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Published online by Cambridge University Press: 05 December 2008
Many philosophers and some economists value economic equality on the ground that transfers from the relatively rich to the relatively poor increase the utility of the poor more than they reduce the utility of the rich. These philosophers and economists are assuming the ethical principle that a pattern of economic distribution is justified by maximizing aggregate utility. They are also assuming the truth of an empirical generalization proposed in the eighteenth century by Daniel Bernoulli–that successive equal increments of income produce ever-diminishing increments in an individual's level of utility. In the first part of this essay I will argue against Bernoulli's hypothesis, and suggest an alternative view of the relation between income and utility.
1. Some philosophers who have maintained this are the following. Bentham, Jeremy, “Propositions of Pathology upon Which the Advantage of Equality is Founded,” in “Principles of the Civil Code,” Works (London, 1843), vol. 1, p. 304.Google ScholarSidgwick, Henry, The Principles of Political Economy (London, 1887), pp. 519–20.Google ScholarSinger, Peter, “The Right to Be Rich or Poor,” New York Review of Books (03 15, 1975), p. 25.Google ScholarSmart, J.J.C., “Distributive Justice and Utilitarianism,” in Arthur, John and Shaw, William H., eds., Justice and Economic Distribution (Englewood Cliffs, 1978), pp. 104–5.Google ScholarHare, R.M., “Justice and Equality,” in Arthur, and Shaw, , pp. 124–5.Google ScholarBrandt, Richard B., A Theory of the Right and the Good (Oxford, 1979), ch. 16.Google Scholar Some economists who have maintained it are these. Edgeworth, F.Y., Mathematical Psychics (London, 1881), pp. 56–82.Google ScholarLerner, Abba P., The Economics of Control (New York, 1944), ch. 3.Google ScholarBaumol, William J. and Blinder, Alan S., Economics-Principles and Policy (New York, 1979), pp. 565–66.Google ScholarOlson, Mancur, “A Less Ideological Way of Deciding How Much Should Be Given to the Poor,” in Daedalus, 112, 4 (Fall, 1983), pp. 217–36.Google Scholar K.J. Arrow gives a qualified endorsement to the argument in discussing the grounds for equality in public expenditure: “The utilitarian approach [to equality] is not currently fashionable, partly for the very good reason that interpersonally comparable utilities are hard to define; nevertheless, no simple substitute has yet appeared …” “The Utilitarian Approach to the Concept of Equality in Public Expenditure,” in Phelps, E.S., ed., Economic Justice (Penguin Books, 1973), pp. 439–46.Google Scholar
2. In Specimen theoriae novae de mensura sortis. Translated into German as Versuch einerneuen Theorie der Wertbestimmung von Glucksfallen (Leipzig, 1896). For an accessible account, see Stigler, George J., “The Development of Utility Theory, Part II,” in The Journal of Political Economy, 57, 5 (10, 1950), pp. 373–96.CrossRefGoogle Scholar
3. Sidgwick, , for example, in The Methods of Ethics, 7th ed. (London, 1907), pp. 416–17.Google Scholar
4. Lerner, op. cit., pp. 28–32. Bertrand de Jouvenal agrees with Lerner that we cannot know the relative heights of different individuals' marginal utility schedules. But for de Jouvenal this is not because of some metaphysical barrier obstructing us from knowledge of others' minds. It is due to the impropriety, in a democratic society, of providing evidence that one has a high marginal utility schedule. The Ethics of Redistribution (Cambridge, 1952), p. 33.
5. See, e.g., Sen, Amartya, Collective Choice and Social Welfare (San Francisco, 1970), p. 99Google Scholar; Brandt, op. cit., pp. 257–65; and Hare, R.M., Moral Thinking (Oxford, 1981), pp. 117–29.CrossRefGoogle Scholar
6. For example, Brandt, Richard B., Ethical Theory (Englewood Cliffs, 1959), pp. 416–17Google Scholar, and op. cit., pp. 312–13. Also, Baumol, op. cit., p. 352. Also Griffin, James, “Equality: On Sen's Weak Equity Axiom,” in Mind, 90, 358 (04, 1981), pp. 280–86.CrossRefGoogle Scholar
7. The quote is from Olson, op. cit., p. 232, summarizing Bailey, Martin J., Olson, Mancur, and Wonnacott, Paul, “The Marginal Utility of Income Does Not Increase: Borrowing, Lending, and Friedman-Savage Gambles,” American Economic Revieiv, 70, 3 (06 1980), pp. 372–79.Google Scholar
8. Brillat-Savarin, Jean-Anthelme, La Physiologie du Goût (1825), translated by Drayton, Anne as The Philosopher in the Kitchen (Penguin Books, 1970), p. 162.Google Scholar
9. Ibid., pp. 59–60.
10. Cf. Scitovsky, Tibor's discussion of appetizers in The Joyless Economy (Oxford, 1976), p. 63.Google Scholar However, Scitovsky's idea that appetizers actually whet the appetite seems inconsistent with the fact that hungry people prefer them to nothing.
