Human
Well-Being and Economic Goals
PART
III
Utility and Welfare II: Modern Economic Alternatives
Overview Essay Page 1
Frank Ackerman
The
inequality between the rich and the poor is not
primarily a matter of utility, or who feels what,
but one of who owns what. There is no obvious reason
why abstaining from interpersonal comparisons of
utility must have the effect of making it impossible
to consider economic inequality in social welfare
judgments.
-- Amartya Sen[1]
At the beginning
of the twentieth century, economic theory as expounded
by Alfred Marshall offered definite, if at times
arbitrary or merely pragmatic, judgments on numerous
immediate issues affecting social welfare. At the
end of the century, the mainstream of economic theory
has become rigorous and elegant in its logic, but
indecisive as to the welfare implications of most
actual policies. Several interesting alternative
interpretations have been proposed, but remain controversial;
as Sen suggests, there are many possible bases for
welfare judgments, beyond the narrow focus on individual
utility that is enshrined in neoclassical economics.
This overview
offers a necessarily selective treatment of twentieth-century
developments in the economics of welfare and wellbeing.
It begins with an exploration of the "ordinalist
revolution" of the 1930s, followed by a look
at Keynes' philosophy. Sub sequent sections address
the early development of welfare economics and its
contradictions, and the theory of social choice
that emerged in the wake of Arrow's "impossibility
theorem." The final section examines two contemporary
alternatives that are somewhat independent of the
discussion of social choice. Further applications
of welfare economics to problems of externalities,
valuation, and cost-benefit analysis are the subject
of Part 4 of this volume.
