Libertarian political institutions would maximize utility.
Suppose there’s been a shipwreck and you’re on the rescue mission. Your boat has only enough fuel to save the people on one of two life rafts. The first raft has four survivors; the second has three. Which do you save?
You should, it seems, rescue the first raft. Why? Because rescuing the first saves more people. It does the most good. This idea—that you should do as much good as you can—powers the moral theory known as utilitarianism.
What Utilitarianism Is
Put simply, utilitarianism says that the right thing to do is the thing that produces the best results. 1 An action, rule, or institution is morally right just in case no available alternative does more good.
More specifically, utilitarianism tells us to maximize utility. I’ll focus on the version that identifies utility with happiness, understood as the satisfaction of our preferences. 2 On this sort of view, we should not equate happiness with something specific, such as physical pleasure or wealth. Rather, happiness is—by definition—whatever you want to get out of life. In this respect, utilitarianism defers to our own opinions about what sorts of things are valuable rather than dictating to us what we should care about. Give people what they want.
Utilitarianism doesn’t tell us simply to promote our own happiness, however. Morality requires impartiality—that we regard equal amounts of happiness equally. So we’re obligated to maximize social happiness rather than our own individual happiness. If you see a child with a broken leg by the side of the road, you should stop and drive her to the hospital even if it makes you late for your party. The happiness that the child’s healthy leg brings her is far greater than the happiness that your party brings you, so it would be morally wrong to neglect the child for the sake of the party.
Lastly, utilitarianism tells us not simply to promote social happiness, but to maximize it. If you are faced with two choices and one produces more good than the other, you should take the one that produces more good. On a personal level, if you need money and if you can have a $5 bill or a $10 bill, it’s hard to see why you would take the $5 bill. On a societal level, if you have a choice between doubling people’s happiness and tripling people’s happiness, a utilitarian would insist that you would not be justified in choosing less happiness.
To make the idea of maximizing social happiness more concrete, think of it like this: when you face a range of options, look at how much happiness each one is going to produce for those affected, and how much suffering each one is going to produce for those affected, and then pick the one that has the greatest net happiness. Utilitarianism is about the bottom line. For any action, add up the benefits, subtract the costs, and then look at the bottom line of the calculation: Does it maximize the benefits once you’ve subtracted the costs? In summary, utilitarianism tells us that we should select those actions, rules, and institutions that produce as much happiness as possible for those affected.
So why think that utilitarianism is correct? For one, it seems plausible at the abstract level. The idea that happiness is the ultimate point of morality is compelling, as is the thought that we aren’t justified in doing less good than we can. At a concrete level, utilitarianism makes sense of much of commonsense morality. It provides a reasonable account of which actions are right and wrong and why they are right or wrong. For instance, actions like lying, theft, and assault are generally wrong because they generally decrease social happiness. Lying is wrong because, if we can’t trust one another, then we can’t have promises or contracts. This result would be bad for our relationships and for business. Victims of assault endure serious suffering. Regarding virtuous actions, generosity is good because it relieves poverty and suffering—it makes people happier. And so on. Morality is important because it helps us prosper, not because it is good in itself.
Now, according to utilitarianism, moral rules will not be absolute. We can justifiably break them in certain conditions—namely, when breaking them does the most good. But this conclusion seems right, too. To use a famous example, if you’re hiding an innocent person in your home to protect him from a murderer, you would be right to lie when the murderer asks whether you’re hiding the person. 3
Lastly, utilitarianism gives us a perspective from which we can criticize and jettison the indefensible parts of commonsense morality. It helps us make moral progress. Moral rules that don’t relieve suffering or promote happiness don’t merit our allegiance, no matter how rooted in tradition or convention.
To be clear upfront, this chapter is a preview of utilitarianism, not the whole feature. So here’s a confession: things aren’t always sunny for utilitarianism. Consider that utilitarianism has no problem asking us to take unpalatable means to the end of maximizing social happiness. Here’s a famous case:
TRANSPLANT: Five patients are dying because they lack suitable organ donors. A delivery person enters the hospital. The chief of surgery knows he is a match for all five dying patients. If the surgeon kidnaps him and harvests his organs, she will save five and kill one. (Assume word of the killing never gets out.) 4
Killing the delivery person maximizes social happiness but, intuitively, is the wrong thing to do. Transplant is just one illustration of a broader worry about utilitarianism: any action, no matter how reprehensible, can be morally justified so long as the results are good enough.
Undoubtedly, this is a problem for utilitarians. But it’s less of a problem for the kind of utilitarianism I’ll be talking about here. An act utilitarian—someone who thinks that the morally right action is the one that produces more social happiness than any available alternative action—might need to accept the rightness of killing one to save five. But I’m going to focus on institutional questions. So I’ll be discussing what has been called institutional utilitarianism—the view that our social, economic, and political institutions should maximize social happiness. 5 The relevant question from the perspective of institutions is whether we should have a law permitting the surgeon to kill one to save five. And the answer to that question seems to be no. The reason is straightforward. A society that legalized organ harvesting would have a hard time running functional hospitals, as patients and delivery personnel could never be sure of getting out alive. Thus, all those in need of medical treatment would not receive it. The benefits made possible by the hospital would be lost. 6
Now, we might worry that utilitarianism would have no objection to violating rights as long as it was done secretly. We could imagine a hospital administrator who has the policy of authorizing organ expropriation only in cases where she is sure it will go undetected. In this way, she could save lives on net and maintain the hospital’s reputation as a safe place. This worry generalizes: Why wouldn’t a utilitarian endorse a government that secretly violates rights for the greater good?
The answer, in brief, is that such secret powers would create huge opportunities for abuse—with no oversight to keep abuses in check. In a related discussion of whether utilitarianism would recommend that the government commit acts of injustice so long as they were hidden from the public view, utilitarian philosopher and psychologist Joshua Greene writes: “For such policies to fulfill their utilitarian aims, government officials would have to maintain, indefinitely, an enormous conspiracy of Orwellian proportions while forgoing daily opportunities to abuse their power. This cannot be expected to lead to a happier world.” 7
A happiness‐maximizing society, then, will recognize a person’s rights, such as the right to her body. This means that others must not expropriate her organs even if they can put the organs to a better use in a particular case. The justification for this restriction is simple, although it comes with a hint of paradox: institutions will produce the best results if they stop people from relentlessly pursuing what they take to be the best results.
