By Jonathan Andreas, Updated 2019/05/19
Utility is whatever is good in life. It is a person’s well being. David Hume coined the term “utility” with this philosophical definition and Jeremy Bentham coined the term “utilitarianism” but the term was popularized by John Stewart Mill. 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. The basic aim of utilitarianism is to try to add up the utility, or wellbeing, of every individual and maximize the sum of total utility.
For example, utilitarian logic is often used in the most common resolution of the trolley problem. Suppose you are at a trolley switch and a trolley is rapidly running down the track and there is a group of ten people on the track in front of the trolley who will inevitably get killed because they won’t be able to climb out of the track in time to avoid being hit. However, you could flip the switch and the trolley will go down another track where only one person is standing so that only one person would get killed. Most people decide that it is better to flip the switch and save the lives of the ten people rather than save the life of the single person because that decision will increase the total wellbeing or utility of society.
Utility theory also became the psychological theory that economists used for explaining peoples’ choices and evaluating what choices are rational for increasing individual wellbeing. For example, the economic theory of insurance (and risk aversion) is dependent upon the idea of diminishing marginal utility (DMU) of wealth. DMU is the idea that Bill Gates gets less utility from finding a $20 bill on the sidewalk than a homeless guy would get. That is because Bill Gates has so many billions of dollars that he hardly notices any benefit from yet another $20, and it probably would not even be worth his time to chase it down in the wind. But a homeless guy could get tremendous happiness from being able to use $20 to be able to eat for several days.
Utilitarians realized that they could not precisely measure the utility of other people, but they invariably accepted the idea that there is DMU of wealth. They often suggested that Bill Gates should give $20 to the homeless guy because Bill Gates would hardly lose any utility by losing $20 (and it might even raise his utility because he likes to give away money to needy people) and the homeless guy would gain an enormous amount of utility–he could eat for days with $20! The sum of global utility would thereby increase if Bill Gates lost a $20-bill in the wind and the homeless guy found it. This is why DMU is a politically controversial idea. Some rich people consider DMU to be tantamount to class warfare because it gives a clear justification for progressive taxation and social programs to help the less fortunate. DMU remains so controversial that utilitarians still seem shy about discussing its political implications.
Utilitarians worried about the tradeoffs of redistribution such as whether taking $20 from Bill Gates would reduce his incentive to work and wanted to avoid hurting the less fortunate by lowering productivity. They also worried about how to redistribute money fairly so that it didn’t create corruption and inefficient dependency, but DMU was a powerful reason to think about the rich and the poor (and the middle classes) and how to distribute resources to where they would most efficiently produce utility.
Some of the upper classes opposed the very idea of DMU. Some felt like they deserved more wealth (as in “just desserts theory“). Some elites felt that they needed more wealth because they could appreciate the finer things in life like opera and expensive paintings more than the coarser classes who couldn’t distinguish between foie gras and caviar and would be happier just eating cheap hot dogs. Wealthy folks who opposed DMU utilitarianism supported the political forces that made various philosophical critiques of it.
There are shortcomings with any normative ethical theory and the economists who replaced utilitarianism with mmutilitarianism jumped on the logical positivist intellectual fad of the 1920s. This philosophical movement focused on two shortcomings of utilitarianism. First, they correctly noted that it is impossible to precisely measure someone else’s utility. Psychological experiments have shown that it is hard for individuals to estimate how much utility one’s self will get from something, and it is much harder to estimate how much someone else will get. That is why I’m skeptical that it will ever be practical to replace GDP with a utilitarian measure like Gross National Happiness. More on this later.
Secondly, the logical positivists rejected normative (ethical) concerns as metaphysical and unscientific. They wanted to eliminate ethics from economics and opposed utilitarianism on this philosophical basis. Ironically, 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. ‘Bad’ is inherently a normative judgement.
This illustrates that it is impossible to eliminate ethics from human endeavors. Instead of eliminating ethics from economics, the positivists unwittingly turned economists into disciples of money-metric utilitarianism or mmutilitarianism. This mutation of utilitarianism filled the ethical vacuum. All organizations and communities need some kind of ethical basis to be able to organize around common agreements, and mmutilitarianism filled this niche.
The positivists disliked ethics, and they also disliked subjectivity. For example, at the same time as they were attacking utilitarianism in economics, they were also attacking psychologists for studying thinking and perception because it is inherently subjective which means that it is only observable from a 1st-person perspective. The positivists argued that science requires verification by 3rd parties and that subjective experience is therefore unscientific.
