Simply
put, the diminishing marginal utility of money means that the utility derived
from an additional dollar decreases when the amount of money you already have
gets larger. For example, if you have one dollar, an additional dollar can buy you
a not-so-decent sandwich which can in some extreme cases save your life. However,
when you are a billionaire, an additional dollar almost makes no difference to
you.
Based
on this belief, some people argue that capitalism culminates in philanthropy,
because as you get richer and richer, you derive less utility from earning additional
amounts of money. In the meantime, you realize that if you donate that money to
other people, you will increase their welfare by a large margin. This
asymmetric welfare increase motivates you to donate more and more. Moreover,
the utility you derive from donating money to the poor far outweighs the utility
of the money you lose in philanthropic causes.
Although
I have not come across any empirical evidence supporting or falsifying this argument,
my personal observation supports this idea. So, let’s say a few words in terms
of anecdote. [Warning: Anecdotes can be extremely misleading].
In welfare
state/socialist Europe, I have seen people particularly in Italy, Switzerland, and
France (and to a lesser degree in Germany, the Netherlands and Belgium) dressed
in fashionable robes strolling around on the streets with obsessive use of
chemicals and cosmetics. They enjoy long vacations in European resorts and etc…
(Let’s not get into details of something about which I know the least.) This is
all brought by the wealth created by embracing markets and opening up their
economies and having a welfare state in place distributing that wealth. On the
other hand, my limited observations on the streets show that they are also less
inclined to help the poor. (This way of life I call banal pseudo-capitalism).
One
explanation is that maybe in Europe government social welfare program crowds out
the charitable activities of the individuals. One idea from Dennis Mueller’s
class in Public Choice about the donations to the universities in the US and in Austria always resonates with me I remember him saying that the amount
of the donations by professors and alumni to the US universities is just
incomprehensible for his Austrian colleagues.
However,
in the US, the social equilibrium leans towards philanthropic capitalism. You
do not have to go far to find anecdotal evidence for such a claim. I can
remember professors in top US Universities dressing almost the same clothes
during one semester. On the contrary, I used to see professoresse in Italy,
changing their dress on a daily basis, as if they are models whose aim is to
impress the people by their clothes rather than their intellects; the epitome
of platitude! So much for the anecdotes!
Not
surprisingly, the data supports me in drawing such a distinction.
PS:
Of course, there are lots of charitable people in Europe and by no means, this
post is meant to undermine their great deeds.