To illustrate further, imagine a law that says, “Generally speaking, don’t burglarize your neighbor’s house—but you have some wiggle room to make an exception when you think you need your neighbor’s stuff more than she does. Use your best judgment.” That’s a bad law on utilitarian grounds, despite its nod to good consequences. There’s a lot of value in living in a world in which we can count on being safe in our home, make long‐term plans about how to use our possessions, and so on. As David Schmidtz writes, “There is enormous utility in being able to treat certain parameters as settled, as not even permitting case by case utilitarian reasoning.” 8 If we thought that other people were ready to steal from us, assault us, or kill us whenever they thought it was just beneficial enough, the consequences would be disastrous. People would be too scared to go to school, work, or the hospital. This result would make everyone unhappy. A utilitarian will say that institutions should protect our lives and property because property rights create an environment in which we can flourish.
On a utilitarian account, then, rights aren’t morally important in themselves—only as a means to producing good results. Rights are justified because they are useful. Now, plenty of philosophers think that rights are important in themselves. That’s a plausible position, but I believe the view that rights are a means has merit too. To say that rights aren’t valuable in themselves doesn’t devalue them. After all, oxygen isn’t valuable in itself, but it’s still pretty valuable.
So much for the broad strokes of utilitarianism. Which specific institutions and rights will it endorse?
In what follows, I argue that it will tend to favor libertarian institutions. By “libertarianism,” I mean, roughly, the family of views united by certain institutional commitments, such as the legal recognition of civil liberties, robust private property rights, freedom of exchange, and freedom of contract; the central place of markets in the production and distribution of goods; and the minimization of forcible interference in people’s private choices. More specifically, libertarians tend to support something along the lines of a “minimal state” that supplies only a military, police, and courts. There are some intramural disputes among libertarians about the particulars of the state’s role (perhaps it should do more than the minimal state; perhaps it should do less), but I’ll concern myself mainly with the minimal state for the sake of discussion.
Here’s the one sentence argument for utilitarian libertarianism: compared with other institutions, markets do the best job of promoting social happiness without depending on people trying to promote social happiness. Markets solve two major problems for utilitarianism. First, most people don’t desire to maximize social happiness as opposed to their own happiness and the happiness of a relatively small circle of family and friends. Second, even if people desire to maximize social happiness, they generally don’t know how. As individuals, we know very little about the distribution of the world’s resources and particular people’s desires for those resources. Consequently, we lack the information we need to produce an optimal match between resources and people. But markets provide both the incentives and the information that people need to advance the happiness of strangers. Markets generally make our moral and cognitive limitations work for us rather than against us. They channel self‐interest toward the public interest.
Private Property Rights
Let’s start with private property. Private property rights are one of the characteristic features of a free‐market system. We claim private ownership of such things as houses, gardens, land, cars, paper, and computers. Others are thus obligated not to hop our fence and trespass on our lawn, or break into our car, or use our computer without our permission. To privately own something means that you possess the right to exclude others from using it. 9
To begin to see why the right to exclude is socially useful, let’s think about the alternative—a world in which no one has the right to exclude anyone else from the use of his or her property. At first blush, that world might seem ideal. All resources are held in common and everything is shared. Thus, everyone has an equal right to drink from the stream or to swim in the lake. They can all sit under whichever tree they like whenever they like and enjoy its shade and fruit. They can hunt the deer and rabbits that run across the communal land to their heart’s content.
But problems arise. Suppose Stan is thinking of starting a garden so that he can grow some tomatoes and make ketchup for his family to enjoy. However, as things stand, he has little incentive to endure the labor involved in growing tomatoes, because he has no assurance that he will reap what he sows. Because there is no private property, he has no right to exclude anyone from his garden. If Stan can’t exclude others, he might ask why he should expend the time and resources needed to grow tomatoes when Morty can simply take as many as he likes without offering Stan anything in return. So Stan decides that cultivating the land isn’t worth the trouble. Consequently, Stan’s desire to feed his family some homemade ketchup doesn’t suffice to motivate him to plant the tomatoes, because the tomatoes are unlikely to end up on his family’s table.
Stan’s problem generalizes: no one has much of an incentive to invest his time and effort into producing food, shelter, clothing, and so on because he has no assurance that he will enjoy the benefits of those productive efforts. This is an example of what is known as the tragedy of the commons: people will tend not to use resources efficiently when they are held in common, leading to suboptimal results. 10 When resources are held in common, there is little incentive to use them efficiently because efficiency doesn’t pay.
A standard solution to the tragedy of the commons is to introduce private property rights. By granting Stan the right to exclude others from plucking his tomatoes, we give him an incentive to produce those tomatoes in the first place. Property rights encourage people to be productive because they enable people to capture the benefits of their productive efforts. Classical liberal philosopher John Locke writes:
[H]e who appropriates land to himself by his labour, does not lessen, but increase the common stock of mankind: for the provisions serving to the support of human life, produced by one acre of inclosed and cultivated land, are (to speak much within compass) ten times more than those which are yielded by an acre of land of an equal richness lying waste in common. And therefore he that incloses land, and has a greater plenty of the conveniencies of life from ten acres, than he could have from an hundred left to nature, may truly be said to give ninety acres to mankind: for his labour now supplies him with provisions out of ten acres, which were but the product of an hundred lying in common. I have here rated the improved land very low, in making its product but as ten to one, when it is much nearer an hundred to one. 11
To be clear: private property is useful even for well‐meaning people. Stan isn’t mean or selfish—he just wants to feed his family. Still, without private property, he has little incentive to realize that aim by improving the productivity of the land and thereby increasing the total amount of goods available—as opposed to, say, consuming existing resources via hunting and gathering. He won’t waste his time growing a fresh bounty of tomatoes; he’ll scavenge for berries instead. However, this is a recipe for stagnating at the status quo rather than working toward greater prosperity for all.
