Efficiency and Time

Let me begin by emphasizing a theme in Groenewegen’s biography of Alfred Marshall. ‘For Marshall, economists do not only have to explain their world. They have an unambiguous duty to assist in changing it for the better’ (Groenewegen 1995: 761). To fulfil this duty economists must have a viable theory about the possibilities and processes of change; this is not a trivial matter, and it will be the principal topic of this chapter. However, it is convenient to approach this topic by considering first another prerequisite for the duty of promoting beneficial change: that is, some reliable means of appraising both the world as it is and proposals for improvement. Any appraisal requires appropriate criteria; and, at least since the time of Smith, most economists have judged the performance of economic systems by their apparent contribution to human welfare, somewhat variously interpreted. But in the 1930s an increasing concern to formulate the concept of welfare in a way that satisfied the logical positivist tests of scientific validity, which excluded value judgements, led to the emergence and exaltation of the principle of Pareto efficiency, defined as an allocation from which it was impossible for any person to be made better off without some other person being made worse off, when ‘better’ and ‘worse’ were determined by individual preferences.