A genealogy of the concept of merit wants

ABSTRACT

This paper proposes a genealogy of the concept of merit wants coined by Richard A. Musgrave in his Theory of Public Finance (1959). The concept of merit wants can only be understood as a complement to the concept of public goods. I suggest that Musgrave invented the concept to apprehend some considerations that have been left out in the process of consolidation of the concept of public good. The narrow definition of the latter could not account for important state responsibilities that have been asserted by many economists.

I attempt to reconstruct Musgrave's intellectual background. First, I select examples of arguments for state intervention from authors influential in Musgrave's formative period (J.S. Mill, H. Sidgwick, E. Sax, H. Ritschl, G. Cassel, A. Wagner). Second, I argue that the invention of the concept in the 1950s reflected contemporary concerns for redistributive policies. I show that critics of the New Welfare approach (G. Colm, A. Hansen, W. Heller, H. Bowen) have held similar views, which were also in line with the liberal policy spirit of the post-war era in the United States.

KEYWORDS:

• Merit wants
• merit goods
• Richard A. Musgrave
• social wants
• public goods

JEL Codes:

• B29
• B31
• H40
• H42

Acknowledgements

Different versions of this paper were presented at the 2014 HES Conference in Montréal, and at the 2015 ESHET Conference in Rome (Young Scholars Seminar). I thank Marianne Johnson and Richard Sturn for their very helpful comments. I am also indebted to Roberto Baranzini and the other members of the Walras-Pareto Centre, to the participants of the AOH seminar (CES-Paris 1), and to Steven G. Medema for their feedback at an earlier stage of the work. I have benefited from the generous support of the Friends of the Princeton University Library for conducting research in the Richard A. Musgrave Papers. I am grateful for the help I received from the staff of the Mudd Library at Princeton, especially from Daniel J. Linke. In addition, I wish to thank two referees for their helpful recommendations. All remaining errors are my own.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 For a list of all the examples of merit goods given by Musgrave over the years, see Ver Eecke (2013, p. 36 n. 4).

2 For a discussion of the different uses and justifications of the concept provided by Musgrave over the decades, see Andel (1984) and Ver Eecke (2007). The latter is an Anthology which also contains the major secondary sources on the debate from the 1960s onwards.

3 On Musgrave's contribution to the standard definition of public goods, see Desmarais-Tremblay (2015).

4 Other thinkers have put forward arguments for state intervention that are close to Musgrave's arguments for merit goods, but they probably did not influence him directly. For the family resemblance with Hegel and Adam Smith, see, respectively, Ver Eecke (2008) and Ver Eecke (2003).

5 On Musgrave's use of ideal types, see Desmarais-Tremblay (2014).

6 A similar ambition to take into account public expenditures is found in the contemporary works of De Viti de Marco (1934) and Colm (1936).

7 A “philosophy of life” which “remained intact” over the years (Musgrave 1986, p. 104, Musgrave 1999).

8 In 1958, Musgrave moved to Johns Hopkins, then to Princeton in 1962, and back to Harvard in 1965 with a joint appointment in the Economics Department and the Law Faculty. After retiring in 1981, he became adjunct professor at the University of California (Santa Cruz) where his wife, Peggy B. Musgrave, was teaching. He passed away in 2007 (Musgrave 1986, Sinn 2009). See also “Cumulative Bio-bibliography” dated from 1992 in the Richard A. Musgrave Papers (thereafter RAM Papers), Princeton University Library, Box 7, folder ‘Biographical’.

9 Hammond (2015) downplays this normative interpretation of Samuelson's model, instead putting emphasis on Samuelson's own ‘nihilistic’ interpretation.

10 For a more general discussion of the narrowing perspective of economic thinking in the market failure tradition after World War II, see Marciano and Medema (2015).

11 For collective good and agent and quantities , .

12 Born in 1897, Gerhard Colm was a German economist who emigrated to the US in 1933. He joined the University in Exile at the New School and soon became an important figure of American economic policy. Advisor to the Trade Secretary in 1939, he moved to the Budget office during the War to become in 1946 a senior staff member of the Council of Economic Advisors to the president Truman. From 1952 until his death in 1968, he was the chief economist of the National Planning Association. (“Dr. Gerhard Colm, an Economist And Government Adviser, Dead”, The New York Times. 27 December 1968.). See also Krohn (1987, p. 120 ff).

