[OPE-L:2500] Re: Re: RE: Welfare functions

From: Duncan K. Foley (foleyd@cepa.newschool.edu)
Date: Mon Mar 13 2000 - 22:25:39 EST

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>From my point of view Steve and Allin are conflating two different issues,
the problem of "community indifference curves", and the issue of a social
welfare function that could represent the priorities of a socialist
planning agency.

The idea of community indifference curves was to aggregate household
preferences at a given distribution of income into a big indifference map.
This is indeed impossible except under the very narrow assumptions Steve
discusses below. I don't think this exercise has anything to do with

The Bergson-Samuelson social welfare function analysis is quite a different
kettle of fish. It is supposed to represent the allocational priorities of
a planner directly. They may or may not be built up on the utility
functions of individual households (if one believes in utility functions).
One way to conceptualize a socialist planning process (or allocational
process) is in terms of such a social welfare function, which does not
depend on the conditions for community indifference curves. (I share
Allin's skepticism that one could just set up a big mathematical
programming problem to do allocation in a socialist society. But if not
that, exactly how might it be done?)

The classic argument against using embodied labor coefficients in any form
of socialist planning (even one that is not so ambitious as to maximize a
social welfare function) is that they do not include any element of
intertemporal tradeoffs except in a very stringent case (equal organic
compositions of capital), and thus are potentially a misleading guide to
allocation. That's what I was trying to get at in my initial question.


>Strongly second Julian's comments re (1).
>If people aren't aware of this critical literature re "social welfare
>functions", then they should check it out before promoting the concept of a
>socialist SWP. Briefly, the literature concludes that a SWF can be
>constructed only under the following conditions:
>(a) that all people have the same preferences
>(b) that preferences do not change with income.
>Cute: in other words--though neoclassicals don't put it this way--you can
>have a meaningful SWF (which can rank any two combinations of commodities
>and unambiguously say which is preferable) if society consists of one
>individual, and there's only one commodity to consume.
>The one out which may apply in this debate is the third, independent way
>out: (c) that incomes are fixed.
>This may sound appealing from a socialist point of view, whereas it's not
>from a (neoclassical) capitalist one, since in the latter changing prices
>will change incomes (hence neoclassical rationalisations of this failure of
>their Benthamite project choose the former two absurd escape routes over
>this one!). However, I doubt that the analysis holds water once you move
>out of the static framework in which SWF analysis occurs into dynamic
>analysis--let alone if you make preferences and commodities co-evolutionary.
>In a nutshell, I think that one of the last things Marxist economists
>should be doing is legitimising a line of economic analysis which even
>neoclassical economists have shown to be seriously shonky!
>If you want to chase this up, some of the relevant references are:
>Gorman 1953, Community Preference Fields (lost journal reference!)
>Sonnenschein, H, 1973, Do Walras' Identity and Continuity Characterise the
>class of community excess demand functions, Journal of Economic Theory
>1972, Market excess demand functions, Econometrica
>1973, The utility hypothesis and demand theory, Western Economic Journal
>1982, Market demand and excess demand functions in Arrow, K.J, Handbook of
>mathematical economics
>Debreu, G., 1974, Excess Demand Functions, Journal of mathematical economics
>Note the names, by the way: these are the high priests of neoclassicism. If
>they've shown that something is shonky, then it's shonky--despite their
>failure to interpret it properly.
>At 11:55 AM 3/2/00 -0000, you wrote:
>>I think Duncan has posed three issues here:
>>1) a socialist society could develop a social welfare function (SWF)
>>2) such a function could/should be maximisable (or minimisable; e.g.
>>minimising necessary labour-time)
>>3) it would generate numbers (distributed along some single scale) which
>>administrators could use for allocating resources without further reference
>>to those concerned.
>>>From Paul (and Allin's) past comments and their published writings, I gather
>>that they would subscribe to all three of these (in the case of (2), to the
>>version in brackets).
>>I'm very sympathetic to the view that the role of socialist economic
>>planners should be to minimise necessary labour-time, which I think commits
>>me to something like (3): minimising general (but, contra Paul and Allin,
>>not abstract) labour, which is evidently just measured in hours.
>>My problem, however, is with (1), and hence with (2), or at least with
>>versions other than the one in parentheses.
>>There's a standard literature, starting with Arrow, which suggests one
>>should at least be sceptical about the possibility of an SWF -- and, apart
>>from this, the whole conception of an algorithm to tell planners what they
>>should tell people to do seems anti-participatory and anti-democratic.
>>Why can't people just get together from time to time and decide what seems
>>to best in the circumstances (no doubt *advised* by specialists)?
>Dr. Steve Keen
>Senior Lecturer
>Economics & Finance
>University of Western Sydney Macarthur
>Building 11 Room 30,
>Goldsmith Avenue, Campbelltown
>PO Box 555 Campbelltown NSW 2560
>s.keen@uws.edu.au 61 2 4620-3016 Fax 61 2 4626-6683
>Home 02 9558-8018 Mobile 0409 716 088
>Home Page: http://bus.macarthur.uws.edu.au/steve-keen/
>Workshop on Economic Dynamcs: http://bus.macarthur.uws.edu.au/WED

Duncan K. Foley
Department of Economics
Graduate Faculty
New School University
65 Fifth Avenue
New York, NY 10003
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e-mail: foleyd@cepa.newschool.edu
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