Utilitarianism and Economics

Diminishing marginal utility theory and utilitarianism: what do they mean to distribution?


Diminishing marginal utility is one of the fundamental consumer theories in modern economics. It is an intuitive psychology fact. According to this theory, every additional unit of consumption will produce less and less utility (pleasure) in us.


Think of having an ice-cream during the hot summertime. The first bite of the ice-cream will give you so much utility. As you consume more and more, your next bite of ice-cream will not give you the same pleasure as the previous one because you start to get used to its taste. Your thirst has already been quenched; your feeling of novelty quickly dies down. In the end, you might even stop eating the ice-cream and throw it in the bin.

Source: The Telegraph

The graph below is a graphical illustration of diminishing marginal utility. As consumption rises, the slope of your total utility curve decreases. This means that every extra unit of consumption will add less and less to your total utility than the previous one.



Distribution: a billionaire and a homeless guy

Diminishing marginal utility and utilitarianism together have a great implication on social distribution. Remember, utilitarianism is not about the pursuit for your own good. It is not a ‘every man for himself’ theory. When we consider pleasure or pain, we stand from an impartial point of view. My pain and pleasure are not more morally significant than yours.


Now let’s consider the case of the billionaire and the homeless guy. The billionaire has just earned another one thousand by investing his billion into a stock market. This extra thousand will certainly produce some pleasure in the billionaire since human desires are insatiable. However, according to diminishing marginal utility, the extra cash will not produce as much pleasure in the billionaire as in the homeless guy. With one thousand, the homeless guy could buy food to mitigate hunger, book a hotel for one night to have a restful sleep or even start a new business to get back on his feet. In contrast, the billionaire might not even care about the one thousand since he has already had so much. Now we consider these two individuals in a ‘utility ecosystem’. The billionaire can, by giving the one thousand to the homeless guy, increase the total utility in the ecosystem. Since, according to utilitarianism, one is always morally required to bring out the outcome that maximises the greatest amount of happiness, the billionaire is morally obligated to give the one thousand to the homeless guy.


Source: The New York Times

However, our intuition tells us that it is not the case. Undoubtedly, it would be a benevolent act if the billionaire decides to give his money to the homeless guy, but he should not be accused of immorality if he chooses to keep his own money. This reveals the problem of justice. One important content of justice is the protection of property right and the right to use one’s property at his own disposal. The one thousand belongs to the billionaire, and he has the right to not give it to other people even though it can result in greater utility. Therefore, we can conclude that there is something else, other than happiness or pain, that can be the origin of morality. In the case above, it is justice, but there are many other factors such as autonomy. Thus, the utilitarian theory of the good is flawed: pleasure and pain are not the only origins of morality.

Putting into practice

Utilitarianism has many practical manifestations in modern society. For example, the policy of income tax and redistribution of wealth is heavily influenced by utilitarian thought. Tax rates are usually higher for the wealthy and lower for the poor. This is inspired by the theory of diminishing marginal utility.


A recent manifestation of utilitarianism is the policy of dealing with Covid-19. Many governments have to decide between opening the economy which might cause a relatively small number of people to die, and locking down the economy which might cause a large number of people to suffer from financial difficulties. Peter Singer, a contemporary Australian philosopher, argues in favour of opening up the economy in an interview. In the interview, he said:


‘Because at some point we are willing to trade off loss of life against loss of quality of life. No government puts every dollar it spends into saving lives. And we can’t really keep everything locked down until there won’t be any more deaths. So I think that’s something that needs to come into this discussion. How do we assess the overall cost to everybody in terms of loss of quality of life, loss of well-being, as well as the fact that lives are being lost?’

This line of argument looks akin to the aggregative argument we saw before. Peter seems to insinuate that at some point the sum of the pain suffered from loss of quality of life from lockdown will outweigh the sum of pain suffered from loss of lives if the economy is opened. However, as we have argued before, the aggregative view of pain and pleasure meets formidable obstacles. After all, there is no one who is about to suffer a pain equivalent to millions of unemployment if the economy is locked. But there is indeed someone who will suffer from a pain equivalent to death if the economy is open. As emphasised, what matters is not the loss of the individuals but the loss to the individuals.

Concluding remarks

According to classical utilitarianism, the right course of action is the one that maximises the greatest amount of pleasure for the greatest number. This maxim contains two fundamental constituents: the theory of the good and the theory of the right and as we have explored, both theories face obstacles. In terms of the theory of the good, pain and pleasure are not the only origins of morality. Justice, for example, is an important consideration in morality, even though just action will not invariably result in greater utility. In terms of the theory of the right, aggregative views of pain and pleasure are problematic because what matters is not the loss of the individuals but the loss to the individuals.


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