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Roger E. Backhouse and Tamotsu Nishizawa, eds., No Wealth but Life: Welfare Economics and the Welfare State in Britain, 1880–1945 (Cambridge: Cambridge University Press, 2010), pp. xi, 244, $85.00. ISBN 978-0-521-19786-1.

Published online by Cambridge University Press:  08 December 2011

Robert Sugden*
Affiliation:
School of Economics, University of East Anglia
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Abstract

Type
Book Reviews
Copyright
Copyright © The History of Economics Society 2011

The title of this book may seem mysterious to readers who (like me) are not sufficiently well read. It is an allusion to a passage in John Ruskin’s Unto this Last, published in 1860, in which he declares: “There is no wealth but life. Life including all its powers of love, of joy, and of admiration. That country is the richest which nourishes the greatest number of noble and happy human beings.... The maximum of life can only be reached by the maximum of virtue” (quoted on p. 108). For Roger Backhouse and Tamotsu Nishizawa, this is a profound and inspiring criticism of the ethical narrowness of economics.

The premise of this book is that, from the 1930s to at least the 1970s, welfare economics pursued technical rigor at the expense of genuine content. In Backhouse and Nishizawa’s account, the attempt to eliminate both value judgments and psychological assumptions resulted in a theory that was “close to vacuous”; its Pareto-optimality criterion had almost no real-world application, and compensation tests proved a “failure” (pp. 223–234). However, the official history of welfare economics still focuses on the path that led to these supposed achievements, and so highlights the tradition of Henry Sidgwick, Alfred Marshall, A.C. Pigou, Lionel Robbins, and John Hicks. But welfare economics is now becoming more pluralistic and more willing to deal with ethical issues; in recent years its leading figure has been Amartya Sen, who is not only a formal social choice theorist but also a wide-ranging philosopher–economist and public intellectual. Backhouse and Nishizawa want to reconstruct the history of welfare economics as a broader enterprise in which both Hicks and Sen can have intellectual ancestries. They try to identify a neglected Oxford tradition of ethical welfare economics to counterpoise the Cambridge School of Sidgwick, Marshall, and Pigou.

The book is a collection of papers by different authors, addressing different aspects of the history of (mostly) British welfare economics, broadly conceived, from the 1880s to the end of the Second World War. In the first part of the book, Peter Groenewegen, Steven Medema, and Martin Daunton consider the work of the Cambridge School. The authors show that the Cambridge economists were concerned with issues beyond the narrow confines of their theories: Marshall with poverty and social reform; Pigou with the balance between (what are now called) market failure and political failure. But both Marshall and Pigou consciously kept these wider concerns separate from what they saw as their more scientific theoretical work. Marshall in particular seems to have been ill at ease when he moved outside his theory, expressing idealistic aspirations for progress towards “economic chivalry” but, (as Groenewegen puts it) “cautious and tentative” when pressed on specific reform proposals (p. 40). The treatment of the Cambridge School in the official history of welfare economics does not seem to need much revision.

Backhouse and Nishizawa argue, I think convincingly, that in the period from the 1880s to the First World War—the period in which New Liberal and socialist ideas took hold in public debate and in which the foundations of the welfare state were laid—there was more to welfare economics than the kind of analysis developed at Cambridge. However, their attempt to orchestrate alternative ways of thinking about welfare as a single approach and to identify this approach with Oxford seems rather strained.

Backhouse and Yuichi Shionoya present John Ruskin and T.H. Green as the mid-Victorian founders of the Oxford tradition. The authors do not make much of a case for either of these Oxford academics as analytical thinkers. They do not try to translate Ruskin’s sententious remarks about wealth and life, and they emphasize Green’s moral earnestness rather than his ideas. Clearly, both men were major cultural and moral critics of utilitarianism and classical political economy, and their ideas contributed to New Liberal thinking. But it is hard to see either Ruskin or Green as welfare economists, even in the broadest sense of the term.

The Oxford approach, as characterized by Backhouse and Nishizawa, continues with Arnold Toynbee , L.T. Hobhouse, and J.A. Hobson. The most convincing case for expanding the welfare economics canon is made on behalf of Hobson. (The case for treating him as belonging to an Oxford tradition is less strong: his only connections with Oxford seem to be his undergraduate degree and his later interest in Ruskin’s ideas.) Hobson was undoubtedly one of the leading economists of the late nineteenth and early twentieth centuries. Although his work is now rather neglected, and although even at the time it was viewed with condescension by establishment economists such as Marshall, it took economics in new and radical directions. His theories of unproductive surplus, underconsumption, and the economics of imperialism were important influences on New Liberal and socialist thinking. Backhouse reconstructs Hobson’s welfare economics. Like much of the progressive thought of the time, it is based on an organic conception of society. Hobson denies the authority of “individual estimates of the desirable” in favor of “an ideal standard of the socially desirable” (quoted on p. 123). Developing a theme that perhaps originates with Ruskin, Hobson argues that as a society becomes wealthier, genuinely desirable consumption requires the cultivation of tastes and the acquisition of knowledge; otherwise, the interests of business can stimulate harmful desires and suppress valuable ones. Hobson’s analysis of unproductive surplus supports a radical position on redistribution.

Departing a little from the overall theme of the book, Richard Toye discusses another progressive thinker of this period: H.G. Wells. Toye argues that Wells’ utopian writings were at least as influential on progressive Liberal politicians such as David Lloyd George and (at that time) Winston Churchill as the work of established economists. That seems quite probable, but does not make Wells a welfare economist.

In two chapters towards the end of the book, Maria Cristina Marcuzzo and Atsushi Komine discuss William Beveridge’s work on designing the post-war welfare state, and look at discussions between him and John Maynard Keynes about Beveridge’s proposals. This material is interesting but somewhat detached from the rest of the book, despite the editors’ suggestion that the “overall framework” of Beveridge’s thinking “ow[ed] much to the Oxford of Green” (p. 19). Perhaps it is unfortunate that the kind of work that Beveridge did is not included in the conventional definition of “welfare economics,” but that is a matter of terminology rather than substance. Health care, social insurance, and redistribution are all important areas of study in modern economics, and economists’ analyses of these aspects of the welfare state draw heavily on neoclassical welfare economics.

I think Backhouse and Nishizawa are unfair in treating neoclassical welfare economics as an arid dead end. Pigou’s analysis of externalities is one of the fundamental building blocks of environmental economics. The compensation tests that Backhouse and Nishizawa dismiss so casually are central to the cost–benefit techniques that are routinely used in health economics. But they are right to remind us that this is only one part of the territory of normative economics. Their efforts to reassess the canon of welfare economics texts deserves applause.