Marginalist Microeconomics is a Highly Normative Ethical Doctrine

February 4th, 2017
in history, macroeconomics

by Philip Pilkington

Fixing the Economists Article of the Week

In a recent post Lord Keynes raises the question of the so-called ‘law’ of diminishing marginal utility. The ‘law’ states that we will derive ever diminishing satisfaction from the acquisition of a good or service. Lord Keynes notes that this is true for some goods — like washing machines — but may not true of others. He gives a number of examples — such as addictive arcade games and drugs — that seem to defy the ‘law’.

Follow up:

I think that it is interesting to note that all the examples he gives might be considered in some way to be ‘pathologies’. I don’t mean that they would be taken to be pathologies by marginalist economic theory — although they undoubtedly would — but rather that they would generally be taken to be pathologies in the most widest of senses; they would be manifestations of psychological, sociological and, ultimately, moral pathologies.

Actually, I would argue that it is the latter which is at the root of all this: such activities are properly seen, in any social discipline, as simply moral pathologies — this despite the fact that this term may be left out and replaced with other codewords (‘socially destructive’, ‘psychologically destructive’ and so on). At base, however, is a moral judgement: such activities are bad for either the individual, society or both. That is a moral judgement.

Viewed in this light the so-called ‘law’ of diminishing marginal utility is actually somewhat of a moral imperative. It does not so much tell us what we do but rather what we, at some level, should do. We can highlight this clearly by returning to the washing machine example.

Imagine for a moment that someone suffering from what we would consider to be a psychological disorder — perhaps some combination of OCD and hoarding — was obsessed with collecting broken washing machines. Imagine that they took them regularly from the dump and brought them home and filled their house and gardens with these objects. Although I am making up the washing machine example, this is a very real phenomenon and was dealt with in this psychological training film.

Now people suffering from this disorder clearly do not adhere to the ‘law’ of diminishing marginal utility. But what makes this a disorder? I would argue that the term ‘disorder’ here is moral in tone. I would argue that it is based on what we consider normal or good as a society. In short, I would say that when we apply the term we are in effect saying:

“You are not engaged in activity that constitutes the Good Life”.

I do not want to diminish the fact that people suffering from such disorders are made unhappy by them. But what I am saying is that if these activities were looked upon as culturally normal and everyone did them then they would not be considered disorders and would not cause people pain. The determinants of what does and does not constitute normal behavior is ultimately a rather arbitrary function of what is considered normal by a given society. What may be pathological in one society may be the path to the Good Life in another.

Perhaps the best recent example of this is the case of homosexuality in the 20th century. Although Freud and the early psychoanalysts had rather progressive views on homosexuality, later psychology pathologised it in the same manner it had been pathologised in the 19th century. The first two editions of the Diagnostic and Statistics Manual (DSM), which is used by working psychologists and psychiatrists as a guide to diagnosis, listed homosexuality as a sexual deviation. In these years most of those working in the mental health professions would have seen it as their duty to ‘cure’ homosexuals by helping them lead ‘normal’ lives.

Homosexuality was removed from the DSM in the early 1970s. Why? Because psychologists and psychiatrists had found new evidence indicating that it was not a sexual deviation? No. The fact is that culture was changing and the DSM was trying to get in line with changing social norms. Nowadays if a homosexual walked into a mental health clinic you can be sure that the attendant psychologist would be far more concerned that they might be repressing their sexuality rather than practicing it!

The point is that what was once considered to be a deviant behavior is now seen by many as being, for people with such urges, the path to the Good Life. Nothing has changed about the behavior at all. Nor has anything changed about the evidence (or lack thereof) that homosexuality is either ‘normal’ or ‘pathological’. Rather society has changed and has integrated homosexual behavior largely into the mainstream.

Now that we understand how normativity broadly works in the so-called social sciences let us turn to a notion that goes right back to the ancients and that relates to marginalist microeconomics is a most immediate way.

