Samuelson and Welfare Economics

Abstract

In this essay I try to show how Samuelson, in four major works, has made a unique contribution that has set up welfare economics as a separate discipline: the study of the relationships between economic policies and value judgments. This contribution, which grew out of Berg-son’s seminal work, has consisted of setting up a formal framework for the description and classification of value judgments and the analysis of their relationships to economic systems and policies. By an exact example I make precise his point that an improvement in potential welfare can bring about a reduction in actual welfare in terms of some value judgments. I also go through the detailed argument to show how separability of the social ordering leads to the possibility of optimal decentralized decision making according to that ordering. I finally make a plea for a “revealed preference” approach to welfare economics and indicate ways in which the structure Samuelson has built can be used to determine configurations of empirical assumptions and implicit value judgments that are consistent with observed economic systems and policies.