Modern Welfare Economics and Public Policy

Abstract

Economists have from inception of their discipline been interested in welfare propositions and public policy. Although some of classical economists purported to conceive scope of economics in terms so narrow as to exclude consideration of matters relating to human happiness-insisting that these were proper materials for subject of legislation but not of political economy2-they not infrequently intermingled policy recommendations and analysis, and attitude of classical writers toward such topics as corn laws, free trade, taxation, monopoly, currency reform, et alii are well known. The utilitarians, too, with their concern with hedonistic calculus and problem of the general optimum were interested in policy implications of their analysis. Misgivings among economists resulting from their inability to measure utility and to make interpersonal utility comparisons did not seriously deter them from making policy recommendations during first three decades of present century. Marshall had taken as a rule of thumb that it would naturally be assumed that a shilling's worth of gratification to one Englishman might be taken as equivalent with a shilling's worth to another.., .until cause to contrary were shown,3 and prime neoclassical study of welfare economics, Pigou's Economics of Welfare, was also based on Marshall's equality postulate.4 The significance for welfare economics of our inability to measure utility, and hence to make interpersonal comparisons of utility, was pointed up with publication in 1932 of Professor Robbins' An Essay on Nature and Significance of Economic Science.6 If interpersonal utility comparisons cannot be made, and if a given economic reorganization makes some people better off and others worse off, there is no way to determine with precision whether society as a whole has gained or lost. To be objective and scientific, therefore, economist qua economist has no basis for advocating or opposing policy innovations since