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Utilitarianism and the Market Economy

Aristotle famously began the Nicomachean Ethics with a declaration: “Every art and every investigation, and likewise every practical pursuit or undertaking, seems to aim at some good.” He contends that a “final good” must exist in order to surmount the difficulties that would arise from an endless regress of ‘good things.’ Aristotle concludes that “what is the highest of all goods that action can achieve…[is] Happiness.” In many respects, this ethical pronouncement provides the philosophical foundation for the utilitarianism advocated by Jeremy Bentham and, to some degree, John Stuart Mill. If the final end of human action, as Aristotle claimed, is “happiness,” it follows that the institution of a political state – a product of human action – also aims at happiness.

Under utilitarian philosophy, a “good” government is only “good” as long as its policies maximize happiness. The implications of this for fiscal policy are clear: Any evaluation of a government’s interference in the market ought to be assessed by whether such interference maximizes collective happiness. Moreover, utilitarians would contend that the emphasis on a free market for the sake of a free market compels governments to behave in ways directly contrary to happiness (or utility, as Bentham and Mill termed it).

At first glance, utilitarian thought may seem to direct state leaders to institute egalitarian policies and ensure that everyone has roughly the same income; however, this is not the case. Although the law of diminishing marginal utility on income provides a justification for redistribution in a limited capacity, utilitarians tend to recognize that economic liberties and competition are essential to increasing state wealth.

And yet, in their advocacy of economic liberties, utilitarians distinguish themselves from other schools of political thought by contending that market freedom is only good insofar as it promotes maximum public utility. Consequently, a utilitarian government can justly interfere in the market when such action promotes higher utility for all of society by preventing market-borne infringements on economic freedom and negative externalities.

Although it is difficult to define utility, it seems clear that economic growth and increased standards of living are essential goods that work toward the end of increasing collective happiness. As a result, utilitarians find Adam Smith’s classical liberal emphasis on economic freedom compelling because the vision of a free market that he advocated has raised the floor for the average quality of life.

Utilitarians might also cite the “Great Fact:” the simple yet momentous truth that standards of living have dramatically increased across all demographics of people since the emergence of capitalism. For instance, economists like Angus Maddison and Brad DeLong have claimed that GDP per capita hardly rose for tens of thousands of years before the birth of capitalism. Deirdre McCloskey offers a similar assertion in Bourgeois Dignity, contending that “real income per head nowadays exceeds that around 1700 or 1800 in, say, Britain and in other countries that have experienced modern economic growth by such a large factor as sixteen, at least.”

The effects of the “Great Fact” on well-being can also be seen quite clearly. In 1800, apart from a small number of elites and lords, life expectancy for half the population barely came close to 30. It is this “Great Fact” that has led to the common sentiment among utilitarians that capitalism has provided a better alternative to all other proposed planned economic models.

But to truly understand the utilitarian perspective on the just relationship between government and the economy, it is essential to distinguish between positive freedom and negative freedom in our discussions of the free market. Although negative freedom might provide a person with the legal right to pursue any type of lawful behavior, positive freedom tacitly assumes that the individual has the ability to freely behave in the ways that they are allowed. In utilitarian philosophy, infringements on negative freedom are justified in the name of maximum positive freedom.

To illustrate this point, we might consider Jeremy Waldron’s argument in Homeless and the Issue of Freedom in which he contends that the life of a homeless person can be entirely intolerable simply because they lack the freedom to proceed through life with the privileges that other people have. Waldron explains how homeless people in an entirely negatively free economy are still confronted with serious limitations on their positive freedom. We are consequently compelled to think about “the doors we lock, the ordinances we enforce, and the night sticks we raise.” The homeless experience is not the result of some repressive regime; it is the consequence of a negatively free market, but not a positively free one; certain members of the population simply do not have the same ability to participate in the market that others do.

