Happiness is not the Same as Utility: Maximizing One’s Utility is not the Best Model

In several other essays, I have severely criticized the founding of what is erroneously called the Nobel Economics Prize, since Alfred Nobel never founded a prize for economics in his will before he died in 1896. I consider the founding of this prize to be one of the greatest mistakes of the twentieth century, along with the many other errors of that tumultuous century, such as fascism, communism,[1] and psychoanalysis. The existence of this prize has had a number of harmful consequences: it has increased the prestige and influence of both economics and those economists who have been awarded this prize, some of whom, like Milton Friedman and Friedrich Hayek, have used its added prestige and attention to advance their particular opinions, policies, and mistaken beliefs; it has encouraged many more students to study economics than would otherwise have studied it; it has abetted the permeation of economic theories into the intellectual environment and general populace, so much so that economic theories are now being used, erroneously and indiscriminately, to explain non-economic behaviours; and it has made many people, including economists themselves, much less critical of their theories. Hence, a wholly unintended effect of the existence of the Nobel Economics Prize is that it has made it much more difficult for economists to recognize and correct the numerous errors that plague their field of study, despite the fact that in recent years, many writers, both economists and non-economists, have tried to draw people’s attention to the fact that something is seriously rotten in the intellectual kingdom of economics.[2]

The problem with economics is that, unlike true sciences like physics, chemistry, and biology and medicine, a great many of its theories and laws, including even basic laws like the spurious Law of Diminishing Marginal Utility, are wrong. Hence, the pseudo-Nobel Economics Prize has had the unintended effect of helping to disseminate these false theories and beliefs around the world, along with the many harmful consequences that are due to the mistaken belief in their truth and global applicability. Since the probable aim of the very foolish founders of this prize was to encourage economists to use their understanding of economic matters in order to better the human world, this is a highly ironic – not to mention tragic – result. For it does not matter how well-intentioned the practitioners of a field of study are; if their conceptions of reality do not correspond to reality, they can do, as economists have done, a great deal of harm by their faulty understanding of how the world actually functions.

The stubbornness with which many economists and others who have imbibed their false theories nevertheless continue to maintain them in the face of a mountain of contradictory evidence can only be explained, at least in part, by the existence of the pseudo-Nobel Economics Prize. Imagine what would have happened in psychology if there existed a Nobel Psychology Prize, and blundering but highly persuasive theorists like Sigmund Fraud and B. F. Skinner had been awarded it. Most people now realize that psychoanalysis and behaviourism are wrong – or, in the case of behaviourism, much more limited in its application than its practitioners believed. But such a salutary corrective development would have been more difficult, and hence, less likely, if the founders or promulgators of these two false theories of human behaviour had been awarded a prize as prestigious as a Nobel Prize. Excluding the prizes for peace and literature, in many cases, the Nobel Prizes confer the status of scientific infallibility on their recipients, while transforming them in the view of many people into infallible, truth-speaking oracles.

The Swedish National Bank Prize in Economic Sciences[3] in Memory of Alfred Nobel was founded in 1968 and was first awarded in 1969. Friedrich Hayek was awarded the prize in 1974, and Milton Friedman in 1976. These two theorists significantly influenced the free-market government policies of, respectively, Margaret Thatcher in the United Kingdom, whose Conservative Party won the election of 1979 and remained in power until 1997, although Thatcher herself resigned in 1990, and Ronald Reagan in the United States, who won the presidential election in 1980 and was president for eight years. Ever since then, in large part because of their examples, more and more of the human world has been engulfed in an orgy of selfish materialistic acquisition as the highest – or only worthwhile – goal of human endeavour.

One of the most basic economic beliefs, which is taught to all students in introductory economics courses, is that human beings are rational maximizers of something that economists call “utility.” Because economists like to apply fancy mathematics in their analyses, believing that the use of these complex mathematical methods, which are not understood by the great majority of non-economists,[4] makes their quest for economic truth more sure of success, they have therefore quantified their invented concept of “utility” in monetary terms. Hence, the basic economic belief that all human beings want to maximize their utility has led to the belief that they want to maximize how much money they earn or acquire, along with all the many different things that can be purchased with the money they have.

