Is Social Welfare Measurable?
This is the main issue in Welfare Economics. Is it possible to measure social welfare? Is it possible to devise some reliable criterion of an increase (or, decrease) in social welfare? Is the notion of greater or less applicable to social welfare? The answers to these questions depend upon the nature of the term “utility”- whether the utility is cardinal or ordinal in character. If utility were cardinal or directly measurable, there would be no difficulty in measuring social welfare or in applying the notion of greater or less to social welfare. By measuring and comparing the utilities of the people in two different periods of time, we could easily say that the welfare of society had increased or decreased according to whether there had been a net increase or decrease in the aggregate of utilities of all the individuals in society consequent upon the adoption of a particular economic policy. But, as we know, utility is not an extensive magnitude, such as length or breadth, and as such not subject to numerical measurement. Utility, on the contrary, is an intensive magnitude, an ordinal concept. It is a psychological concept, referring to the state of the human mind. Utility can be experienced all right, but cannot be measured in concrete terms. The physician has a thermometer with the help of which he can measure the temperature of the patient. The economist, on the other hand, has no “utility meter” with which he can measure and compare the utilities of different persons. Utility, therefore, is not measurable in the sense in which the temperature of the patient is. Since we cannot measure and compare the utilities of different persons, we are not in a position to declare whether social welfare has increased or decreased. The so-called “measuring rod of money”, no doubt, is there but it is not a very useful instrument for measuring utilities for the simple reason that money does not remain invariant in the hands of different people. It measures no more than the marginal utilities of different commodities to the same person. Money, therefore, offers no perfect measurement of utility. In the absence of any effective instrument, we can in no way measure and compare the total utilities of different persons and say that the social welfare in one situation is just double of that in another situation.
It is, thus, evident that there can be no cardinal measurement of utility. If there is no cardinal measurement of utility, there can be no accurate measurement of social welfare. We cannot say by how much social welfare has increased or decreased following the adoption of a particular policy by the government. But if we are able to say merely that social welfare has increased or decreased following the adoption of a particular government policy, the question “by how much has it increased or decreased” can safely be ignored. Let us see if we can apply the ordinal notion of greater or less to social welfare.
So far as individual welfare is concerned, we can, without much difficulty, apply the ordinal notion of greater or less toit. If a person with a given scale of preferences chooses an ‘A’ combination of goods instead of a ‘B’ combination of goods, we can safely conclude that the expected utility of the ‘A’ combination of goods to him is greater than that of ‘B’ combination of goods. His choice, therefore, provides us with an objective test for comparing his welfare vis-a-vis ‘A’ and ‘B’ combinations of goods. The ordinal notion of greater or less is, thus, readily applicable to individual welfare. But it is not applicable to social welfare. The difficulty is that the objective test of choice is not available here in the case of society. Society, as pointed out earlier, is not an ‘organic unity’, having a mind of its own and making its own choice. There is nothing like social choice which can be taken as a test for social welfare comparisons. Individual choice can reflect individual welfare, but social choice (if at all there is any such thing) cannot reflect social welfare, for the simple reason that there is no such thing as an unanimous social choice. Nor is it possible for us to take the choice of any one person or a group of persons as the choice of society (or, social choice), because we do not accept any paternalist or dictatorial concept of social welfare. The choice of any particular person can be taken as the choice of society only if the tastes of all persons composing the society happen to be the same. This, as we know, is never the case. The tastes and temperaments differ from person to person.
The question might well be asked: Is it not possible to derive social choice from individual choices? The answer is negative because all persons composing the society do not make the same choice or unanimous choice. They invariably choose differently. Hence, we are inevitably faced with the problem of interpersonal comparisons of ordinal utility. Since there is no objective test of deciding whether the utility of one combination of goods ‘A’ selected by Mr. X, is greater than the utility of a combination of ‘B’ (of goods) chosen by Mr. Y, it is not possible to derive social choice from individual choices.
How, then, are we going to measure the changes in social welfare? Economists in their efforts to propound welfare theory have adopted different lines of approach to solve this problem. It is primarily for this reason that economists have formulated different types of welfare theories.
(2) Pigou’s Welfare Economics.
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