Those who justify complete negative freedom do so under the presupposition that negative freedom is good for its own sake. However, if states are just when they work to ensure the highest aggregate amount of utility, then any additional amount of negative freedom that infringes upon another person’s positive freedom, and thus adversely impacts collective utility, is unjust. Advocates of a completely negatively free market fail to understand that such a system would limit the ability of society’s less privileged members to live a positively free and economically autonomous life. For this reason, utilitarian thought is committed to rejecting a paradigm of absolute, unregulated capitalism.

Beyond this, advocacy of an entirely negatively free market is often the subject of criticism because it does not address the negative externalities and market failure that can result from an economy driven solely by private incentives. For instance, the completely negatively free economy might be criticized for producing pollution with little immediate accountability, income inequality, and unequal access to education. These negative costs on the public are the result of an economy dedicated to producing individual profits and preserving economic freedom, without concern for societal utility.

Inequalities in educational access serve as a particularly powerful example of this point. Utilitarians would point toward educational disparities to emphasize the importance of government intervention in the free market. It is well understood that naturally occurring gaps in access to quality education can stunt economic growth. Today, the US is among the highest spenders in education per student in the world; yet, there are vast discrepancies in where this money actually ends up – there is immense educational investment inequality. If the US were to alleviate this issue by improving educational standards across the board, leveling the playing field, and thus making the system more meritocratic, it might find itself alongside the highest achieving OECD countries. By investing in education and directly helping determine where market-directed educational resources go, the US would earn, by some estimates, approximately $260 trillion over the lifetimes of people born in 2010.

This is not, of course, to say that inequalities should not exist in any capacity. As John Rawls effectively demonstrated with his “Difference Principle,” income inequality in some capacity is necessary to societal prosperity; however, states ought to ensure that an equality of opportunity is preserved. Doing so requires government intervention in the market and redistribution of resources to ensure that all people are provided with some basic opportunity to succeed on merit. What could be a more profound manifestation of free market thought and capitalism than a society that emphasizes positive freedom and meritocracy?

Moreover, utilitarian thought also asks us to recognize that economic structures are inextricably linked with political culture and the health of governance. An emphasis on negative economic freedom and individual liberties for their own sake ignores the unquestionable importance of maintaining a robust democratic culture with an engaged citizenry. One can see such criticisms early in the work of Alexis de Tocqueville. In Democracy in America, Tocqueville cast a portrait of the nascent US as a place where people worked endlessly in Puritanical fashion to achieve financial success before their death.

Although this culture probably stimulated high levels of economic growth and increased worker productivity, Tocqueville believed that Americans were generally unhappy and perilously disengaged from the political process. In Tocqueville’s account, Americans were far more interested in private economic welfare than the function of government and the maintenance of a strong democracy. Tocqueville presciently argued that the presence of this culture posed clear threats to the sanctity of the budding American project.

Utilitarians might respond to these concerns by contending that governments should provide incentives that encourage political and communal participation; that is, market interference of some sort that directs people toward their responsibilities as citizens. Today, as the rise of populism, the proliferation of “fake news,” and tenacious political apathy threatens to undermine American democracy, Tocqueville’s commentary is worth remembering.

The tangible negative externalities and market failure that result from a completely negatively free economy make government intervention essential to the promotion of positive freedom and societal utility. Put simply, the government has a moral imperative under utilitarian thought to provide a basic standard of educational access to all citizens, to limit negative externalities, and to ensure the market produces outcomes that promote a healthy democratic culture.

It seems clear that capitalism has increased human prosperity and standards of living. But it is an imperfect mechanism. In the absence of the guiding hand of governmental policy, working toward the end of determining the socially optimal utilitarian outcome, a state would cease to function effectively, inevitably consuming itself as it descends into socially sub-optimal market-borne outcomes.


About the Author

Julian Jacobs '19 is a Senior Staff Writer and Interviews Associate at BPR concentrating in Philosophy, Politics, and Economics (PPE). He is a former Opinion's Columnist for The Brown Daily Herald and the Founding Editor-in-Chief of the Brown University Journal of Philosophy, Politics, and Economics (JPPE).