Positive and Welfare Economics: Relationship

Learn about the relationship between Positive and Welfare Economics.

“Until the latter part of the 19th century there was no distinction made between welfare and positive economics. Economic treatises combined advocacy with analysis in a quite uncritical manner: and very often the analysis was made subservient to the policies advocated.”

It was, however, Nassau Senior in the late 19th century and Robbins in the 20th century who declared that the task of economics was not the investigation of welfare but to formulate general principles.

Robbins finds a “logical gulf” between the positive and welfare fields of enquiry as they are “not on the same plane of discourse”. Since “economics deals with ascertainable facts” and welfare with valuations and obligations, he finds no reason for “not keeping them separate, or failing to recognise their essential difference.”

Robbins concludes, “All that is contended is that there is no logical connection between the two types of generalisations”.

This view that positive economics has nothing to do with welfare economics is divorced from the stern realities of life. The science of economics cannot be separated from the normative aspect. Economics as a science is concerned with human welfare.

As pointed out by Pigou, Marshall believed that “economic science is chiefly valuable neither as an intellectual gymnastic nor even as a means of winning truth for its own sake, but as a handmaid of ethics and a servant of practice.” On these considerations, Pigou regarded economics not only ‘light-bearing’, but also ‘fruit-bearing’.

Having established the proposition that welfare economics forms part of positive economics, we study the extent to which positive economics is used in welfare propositions. Like the propositions of positive economics, the propositions of welfare economics are derived from a set of axioms or assumptions. The propositions of positive economics can be tested by observing the real world phenomena.

For instance, the law of demand tells us that other things remaining the same fall in price leads to extension of demand and a rise in price to contraction in demand. This proposition can be tested by observing market phenomena. In welfare economics too, proposi­tions are based on the choice of an acceptable criterion.

Once a suitable welfare criterion is selected, the proposition assumes a purely positive character. But the trouble arises when one tries to find out whether by adopting a particular welfare criterion, welfare has increased or not.

Any kind of economic change will benefit some individual at the cost of others. Moreover, when one individual prefers one bundle of goods over another, the choice is highly subjective and defies quantitative measurement.

There is no formula in welfare economics for quantitatively comparing the effects of a particular economic reorganization on different individuals of a community and to verify whether the change is for the better or worse.

As aptly pointed out by Dr. Graaf, “Welfare is not an observable quantity like a market price or an item of personal consumption”. It is a bird of another sort. It is, in practice, if not in principle, exceedingly difficult to test a welfare proposition.”

Since it is difficult to test the validity of welfare propositions, welfare economics requires the use of a different methodology, that of testing its assumptions as against conclusions in positive economics. As put by Graaf, “Whereas the normal way of testing a theory in positive economics is to test its conclusions, the normal way of testing a welfare proposition is to test its assumptions.”

For instance, the necessity of a quantitative measurement is dispensed with if we move on the assumption that a given reorganization makes some people better-off without making others worse-off. This premise implies that society as a whole becomes better-off and no one is made worse-off. Despite the reasonableness of the assumption made, this welfare criterion may not be acceptable to the society as a whole.

Thus it is difficult to set welfare propositions which may be tested even on the basis of assumed conditions as in positive economics. Prof. Graaf is justified when he observes that in positives economics “the proof of the pudding is indeed in the eating. The welfare cake, on the other hand, is so hard to taste that we must sample its ingredients before baking.”