Lecture 6: From Classical to Neoclassical Utilitarianism

What this lecture covers

This lecture explains, in economic terms, the shift from Bentham's classical utilitarianism to the neoclassical utilitarianism developed by Vilfredo Pareto and Francis Edgeworth in the late nineteenth century. Shapiro builds the core apparatus of neoclassical microeconomics from three simple ideas: indifference curves, transitivity, and the Pareto principle, using the example of one person trading between wine and bread, then two people trading with each other.

The lecture also briefly connects this shift to a parallel movement in moral philosophy (Stevenson's emotivism, which questioned whether people share the same psychological makeup). By the end, Shapiro shows why moving from cardinal utility (that can be added and compared across people) to ordinal utility (that can only be ranked) has major political consequences: it strips utilitarianism of the redistributive edge covered in the previous lecture.

Key ideas

• Emotivism: the philosophical view, associated with Stevenson, that ethical statements express emotional reactions rather than objective claims, casting doubt on the assumption that everyone shares the same psychology.
• Indifference curves: graphs showing combinations of goods (like wine and bread) that give a person equal utility; their concave shape reflects diminishing marginal utility.
• Ordinal vs. cardinal utility: neoclassical economists rank preferences (four is preferred to three) without claiming to measure by how much, unlike Bentham's cardinal, addable units of utility.
• Transitivity: the assumption that if A is preferred to B and B to C, then A must be preferred to C; this is why indifference curves cannot cross.
• Pareto superior, inferior, and optimal: moves that make everyone better off (superior), everyone worse off (inferior), or that cannot improve one person without harming another (optimal, found on the "contract curve").
• Pareto-undecidable outcomes: changes that help one person and hurt another cannot be judged scientifically once interpersonal comparisons of utility are ruled out, unlike in Bentham's system.
• Edgeworth box: a diagram combining two people's indifference curves to show where voluntary trade will stop (Pareto optimality) and why redistribution has no scientific justification in this framework.

Walkthrough

Emotivism and the question of shared psychology (0:00)

Shapiro introduces the parallel shift in moral philosophy: Stevenson's emotivist claim that ethical statements express emotional reactions, challenging the assumption (shared by Hobbes, Hume, and Bentham) that human beings are psychologically alike enough to allow interpersonal utility comparisons.

Building neoclassical price theory (9:03)

Using a single person choosing between wine and bread, Shapiro introduces indifference curves and explains why they must be concave (reflecting diminishing marginal utility) and cannot cross (reflecting transitivity of preferences). He stresses that neoclassical economics deliberately works with ordinal scales, ranking preferences without claiming to measure their intensity, because Pareto and his contemporaries wanted a theory of market prices requiring minimal information about people.

Two-person distribution and the Pareto principle (20:58)

Shapiro extends the model to two people, showing that moves into the "Pareto superior" region make both people better off (and will happen through voluntary market trade), moves into the "Pareto inferior" region make both worse off, and moves elsewhere are "Pareto-undecidable" because there is no scientific way to compare one person's gain against another's loss.

The Edgeworth box and comparing the two utilitarianisms (31:51)

Shapiro combines the two previous diagrams into the Edgeworth box, showing how voluntary trade moves toward the "contract curve" where no further mutually beneficial trade is possible. He then contrasts classical and neoclassical utilitarianism directly: everything Pareto superior is also an improvement for Bentham, but where Bentham allows interpersonal judgments in the "Pareto-undecidable" zone (permitting redistribution from rich to poor), Pareto's system says science can say nothing there, since no policy claim without interpersonal comparisons.

Comparing classical and neoclassical utilitarianism (39:42)

Using the example of a wealthy person and a homeless woman with nothing to trade, Shapiro shows that neoclassical utilitarianism's refusal to make interpersonal comparisons can justify leaving someone to starve, since no exchange between them is Pareto superior. He connects this to John Rawls's critique that utilitarianism fails to take the differences between people seriously, arguing that this criticism fits classical utilitarianism but that neoclassical utilitarianism has the opposite problem: it takes those differences too seriously, becoming a doctrine friendly to the status quo rather than a radical, redistributive one.

Before you watch

• Review Lecture 5 on diminishing marginal utility and Bentham's redistributive logic, since this lecture shows how neoclassical economics undoes that redistributive implication.
• Basic comfort with reading a simple two-axis graph will help, though Shapiro explains every diagram verbally as well.

Check your understanding

1. What is the difference between cardinal and ordinal utility, and why did Pareto and his contemporaries prefer ordinal scales?
2. Why must indifference curves be concave and never cross one another?
3. What does it mean for an outcome to be "Pareto-undecidable," and how does Bentham's system handle situations that Pareto calls undecidable differently?
4. How does neoclassical utilitarianism's refusal to make interpersonal comparisons affect its stance toward redistribution, compared to classical utilitarianism?