11. See Marks, Lawrence E., Sensory Processes: The New Psychophysics (New York, 1974).Google Scholar
12. Fechner, Gustav, Elements of Psychophysics (1860), trans. Adler, Helmut (New York, 1966), p. 197.Google Scholar
13. The Journal of Political Economy, 56 (1948): 279–304.
14. Thus Bob Dylan: “When you ain't got nothin', you ain't got nothin' to lose.” Cf. also Banfield, Edward C.'s characterization of “lower-class life” as distinguished by “risk-taking,” in The Unheavenly City (Boston, 1968), p. 54.Google Scholar Unfortunately, the difficulties of trying to go beyond such arm-chair impressions about the relation between income and attitude towards risk are considerable. The problems which afflict the use of statistics about the purchase of commercial insurance are illustrative. Some studies do suggest that a family's income helps to predict whether it will buy enough life insurance to protect that income in the breadwinner's absence, the tendency being for upper socio-economic families to aim for the maintenance of the family income, while middle status families aim only to soften the economic blow, and lower status families aim only to cover funeral expenses and outstanding debts. [See Dinitz, Simon, Insurance Consumption Patterns in Four Areas (Research Department, Nationwide Insurance Companies, 1955), pp. 17–18.Google Scholar For a study supporting the correlation between income and the purchase of life insurance but minimizing its extent, see The Opportunity to Buy in 1973 (Life Insurance Marketing and Research Association, Hartford, 1975–1976), p. 31.] From this data it might be tempting to infer that families without enough income to make them somewhat happy are in general not insurers (in our technical sense of agents willing to buy actuarially fair protection against financial loss), while richer families are. But so much must be assumed for this inference to go through that little weight should be put upon it. For one thing, it would have to be assumed that the higher and lower income categories in the insurance studies correspond to the categories of having and lacking sufficient income to make one happy. For another, it would have to be assumed that the failure of the lower income families to buy commercial insurance is not simply a result of the amount of “loading” which is present in all commercial insurance schemes. That is, perhaps those families are “insurers” in our technical sense after all, but “insurers” who are unwilling to pay unfair premiums, or at least, unwilling to pay premiums as unfair as those offered by profit-making insurance companies. Similar sorts of problems afflict the use of statistics relating income and the purchase of lottery tickets to prove that people unhappy for lack of income tend to be “gamblers” (in our technical sense), while richer people tend not to be.
15. Two other factors may also help to explain why marginal utility has been so widely held to diminish at low income levels, and not just at high ones. The first factor is an ambiguity in the way the marginal utility problem was originally posed. Early investigators of the utility function spoke in terms of the marginal utility of “wealth” (Sidgwick) or “fortune physique” (Laplace), terms which hover uncertainly between a broad sense of monetary holdings and a narrow sense of riches. Perhaps these investigators were misled by the ambiguity into generalizing their correct conclusion about the marginal utility of wealth in the narrow sense-that it is diminishing-to cover wealth in the broader sense of monetary holdings as well; and perhaps the confused result somehow survived when the problem was reformulated later on in terms of income rather than wealth.
Second, political economists may have conflated positive happiness with the alleviation of unhappiness. If these were the same, then the fact that equal increments of positive happiness require ever-larger increments of consumption to yield them would mean that equal decrements of unhappiness require the same thing, i.e. that marginal utility does diminish at low incomes. The difference between positive happiness and the alleviation of unhappiness has indeed been specifically denied, by some ancient philosophers and by Locke, for example. But I suspect that modern partisans of diminishing marginal utility have not so much denied the difference as overlooked it, distracted maybe by the fact that “utility” is defined as covering both. (For a persuasive case that positive happiness is quite distinct from relief, see the opening sections of Edmund Burke's Enquiry into the Origin of our Ideas on the Sublime and Beautiful [1756].)
