Pigou’s “Old” Welfare Economics and Its Ordinalist Critics

To locate Hicks’s mystery in its proper perspective, let us begin with the minimum overview of the historical evolution of welfare economics since Pigou.

Capitalizing on the long Cambridge tradition of moral philosophy, Pigou opened a gate toward a new research area called welfare economics, which is named after his treatise, The Economics of Welfare (Pigou 1920/1932/1999).

Although Pigou was a utilitarian in the tradition of Jeremy Bentham (1776), the scenario of Pigou’s welfare economics was not a straightforward attempt to design an institutional framework of the economic system that maximizes the social sum-total of individual utilities under constraints. Careful reading of Pigou reveals that the task of his welfare economics was intended not to draw a radical blueprint of an ideal first-best economic system or economic policy, but to scrutinize the down-to-earth - imperfect and defective - economic system so as to discover feasible instruments for the bettering of human life. It should be clear that there is a substantial cleavage in between the constrained maximization paradigm and the paradigm in search of instruments for the bettering of human life. To locate these contrasting scenarios within the broad category of normative economics, and to reorient the future research program of welfare eco­nomics and social choice theory in awareness of this cleavage seems to be an important agenda.

The next problem to be posed and settled is whether the vulgar scenario of Pigouvian welfare economics by means of the maximization of the social sum-total of individual utilities can be regarded as a legitimate “scientific” research program of welfare economics in its own right.

On reflection, the common identification of the maximization of the social sum-total of individual utilities with the Benthamite dictum of the greatest happiness of the greatest number leaves in itself a wide room for reasonable doubts.^[51] As a matter of fact, the criticism by Robbins was based not on this doubt, but on the informational basis of the maximiza­tion of the social sum-total of individual utilities per se. Indeed, it boiled down to the categorical denial of the “scientific” possibility of interper­sonal comparisons of individual utilities with interobserver validity. Careful scrutiny of Robbins (1932/1935, pp. 138-150; 1938, pp. 636-637; 1981, p. 5) reveals that he had never rejected the possibility of “subjective” interpersonal comparisons of utility, nor had he ever claimed that an economist should not make “subjective” interpersonal comparisons of his/her own. The gist of his criticism is the assertion that “subjective” interpersonal comparisons of individual utilities do not have any “objective” interobserver validity whatsoever.

In “Bergsonian Welfare Economics” (Samuelson 1981, p. 226), which is meant to “set the record straight as only a living witness and participant can,” Paul Samuelson testified to the impact of Robbins’s criticism as follows:

When Robbins sang out that the emperor had no clothes - that you could not prove or test by any empirical observations of objective science the normative validity of comparisons between different persons’ utilities - suddenly all his generation of economists felt themselves to be naked in a cold world. Most of them had come into economics seeking the good. To learn in midlife that theirs was only the craft of a plumber, dentist, or cost accountant was a sad shock.

By the end of 1930s, it became widely recognized that the informational basis of “old” welfare economics was hopelessly eroded. To salvage some­thing valuable from the vestige of Pigou’s edifice, new foundations had to be found for welfare economics solely on the basis of interpersonally non­comparable and ordinal utility information.

7.3