Welfare Economics

Welfare economics, which was developed from the 1930s on (by Hicks, Kaldor, Samuelson…), was once a major field of economic theory, but now seems absent from academic curricula – except perhaps in its offshoot of cost-benefit analysis and in the parallel field of social choice theory (Arrow, Sen…). Welfare economists were interested in developing criteria for government intervention in case of market failure, which they saw everywhere. However, the main conclusion of welfare economics was finally that there is no purely scientific criteria, only moral ones – that is, criteria imposed by the value judgments of some dictator or politically dominant group. On this, see my article “Social Welfare, State Intervention, and Value Judgments,” The Independent Review 11(1) (Summer 2006), pp. 19-36; and ” One could say that public choice theory (“politics without romance,” as Buchanan said) destroyed welfare economics; from another perspective, that welfare economics sowed the seeds of its own irrelevance. See “The Vacuity of the Political ‘We’,” Library of Economics and Liberty, October 6, 2014. Yet, proving that government intervention and redistribution cannot be based on scientific criteria is a crucial result, which would justify bringing welfare economics back to the forefront of academic concerns. Economists (and policy makers) cannot meaningfully talk about public policy without referring to welfare economics.

Why Imports, Not Exports, Matter

As explained by James Mill in his Elements of Political Economy (2nd Edition, London: Baldwin, Cradock, and Joy, 1824, pp. 120 and 122):

“The benefit which is derived from exchanging one commodity for another, arises, in all cases, from the commodity received, not from the commodity given. When one country exchanges, in other words, when one country traffics with another, the whole if its advantage consists in the commodities imported. It benefits by importation, and by nothing else.

“This seems to be so very nearly a self-evident proposition, as to be hardly Continue reading

In 1824, James Mill Explains the Theory of Comparative Advantage

“When both countries can produce both commodities, it is not greater absolute, but greater relative, facility, that induces one of them to confine itself to the production of one of the commodities, and to import the other.

“When a country can either import a commodity, or produce it at home, it compares the cost of producing at home with the cost of procuring it from abroad; if the latter cost is less than the first, it imports.

“The cost at which a country can import from abroad depends, not upon the cost Continue reading

Reminder on Adam Smith and Businessmen

“The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.”
— Adam Smith, The Wealth of Nations (1776).

James Mill’s 1808 Commerce Defended and Today’s Protectionism

James Mill (1773–1836) was a Scottish economist, philosopher, and journalist. He was the father of an even more famous figure of the 19th century, economist and philosopher John Stuart Mill. Like other classical economists, James was a defender of free trade. His 1808 pamphlet Commerce Defended answers many of today’s arguments for protectionism.
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The Wealth of Nations and Free Trade

Adam Smith’s famous book The Wealth of Nations (1776) developed economic and moral arguments against “the mercantile system” or protectionism. The relevant chapters are among the best of the book and there is much to be learned from them.
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Open for Business, Close to Consumer Preferences

In a couple of weekend tweets, Donald Trump warned American companies against shipping goods to America from foreign countries: “Please be forewarned prior to making a very expensive mistake!” “THE UNITED STATES,” he added in bold letters and with his usual inconsistency, “IS OPEN FOR BUSINESS.” “Open for business” apparently means that the government is open to meddling with businesses.
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