is good.

Ethics is particularly important for a social science like economics whose ideas have, in Robert Heilbroner‘s words, “shattered empires and exploded continents;  they buttressed and undermined political regimes; they set class against class and even nation against nation.”  ¡¿Yep, nothing ethical about that.  Move along now!

Instead of using the term mmutilitarianism, economists talk a lot about “efficiency”.   When economists talk about efficiency, they are usually talking about maximizing money-metric utility (or mmutility).  I call it mmutilitarianism to honor its roots in utilitarianism, and because that is exactly what utilitarians would believe if they thought that money is the best measure of utility with constant marginal utility of money.  That is really the principal difference between the two schools of ethics.  Utilitarians believe that utility is difficult to accurately measure in large part because of diminishing marginal utility of money.  Mmutilitarians believe that utility is fairly easy to accurately measure because there is constant marginal utility of money and so we can simply add up dollars to seek the greatest sum of mmutility.  Someone’s worth is literally measured using their ability to pay in dollars.  And because a homeless guy’s dollars have the same mmutility as Bill Gates’ dollars, that means that the billion poorest guys on the planet are literally worth less than Bill Gates when deciding what is good for the economy.

In mmutilitarianism, the value of any government action is determined by estimating the willingness to pay of all people involved and subtracting off the dollar costs.  This is called cost-benefit analysis.  The wellbeing of any group of people is measured by adding up all the dollars that they get for the final goods and services that they produce and dividing by the number of people in the group.  This is mean GDP, the holiest measurement of mmutilitarianism.

Ethical egoism is a philosophical justification for selfishness that some economic and business pundits ascribe to.  It is one of the more extreme consequences of mmutilitarian thought.  If every dollar is worth the same to everyone, then selfishness is justified because it doesn’t matter who gets the money and the only thing that matters is increasing the total money value of the economy (max GDP).  Some mmutilitarians think that selfishness is an excellent motivation for maximizing the production of GDP which is one reason why they promote the morality of selfishness.

Furthermore, many mmutilitarians conflate selfishness with rationality and imply that altruism is irrational or bad.  Altruism is making a sacrifice for the benefit of someone else and under an ethical egoist worldview, it is impossible to improve the world by sacrificing for someone else.  For example, if one person has something he values at $100 and another person values it at $200, then a selfish market transaction will make both people better off.  Many mmutilitarians would even say that if the original owner gave the book to the other person, it would be bad because he would make himself worse off whereas a market transaction could make both people better off (and when nobody is made worse off, mmutilitarians call it a “Pareto efficient” change).

Economics imperialism spread mmutilitarianism to other social sciences, business schools, and even enshrined its values into our legal system.  In political science, realism is akin to mmutilitarianism.  Business schools teach that maximizing profits is the moral responsibility of business because  maximizing profit = maximizing mmutility = morality.

This is unfortunate.  Both national economies and businesses work best when people work together for mutual benefit.  Pure selfishness is generally counterproductive.

Nobody defends mmutilitarianism as an ethical ideal either from religious nor philosophical principles because it is based upon false assumptions that systematically lead to ethical errors, but it is better than nothing.  It fills a practical purpose for guiding decisions about what is good for “the economy” because it is a convenient, simple ethical system that helps avoid wasteful errors that societies would (and did) make without it.  Society needs some kind ethical system to guide economic policy, and mmutilitarianism has filled this important niche.

Medianism.org seeks to make a tiny improvement to economic thought by replacing some of our mmutilitarianist measures of the economy like mean GDP with measures based on medians.  The median person is a useful focal point for thinking about “the economy” and the economic wellbeing of people.  Economic policy should focus more on measuring the median individual rather than the mean dollars.  Businesses should think about how they are impacting the median stakeholder in addition to thinking about profits which mostly accrue to elites.