Suppose Stan is now secure in his possessions thanks to his new‐found property rights, and so he goes about growing tomatoes and making homemade ketchup. Morty likes ketchup, but because Stan has the right to restrict access to his property, Morty cannot simply take it from Stan’s table. If he wants some ketchup, he has to make it worth Stan’s while. Morty plants some mustard seeds, makes mustard, and trades some to Stan for a bottle of ketchup. Both Stan and Morty are happier than before. It’s win‐win.
In a market economy characterized by voluntary exchange, if I want something you have, I have to give you something you want, and vice versa. Thus, I have a strong incentive to serve your interests. As the philosopher and economist Adam Smith says:
Man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self‐love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. 12
When I walk into a store and buy a Mountain Dew for 99 cents, I do it because I want the Mountain Dew more than the 99 cents. The shopkeeper does it because she wants the 99 cents more than the Mountain Dew. The exchange leaves us both happier than we were before—otherwise, we wouldn’t agree to the deal.
Here’s one of Smith’s vital insights: when I give the shopkeeper my 99 cents, I do it because I expect the Mountain Dew to make me happier, not because the 99 cents will make the shopkeeper happier. Still, my action has the good consequence of making the shopkeeper happier. So one crucial feature of markets is that they lead people to promote the happiness of others even when they intend only to promote their own happiness. As Smith puts it, in a market, “By pursuing his own interest, [a person] frequently promotes that of society more effectually than when he really intends to promote it.” 13
Suppose that I’ve done such a powerful job of elucidating utilitarianism that you’re already convinced it’s the correct moral theory. Motivation isn’t a problem; you don’t need any financial incentives, and so perhaps it’s unclear what, if anything, the market can do for you. You’re ready to go out and maximize the world’s happiness. OK—how? More specifically, what’s the happiness‐maximizing distribution of the world’s resources?
The short answer is that I don’t know. No one knows. That said, we can be confident that markets will tend to place goods in the hands of those who derive the most satisfaction or happiness from them. Imagine that a scientist in Arizona is frantically buying up coffee beans. Coffee bean extract is a key ingredient in the new arthritis drug she is developing, a drug she expects to sell to thousands of people. In short, she really wants coffee beans. In buying up lots of coffee, the scientist brings about an increase in its price.
In contrast to the scientist, an ultramarathoner in North Dakota has a slight preference for coffee over tea as his morning beverage. When he sees that his morning cup of joe has gotten more expensive, he switches to tea. He isn’t cutting back on coffee to help society; he’s doing it to fatten his wallet. Nevertheless, in cutting back, he does help society. His switching from coffee to tea means that the coffee is going to a more highly valued use—it’s better for society for the coffee beans to go into the arthritis drug than the ultramarathoner’s travel mug. Critically, the ultramarathoner has no idea what the researcher is doing or what she needs (or even that she exists). Still, he frees up the coffee for a more highly valued use simply by responding to the increase in its price. Economist F. A. Hayek argues that market prices supply us with information about the scarcity or abundance of goods, information that in turn motivates us to use those goods in efficient ways. 14
Now, a minute ago I had you assume that you didn’t need any financial incentive to promote the happiness of strangers. That assumption is probably optimistic. Not to worry, though: as the coffee example suggests, prices provide not only socially useful information but also socially useful incentives. The ultramarathoner is led to conserve coffee not out of concern for the public interest but out of self-interest—he just wants to spend less on his daily caffeine fix.
The same point applies to labor. If a lot of people want to watch animated sitcoms and demand for such shows increases, then the wages paid to those who make these shows will increase. Here again, the high wage supplies both useful information and useful incentives. Critics of capitalism might lament that Family Guy rakes in hundreds of millions, whereas Fellini, well, doesn’t. But a utilitarian couldn’t find fault with this (full disclosure: I prefer Family Guy). Family Guy does a better job than Fellini of giving people want they want. The wealth of Seth MacFarlane, the creator of Family Guy, represents a feature of the market, not a bug. The high wages of in‐demand jobs create a powerful incentive to do work that makes people happy. (And in a free market, no one will stop you from going to the independent movie house to watch Fellini if you really want to.)
Intentions or Outcomes?
Is the market’s ability to mobilize self‐interest for the common good really a virtue? According to one objection, the market motivates you to do the right thing—helping others—but for the wrong reason. Even if you give your customers what they want, you might be doing it only because you want to make money for yourself. Sometimes, critics of capitalism argue that we should oppose markets on moral grounds because they work by recruiting our baser motives, such as self‐interest. 15
It’s worth clarifying that evidence suggests that markets do not draw upon or cultivate the worst of human psychology. 16 But let’s grant the objection for argument’s sake. It still won’t faze the utilitarian.
For a utilitarian, results are what matter. The famous utilitarian John Stuart Mill writes, “He who saves a fellow creature from drowning does what is morally right, whether his motive be duty, or the hope of being paid for his trouble.” 17 There’s no shame in paying lifeguards to save lives. Think about it from the perspective of the drowning man saved by the lifeguard: he doesn’t care what motivates the lifeguard as long as he gets saved. Similarly, the shopkeeper doesn’t care why I’m giving her 99 cents; she just cares about the 99 cents.
A utilitarian would tell us not to wring our hands over the nobility of the lifesaver’s motives—the important thing is saving the life. Imagine a kind‐hearted surgeon with uncorrected astigmatism who regularly kills her (pro bono) patients. We’d want her to stop. Conversely, imagine a narcissistic virtuoso surgeon who operates only to gain fame and fortune. We’d want her to continue. The question that matters most is this: Which surgeon do we want? The one that produces the best results. Which institutional arrangement do we want? The one that produces the best results.
So a utilitarian would object to the idea that efficiency arguments for free markets are not enough—that we also need moral arguments that are somehow distinct from the economic ones I’ve been giving so far. 18 According to utilitarianism, the economic arguments are the moral arguments. Free markets are moral because they are beneficial. Think of it like this: no one would say that it is true, but morally insufficient, to argue that hospitals make us better off. The fact that hospitals bring us more health, enjoyment, and life seems like all the justification they need. Similarly, the fact that a political or economic institution brings us more health, enjoyment, and life seems like a good moral justification for it, just as the fact that an institution causes poverty and suffering is a good reason to think it’s bad.
