Mmutilitarianism: The accidental ethical foundation of economics and business.

Note: This is an adaptation for students of an old post.

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.  Religious ethics usually favor deontological and virtue ethical reasoning, but all three systems are sometimes used.

But when push comes to shove, most people throw out these systems and act like moral relativists.  Moral relativism isn’t really a moral philosophy because it is the negation of all of the 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 personal circumstances and social pressures.

For example, the Southern Baptists are now staunchly anti-abortion, but were fairly pro-choice until well after the landmark 1973 Roe v. Wade ruling.  The contemporary Baptist church press praised the ruling and in 2003, the church officially apologized for their earlier position.  This looks a lot like moral relativism even though the Southern Baptists have always been trying to follow the word of God.  Similarly, most people simply go with whatever their gut tells them is right or wrong.  People’s guts often lead them to make morally relativistic judgements that often seem even more bizarre than the Southern Baptists’ flip flop on abortion.   I don’t mean to single out the Southern Baptists.  Most people are morally inconsistent regarding abortion, and everyone takes self-contradictory ethical stances at different points so it isn’t surprising. We are all sinners and cognitive dissonance theory suggests that we tend to go to great lengths to try to justify ourselves.

Economists are moral relativists like everyone else, but two philosophical schools imbedded themselves into the history of economic thought to produce a peculiar result.  First neoclassical economics was founded within utilitarianism in the 1800s.  But some elites hated utilitarianism because of what economists used to call 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 his 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 is the idea of diminishing marginal utility.  The amount of utility or value that an additional dollar gives someone depends on the total dollars 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 utilitarians still seem shy about discussing its political implications.

Utilitarians also have 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 the economic classes and where resources would get the most bang for the buck.

Elites attacked utilitarianism for decades, and they finally succeeded in driving it out of economics in what has become known as the ordinal revolution of the 1930s and 40s.   They were aided by a new fashion in the philosophy of science called logical positivism that was a form of nihilism with regard to 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 which is not really science because it is motivated by ethical goals and positive economics which is true science that 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 and when economists tried to avoid ethics, they ended up developing an accidental ethical system called 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 itself an ethical (normative) judgement.  This 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 organizations and communities need some kind of ethical basis to be able to organize around and build common agreements, and mmutilitarianism filled this niche.  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 mmutilitarianism which they called the “new welfare economics” and it greatly simplified economic prescriptions.  They simply 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 and mmutilitarianism is the moral philosophy which gives GDP so much heft.  GDP became by far the most common and 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.  Somehow they were able to overlook the obvious normative problems of the “new welfare economics”.

Everyone who thinks about mmutilitarianism for even a few seconds rejects it.  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 they think they are positivists.  They think that economics rejected utilitarianism over a half century ago and they don’t realize that they using any ethical system.  But economists are always making normative judgements that more than 95% of economists agree upon such as free trade (good), rent control (bad), monetary stimulus during a recession (good), and raising gas taxes (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 (a philosophical justification for selfishness) is one of the 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).  Mmutilitarians typically think that selfishness is an excellent motivation for maximizing the production of GDP which is one reason why they promote selfish ends.  Mmutilitarians even conflate selfishness with rationality and often imply that altruism is irrational or even bad.  Mmutilitarianism was exported to other social sciences and business schools by economics imperialism too.  For example, in political science, realism is akin to mmutilitarianism and business schools teach that maximizing profits (a form of mmutility, remember) is the moral responsibility of business.

This is unfortunate.  Both national economies and businesses work best when people work together for mutual benefit, so pure selfishness is counterproductive.  Economic policies should benefit everyone including the middle class, so median income is a better measure of national progress than mean income (per-capita GDP).

Nobody defends mmutilitarianism as an ethical ideal either from religious or secular ethical 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 mmutilitarianist measures 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.

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