Introduction
Possibly more than any other economist, Paul Samuelson is associated with what became the standard approach to the theory of welfare economics after 1945. The relevant chapter of his Foundations of Economic Analysis (1947) was written after it had been shown that compensation tests could generate contradictory conclusions, thereby undermining the so-called new welfare economics of John Hicks and Nicholas Kaldor.
Samuelson clarified what was valid in the previous literature using the concept of a social welfare function, attributed to his friend from his student days, Abram Bergson, in which welfare is written as a function of all relevant economic variables. In its most general form, such a social welfare function is without content, doing no more than state that social welfare depends on the factors that determine social welfare. However, it could be given content by introducing ethical judgments that restricted its form. Central among these was “individualism,” the idea that the factors that affected welfare were the factors that affected individuals’ appraisals of their own welfare. The result was that although he argued that a social welfare function could represent any set of ethical values, his focus was on what he called an individualistic welfare economics, based on the assumption that welfare depended on individuals’ preferences. Samuelson did not coin the phrases “Pareto optimality,” “Pareto optimum” or “Pareto efficiency” - that honor is due to Ian Little (1950) - but he emphasized that the genealogy of his approach led back to Pareto, if not earlier.Samuelson repeatedly claimed that the idea of the social welfare function was Bergson’s, but, as Suzumura (Chapter 7, this volume) points out, Samuelson used the concept in a subtly different way from Bergson. For Bergson the social welfare function represented the views of a community, whereas Samuelson argued that it could represent any set of ethical values, and that these values had to be given from outside.
They could therefore be the shared values of a community or the values of a dictator or simply a hypothetical set of values that the analyst wished to explore. This is why, after Kenneth Arrow's Social Choice and Individual Values (Arrow, 1951) questioned the possibility of deriving a social welfare function from the preferences of individuals in an ethically acceptable way, Samuelson continued to hold that Arrow's theorem did not apply to his own social welfare function. He argued that Arrow's function should more appropriately be called a constitutional function being concerned with the process by which communities' views were formed.This paper is not concerned with the ongoing and frustratingly opaque debate between the two economists on the merits of their conceptually very different welfare functions, surveyed by Herrade Igersheim (2017). Instead it explores the origins of Samuelson's ideas about welfare that led him to an approach in which social welfare did not necessarily rest solely on individuals' judgments of their own welfare. Samuelson claimed that assessments of social welfare needed to take account of the distribution of income, and on some occasions he argued that other clearly non-welfarist judgments could legitimately be made.
8.2
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