What about Market Failure?
The utilitarian case for markets is simple: they’re efficient. But open any introductory economics textbook, and you’ll read about plenty of ways in which markets are inefficient—that is, cases of “market failure.” So shouldn’t market failure curb a utilitarian’s enthusiasm for the market?
To start to answer this question, let’s consider a specific case of market failure: public goods. Public goods are nonexcludable, meaning that you cannot be excluded from enjoying them even if you didn’t contribute to them. Public goods are also nonrivalous, meaning that my enjoyment of the good doesn’t subtract from yours.
Here’s an example. A storm threatens to flood the river, an event that would destroy your town. If the townspeople join together to build a levee with sandbags, the town will be spared. However, your individual contribution won’t make or break the effort. The levee is a public good. If it prevents the flood, my house will be saved whether or not I helped stack the sandbags. And the levee will protect the entire town, so protecting my house doesn’t detract from the protection afforded to other houses.
It’s typically assumed that people won’t voluntarily contribute to public goods like the levee. Your individual contribution won’t make or break the existence of the levee, and if the levee does somehow get provided, you enjoy its protection whether or not you helped. You get the benefit without paying the costs. So the self‐interested choice is to watch TV while your neighbors get sore backs from lugging sandbags around. The problem is, your neighbors have the exact same incentive to stay home—if enough others contribute to the levee, they’ll enjoy the benefits whether or not they contributed themselves. Consequently, no one has an incentive to contribute to the levee. As a result of this free‐rider problem, the town will flood even though the flood is bad for everyone. The public interest and individuals’ self‐interest break apart.
Here’s the moral of the market‐failure story: markets aren’t as efficient as they could be. Sometimes, they leave welfare gains on the table. But that doesn’t spell doom for the utilitarian case for markets.
To see why, consider that a utilitarian doesn’t regard the right institutional arrangement as the best imaginable arrangement but rather the best available arrangement. Think back to the shipwreck case. You could rescue either the raft with four passengers or the one with three passengers. Obviously, you’d produce more happiness by saving all seven passengers—but that option wasn’t available. You had only enough fuel to save one raft. In a perfect world, we could save all seven (or rather, no one would need saving in the first place). But we don’t live in a perfect world. We can choose only the least imperfect alternative from a menu of nothing but imperfect alternatives. So simply showing that markets are imperfect does not show that they are the wrong institutional structure. To draw that conclusion, we’d need an available alternative that does better—an alternative that realizes the welfare gains that markets do not.
By way of analogy, let me tell you about my theory of “LeBron James failure.” That theory alleges that the Cleveland Cavaliers should cut LeBron James because he misses roughly 50 percent of his shots. Because James fails roughly 50 percent of the time, he should be replaced.
The “LeBron James failure” theory is not compelling, and it’s easy to see why. Perfection isn’t the standard we should use to judge basketball players. Rather, the standard is the best player available to replace them. If LeBron James’s backup is better than James, then, by all means, let’s replace James. But James’s backup isn’t better—he misses even more of his shots—so James’s roster spot should be secure.
The same analysis applies to institutions. Markets sometimes leave welfare gains on the table just as LeBron James sometimes leaves points on the table. But the standard we should use to judge the market is not perfection; rather, it’s the best available institutional alternative. Markets are the wrong choice only if there is a feasible alternative that will do a better job. As the utilitarian Henry Sidgwick writes, “It does not follow that whenever laissez faire falls short, government interference is expedient; since the inevitable drawbacks of the latter may, in any particular case, be worse than the shortcomings of private enterprise.” 19
Of course, governments might sometimes outperform markets. Indeed, that is often how the system is drawn up on the chalkboard. Take the levee case. To solve the public goods problem, the town could authorize a 1 percent sales tax to fund a levee‐building public works project. That way, citizens are forced to contribute to the levee. They have no grounds for complaint, though, because the tax works to their advantage: better to pay 1 percent more for bubble gum than to lose your home to a flood. So it looks as if we have a formidable utilitarian reason to depart from a free market.
However, it’s not enough to stipulate that the government will somehow efficiently provide public goods—we need to know how. After all, a libertarian could just stipulate that the market will somehow efficiently provide public goods, but that clearly won’t do. As we’ve seen, people won’t contribute to the levee because they have nothing to lose by not contributing. But here’s the rub: the exact same analysis applies to the government intervention meant to fix this problem and efficiently provide the levee. People won’t contribute to good government because they have nothing to lose by not contributing.
Let me spell out this argument more thoroughly. Suppose that in the upcoming election, the mayoral candidates field their policy proposals for flood prevention. To determine which candidate actually has a good proposal, you will need to inspect each proposal for its economic cost, feasibility, and environmental impact. To form an educated opinion on those matters, you’ll need to brush up on your economics, engineering, and ecology. You’ll also want to research how closely candidates’ promises align with their legislative history. For instance, you’ll want to read the fine print of the incumbent’s legislation to see how often tax revenue actually goes toward its intended purpose rather than pork‐barrel projects designed to gain the support of special‐interest groups; you’ll want to learn that the firms hired for public works projects are the best ones for the job rather than the ones that donated the most to her reelection campaign; and so on.
This sounds like a lot of hassle. But citizens need to do it if they are going to hold the government accountable and ensure that it efficiently provides the public good. So will you roll up your sleeves and get to work? Probably not. Indeed, you won’t do so for exactly the same reason you won’t work on the levee in the first place: your incentive is to free‐ride. In all likelihood, your individual vote won’t tip the scales in favor of the best candidate, and if the best candidate does somehow get elected, you enjoy the benefits whether or not you voted for her. 20 You get the benefit without paying the costs. So the self‐interested choice is to watch Family Guy while your neighbors spend their weekends scrutinizing the fine print of the Efficient Levee Act. The problem is that your neighbors have the exact same incentive—if enough others vote for the best candidate, they’ll enjoy the benefits whether or not they cast a good vote themselves. So no one has an incentive to cast a good vote. As a result of the free‐rider problem, the town won’t get good government even though this outcome is bad for everyone. The free‐rider problem that generates the call for government intervention in the first place undercuts the intervention itself.