But this belief, which economists have mistakenly raised to the level of an innate human principle, is nothing more than a particular model of behaviour. All the many different behaviours which economists study, and which they naively believe are innate human behaviours or tendencies, such as borrowing and lending, buying and saving, investing and speculating, competing and innovating, and so forth, are in fact acquired or learned behaviours. And they are acquired in the same way as all of our other behaviours, habits, traditions, customs, and preferences – by observing other people who perform them. In the past, and even today, the great majority of people most certainly did not want to earn as much money as possible, or, before money was invented, to possess as many things as possible. In those much simpler economic times, people were content to possess what others in their family, community, tribe, or clan had – no more and no less. If there are many people today who are insatiably avaricious, wanting to acquire more and more, and never satisfied with what they have, it is simply because they have observed and admired individuals who behaved in the same way. There are many young people in many countries around the world who passionately desire to become professional football[5] players; but most people, I think, realize that wanting to be a football star is an acquired, and not an innate, desire, since the sport of football was only invented very recently in our species’ history. The same is true of this so-called fundamental economic desire, which, like the great majority of human desires, is an acquired desire.

Since the economists’ belief that the desire to maximize our utility is innate in our nature is wrong, we no longer need to enslave ourselves to the narrow behavioural constraints which this belief entails. In other words, heeding the frequently erroneous proclamations of economists, in particular free-market economists, leads to a very particular and peculiar kind of society: a highly materialistic, stressful, competitive rather than cooperative, selfish rather than caring or considerate of others, wasteful, polluting, and energy-profligate society, where people believe that maximizing their consumption of things will make them happier. We have heeded economists because, following the collapse of communism, many people believed there was no alternative, and therefore they had no choice because there exists no other way to improve societies and people’s lives; in other words, that there is no other way to live than the way that economists tell us to live if we want to continue to progress and make our lives better.

But the Theory of Imitation tells a different story: the desire to do something arises from regularly observing others doing it. Those who observe a certain model of behaviour will feel pleasure or satisfaction if they are able to imitate it; but those who have not observed the model will have no desire to imitate it, and they will feel no pleasure if they were to imitate it. Hence, by determining which models one observes, one will gain a measure of control over one’s desires, rather than allowing corporations, as well as marketing and advertising agencies, to determine them. Of course, a person may feel embarrassed not to do or own something if it is done or owned by the majority of people one knows, in which case one will feel the strong impulse to conform to their behaviour, even if it is something one doesn’t really want to do or own.

Is it possible, then, to create a better kind of society than the one that economists have created according to their mistaken theories of human behaviour? I believe it is. But it is important to emphasize that it most certainly is not the unrealistic utopian fantasy painted by communists and socialists, where a rigid, all-powerful state or government dictates the way that all people shall live, what kind of work they do, how much they earn and possess, whether they can leave the country or not, and so on. Since the problems that afflict many modern societies are due to the dominant models of behaviour that exist there, these problems can only be resolved by changing these models or replacing them with others. And this is something that can only be done gradually, rather than by revolutionaries’ – and in particular, the communists’ – extremely foolish prescription of demolishing or doing away with existing models of behaviour, along with the people who practise them, in order to make way for the radically new and, in their opinion, better models of behaviour that shall be imposed on all people, without any consideration for what they want or think.

Human societies are not like other human creations, such as buildings, roads, planes, and ships, which can be begun from a blank slate and designed however the designer wants to design them, provided they are designed in accordance with correct engineering or mechanics principles. For human societies more closely resemble living organisms, which cannot be treated in the same manner as our many non-living human creations, such as by destroying the old in order to make way for the new. That these two kinds of human creations are very different from each other is shown by the fact that the great majority of ideal societies, communes, and other utopian social ventures have failed, or they have been abandoned after a period of time. The widespread failure to understand this important difference has unfortunately led the adherents of numerous utopian ideologies to try to impose their vision on others, to the grave detriment of both themselves and their many victims.

As we have seen, the important economic concept of utility was derived from the moral philosophy of Utilitarianism. This is by no means the only philosophical feature of economics, which erroneously prides itself on being the most scientific of all the humanities. In the beginning, psychology concerned itself primarily with emotions and other conscious states, which it was believed could be observed solely through the process of introspection. But introspection is, of course, an unreliable source of information, especially when one wants to erect a measurable or quantifiable and objectively valid scientific edifice upon these observations.