In Western societies — and indeed, I would think in most — the idea of temperance is an important one. We can find this in writings of the early Greek philosophers. In their writings on ethics these philosophers tried to teach regimes of behavior that would lead to ‘eudaimonia’ which translates as (economists take note) ‘welfare’. A key component of reaching a state of eudaimonia was moderation or temperance. Another key component was in using Reason to moderate and organise one’s existence — the similarity to the rational agents of modern economics is no coincidence, as these are part of similar intellectual projects.

(For an extensive discussion of ancient regimes of normative ethics I encourage the reader to pick up Volume II and Volume III of Michel Foucault’s excellent The History of Sexuality which, despite the titles, go far beyond simply dealing with sexuality).

This was an extremely extensive intellectual and ethical tradition that encompassed most of Western philosophical thought in the following millenia. But there was another tradition that existed all the way back to ancient times.

In the 19th century Friedrich Nietzsche distinguished the two. The first tradition — that which championed Reason, eudaimonia and so forth and which ran from Plato through Aristotle to Bentham and Hegel — Nietzsche termed the ‘Appollonian’ tradition, after Appollo, the Greek god of Reason. The second tradition — which represented excess and intoxication and ran from the Greek tragedies like Antigone through the German Romantics to Freud — Nietzsche termed the ‘Dionysian’ tradition, after Dionysus, the Greek god of wine.

Nietzsche argued that this excessive element in culture — which would be termed the ‘passions’ in philosophies like those of Spinoza and Hume or ‘drives’ in Freud — was not only always present in culture but was required for culture to move forward and thrive. It was this excessive element that gave Western culture its dynamism; its tendency to break boundaries; and to champion the newly discovered.

Without getting too deeply into this, however, I think that the reader can now appreciate that what is contained in the ‘law’ of diminishing marginal utility is deeply tied up with certain notions of ethics, morality and what is the ‘right’ and ‘wrong’ way to live one’s life. My point here would be threefold:

  1. When discussing human behavior and social organisation the moment we begin to speak of ‘normal’ behavior we are implicitly designating other behaviors as ‘pathological’. This is ultimately a moral judgement.
  2. The notion of ‘normal’ behavior relies on its obverse. If there were not ‘pathological’ behavior the idea of ‘normal’ behavior would be semantically meaningless. Thus, the idea of ‘normal’ behavior cannot exist without the existence of ‘pathological’ behavior. This means that any ‘laws’ that seek to establish norms for behavior actually undermine themselves as their norms rely, by definition, on cases that do not fit into these norms.
  3. Human activity always contains both Appollonian and Dionysian aspects. Innovation and entrepreneurship, for example, are Dionysian behaviors that involve taking incalculable risks buttressed by ‘animal spirits’** while the calculations of profit and loss utilised in carrying them out are Appollonian. In trying to suppress the Dionysian aspects of human existence — which I would argue is the function of marginalist microeconomics — we only succeed in remaining ignorant of a key component of human culture and psychology.

Beyond that, I think that people should be very well aware of the fact that microeconomics is an ethical doctrine — as are many aspects of the so-called social sciences — and it should be judged accordingly. By positing it as a ‘science’ we are only engaged in ethical dogmatism — that is, we are giving its ethical proclamations a dimension of Absolute Truth which they simply do not possess. That is why so many are fooled by its form. Marginalist microeconomists convince themselves that they are engaged in ‘science’ when really all they are doing is applying a dogmatic ethical framework to the material they study. They are, rather humorously, priests who do not know that they are priests.


** The clever reader will note here that Keynes’ theory of financial markets and investment are eminently Dionysian. Indeed, I think that a Dionysian tone resonates in all of Keynes’ work — and I think that his writings on probability should properly be seen as an attempt to insert Dionysian considerations into the all too Appollonian discipline of mathematical philosophy. Whereas economics before Keynes was based on the hokey Appollonian doctrine that the virtue of rational saving was what led to economic growth, Keynes turned this on its head and showed that such saving could be socially destructive and that economic growth was dependent on the Dionysian actions of investors taking action in the face of an unknown future.

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