... for conversations about the sometimes confusing vocabulary of economics and how to teach it.
From chapter 5, section 5.
Speaking economics: Utilitarianism
The word utility means "usefulness." To economists, revealingly, it has come to mean all of happiness. It entered the conversation of economics a little before the time of Adam Smith's discussion of markets. Smith good friend David Hume used it, for example. "Utility" became especially prominent in the writings of an English philosopher named Jeremy Bentham (1748-1832). Bentham was an astonishing man. By age five he read Latin and French, played the violin, and read lengthy books on history. He went to college when he was 13, graduating at 15. He invented the design of modern prisons, with their central lookout towers. He proposed the Suez and Panama canals decades before the projects were taken seriously. And he specified in his will that his body be dissected in the presence of his friends and his skeleton be kept in a box in University College, London. To this day the skeleton, fully dressed, is displayed in a glass case in the administration building of the College. They put a wax head on his body.
Trained as a lawyer, Bentham came to detest the usual law of England, built up over centuries case by case. He wanted to replace it with a "rational" system, designed anew, which at age 41 he presented to the world in his Principles of Morals and Legislation (1789). The word "utility" in his thinking meant the utility of all members of the whole society taken together: "An action may be said to [conform] to the principle of utility . . . when the tendency it has to augment the happiness of the community is greater than any it has to diminish it" (Vol. 1, p. iii). On this he erected what he himself called "a new religion" - utilitarianism - which dominated social thinking in Europe for a century and more. Utilitarian philosophers such as Bentham did a lot for the expansion of liberty and justice. For example, the University College-London, which Bentham helped found, was the first university in England to admit students regardless of creed, race, gender, or nationality.
The main dogma of utilitarianism is simple. Maria gets a certain amount of happiness from buying three gallons of gasoline, her total value in use from the purchases. If the buying does not diminish someone else's happiness more than hers is increased, then allowing her to buy the two gallons is a good idea for society. In such a way the society will achieve "the greatest happiness of the greatest number."
For society as a whole, however, utilitarianism has serious, even fatal, logical difficulties. The difficulty is to know how to weigh Maria's utility together with Paul's. In dollars it looks easy. But Maria might value the dollars more than does Paul - she might for instance get more joy from living than he does; or she might be poorer, and therefore value each dollar more. So adding up my utility and thine doesn't make a lot of sense.
Yet willingness to pay is still used by economists to decide social issues by "cost-benefit analysis." A road generating $5,000,000 of value in use should not be built if its opportunity cost is $6,000,000. Though the technique produces useful numbers, it is deeply controversial if used as the only guide. As the conservative economist Henry Simon said in 1938, the utility of two different people added together is "something which no one has ever known, or will ever know, anything about."