16. Lerner, op. cit., pp. 26–29. Brandt, , A Theory of the Good and the Right, pp. 312–13.Google ScholarBlum, W.J. and Kalven, H. Jr, The Uneasy Case for Progressive Taxation (Chicago, 1953), pp. 56–57.Google Scholar
17. Lerner, evidently the most influential recent exponent of the argument, gives this thesis an undeserved air of self-evidence by misleadingly describing it as the assumption that “consumers spend their income in a way that maximizes the satisfaction they can derive from the goods obtained” (p. 26). The reader is likely to read this as saying merely that consumers buy a utility-maximizing stock of goods at every income level, and to accept it as uncontroversial, so understood. But for Lerner's argument to be valid, the quoted words must mean that consumers buy a uniquely most satisfying set of commodities at every income level, and that, I argue here, is not true. Lerner's reference to the thesis as “the assumption of rationality of choice” (p. 27, note) misleads in just the same way: taken in the natural sense, as meaning that people do not choose the less utile over the more, it seems common-sensical; but to support Lerner's conclusion, it must mean that people always choose a uniquely maximizing stock of goods, which, again, is disputable.
18. Bailey, Olson, and Wonnacott, op. cit.
19. Olson, op. cit., p. 232.
20. Scitovsky, op. cit., pp. 66–7. Cf. also Hesiod's prudential advice to the farmers of ancient Greece: “Take your fill when the cask … is nearly spent … being sparing when you come to the bottom is foolish.” Works and Days, lines 368–9.
21. Note that the lumpiness of income, supposing it exists, cannot account for all boombust consumption among the poor. Surely people who prefer a $20 day plus a $0 day to two $10 days do not do so because $10 is a uselessly small amount, as witness their preference for $10 over $0, and for $30 over $20, etc.
22. Discussed in Blaug, Mark, Economic Theory in Retrospect (Cambridge, 1978), p. 352.Google Scholar
23. Tversky, Amos and Kahneman, Daniel, “The Framing of Decisions and the Psychology of Choice,” Science, 211 (30 01, 1981), pp. 453–58.CrossRefGoogle Scholar
24. Olson, op. cit.
25. Stigler, George J., “The Development of Utility Theory, Part I,” in The Journal of Political Economy, 57, 4 (08, 1950), pp. 307–27.CrossRefGoogle Scholar See p. 307.
26. Olson speculates that John Rawls's veiled contractors may choose maximin rather than an expected utility calculus because of Rawls's own subconscious awareness of the then-prevailing Friedman-Savage hypothesis, and his distaste for the distributive inequalities which would have been entailed. (Op. cit., pp. 230–31.) Given that Rawls makes an explicit and quite different case against utilitarianism in A Theory of Justice, and given that he does not so much as mention the Friedman and Savage article in his book, Olson's speculation does not seem to have much plausibility.
27. Social Contract (1762), II, 11. Quoted in Palmer, R.R., “Equality,” in Weiner, Philip P., ed., Dictionary of the History of Ideas (New York, 1983), pp. 138–48.Google Scholar See p. 144.
28. Ibid.
29. The essence of this hypothesis dates back at least to Sidgwick's Methods of Ethics. There we read that “in distributing our praise of human qualities, on utilitarian principles, we have to consider primarily not the usefulness of the quality but the usefulness of the praise: and it is obviously not expedient to encourage by praise qualities which are likely to be found in excess rather than in defect. Hence (e.g.) however necessary self-love or resentment may be to society, it is quite in harmony with Utilitarianism that they should not be recognized as virtues by Common Sense, in so far as it is reasonably thought that they will always be operating with at least sufficient intensity” (p. 428). See also Slote, Michael, “Morality and Self-Other Asymmetry,” Journal of Philosophy 81, 4 (04, 1984), pp. 179–92.CrossRefGoogle Scholar
30. Hobhouse, L.T., The Elements of Social Justice (New York, 1922), p. 134.Google Scholar
31. J.S. Mill's quotation of Christ's injunction to love thy neighbor as thyself, in Chapter 2 of Utilitarianism, is misleading in its implication that Christianity wholly concurs with the utilitarian endorsement of impartiality. Jesus does accept the principle of loving thy neighbor as thyself (Luke 10.27), but it is brought into the discussion quite specifically as an Old Testament idea. (It is from Leviticus 19.18.) Moreover the idea seems to be treated in the context as a minimum for admission into heaven, and not as an ideal. The distinctively Christian teaching of selflessness is better represented by such exhortations as “Bless them that curse you” (Luke 6.28.) and “Give to every man that asketh of thee; and of him that taketh away thy goods, ask them not again.” (Luke 6.30.)
32. Numerous colleagues in the Williams College Economics Department helped to make the economics in this paper less amateurish than it would otherwise have been: Lee Alston, Roger Bolton, Henry Bruton, David Fairris, Michael McPherson, Richard Sabot, Morton Schapiro, Padmanabhan Srinagesh, Dana Stevens, and Gordon Winston. Richard Krouse, William Lenhart, the editors of this journal, and an anonymous referee also made a number of improving suggestions.