On the Relevance of John Rawls's Theory of Justice to Welfare Economics
Edgren, John A., Review of Social Economy
Abstract Mainstream microeconomic theory makes some use of John Rawls's Theory of Justice in discussing welfare economics and social welfare functionals. While various elements of his approach are usually mentioned, his basic point is generally taken to be his difference principle (maximizing the welfare of the worst off individual) applied as a decision principle for evaluating the equity of resource allocation.
To take the difference principle as the essence of Rawls's work is an error. The present paper reviews the basic argument of the Theory of Justice, compares it with the use that economists make of it, and concludes that in a number of quite specific ways Rawls's ideas are misrepresented and misused by mainstream microeconomists.
Keywords: John Rawls, justice, ethics, welfare economics, equity.
The present paper examines John Rawls's Theory of Justice(1) in order to answer two questions. First, economists often make a bow in the direction of Rawls's book when discussing welfare economics.(2) Why do the ideas developed there appeal to economists? Second, what does Rawls have to say that is of use to economists; do economists identify and utilize the kernel of his thought?
This discussion is prompted in part by the thought that economists do not pay nearly enough attention to the ethical content of the decisions that they study. Conventional treatments of welfare economics need hardly mention ethics at all! The terms "just" and "fair" are used, mostly as place holders (rather like zeros), to mark the fact that diverse thinkers raise diverse issues about resource allocation that go beyond efficiency. Conventional welfare analysis acknowledges that these variegated concerns probably matter, though exactly how or why resource use should be altered to accommodate them is not discussed.
Rawls's ideas are taken as an object of study here because they represent one thoughtful comprehensive treatment of the subject to which others have felt compelled to respond.(3) A careful review of Rawls is appropriate, not because he is "right" while others are "wrong," but because he systematically addresses these important issues, and his results may be of some use.
In a recent review of literature intersecting economics and ethics, Hausman and McPherson (1973) make a strong case for the relevance of ethics to economics. They also make reference to Rawls's work. In introducing section three of their paper they mention several systematizations of ethics, Rawls's included, and assert "In our view, the parts of ethical theories we shall survey here may be of more interest to economists than are the whole systems." It is of course an open question the degree to which a piece of the whole can be excised and utilized without destroying its essential nature. Also of course, the pieces that they choose to emphasize (which turn out to be similar to those addressed in micro theory texts) may be only those most congenial to existing neoclassical biases.
In order to answer the two basic questions posed at the outset I first attempt to set out a description of Rawls's approach. There turn out to be a fair number of parallels with economics. I then address the question whether the use of Rawls in welfare economics is tenable. In fact, welfare economics incorporates a denatured and sanitized shred of Rawls's system of thought, essentially as a footnote.
A convenient starting point for this analysis is the truism that economists work at tasks relevant to evaluating policy. As a naive approach we should do those policies that are ethical. By observing how Rawls narrows or specializes this focus we can observe the degree to which his approach is congruent with that of welfare economics.
Section II is an exposition of some basic presuppositions that Rawls brings to his work. Section III looks in more detail at the idea of justice that he proposes. …