Think of it this way. Suppose Stan is feeling too sluggish to walk to the coffee shop. Morty suggests that Stan can perk himself up for the walk by drinking an espresso—an espresso that happens to be sold at the coffee shop. Needless to say, Morty’s suggested solution isn’t very helpful. It’s unraveled by the very problem it intends to solve. Stan isn’t energetic enough to walk to the coffee shop, so Morty shouldn’t suggest caffeinating strategies that hinge on Stan’s being energetic enough to walk to the coffee shop. The same analysis applies to the public goods argument for state intervention. If the cause of the market failure is that people are assumed to be free riders, we shouldn’t suggest government solutions that hinge on people not being free riders.
Historically, an important feature of libertarian institutional analysis has been the insistence that we use the same assumptions about human behavior when thinking about economics and politics, instead of modeling people as greedy in the marketplace and saintly in the voting booth. 21 The economist George Stigler writes:
For some, market failures serve as a rationale for public intervention. However, the fact that self‐interested market behavior does not always produce felicitous social consequences is not sufficient reason to draw this conclusion. It is necessary to assess public performance under comparable conditions, and hence to analyze self‐interested political behavior in the institutional structures of the public sector. Our approach emphasizes this institutional structure—warts and all—and thereby provides specific cautionary warnings about optimistic reliance on political institutions to improve upon market performance. 22
It’s no surprise that fictitious, idealized governments look better than realistic, imperfect markets. But that’s not an apples‐to‐apples comparison.
The broader point here is that we must compare like to like. Markets fail and governments fail. Our goal should be to favor institutions that fail less frequently and less severely when their participants are operating within the same limitations of incentives and information. Economist Tyler Cowen suggests that a like‐to‐like comparison will generally favor private solutions to public goods problems:
The imperfections of market solutions to public‐goods problems must be weighed against the imperfections of government solutions. Governments rely on bureaucracy, respond to poorly informed voters, and have weak incentives to serve consumers. Therefore they produce inefficiently. Furthermore, politicians may supply public “goods” in a manner to serve their own interests rather than the interests of the public; examples of wasteful government spending and pork barrel projects are legion. Government often creates a problem of “forced riders” by compelling persons to support projects they do not desire. Private means of avoiding or transforming public‐goods problems, when available, are usually more efficient than governmental solutions. 23
As Cowen indicates, there are private means of solving public goods problems. The levee, for instance, could be built via “crowd‐funding,” whereby individuals pledge x dollars toward some large‐scale project on the condition that enough others pledge as well. If not enough others contribute to make the project work, then you aren’t charged anything. This structure ensures that you won’t make a contribution in vain. It doesn’t eliminate the free‐rider problem (perhaps nothing can), but it does lessen the problem.
Granted, private solutions probably work better for public goods like the levee than for large‐scale public goods like national defense. Sometimes, the best solution might be a mix of market mechanisms and government regulation, such as in the case of clean air. According to the market‐failure argument, you won’t voluntarily contribute to clean air because your individual purchase of a hybrid car (for example) won’t make or break whether our air is clean, and if enough others buy hybrids, you’ll breathe clean air whether you bought one or not.
Before examining how we might best provide clean air, it’s worth noting that our inability to provide the public good in this case is plausibly due to the absence of any sort of private property rights. What we have here is a tragedy of the commons: air is a resource that is held in common, and so no individual has an incentive to manage it wisely. I have no way to capture the benefits of my individual contribution to cleaner air. My decision to buy a hybrid (or not) makes virtually no difference to the overall quality of the air I breathe. For this reason, libertarians tend to recommend that we expand property rights into the realm of natural resources insofar as possible to supply people with an incentive to treat them well. (You are far less likely to absentmindedly toss your crumpled gum wrapper on your front yard—and to let others do so—than on a public sidewalk.)
Of course, establishing private property rights in air isn’t feasible. Here, the best available solution might be a system of emissions trading, which takes advantage of some of the virtues of private property and market mechanisms to produce clean air. Under this system, the government caps the total amount of pollutants, and companies are allotted pollution permits that can be bought and sold on a market. Companies have an incentive to reduce their pollution because they can sell unused permits and, conversely, must pay more if they want to pollute beyond their initial allotment. Moreover, the system will tend to channel pollution permits to those who value them most and are thus willing to pay the most for them, thereby ensuring that when pollutants are emitted, they go toward a highly valued use. As with any sort of institutional arrangement, though, we must make a sober assessment of its likely real‐world efficacy. No form of regulation is immune to inefficiencies or special‐interest pressure. We can only choose the least flawed alternative.
To sum up: at the level of moral philosophy, we cannot say how governments should intervene in the economy in specific cases (if at all), just as we cannot say how a particular hospital should allocate its particular supply of medicine to treat its particular patients. However, we can determine the moral standard for evaluating those decisions—namely, we should favor the arrangement that does better than all of its feasible competitors.
I’d wager that most utilitarian philosophers aren’t libertarians. One major reason concerns the economic inequalities that tend to result from market processes. A free market in labor provides both the information and incentive we need to give people what they want. If you’re really good at giving people what they want, you’ll get rich. But there are plenty of people who have more than enough money to meet all of their needs and wants alongside others who don’t have enough to meet even their basic needs. We could, it seems, maximize happiness by redistributing resources from rich to poor.
This argument relies on the phenomenon of the diminishing marginal utility of wealth (DMU). The idea is something like this: each additional dollar that you get brings less happiness than the dollar before it. We tend to allocate our resources to their most highly valued uses, and so we satisfy our most urgent needs first. Someone with no money whatsoever will benefit enormously from $100—he can spend that money on goods like food and water. By contrast, a billionaire will barely notice an extra $100 because all of her urgent needs were met long ago. Maybe she’ll spend it on something trivial, like extra fireworks for her extravagant birthday celebration. Although $100 worth of fireworks might be nice, they surely don’t create as much happiness for the billionaire as $100 worth of food creates for someone dying of starvation. So transferring wealth from someone with more to someone with less will increase overall happiness.
