UTILITY AND ALL THAT! Part 1

Arming You to Fight Mainstream Economic Theory by Reconstructing It Into What It’s Properly About

Mainstream economists have adopted the hypothesis that pleasure or satisfaction from consumption is proportional to the benefits of consumption. That sounds reasonable, doesn’t it?

If you said, “No, it doesn’t”, then congratulations. You’ve clearly seen through the veil to what lies hidden beneath it: Namely, how one obtains a benefit, not to mention its size relative to what’s needed or wanted, factors into whether or not one is ‘satisfied’ with the benefit one has.

For instance, the late President George W.H.Bush hated broccoli all his life.

It didn’t matter that his mother saw the vegetable as a good source of nutrients he would benefit from if only he ate it. What mattered to him was that he hated it! To her, the benefits he got mattered more than his being ‘satisfied’.

Now before he left home, he avoided the greater pain his mother might dole out by eating it even though couldn’t stomach it. (Jeremy Bentham would have approved this as the wise utilitarian strategy of avoiding any pain and suffering one could.) After George left home, he never again ate it ... even when dining with his mother. When he casually mentioned this one day, it caused him no end of troubles with broccoli farmers :: You can read up about that. :: yet, troubles or not, he just plainly refused to eat the stuff.

Which is to say "all that benefits does not satisfy". (That seems oddly familiar, doesn’t it?) [See note 1 below]

“Utility” is said to be a benefit or a pleasure or a satisfaction in mainstream economics. Since realizing a benefit and having much,if any, satisfaction from having gotten that benefit are being treated as one and the same thing, ‘utility’ in mainstream theory hinges on the assumption that getting a benefit always brings ‘satisfaction’ which can 'stand in' for the benefit. This confusion between two different things: -- Namely, realized benefits versus realized satisfaction -- makes ‘utility’ not a concept but a percept; and, a wrong one at that.

So, in the Theory of the Consumer, if a consumer gets a benefit, then that consumer has realized some satisfaction with having done so. If so,then the latter can stand in, as it were, as a proxy for the former.

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Then, by employing what I term ‘mathemagics’ :: what mathematicians would call a misuse of mathematics that is just plain wrong, if not ignorant. [I’ll be mentioning a very good article about this misuse in Utility And All That Part 2.] :: then they can dispense with ‘benefits’ completely even while purporting to talk about the ‘well-being’ of the consumer and how that would be ‘maximized’ by a ‘rational consumer’.

Jeremy Bentham first suggested mathematics might be used to measure utility. Yet he would be horrified at how it has become used by economists.

He, a philosopher-lawyer of the 18th and 19th centuries,had many ideas which affected the later development of economics. Among these are two main ones that are outstandingly important for how post-Bentham economic theory developed.

One important idea was that communities were merely agglomerations of individuals. He said that only our imagination that has us think communities are distinct bodies with interests of their own. He argued that community and society don't exist as anything more than as individuals in them. So, if the welfare of communities was neither more nor less than the welfare of its individual members, then the welfare of communities had to be ‘the greatest 'good/happiness' of the greatest number’.

That outcome,he argued, resulted from individual members altogether pursuing their singular interests as individuals. This is an idea which later economists incorporated badly. It accounts for the singular focus on individual consumers found throughout mainstream economics.

Inevitably this means that the economic notion of the welfare of societies is simply the sum total of the welfare of all individuals pursuing their individual interests within it. That’s not a bad idea on its face. If economists actually went about actually measuring well-being objectively, then I’d have only a few problems with this approach

But that would, of course, require actually measuring objective benefits and, among other matters, actually determining if a level of realized 'benefit’ was adequate relative to some objective standard of adequacy.

They don’t do either. They neither measure objective benefits nor have developed any standards for when benefits realized are insufficient.

For instance, if someone manages to get only 200 calories or 8 units of protein daily when, on average, men/women need about 2500/2000 kilocalorie units and about 80 units of protein simply to maintain their health and continued life,then we can hardly say that this person is doing well or has maximized his or her ‘well-being’ any more than we can say that a small business getting $200 per day in sales revenue while needing $2000 daily to remain in business is doing well.

What we should say is that the former, should this deficiency in calories or proteins go on for any significant period of time, is actually starving to death. The business certainly appears to be headed for bankruptcy. When needs go unrealized, welfare ain’t being maximized and businesses fail! {A proper Theory of the Consumer, would see both persons and firms as consumers ... or, as I put it in Economics And All That, see both as producers-who-consume.}

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Instead of measuring the measurable, mainstream economists purport to measure well-being as the amount of subjective pleasures or satisfactions which consumers have with what they buy.

And, how do economists do that? Well, remember when I said they endow consumers with budgets? They do the same with subjective preferences. They give unchanging but made up subjective preferences for ‘goods’ to the consumer just like they give the consumer unchanging budgets. They then ask what’s the rational thing for this a consumer to if these are the consumer’s preferences and if this is the consumer’s budget!

They do this because, after all, they’re not mind readers now, are they? If you read either Austrian School economists or those of the Chicago main school, both make a big point of not knowing what's going on in the mind of the consumer. But, after making that point, they say "Suppose it's this with this budget. Introduce a price change. Now calculate what the rational consumer has to do to maximize his or her well-being."

Did you notice that the pea --well-being-- has vanished in this shell game? It always has.

Now whenever economists tell you a model contains a representative consumer,you should ask whoever is speaking what that consumer’s subjective preference function is and, most importantly, where it comes from. {That’ll shut ‘em up. It should!}

But that’s enough for today. Utility And All That! Part 2 will go more into this fantasyland called maximizing ‘utility’ or maximizing ‘subjective preferences’ without, of course, knowing what these are.

Note 1. That we don’t always manage to obtain or have what we prefer to have is, of course, a reality for most of us most of the time. I will demonstrate that this is especially so when, in monetary economies, the distribution of income and the price system are primary determinants or influences on what one can afford to buy. As noted in Economics And All That earlier, the operations of money price systems are such that changes in prices require budget reformulations. If one hopes to obtain or have the same levels of objective benefit as one had before a price rise for a good, then one must be able to add money into the previous budget one had. Similarly, if one wants only to continue purchasing what one purchased before a price fall, one would take money out of the budget.

When prices of a good rise, if one is unable to add money to the budget,one might forgo buying one of the good the market ‘provides’ but only to those who can afford to buy it. In short, the ability to stay in a market, like the ability to derive benefits in a market is a positive function of incomes.

Note2. It's very important to recognize that Bentham, as a lawyer, operated well within an ethical tradition wherein ethical/moral considerations imposed limits on individuals’ actions. These considerations led to restraints on how one pursued one's singular, individual interests. Later utilitarian economists (still studied intensively today) successfully culled out such considerations out entirely when they took away what they did from his thought. They threw out all normative matters, leaving no ‘shouldas’ when they tried to establish economics as a science. ‘Shouldas’ obviously don’t apply to objects being bounced about by ‘forces’. I’m not presenting here the culturally powerful normative dimension always in the background of Jeremy Bentham's thought. This normative context both shaped and framed his thoughts. It was never absent in the economic thinking of his premier disciple, John Stuart Mill who, though he was philosophically a utilitarian like Bentham, never thought normative issues were beyond economics as he practiced it. J.S. MIll never‘bought into’ the ‘mathemagics’ of post-Bentham ‘utility’ economists. (BTW, Bentham remains well worth reading. Mill,a brilliant economist,is sadly no longer studied for the meaning of his thoughts about the greatest happiness for the greatest number in terms of economic policy.)