In the context of utility, economists did three mistaken and misleading things: first, they replaced the concept of happiness with the concept of utility, because utility is a more broad concept than happiness; second, they asserted that utility can be measured; and third, they equated utility with money, since money can be used to procure a wide variety of things, both material and non-material.[6] These include essential things like food, shelter, clothes, clean water, and drugs and medical treatment when one is sick or injured, without which, most people would agree, it is not possible to be happy. The result of these three economic obfuscations and confusions is the present widespread belief that a person’s level of happiness, satisfaction, or contentment is equivalent to, or directly dependent on, how much money one has.

Money can’t buy happiness, goes the old saying – but it can buy utility, which, according to economists, is even better than happiness. However, some of the most important things in life, such as friendship or a parent’s love, cannot be acquired with money. One can pay another person to be one’s doctor, lawyer, agent, trainer, teacher, servant, secretary, or bodyguard, but one cannot pay another person to be one’s parent or friend, for even if the other person were to act as if one were one’s parent or friend, by doing and saying the things that a parent or friend does, the important element of parental love, or friendly regard, concern, intimacy, shared interests and attitudes, and the willingness to help one when one needs help, is absent in such a purely monetary relationship. Another example that illustrates this important difference is the fact that, while a man can pay a prostitute for sex, he cannot buy a woman’s love.[7]

There are few people who would agree that the happiest person in the world is the person who has the most money. And yet, this does not stop many people from envying this person, or envying rich people in general. This envy has become much more prevalent today due to the fact that many people are able to see the possessions and luxurious lifestyles of the wealthy, something that didn’t happen in the past. This misleading trend has also been encouraged by economists because of their constant emphasis on monetary figures like a country’s GDP or its per-capita GDP, along with the extremely simplistic assumption that a higher per-capita GDP, or average national income, must necessarily mean that the inhabitants are happier than those who live in materially poorer countries. But as many studies have shown, there is no such direct or intimate link between how much money and material possessions a person has and how happy one is.[8] In fact, many people who make a lot of money lead highly stressful lives which are dominated by work and its incessant demands and concerns.

Let us return to the fact that early psychologists relied on introspection as a legitimate method of acquiring information about the world, specifically about our mental or emotional states. If one examines an introductory economics textbook, one will see that economists have continued to use this unreliable method in formulating their theories and concepts, such as in their development of the Law of Diminishing Marginal Utility. Economists also make frequent use of thought experiments, which are commonly employed by philosophers to explain or illustrate things like ethical issues and other philosophical niceties. Thought experiments can be useful, since even physicists have used them on occasion. For example, Albert Einstein performed a number of thought experiments while developing his Theory of Relativity. But physicists always make sure to test the conclusions that are derived from these thought experiments or the theories that are based on them, an important step that economists conspicuously neglect to perform. In addition, many of the thought experiments conducted by economists involve unrealistic assumptions like perfect competition, perfect labour mobility, or perfect knowledge on the part of all the participants. Because economists neglect to verify that the conclusions derived from their thought experiments do in fact accord with reality, they are merely engaging in the futile intellectual activity of creating logically-consistent and mathematically-complex theories that have little or nothing to do with the way that humans actually behave in the real world. For many economists, mere seeming is sufficient, it seems, to ensure the truth. In other words, according to economists, if an economic law, concept, or theory seems true in thought, then it must also be true in fact or reality. In making this unwarranted, highly unscientific, intellectually sloppy, non-rigorous, and dangerous assumption, they have forgotten just how easily our thoughts and beliefs can lead us fallible human beings astray.

A good example of what I am talking about is their development of the concept of marginal utility, which is the basis of the demand curve, which in turn is a cornerstone of modern economics. The development of marginal utility, along with the many concepts that are based on it, such as opportunity cost, consumer surplus, indifference curves, and the marginal rate of substitution, is nothing more than a series of plausible suppositions that are derived, in a logical sequence, from this original concept. Such a methodology may satisfy the less-than-rigorous requirements of philosophy, but it most certainly does not satisfy the more rigorous requirements of science. A series of plausible but untested suppositions is hardly a sound basis on which to found a science, and certainly not one that has had as significant and frequently harmful real-world consequences as economics.

