Lerner (1971) writes that “as an economist I must be concerned with the mechanisms for getting people what they want, no matter how these wants were acquired.” Similarly, Samuelson and Nordhaus (1989, p. 2) write that economists “must reckon with consumer wants and needs whether they are genuine or contrived. Shakespeare’s King Lear said, “Reason not the need” – and economists do not; rather they analyze how limited goods get rationed among whatever wants a society generates.” After establishing that classical economists did not share these views, Hausman and MacPherson (2006) describe the transition to these modern views as follows:
In modern economic theory as developed in the 1930s, economists put aside substantive conceptions of well-being, such as wealth or happiness. Because they found that the basic propositions of demand theory and consumer behavior could be accounted for simply by supposing that people had stable preference rankings with certain properties, most economists took well-being to be the satisfaction of preferences.
If we follow positivist dicta, it is almost inevitable that we will equate welfare with preference with choice, since only choices are directly observable. Also, avoiding discussion of the deep and complex notion of human welfare creates the impression that we take no stand on this issue. In fact, discussions of market failures, optimal taxation, advantages of free trade, etc. are all predicated on implicit views about human welfare. Hausman and Macpherson (2006, Chapter 8) make these views explicit and provide a clear and detailed discussion of how these are not tenable. Below, we briefly examine some objections to the “standard view” of human welfare implicitly espoused in modern economic theory.
1. It is immediately obvious from introspection that welfare, preference and choice are three different things. Spinach is good for me (welfare), but I may prefer ice cream. I may override my preferences and choose spinach to please my mother. Because mental states are not observable, Ayer initially denied their existence. He later recanted, saying that denying the existence of my own internal mental states is tantamount to ‘feigning anesthesia’; logical consistency demands accepting the same for others.
2. Cooter and Rapaport (1984) write that classical authors regarded utility from consumption as being based on observables like health and productive capacity rather then internal mental states. Thus objective and quantifiable measures of welfare are available. Construction of indices of well-being based on ideas of Sen, Mahbubul-Haq, Nussbaum, and others is an active area of research.
3. In practice, governmental bodies routinely arrive at consensus on “basic needs,” which can be considered as the most urgent preferences. Such consensus is required to design welfare programs in operation in most countries. Thus as a purely empirical matter, people can argue, resolve disputes and arrive at consensus regarding welfare.
4. For assessing welfare, it is crucial to distinguish between needs and wants. Restricting attention to choices make it impossible to make this distinction. Raiklin and Uyar (1996) argue that eliminating the needs/wants distinction “has meant also that the moral and social implications of such comparisons and discussions could be kept out of economic theory and analysis.”