The DMU forms the basis of a number of utilitarians’ criticisms of libertarianism. In a review of libertarian philosopher Robert Nozick’s Anarchy, State, and Utopia, Peter Singer writes:
Utilitarianism has no problem in justifying a substantial amount of compulsory redistribution from the rich to the poor. We all recognize that $1,000 means far less to people earning $100,000 than it does to people trying to support a family on $6,000. Therefore in normal circumstances we increase the total happiness when we take from those with a lot and give to those with little. Therefore that is what we ought to do. For the utilitarian it is as simple as that. The result will not be absolute equality of wealth. There may be some who need relatively little to be happy, and others whose expensive tastes require more to achieve the same level of happiness. If resources are adequate the utilitarian will give each enough to make him happy, and that will mean giving some more than others. 24
More recently, Joshua Greene expresses his sympathy with a number of libertarian policies but stops short of fully endorsing the view. 25 One of his reasons is the DMU argument: “Taking a bit of money from the haves hurts them very little, whereas providing resources and opportunities to the have‐nots, when done wisely, goes a long way.” 26 Before I offer a philosophical rejoinder to the DMU argument against the free market, let me first make some preliminary remarks.
To start, plenty of libertarians and classical liberals endorse some wealth and income redistribution. F. A. Hayek, for example, supported “the assurance of a certain minimum income for everyone.” 27 Milton Friedman proposed a negative income tax, whereby people who earn less than some specified amount receive income from the government rather than pay it in taxes. 28
It’s crucial to note that support for something like a guaranteed minimum income does not amount to support for what we think of as a “welfare state” that puts the government in the business of directly providing goods like education or health care. Rather, extra income is distributed directly to the poor, who can use it as they please. One major advantage of this policy is that it doesn’t face the same information problems as the “in‐kind” provision of goods and services by the government. Given the diversity of citizens’ preferences, it’s hard for governments to determine the happiness‐maximizing allocation of the goods it provides. What if I prefer half as much health care but twice as much education as you? It’s more efficient to simply let us buy the basket of goods that best satisfies our preferences.
Poverty and Priorities
Next, the emphasis on domestic redistribution is gravely misplaced from a utilitarian perspective. Utilitarianism counsels us to care equally about equal amounts of happiness, regardless of whom we are making happy. Thus, utilitarianism doesn’t provide any basis for prioritizing the happiness of our fellow citizens above the happiness of those on the other side of our national border. And because the global poor are far poorer than the domestic poor in the United States, the DMU argument should lead us to make the alleviation of global poverty a more urgent priority than the alleviation of domestic poverty. 29
One incredibly powerful and underrated tool for fighting global poverty is a free market in labor, that is, opening the border to immigrants. Studies suggest that we could potentially double world gross domestic product by eliminating all immigration restrictions. 30 Open borders would be particularly beneficial for the world’s poorest. Economist Michael Clemens writes, “[M]igrants from developing countries to the United States typically raise their real living standards by hundreds of percent, and by over 1,000 percent for the poorest people from the poorest countries.” 31 A global free market in labor would enable labor to flow to where it is most economically valuable, just as a free market in tradable goods tends to allocate those goods to their most highly valued uses. 32
My point here is that one major part of the libertarian policy platform—a global free market in labor—is likely to do far more good for the poor than domestic redistribution. This is not to say that some domestic redistribution is unwarranted or that domestic redistribution and open borders are incompatible as some allege, just that standard utilitarian critiques of libertarianism tend to oversell the merits of redistribution relative to other policy proposals.
Even with open borders, there still might be room for happiness‐maximizing redistribution from rich to poor. But as discussed earlier, it’s important to use a clear‐eyed, unromantic model of how institutions work. We might be tempted to think of state‐administered redistribution as analogous to the sort of effortless and effective microlevel redistribution that occurs every time we transfer money from our savings account to our checking account. But real‐world economic redistribution need not simply transfer resources. It can reduce the total amount of resources available because it reduces the incentives for labor and capital investment.
Here’s a simple case. Robinson Crusoe lives on an island and spends his time fishing. Friday comes ashore and requests that all resources on the island be equally distributed for the sake of social happiness maximization. So Friday gets one of every two fish Crusoe catches. Consequently, Crusoe spends less time fishing and building fishnets because the value of those activities to him has been cut in half. In brief, Crusoe’s supply of labor and capital declines under increasing rates of taxation. Before Friday’s arrival, Crusoe would fully reap the benefits of his fishing expeditions. Now, half of Crusoe’s catch is transferred to Friday for the sake of egalitarian redistribution. Crusoe chooses to fish less because he expects to benefit less from additional labor and capital investment.
Redistribution can also disincentivize labor by decreasing the expected costs of leisure. When Friday is guaranteed half of Crusoe’s fish, he has an incentive to do less foraging (for example). He expects to get fish regardless of whether he gathers berries to trade with Crusoe for some fish. He concludes that his time is better spent in pursuits other than berry picking, so he elects not to pick the berries. Friday’s change of heart isn’t a reflection of an unwillingness to work, but rather the change in the opportunity cost of doing things other than working. Before the redistribution, if Friday went surfing instead of picking berries, he didn’t get fish from Crusoe. Now, he expects to get fish and time on the waves, meaning that he has a much weaker incentive to pick berries.
As a result of a program of egalitarian redistribution, both Crusoe and Friday see a drop in their incentive to produce their respective kinds of food. In this case, redistribution does not simply transfer goods from one person to another; it decreases the total number of goods available for everybody.
Lastly, real‐world redistribution isn’t a simple rich‐to‐poor transfer. A good slice of the pie that gets redistributed goes to people other than the poor, such as the middle class and the rich. 33 Think of programs like Social Security and “corporate welfare,” both of which involve tax‐funded transfers of wealth. It shouldn’t come as a surprise that groups with substantial political power are able to reroute the flow of politically administered redistribution toward themselves.
