Abstract
This chapter reports on the emergence of Cambridge theories of welfare economics from the 1870s to the mid-twentieth century. In regard to welfare ideas developed in the last quarter of the nineteenth century, consideration is given to Sidgwick’s concept of social costs, Foxwell’s suggestions for the organization of a free market system, Marshall’s notion of consumer surplus, as complemented by his views on public education and self-help as means of improving society’s welfare, and Neville Keynes’s views on the relationship between ethics and positive economics. With respect to welfare ideas developed in the early twentieth century, consideration is given to Pigou’s definitive characterization of the economics of welfare and Maynard Keynes’s broad contributions to welfare, centred on his theory of effective demand. Lastly, Robertson’s mid-twentieth century defence of cardinal utility, as the most suitable approach to a practical welfare policy, is reviewed.
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Notes
- 1.
‘The excess of the price which he would be willing to pay rather than go without the thing, over that which he actually does pay, is the economic measure of this surplus satisfaction. It may be called consumer’s surplus’ (Marshall 1890 [1920a]: 124). For the historical reception and theoretical implications of this particular proposal, see Groenewegen (2010), Dooley (1983), and Myint (1948: 142–172).
- 2.
‘The main drift of this study of Distribution then suggests that the social and economic forces already at work are changing the distribution of wealth for the better: that they are persistent and increasing in strength; and that their influence is for the greater part cumulative’ (Marshall 1890 [1920a]: 712).
- 3.
As expressed by Groenewegen: ‘Self-help, encouraged if necessary with initial assistance, was the main thrust of Marshall’s views on social welfare and poverty’ (Groenewegen 2010: 37).
- 4.
Pigou’s third criterion of welfare was dropped in subsequent editions of the book but received a comprehensive treatment in Industrial Fluctuations (Pigou 1927), where businessmen’s errors of forecast due to alternating waves of optimism and pessimism were posited as the main cause of industrial cycles.
- 5.
When reassessing the status of welfare economics in the 1970s, Hicks (1975) retracted his former position, accepting that useful theory must be normative, as Pigou had always maintained.
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Arthmar, R., McLure, M. (2017). Cambridge Theories of Welfare Economics. In: Cord, R. (eds) The Palgrave Companion to Cambridge Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-41233-1_3
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