Late Nineteenth Century
During Marshall’s tenure as Professor of Political Economy a number of Cambridge scholars contributed to ideas that either directly addressed issues of economic welfare or influenced subsequent developments in that field. Particularly relevant in this regard are Henry Sidgwick, for his The Principles of Political Economy (Sidgwick 1883 ), Herbert Somerton Foxwell, for his essay on the ‘Irregularity of Employment and Fluctuations of Prices’ (Foxwell 1886), Alfred Marshall, for his influential tome on the Principles of Economics (Marshall 1890 [1920a]), and John Neville Keynes, for his careful study of method in The Scope and Method of Political Economy (Neville Keynes 1891 ).
Sidgwick and the Welfare-enhancing Art of Political Economy
In philosophical circles, Henry Sidgwick is famous for his book The Methods of Ethics (1874) , which went through six editions and provided yet a further refinement of militarism, although, as Backhouse (2006: 21) has pointed out, Sidgwick did not succeed in presenting a rational demonstration of why utilitarianism should be preferred to egoism. But in his most important incursion into economics, The Principles of Political Economy, Sidgwick succeeded in presenting a challenge to the alleged efficiency of a competitive economy in regard to both the production of wealth and its distribution. He contended that the prevailing view exaggerated the gains from competition as such gains could only be conceived in the realm of pure abstraction, and that it actually did not extend to the world in which people live. Once a criterion of social welfare is defined, though, Sidgwick pointed out that different conclusions could be reached and, in view of this, welfare considerations ought to move to the sphere of political economy as an art. In other words, political economy becomes a guide to statesmen to act in order to improve the wellbeing of society. In line with this particular approach, Sidgwick enunciated the two main goals of the art of political economy, namely: (1) to make the proportion of produce to population a maximum, as measured by the ordinary standard of exchange value, and (2) to ensure the proper distribution of income among members of the community based on the general principle of making the whole produce as useful as possible (Sidgwick 1883 : 83-84, 397, 519, 1891 : 39-41, 160). With this in mind, Sidgwick suggested that state intervention was a normal condition of modern industrial life, a proposition that he complemented by compiling a detailed catalogue of instances where public policies should be employed to promote welfare.
In regard to production, which concerns the first of the basic objectives of the art of political economy, Sidgwick introduces the crucial notion that the utility to society from the output of some economic enterprises could be different from the corresponding private utility. For instance, lighthouses, forests, and scientific research generate a substantial public advantage, respectively, for navigation, rain precipitation, and industrial productivity, while they are economically unattractive when considered from the viewpoint of private utility. More generally, Sidgwick maintained that the sum of individuals’ utilities may diverge from the aggregate value of goods measured at market prices because the price of goods corresponds to marginal utilities, whereas the utility derived from consumption reflects average utilities (Backhouse 2006: 22). In view of this, he considered that the state had a role in taking action to facilitate the provision of goods in short supply, where under-provision is a consequence of marginal utility falling below average utility. Conversely, in the case of monopolies, parallel railways, and predatory fishing, for example, the private gain involved in these activities is significantly larger than the corresponding public utility, so state intervention is called for to nationalize monopolies, to regulate the railways, and to assure the survival of sea life (Sidgwick 1883 : 437-485).
As for the distribution of income, which relates to the second of the basic objectives of the art of political economy, the most important initiative concerns the constitution of a national system of education, out of public funds. This basic educational structure would be supplemented by a network of universities aimed at advancing knowledge and improving the skills of the labouring classes. In doing so, Sidgwick interrelates improvements in the distribution of income with enhancements in productivity through education and skills development. Emigration schemes would also be operational in bringing about gains for the community by placing the labourers in more favourable conditions regarding the access to land. The progressive undertaking of private activities by the state, in addition, would reduce the share of national income distributed in the form of profits, thereby allowing its redistribution to the aggregate remuneration of labour. The legal prescription of a minimum wage for all kinds of occupations, however, would have to be accompanied by some kind of mandatory exertion, as required by the Poor Laws, in order to preserve the incentive to work among able-bodied men. Finally, a system of compulsory insurance might be devised to secure the working population against infirmity and old age. Additional redistributive policies suggested by Sidgwick consisted of the supply of cheap credit for peasants and the institution of a system of public health for the poor financed by taxes on the wealthiest (ibid.: 499-544).