The entire concept of utility is also a psychological phenomena that is unverifiable to 3rd parties and this was their other avenue of attack on utility theory. The fact that each individual’s utility is impossible to measure with any precision has always been a huge practical difficulty with implementing utilitarianism beyond the vague recommendations that directly follow from the concept of DMU like progressive taxation. People who disliked DMU, like the economist Lionel Robbins, were adamant that the measurement problem made utilitarianism useless. Robbins published an influential attack in 1932, saying that because DMU is subjective it cannot be used to “justify the inference that transferences from rich to poor would increase total satisfaction”.
At the time, economists also relied on DMU to explain several positive economic concepts including a foundation of demand theory: DMU explained why demand curves slope downward. Because DMU was fundamental to economic theory, the utilitarian basis for economics resisted all attacks until 1934 when Hicks and Allen, citing Robbins’ inspiration, showed that it is mathematically possible for a demand curve to slope downward even if there were constant marginal utility of money. Constant marginal utility is the idea that every dollar gives the same amount of utility regardless of how wealthy a person is. If we lived in a constant marginal utility world, Bill Gates would chase down a $20-bill blowing along a sidewalk with just as much glee as a homeless guy.
Hicks and Allen said they had political motives for trying to eliminate DMU from economics. They said they hoped it would help them reform “the economic theory of the state, where the shackles of utilitarianism have always galled”. Indeed Hicks soon proceeded to reform the theory of the state. He got economists to abandon DMU utilitarianism, but they still wanted to be able to give policy advice how to improve “the economy.” Without some kind of ethical theory, economists would lose relevance and importance because without an ethical theory it is impossible to give advice about anything.
Hicks, Nicholas Kaldor and others said that they were replacing utilitarianism with what they called the “new welfare economics” and that I call mmutilitarianism. They merely replaced DMU with constant marginal utility and proceeded largely as before except that it facilitated even easier economic prescriptions.
Whereas the utilitarians always recognized that they couldn’t really measure each person’s utility precisely, and that hindered their ability to make detailed welfare prescriptions, the mmutilitarianism of the new welfare economics made it super easy.
If there is constant marginal utility of money, then 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 the people spend every year. This is what gross domestic product (GDP) is and mmutilitarianism is the moral philosophy that gives GDP so much heft. GDP is by far the most common and important measure of economic welfare in the world.
Ironically, mmutilitarianism was also more satisfactory for the positivists because, unlike utility, it overcame their objection about subjectivity. Whereas everyone agrees that utility is subjective, everyone knows that it money can be measured fairly objectively. Remarkably they were able to overlook the obvious normative problems of the “new welfare economics” that focuses on dollars for measuring welfare rather than looking at people.
Mmutilitarianism is an abbreviation for “money-metric utilitarianism.” It is a mutation of utilitarianism, but most people completely reject mmutilitarianism as an ethical system because it is based on falsehoods. Mmutilitarianism measures all utility in dollars and assumes a constant marginal utility of money. A dollar produces exactly the same amount of utility regardless of who gets it, Bill Gates or a homeless guy.
Utilitarians (like most people who think about it for 10 seconds) reject this as so patently ridiculous that they don’t even recognize that mmutilitarianism is otherwise very similar to utilitarianism. The antipathy is mutual because mmutilitarians completely reject utilitarianism too because mmutilitarians reject the use of diminishing marginal utility of money (DMU) for ethical decisions and ignore anything that isn’t measured in money. The main difference between the two groups is whether money has constant marginal utility or diminishing marginal utility, but we cannot call both groups utilitarians despite the obvious doctrinal similarities because they mutually reject each other.
Adherents of mmutilitarianism hate the term partly because they think that they rejected utilitarianism and partly because they think they are just doing positive science and don’t realize that they are making any ethical judgments at all. During the so-called ‘ordinal revolution’ in the first half of the 20th century when economics replaced utilitarianism with mmutilitarianism, the economics profession rejected ethics for being unscientific. Since then most economists have thought that they are focused upon positive science without ethical bias. But ethics is unavoidable, so economists ended up developing an accidental ethical philosophy that is best named mmutilitarianism even though they mostly hate the term.
The first name for mmutilitarianism was the “new welfare economics”, but many economists avoid talking about welfare and most much prefer to use the term “efficiency” which generally means maximizing the monetary value of production or consumption, but this is just another way to say that they want to maximize mmutility. (Note that some economists would object that they claim a different definition of efficiency based on Pareto optimality, but that definition is operationally vacuous.)