The Philosophical Issue
Enough hedging. So far I’ve covered some practical problems surrounding real‐world redistribution, but what can be said by way of a philosophical treatment?
David Schmidtz argues that the very assumption of the diminishing marginal utility of wealth that motivates the argument for redistribution simultaneously demotivates redistribution. 34 The key point to recognize is that resources can be used for consumption and production. Given diminishing marginal utility, production becomes a more highly valued use of resources than consumption as income rises. Thus, transfers that equalize resources may decrease production and social happiness along with it.
To illustrate, Schmidtz imagines the case of Joe Rich and Jane Poor. 35 Corn is the sole good to be distributed. Rich has one unit of corn; Poor has none. One unit of corn is enough to eat; two units are too much—trying to eat two units of corn will make one sick. Without corn, Rich and Poor would have to eat something terrible—something they certainly would not eat in the presence of adequate corn. Thus, consuming the first unit has high marginal utility for both Rich and Poor; consuming a second unit has relatively low marginal utility. So far, so good for the DMU argument for equality.
Yet as Schmidtz observes, matters look different when we consider production. Given one unit of corn, Poor will immediately consume it—that is, she will put the corn to its most highly valued use. Rich’s appetite, however, is satisfied, given that he has already consumed a unit. Thus, he will put the corn to a use other than consumption, namely, production. Schmidtz explains:
Poor eats the corn, whereas Rich, already having eaten enough, has nothing better to do with his surplus than to plant it.… Precisely because of diminishing marginal utility, production becomes a higher valued use as income rises. If a community does not have significant numbers of people out that far on their utility curves, such that they have nothing better to do with marginal units than plant them, then the community is facing economic stagnation at best.… Therefore, unequivocal utilitarian support for egalitarian redistribution is not to be found in the idea that wealth and consumption have diminishing marginal utility. 36
It is precisely the assumption of DMU that grounds the objection to redistribution. When you have lots of resources, you get less and less value from consuming an additional unit. So the value of productive investment relative to consumption rises. 37
The broader point is that concern for social happiness in general and poverty alleviation in particular should prompt us to care about economic production in addition to consumption. Reducing investment for the sake of near‐term consumption will slow economic growth, a result that can bring about enormous losses in material wealth over time.
It is very easy to underestimate the power of economic growth. Let me quote from an economist, Paul Romer:
In the modern version of an old legend, an investment banker asks to be paid by placing one penny on the first square of a chessboard, two pennies on the second square, four on the third, etc. If the banker had asked that only the white squares be used, the initial penny would have doubled in value thirty‐one times, leaving $21.5 million on the last square. Using both the black and the white squares would have made the penny grow to $92 million billion. People are reasonably good at forming estimates based on addition, but for operations such as compounding that depend on repeated multiplication, we systematically underestimate how quickly things grow. As a result, we often lose sight of how important the average rate of growth is for an economy.… For a nation, the choices that determine whether income doubles with every generation, or instead with every other generation, dwarf all other economic policy concerns. 38
To take a specific case from Tyler Cowen: “If a country grows at a rate of 5 percent per annum, it takes just over 80 years for it to go from a per capita income of $500 to a per capita income of $25,000. At a growth rate of 1 percent, that same improvement takes 393 years.” 39
Growth can drive up the real income of the poor by driving down the real price of goods—the same amount of labor buys more (and better) goods over time. For example, to buy a half gallon of milk in 1950 required someone to work for 16 minutes at a typical wage but only for 7 minutes about a half century later. 40 During that same time, the work‐time cost of a basket of a dozen staple foods declined significantly, from 3.5 to 1.6 hours. 41 The microwaves we use to cook that food have become vastly more affordable as well. In 1984, only 12.5 percent of households below the poverty line owned microwaves. 42 In 2011, 93.4 percent did. 43 Let’s also not neglect the quality improvements that new microwaves offer over previous ones. Finally, we shouldn’t forget about the products that are available for purchase today that did not exist in the past (e.g., smartphones, Netflix, etc.).
One advantage that the growth strategy for poverty alleviation has over the redistribution strategy is that it works with, rather than against, our moral limitations. I’ve emphasized that one of the market’s great virtues is that it channels self‐interest toward the public interest. By contrast, citizens’ self‐interest will often undercut the efficacy of politically administered redistribution. If people work less as taxes increase, the effectiveness of redistribution is lessened. Redistribution is also less effective when the rich lobby for a big slice of the pie being redistributed or invest resources in crafty methods of lowering their tax burden.
Now, consider the growth strategy. Instead of spending $1 million on her third Olympic‐size swimming pool (from which she will derive little satisfaction thanks to DMU), a billionaire can invest that money in a game‐changing technology that will enable the production of cheaper and better microwaves. She needn’t make microwaves more affordable out of an altruistic concern for the poor but out of a self‐interested concern for her bank account. She benefits the poor without intending to benefit to the poor.
By no means am I claiming that growth is a perfect solution to poverty. But at a minimum, we should be on guard against a tendency to overestimate redistribution’s benefits for the badly off and underestimate its indirect costs from its adverse effect on economic growth. Given just how staggering the effects of a drop in the growth rate can be, we shouldn’t dismiss the harm redistribution can do to the poor. To its credit, utilitarianism tells us to make the alleviation of poverty and suffering an urgent moral priority. But we should be careful here. The most intuitive way of helping the poor may not be the best way. Markets are deceptively powerful instruments of humanitarianism.
