Social Stability and Collective Public Consumption

Abstract

It is one of the most fundamental propositions in the neo-classical theory of welfare economics that the allocative mechanism in a purely competitive market economy necessarily results in an efficient allocation of scarce resources. As is well known, this proposition presupposes that all the scarce resources limitational to the economic activities engaged in by the members of the society are privately appropriated, without involving significant costs either in the administration of such a private ownership or in the organisational efficiency of economic agents involved. However, in many contemporary capitalist economies, a significant portion of scarce means of production is not privately appropriated but socially administered, as typically illustrated by the existence of a large class of means of production usually termed as social overhead capital or common property resources. Those scarce resources that are classified as social overhead capital are either produced collectively by the society, as in the case of social capital such as highways, harbours, bridges, etc., or simply endowed within the society, as in the case of natural capital such as air, water, soil, forests, etc. The services produced from social overhead capital are provided to the members of the society, either free of charge or with nominal fees, and the provisions of such social overhead capital are distributed among the members of the society according to their need, not based upon the principles underlying the market mechanism.