When you hear economists talking 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 and that the utility of a dollar is always the same (constant) for everyone.
That is really the principle difference between the two schools of ethics. Utilitarians believe that utility is difficult to accurately measure because of the DMU of money and the importance of nonmonetary values like love, loyalty, friendship, and nature. Mmutilitarians believe that utility is easy to measure because we can simply add up dollars to seek the greatest sum of mmutility.
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.
In mmutilitarianism, 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. This ideology is naturally appealing to rich guys.
Ethical egoism is a philosophical justification for selfishness. In ethical egoism, people should and/or do just try to satisfy their selfish wants without ever sacrificing anything with regard for the wellbeing of others. Ethical egoism has infiltrated economics, business philosophy, and other social sciences in the form of the rational actor paradigm and its rise is another accidental consequence 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.
Mmutilitarianism has even infiltrated public sentiment and changed the popular English lexicon. Nowadays it is commonplace to hear discussions about how much someone is worth, and you expect an answer in dollars! This is a far cry from traditional Western measures of human worth passed down the centuries in the Bible or from Greek virtue ethics.
Mmutilitarianism has also been encroaching on legal judgments. For example, the “law and economics” movement (with its academic journals and professional associations) is simply the goal,
…that law is and should be designed and implemented to promote economic efficiency, rather than more abstract social and political goals of justice and equality.
This movement was mostly funded by a single rich dude (in the guise of The Olin Foundation) who succeeded in systematically revolutionizing America’s courts from the top down to make them more mmutilitarian and this may be motivated by the selfish class interest of donors like John Olin because it has led to legal judgments that help the rich and powerful get richer.
Medianists recognize that economies work best when people work together for mutual benefit, so pure selfishness is counterproductive. Medianism also seeks to improve economic policies by replacing mmutilitarian measures with measures based on medians. For example, the medianist replacement for cost benefit analysis is median benefit analysis, and the medianist replacement for GDP is Median Expected Lifetime Income (MELI).
All economists realize that GDP is a flawed measure of economic wellbeing and numerous economists have tried to replace it with a better measure of wellbeing. All have failed because GDP is simpler and more useful than all past proposals. MELI could finally dethrone GDP if we can develop a primary protocol for measuring it that economists can agree upon. Dethroning GDP could have broad implications for economic policy which will touch everyone’s lives.
Nobody defends mmutilitarianism as an ethical ideal either from religious or secular ethical principles because it is based upon false axioms that systematically lead to ethical errors. But 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.
Mmutilitarianism is very precise in that it gives an exact numerical measurement that different people can agree upon because when different people count dollars they can all agree that they get the same amount. However it is not very accurate as a measure of well being because an increase in monetary wealth doesn’t necessarily cause an increase in well being. For example, the mmutilitarian policies America has been following for the past half century have led to a stagnation of median income while the income of the top 1% has skyrocketed.
The average income has risen steadily almost every year, but that hasn’t translated into an equivalent increase in the well being of most Americans who are being left behind by the rising wealth of American elites.
In sum, mmutilitarianism is money-metric utilitarianism. It is a mutation of dubious morality and it should be augmented by more accurate ethical systems. One cheap, simple improvement that maintains the precision of mmutilitarianism and improves on its accuracy is medianism. Although it is only a modest improvement, when multiplied across multiple policies that affect billions of people over decades, it is well worth the tiny investment it would require.
Note that I added two m’s to the beginning of the word ‘mmutilitarianism’ to make it easier to distinguish between the written words for mmutilitarianism and utilitarianism. When pronouncing the word mmutilitarianism, it is important to emphasize a long mm or else you might be misunderstood. You should almost sound like you are starting to stutter.
 Hicks and Allen also showed that there there could be increasing marginal utility of money too, but that idea is so ridiculous that few people have ever tried to argue that it could be an important part of human psychology except for explaining some minor points like the existence of discrete goods. Note that it requires some fairly strong psychological assumptions to make it possible for a demand curve to slope downward in the presence of constant or increasing marginal utility of money, but most neoclassical economists were so eager to reject utilitarianism that they did not do much to explore the realism of their new theory.
 When cost-benefit analysis began it used willingness and ability to pay as the measure of the good, but then in the 1970s, health economists also began using the statistical value of a life which is a much more egalitarian and defensible methodology for measuring benefits. Oddly, the value-of-a life methodology seems to have generated a lot more popular controversy than the pure mmutilitarian willingness-and-ability-to-pay methodology.