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Nature Of Welfare Economics

 Nature of Welfare Economics

Welfare Economics

            General Welfare economics refers to all economic and non-economic goods and services that provide utilities or satisfaction to individuals living in a community. In this sense, general welfare becomes a very wide, complicated and impracticable notion. Pigou therefore defines economic welfare as that part of general welfare which can be brought directly or indirectly into relation with the measuring rod of money.” In the Pigovian sense economic goods and services ot those that can be exchanged for money.

            Bur Dr. Graaf does not agree with Pigou’s concept of economic welfare for two reasons. First, money as a measure of welfare is neither accurate nor satisfactory for the reason that value of money changes with variations in the price level. Second, economic welfare does not depend upon exchangeable goods and services for the reason that it is not possible to separate economic factors from non-economic factors, so far as an individual’s state of mind is concerned.

In fact, an individual’s welfare depends upon both economic and non-economic factors. Since non-economic factors are not capable of assessment, Graaf opines that in welfare theory only in economic factors are considered, assuming non-economic factors to be constant.

            Robertson while accepting Pigou’s distinction between general and economic welfare prefers to use the world ecfare for economic welfare, Boulding on the other hand, defines economic welfare in terms of the opportunity cost of exchangeable goods and services.

According to Prof. Pigou, an individual’s welfare resides in his state of mind or consciousness which is made up on his satisfactions or utilities. But modern economists explain it in terms of a given scale of preferences. An individual’s welfare is said to have increased when he is better off, when he himself believes that his welfare has increased or not.

Measuring Welfare

            There are mainly two concepts for measuring welfare. The first relates to a Pareto improvement whereby social welfare increases when society as a whole is better off without making any individual worse off. The proposition also includes the case that when one or more persons are better off, some persons may be neither better off nor worse off. It is thus free from making interpersonal comparisons. Hicks, Kaldor and Scitovsky have explained social welfare in the Paretian sense in terms of the ‘Compensation Principle’.

            In the second place, social welfare is increased, when the distribution of welfare is better in some sense. It makes some persons in society better off than others so that the distribution of welfare is more equitable. This is known as distributional improvement and relates to the Bergson social welfare function.

Value Judgements

            All ethical judgements and statements which perform recommendatory, influential and persuasive functions are value judgements. According to Dr. Brandt a judgement is it entails or contradicts some judgement which could be formulated so as to involve any one of the following terms in an ordinary sense; ‘is a good thing that’ or ‘is a better thing that’; is normally obligatory’; is reprehensible; and ‘is normally praiseworthy’.

Value judgements describe facts in an emotive way tend to influence people by altering their beliefs or attitudes. Such statements as ‘this change will increase economic welfare’, ‘rapid economic development is desirable’, ‘inequalities of incomes need be reduced’, are all value judgements.

            Welfare is an ethical term. So all welfare propositions are also ethical and involve value judgements. Such terms as ‘satisfaction’, ‘utility’ are also ethical in nature since they are emotive. Similarly, the use of a highly emotive word as ‘social’, ‘community’ or ‘national’ in place of ‘economic’ is ethical.

Since welfare economics is concerned with policy measures, it involves ethical terminology, such as increase of ‘social welfare’ or ‘social advantage’ or ‘social benefit’.

Thus welfare economics and ethics cannot be separated. They are inseparable, according to Prof. Little, “because the welfare terminology.” Since welfare propositions involve value judgements, the question arises whether economists should make value judgements in economics.

Positive Economics and Welfare Economics

            Positive Economics is concerned with ‘what is’. It has generalisations, principles, theories or laws which trace out a casual relationship between cause and effect. As a pure or positive science, economics seeks to explain what actually happens and not what ought to happen. Welfare economics on the other hand is a normative study. It also deals with casual relationship between cause and effect. But in addition to deriving conclusions from this relationship, it seeks to evaluate various results and to distinguish between them from a normative point of view.

            In other words, of Scitovsky, “welfare economics is that part of the general body of economic theory which is concerned primarily with policy. Whenever the economist advocates a policy, for instance, when he favours full employment or opposes government interference in economic affairs, he makes a welfare proposition.” Thus positive economics is to explain and welfare economics is to prescribe.

Conclusion

The obvious conclusion emerges from the above discussion that welfare economics and ethics are inseparable and interpersonal comparisons or value judgements are inseparable from welfare economics.

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