The Cambridge Welfare Tradition Versus the Cambridge Keynesian Tradition

While Keynes, Kalecki, and Sraffa, together with many others, were providing the key contributions for the development of the Cambridge Keynesian tradition, Pigou continued the tradition of Sidgwick and Marshall, focusing on human well-being. Marshall defined economics as the study of mankind in the ordinary business of life while focusing on the material requisites of well-being. Like Sidgwick, Marshall acknowledged a distinction between wealth and wellbeing, which was developed more systematically by Pigou (1912, 1920).

Pigou’s analysis of human well-being led to the development of what we may term, following Harcourt (2003), the Cambridge ‘welfare’ tradition (see also Harcourt’s ‘Foreword’ in Martins (2013) and the chapter on welfare by McLure and Arthmar in this volume). Needless to say, the authors that developed each tradition, the Cambridge welfare tradition and the Cambridge Keynesian tradition, present themselves as a continuation of classical political economy, but with each possessing opposing views on what classical political economy is, as noted above.

The Cambridge welfare tradition adopted a marginalist framework in the analysis of human well-being. Thus, Sidgwick, Marshall, and Pigou noted that wealth and welfare need not coincide because different human beings possess different marginal utilities, and thus achieve different levels of well-being even if they all possess the same wealth. Pigou drew upon the utilitarian framework to argue that a more equal distribution of income and wealth leads to a higher level of social utility. The individuals who have lower income and wealth have a higher marginal utility for an additional unit of income or wealth. As such, the redistribution of income and wealth towards those who possess a lower level of income and wealth (and thus a higher marginal utility) leads to an increase in total utility within society.

One cannot help noting the striking similarities between Pigou’s reasoning on marginal utility and Keynes’s reasoning when studying the marginal propensity to consume (MPC). In the final chapter of The General Theory—which is on the social philosophy towards which The General Theory could lead— Keynes (1936 [1973]: 372-384) argues that the redistribution of income towards those with lower incomes leads to a greater level of total consumption, since those with lower incomes have higher MPCs. Thus, Keynes saw a more equal distribution of income as a means to increase effective demand, as did Kalecki. Keynes’s argument is formally analogous to Pigou’s, but Pigou focuses on utility, and Keynes on consumption.

Pigou’s argument for redistribution was soon challenged by Lionel Robbins’s (1932) [1935] questioning of the possibility of interpersonal comparisons of utility. Much work on social choice theory was undertaken in order to challenge Robbins’s doubts, most notably by Amartya Sen (1982), who became the key contemporary exponent of the Cambridge welfare tradition, developed also by authors such as Meade and Tony Atkinson. Sen (ibid.) argued that partial comparisons of well-being are possible in many cases. Sen’s contribution was much stimulated by the central theme of the Cambridge welfare tradition, namely the distinction between wealth and welfare. But Sen’s analysis of this distinction leads him to reject the use of utility as a measure of human well-being. Influenced by Maurice Dobb and his notion of ‘rich description’, Sen (1985) came to study human well-being in broader terms, focusing on human capabilities, which are what a person can do or be.

Hilary Putnam and Vivian Walsh (2011) argue that in so doing, Sen (1987) is simply bringing back the rich philosophical anthropology of the classical political economists. They argue that while Sraffa’s contribution can be best interpreted as the first stage in the revival of classical political economy, centred on the analytical economic framework of the classical theorists, Sen’s contribution can be best interpreted as the second stage, centred on the philosophical anthropology of the classical authors.

The role that Sen’s (ibid.) capability approach can play within the Cambridge Keynesian tradition is seen more clearly if we look at the theory of value and distribution. A central feature that emerges in the Cambridge controversies in the theory of capital, and is taken into account in the subsequent developments undertaken within the Cambridge Keynesian tradition, is that distribution is not determined by marginal productivities of factors of production, as in neoclassical economics. For Sraffa, distribution of income is an exogenous determinant of prices, and of the choice of the methods of production. For Keynes and Kalecki, distribution is a determinant of consumption, and of effective demand, as noted above. Sraffa’s revival of classical political economy left quantities as an exogenous variable, and can be combined with the Keynesian-Kaleckian principle of effective demand, as argued by Pasinetti and Garegnani, amongst others, who provide a Keynesian-Sraffian synthesis (see Harcourt 2006). But the Keynesian-Sraffian framework leaves distribution as an exogenous variable from the point of view of economic theory, and can be fruitfully complemented with Sen’s capability approach, as argued in Putnam and Walsh and Martins (2013).

The fact that the contributions of Sraffa, Keynes, Kalecki, and Sen can be seen as part of a coherent project signals also an approximation between the Cambridge Keynesian tradition and the Cambridge welfare tradition, which has Sen as its greatest contemporary exponent. However, this approximation is possible only because Sen rejected the elements of the Cambridge welfare tradition that were not accepted by the Cambridge Keynesian tradition, in particular the use of marginal utility to study human well-being, and the theory of value (see Martins (2013: Chapter 6) for an elaboration). That is, Sen developed the key theme of the Cambridge welfare tradition, the distinction between wealth and welfare, in a direction which is actually compatible with, or indeed complementary to, the revival of classical political economy undertaken within the Cambridge Keynesian tradition. But even given the argument that he is the greatest contemporary exponent of the Cambridge welfare tradition, Sen is the only influential author of that tradition who abandoned marginal theory and utilitarianism. He is an exception since there remains a significant theoretical gap between the Cambridge Keynesian tradition and the Cambridge welfare tradition.

With respect to the methodological issues he explores, Sen is also closer to the modern Cambridge Keynesian tradition than to those authors who developed the Cambridge welfare tradition after Pigou. Sen (1989) noted, quite famously, that in economics it is better to be vaguely right than precisely wrong. In so doing, he was paraphrasing Keynes, who in turn was paraphrasing the British philosopher, H. Wildon Carr, who translated the work of Henri Bergson to English, and was much influenced by his philosophy.

The role of language is essential here. Keynes criticised the differential method used by Marshall and Pigou, which Sraffa also criticised, and the use of symbolic mathematics. Keynes (1936 [1973] 297-298) noted that symbolic mathematics presupposes the independence of the various factors involved, while ordinary discourse does not, since when using everyday language we can keep at the back of our heads the complexities and interdependencies of the real world. That is, in a world which is internally related, ordinary discourse is a more adequate language than symbolic mathematics, which presupposes an atomistic world (see also Harcourt (1987, 1995) and Lawson (1997, 2003) on the use of mathematics in economics).

The problem at stake here is the problem of internal relations, which was faced by Marshall early on, and led to Sraffa’s and Keynes’s critique of Marshall. Keynes believed the world was internally related, and stresses the need to address the economy as a whole. As Harcourt (1987, 2003) explains, there are three aspects in Keynes thinking which are closely connected to the Cambridge tradition as a whole: the whole is more than the sum of the components; agents act in a context of inescapable uncertainty; and the need for a plurality of languages for expressing reality.

These elements of Keynes’s thinking go back to the foundation of the Cambridge economic tradition with Marshall. The Cambridge Keynesian tradition provided a very different interpretation of classical political economy than the Cambridge welfare tradition of Marshall and Pigou. The economic theories developed by the Cambridge Keynesian tradition and the Cambridge welfare tradition are radically different. However, despite the very different theories developed within the two traditions—which spring from different interpretations of classical political economy—the underlying philosophy of both is the same. It is a philosophy aimed at developing a realistic theory of an internally related world, with the aim of improving human well-being.