Utilitarianism, despite initial appearances, is a natural fit with libertarianism. It is a moral theory that can have a robust respect for rights and one that values good results over good intentions. The great virtue of the market, from a utilitarian perspective, is that it leads us to promote the happiness of others without demanding that we prioritize their happiness or even know how to make them happy. No institution is perfect, but the market does the best job of extracting social benefits from people’s limited supply of impartiality and information. 44
For a classic work on utilitarianism, see John Stuart Mill, Utilitarianism, ed. George Sher (Indianapolis: Hackett Publishing Company, 2001 ). For an accessible introduction, see Russ Shafer‐Landau, The Fundamentals of Ethics (New York: Oxford University Press, 2014), chaps. 9 and 10. ↩
Utilitarians disagree here—some think that there are a variety of intrinsically good things that we should promote (e.g., knowledge, beauty, etc.). Others focus on pleasure in particular. In the interest of space, I’ll have to leave these alternatives unexplored. ↩
This case is most famously discussed by Immanuel Kant (who argues, counter‐intuitively, that it is not right to lie under these circumstances). See Immanuel Kant, “On a Supposed Right to Lie from Altruistic Motives,” in Immanuel Kant: Critique of Practical Reason and Other Writings in Moral Philosophy, ed. Lewis White Beck (Chicago: University of Chicago Press, 1949 ). ↩
See Judith Jarvis Thomson, “The Trolley Problem,” Yale Law Journal 94 (1985): 1395–415. ↩
See Russell Hardin, Morality within the Limits of Reason (Chicago: University of Chicago Press, 1988); and Robert Goodin, Utilitarianism as a Public Philosophy (Cambridge, MA: Cambridge University Press, 1995). ↩
See David Schmidtz, “Separateness, Suffering, and Moral Theory,” in Peter Singer under Fire: The Moral Iconoclast Faces His Critics, ed. Jeffrey Schaler (Chicago: Open Court, 2009), pp. 429–54, 435. ↩
Joshua Greene, Moral Tribes (New York: Penguin, 2013), p. 269. Here, Greene is specifically discussing the possibility of a government’s faking punishments, but I think his point applies generally. ↩
David Schmidtz, Elements of Justice (Cambridge, MA: Cambridge University Press, 2006), p. 171. ↩
For a more detailed discussion of this idea, see David Schmidtz, “The Institution of Property,” Social Philosophy and Policy 11 (1994): 42–62. ↩
See Garrett Hardin, “The Tragedy of the Commons,” Science 162 (1968): 1243–48. Also see Schmidtz, “Institution of Property.” ↩
John Locke, Two Treatises of Government, ed. Peter Laslett (Cambridge, MA: Cambridge University Press, 1988), p. 37. ↩
Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (New York: Bantam, 2003 ), 1.2.2. ↩
F. A. Hayek, “The Use of Knowledge in Society,” American Economic Review 35 (1945): 519–30. ↩
G. A. Cohen, a prominent philosophical opponent of libertarianism, acknowledges capitalism’s productiveness but still finds it worthy of moral criticism on these sorts of grounds. See G. A. Cohen, Why Not Socialism? (Princeton, NJ: Princeton University Press, 2009). ↩
See, for instance, Walter Williams, “The Argument for Free Markets: Morality vs. Efficiency,” Cato Journal 15 (1995/6): 179–89. Williams writes: “Economic efficiency and greater wealth should be promoted as simply a side‐benefit of free markets. The intellectual defense of free‐market capitalism should focus on its moral superiority” (p. 182). Williams argues that the moral superiority of markets rests on their voluntary nature and respect for individual rights ↩
Henry Sidgwick, Principles of Political Economy (London: MacMillan, 1887), quoted in Charles Wolf, Markets or Governments: Choosing between Imperfect Alternatives (Cambridge, MA: MIT Press, 1993), p. 17. ↩
For an overview of democracy and “rational ignorance,” see Ilya Somin, Democracy and Political Ignorance (Stanford, CA: Stanford University Press, 2013). ↩
Indeed, this insistence is at the core of public choice economics, which is, roughly, the economic analysis of politics. For more on the general idea that our analysis should apply its behavioral assumptions across institutional contexts, see James Buchanan and Gordon Tullock, The Calculus of Consent (Indianapolis, IN: Liberty Fund, 1999 ); Geoffrey Brennan and James Buchanan, The Reason of Rules (Indianapolis, IN: Liberty Fund, 2000 ); Harold Demsetz, “Information and Efficiency: Another Viewpoint,” Journal of Law and Economics 12 (1969): 1–21; Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 2002 ), conclusion; and Jason Brennan, Why Not Capitalism? (New York: Routledge, 2014). ↩
George Stigler, “The Economists’ Traditional Theory of the Economic Functions of the State,” in The Citizen and the State: Essays on Regulation (Chicago: University of Chicago Press, 1975), p. 103. ↩
Greene writes, “I believe that libertarians are probably right—righter than many liberals—in some cases.” Greene, Moral Tribes, p. 367. He discusses school choice, organ markets, prostitution, and sweatshops as possible cases (with some reservations). ↩
For a discussion of why the “difficulties [of the poor in the United States] are of a different order than those of the world’s poorest people,” see Peter Singer, The Life You Can Save (New York: Random House, 2010), p. 8. ↩
Lant Pritchett, “The Cliff at the Border,” in Equity and Growth in a Globalizing World, ed. Ravi Kanbur and Michael Spence (Washington: World Bank, 2010), pp. 263–86; Michael Clemens, “Economics and Emigration: Trillion‐Dollar Bills on the Sidewalk?” Journal of Economic Perspectives 25 (2011): 83–106. ↩
Michael Clemens, “The Biggest Idea in Development That No One Really Tried,” Annual Proceedings of the Wealth and Well‐Being of Nations, ed. Emily Chamlee‐Wright (Beloit, WI: Beloit College Press, 2010), pp. 25–50, 29. ↩
For a discussion of the effect of location on wages, see Michael Clemens, Claudio E. Montenegro, and Lant Pritchett, “The Place Premium: Wage Differences for Identical Workers across the U.S. Border,” Center for Global Development Working Paper no. 148, July 2008. ↩
See Tyler Cowen, “Does the Welfare State Help the Poor?” Social Philosophy and Policy 19 (2002): 36–54, sec. 2. ↩
David Schmidtz, “Diminishing Marginal Utility and Egalitarian Redistribution,” Journal of Value Inquiry 34 (2000): 263–72. ↩
United States Census Bureau data reported in W. Michael Cox and Richard Alm, “By Our Own Bootstraps: Economic Opportunity and the Dynamics of Income Distribution,” Federal Reserve Bank of Dallas Annual Report (Dallas: Federal Reserve Bank of Dallas, 1995), p. 22. ↩