Happiness is not invented. It is a state that results from the successful imitation of the models of behaviour one has grown up observing, and not, as the economists believe, the result of maximizing an invented quantity called utility. On the other hand, both utility and money are invented concepts or models of behaviour that have been in existence only for a few centuries or millennia, at least in the case of the metal, paper, or numerical figure in a bank account of which money presently consists. Hence, it was a very serious mistake when economists confounded the age-old state of happiness with two concepts that are of very recent origin, and when the rest of us, gullible fools that we are, believed them.

It is clear what we must do if we are to free ourselves from this false belief, as well as the accompanying unhealthy obsession with money, and with making as much of it as possible: we must reject the economists’ substitution of utility for happiness, for the former is an invented concept that does not help us to understand human behaviour, as well as the motivations that make us do the things we do, while it has misled many people into believing that money – and thus, making or acquiring as much of it as possible – is the most important thing in the world.

[1] Although communism was formally stated as an economic doctrine in the nineteenth century, it only became dominant in a practical sense during the twentieth century.

[2] In The Structure of Scientific Revolutions, Thomas Kuhn described how, before a new paradigm, or generally-accepted scientific theory, displaces an older paradigm, there is an increase in the number of anomalies, or things that the current theory is unable to explain. This is the present situation in economics, since many people have become aware that it is unable to explain a great many aspects of our behaviour, and there are numerous discrepancies between reality and the predictions that are made by economists. However, as Kuhn pointed out, the final displacement does not occur until the new theory is presented and, in its turn, becomes widely accepted, a process that obviously takes time. This explains why, despite the existence of these numerous anomalies, there are still many people who continue to believe wholeheartedly in the old theory – as is true of economics at the present time – because there exists no superior alternative. A historical example is that, although some physicists were aware of the existence of anomalies, the belief in Newtonian mechanics was probably greatest and most widespread in the period shortly before Einstein’s paper on the Special Theory of Relativity was published in 1905.

[3] The inclusion of the word “science” in the original name for what is now simply called the “Nobel Economics Prize” was probably meant to encourage people to believe that economics is just as precise, rigorous, and reliable as the three sciences that already had a Nobel Prize – physics, chemistry, and biology or medicine. But this widespread belief is wrong, for as I have argued throughout the second part of this book, economics most certainly is not a science, since economists do not follow the scientific method, and they adhere to a philosophical, rather to a scientific, standard of truth.

[4] In the Middle Ages, there existed intellectuals called Scholastics who wrote learned treatises on a variety of topics based more or less rigorously on Aristotle’s rules of logic. These treatises were largely unintelligible to most people at the time, since most people back then were not able to read. In our day, economists write economic treatises and papers which are likewise unintelligible to most people because they employ fancy mathematics that the average person cannot understand. Just as Scholastics were proud of their achievements and believed they knew things that ordinary people could not understand, economists are likewise proud of their achievements and believe they know things that ordinary people cannot understand because of their complexity. However, neither the strict adherence to the rules of logic nor the employment of complex mathematical methods or models is a guarantee of anything, and is certainly not a sure, or even the best, way of discovering the truth, while avoiding the many pitfalls of error that exist in all fields of study. In addition, there is one important fact that many economists do not know, and that is that much of what they believe to be true is wrong.

[5] By this word, I mean the game that is played with the feet, and not the American version of this sport, which is primarily played with the hands, and therefore should be called handball, passball, runball, or throwball, but not football. In a typical game of American football, the ball is in contact with the feet for, in total, less than thirty seconds, or less than 1% of the time. At all other times, it is a violation of the rules for a player to kick or touch the ball with one’s feet.

[6] Like other reductions or generalizations, this explanation oversimplifies things. Nevertheless, I believe there is some truth in these simplified statements.

[7] Of course, in making this statement, I am not denying that spending money on things like gifts, jewellery, flowers, vacations, restaurant meals, and other things is usually important in the successful wooing of a woman who lives in a capitalist society.

[8] See, for example, The Loss of Happiness in Market Democracies by Robert E. Lane, which argues that, above a level of material prosperity that enables one to meet one’s basic physical needs for food, clothing, shelter, and medical services, there is little or no correlation between the amount of money one has or earns and how happy one is, provided it is not significantly lower than the amounts that are possessed or earned by one’s peers.