Taking Other Values into Account

A major feature of economic welfarism is that welfare economics should be restricted to economic welfare - to welfare that can be measured in terms of money. One interpretation was that this had to be done through the market, and that this implied that material wealth should be all that counts.

The history of political economy in Britain during the nineteenth cen­tury can be told as an ongoing conflict between economists and their Romantic critics (Winch 1996, 2009). The economists, who include many well-known utilitarians, including the Philosophic Radicals, intellec­tual descendants of Jeremy Bentham, generally focused on the production and consumption of material goods and services, whereas their Romantic critics argued that they neglected higher values and overlooked the human costs of increased production. Among these Romantic critics, the most prominent was the art critic, John Ruskin, who drew on the ideas of the Romantic poet, William Wordsworth, and the social critic, Thomas Carlyle. He may not have been considered an economist himself, but his ideas inspired many who were clearly economists, notably Hobson.

It was not just the self-proclaimed heretic, Hobson, who challenged the focus on economic welfare. So too did Alfred Marshall and A. C. Pigou - at different times embodiments of what was seen as economic orthodoxy. Tamotsu Nishizawa (Chapter 3) makes it clear that Marshall worked with a broader concept of well-being and a conception of ‘organic life-growth', seeing ‘the vigorous life of the whole' as a more appropriate welfare criterion than utilitarianism. The reason is that he saw economic progress and organic growth as bound up with improvement in human character and capabilities. Yamazaki (Chapter 4) points out that, between the first and second editions of The Economics of Welfare (1924) Pigou extended his definition of welfare to include not only states of consciousness but also ‘their relations'. This change made it possible to include equity as an ethical value, entering social welfare independently of the utilities of individuals. Pigou also considered that having a variety of individuals was better than having individuals who were all the same. Such judgements concerning equity and variety are inconsistent with restricting attention to the values and information involved in welfarism. Pigou also parted from simple subjective welfarism when he wrote about the satisfaction of needs - objective, spiritual and urgent - that people might not themselves recognise.

The new welfare economics, the most visible outcome of which was a stress on Pareto efficiency, is commonly perceived as welfarist. The re­quirement to be scientific was widely taken to mean that the only informa­tion available was utility, now understood purely ordinal and subjective. However, one of its main proponents, Paul Samuelson, was willing to depart from welfarism. He used the social welfare function proposed by Abram Bergson (Burk) (1938) to show how ethical values could be used to derive welfare criteria. When confining himself to values that he believed were generally accepted he reached conclusions consistent with welfarism, accepting individuals’ judgements of their own welfare. However, as Roger Backhouse (Chapter 8) argues, Samuelson consistently claimed that in order to draw conclusions for policy it was essential to go beyond such judgements. One reason for this was that be believed that policy had to take account of income distribution, an issue on which the Pareto criterion was silent. Another reason was that he attached importance to the process through which outcomes were achieved.

When, in the 1960s, what was taken to be the Pigovian approach was challenged by the Coase theorem, the argument that negotiation could achieve an efficient outcome was exclusively about efficiency. This was consistent with the new welfare economics and its focus on Pareto effi­ciency. However, when the Coase theorem was applied to environmental issues, economists did not remain within this framework but, as Steven Medema (Chapter 9) shows, brought in non-welfarist criteria. The argu­ment that the social optimum involved weighing up the benefit of pollution to the polluter against the harm done to other people was widely challenged using moral arguments that went beyond welfarism, such as the argument that it was immoral to ask victims of pollution to bribe polluters not to pollute. It was argued that societies had value systems that went beyond efficiency and were reflected in social norms and embodied in common law.

Kenneth Arrow, one of the authors of the so-called fundamental the­orems of welfare economics, might appear to rely on the normative criter­ion of Pareto optimality, but Nao Saito (Chapter 11) argues that between the 1950s and the 1990s, Arrow’s thinking evolved towards clearly sup­porting non-welfarist theories of justice. He attached importance to the public utility of private goods, and to the redistribution of goods or incomes in order to maximise social welfare. He came to consider that majority decision should sometimes be rejected on ethical grounds: deci­sions favouring discrimination conflicted with his strong belief that dis­crimination is evil and, because individuals’ preferences are blatantly not all that matter, Pareto-efficient judgements should be rejected on ethical grounds when they conflict with certain legal rights, as in the case of child trafficking.

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