Classical
Economic Analysis After Adam Smith
The Setting:
During the 40 years that followed the publication of The Wealth of Nations, no consistent attempt was made to elaborate or to modify the teachings of Adam Smith.
H
The
challenge to elaborate on this new economic doctrine originated in the desire of
some social philosophers to adjust economics, now conceived of as an independent
science, to
the principles of refined utilitarian teachings.
The basic person here is Jeremy Bentham (1748-1832)
Bentham was born in London, into a wealthy family. He was a child prodigy and was found as a toddler sitting at his father's desk reading a multi-volume history of England. He began his study of Latin at the age of three. He trained as a lawyer.
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Create all the happiness you are able
to create; remove all the misery you are able to remove. Every day
will allow you, --will invite you to add something to the pleasure
of others, --or to diminish something of their pains. And for every
grain of enjoyment you sow in the bosom of another, you shall find a
harvest in your own bosom, --while every sorrow which you pluck out
from the thoughts and feelings of a fellow creature shall be
replaced by beautiful flowers of peace and joy in the sanctuary of
your soul.
Advise to a young girl, June 22, 1830
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The Auto-Icon has always had a wax head, as Bentham's head was badly damaged in the preservation process. The real head was displayed in the same case for many years, but became the target of repeated student pranks including being stolen on more than one occasion. It is now locked away securely.
According
to Bentham utilitarian teachings started from certain psychological
propositions believed to be forever valid.
The
essence of these teachings was the maximization of happiness – as the goal
of any public policy.
The
idea of utility
– or even utility maximization – (utility=self-interest) can be interpreted
in two different ways.
1)
Natural
identity of interests – (Adam Smith and David Hume)
The
individual self-interests of human nature harmonize of their own accord
in a free economy – thus he prescribed laissez-faire…we didn’t have
to worry about directing the self-interests of individuals – because the
social interest would follow naturally.
2)
Artificial
identity of interests – (Bentham)
Crime,
for example, is a case in point….self-interested behavior
Government:
Therefore—the interest of each individual must coincide with the general
interest
– and it was the business of government to bring about this coincidence of
interest.
This
came to be known as utilitarianism.
Bentham
basically made little distinction between morals and legislation. He wanted to make the theory of morals and legislation scientific
as in the Newtonian sense.
Newton’s
discoveries in physics were based upon the universal principle of attraction
(gravity) – Bentham’s theory of morals swung on the Principle of Utility.
Newton
influenced the social sciences a great deal – especially with regard to
measuring things!
Welfare
Economics:
Thus – if pleasure and pain could be measured – then every
legislative act could be judged on welfare considerations.
Here
is where we really have the beginning of welfare economics – judging
legislation based on the costs/benefits to different groups in society!!
But
in order to do this Bentham needed a standard of efficiency – so to speak –
or what it would mean for something to be in the “general interest” or in
the “interest of society.”
Bentham: the general interest is measured by the sum of the
individual interests in the community.
This
was considered both:
1.
democratic – everyone counted and
2.
egalitarian – everyone counted equally.
This
led Bentham to his: felicific
(happiness) calculus summing up of collective pleasures and pains.
1780
– Introduction to the Principles of Morals and Legislation –
he describes the circumstances by which the values of pleasure and pain were to
be measured.
For
the community, they consist of the following seven factors:
(1)
Intensity
of pleasure or pain
(2)
Its
duration
(3)
Its
certainty or uncertainty
(4)
Its
propinquity (closeness) or remoteness
(5)
Its
fecundity (fruitfulness) – or the chance it has of being followed by
sensations of the same kind
(6)
Its
purity – or the chance it has of not being followed by sensations of the opposite
kind
(7)
Its
extent, i.e. the number of people who are affected by it.
Then
Bentham spelled out how to calculate the welfare of society.
“To
take an exact account, then, of the general tendency of any act, by which the
interests of the community are affected, proceed as follows:”
Begin
with any one person of those whose interests seem most immediately to be
affected by it: and take an
account,
1.
Of the value of each distinguishable pleasure which appears to be
produced by it in the first instance.
2.
Of the value of each pain which appears to be produced by it in the first
instance.
3.
Of the value of each pleasure which appears to be produced by it after
the first. This constitutes the
fecundity of the first pleasure and impurity of the first pain.
4.
Of the value of each pain which appears to be produced by it after the
first. This constitutes the
fecundity of the first pain and the impurity of the first pleasure.
5.
Sum up all the values of all the pleasures on the one side, and those of
all the pains on the other. The
balance, if it be on the side of pleasure, will give the good tendency of the
act upon the whole, with respect to the interests of that individual person; if
on the side of pain, the bad tendency of it upon the whole.
6.
Take an account of the number of persons whose interests appear to be
concerned; and repeat the above process with respect to each.
Sum up the numbers expressive of degrees of good tendency . . . in regard
to . . . the whole: do this again with respect to each individual, in regard to
whom the tendency of it is bad upon the whole.
Take the balance; which, if on the side of pleasure, will give the
general good tendency of the act . . . if on the side of pain, the general evil
tendency with respect to the same community (Principles of Morals and
Legislation, pp 30-31).
Bentham
anticipated criticism of the impracticability of his welfare theory.
He knew there were problems, but he wanted legislators and administrators
always to keep the theory in view, “for as close as the actual process of
evaluation comes to it, the nearer it will be to an exact measure.”
Problems or criticisms (they are not mutually exclusive):
(1)
Interpersonal
utility comparisons.
Bentham recognized this but said that such comparisons must be made for social
reform.
(2)
Weighing
of qualitative measures.
Therefore, like many other economists, even of today, he resorted to money
as the best available measure of utility….which is poor.
(3)
The
fallacy of composition….logical
fallacy to assume that the collective interest is the sum of the interests of
individuals. What does “the
collective interest” mean? Does
it have meaning at all? Car safety devices example – supposedly general
interest to have cars with safety devices.
Yet individuals do not find it in their interest to have them (perceived
costs greater than perceived benefits). Therefore,
the general interest is not a sum of individual interests.
(4) This theory basically assumes that the ends justify the means (as long as "social utility" is increased, the means are "good" for society). Not all would agree that that is a moral argument.
On
philosophical grounds Bentham’s view of human nature is essentially
passive – people simply act out of search for pleasure to avoid pain….why
Bentham hated natural rights doctrine.
There
are no “bad” motives or “moral” deficiencies – only “bad”
calculations. But education is the key – so utilitarians
always push education.
We’ll
see that James Mill and J.S. Mill were very much influenced by Bentham and
Utilitarianism.
Another
important area of study arose after Smith – that of population.