13 Although both dimensions (1) and (2) are present in De Viti de Marco (1934), Mazzola (1890) and others, they do not need to coincide. For instance, Walras (1896) distinguishes between individual needs and collective needs, but he strongly rejects the subjective, or hedonist, evaluation of public goods. This does not prevent him from developing one of the first subjective conceptions of value for (private) commodities.

14 In his discussion on new foundations for the concept, Sturn (2015) rejects the ‘residual’ definition of merit wants. This seems to me a sound agenda, but it does not change the fact that when the concept was coined by Musgrave, it most likely carried some sort of residual nature (Ver Eecke 2007, p. 3).

15 I do not discuss here the conceptualisation of market failures in terms of externalities which runs parallel to the history of the concepts of public goods and merit goods. For a history of the concept of externalities, see Medema (2015). Public goods have been represented as goods that are simultaneously consumed by many agents. Moreover, many other types of impure public goods have been explained by various schemes of interdependence between utility functions. Yet, generally merit goods evade the utility function representation. They do not fit the welfarist framework in which the concept of externality has taken root. At least that was the perspective until the first formalisation attempts in the 1970s (on which see Desmarais-Tremblay 2016). For instance, Culyer (1971) will argue that merit goods can be defined as a special type of externality where individuals cannot capture the potential gains from trade.

16 On the complementarity between the concepts of private, merit, and public goods, see Ver Eecke (2013, p. 48). Some commentators, like Andel (1969) and Pulsipher (1971), have criticised the relevance of the separation between merit and public goods.

17 Blaug (1985, p. 218) claims that Mill provides the first analysis of a public good problem. Musgrave (1985) states that it is a case of free riding. Tuck (2008, p. 134) disagrees. Sturn (2015) sees it as a case of public goods.

18 This argument will be further developed by Pigou (1932). A student of Sidgwick, Pigou did not come up with a theory of public expenditures in his treatise on public finance (Musgrave 1959), but in his Economics of Welfare, he discussed cases where the individual is not the best judge of his interest and where the government might have a correcting role. Musgrave (1937) refers to Pigou (1932) and also names him among the important intellectual influences (Musgrave 1999). Pigou also advocated a leadership role in educating poor people to the benefits of many goods which are unknown to them, like education, and art. In stark contrast to the idea of consumer sovereignty, Pigou claimed that “The art of spending money, not merely among the poor, but among all classes, is very much less developed than the art of making it” (p. 754). This problem of lack of information, combined with cases of irrationality discussed by Pigou (myopia on the part of individuals and a discrepancy between desires and satisfaction) formed the basis of the main approach to justify merit goods from the 1960s onward, following Head (1966). See also Mackscheidt (1974), Folkers (1974) and Head (1988).

19 See also, Sidgwick (1883, p. 421).

20 Letter from Musgrave to Paolo Bosi. 26 March 1995. RAM Papers, Box 4, “Correspondence”.

21 Sax's (1887, 1924) typologies of motivations and of collective needs are confusing. This opinion was already expressed by Wagner (1892, p. 168) and by Musgrave (1937). Neck (1989) painstakingly attempts to clarify it.

22 See also Musgrave (1997, p. 74).

23 In his own words:

The law is the result of empirical observation in progressive countries, at least in our Western European civilization; its explanation, justification and cause is the pressure for social progress and the resulting changes in the relative spheres of private and public economy, especially compulsory public economy. (Wagner 1883, p. 8)

A similar formulation is found in Wagner (1892, Vol. III, p. 379) and translated into English in Bullock (1920, p. 32).

24 Cassel was one of the thinkers of the Swedish model of social-democracy (Carlson 2003). In his Theoretische Sozialökonomie (Theory of Social Economy), he came very close to the formulation of the two musgravian criteria for public goods (Sturn 2010). Musgrave (1983) recalls that he attended a course by Adolf Weber in Munich which was a “watered-down” version of Cassel's Theory (Colander and Landreth 1996, p. 195). Cassel had a very clear view of the evolution of the responsibilities of the modern state and its relation with the citizens.

25 The expression of “social wants proper” is likely adapted from Sax's (1924) expression of “collective wants proper” (eigentlichen Kollektivbedürfnisse).

26 A long-held conviction. See, for instance, Colm (1936b).

27 This was also explicitly argued by Wagner (1892, Vol. III, p. 283) and by Musgrave (1937, p. 76).

28 They likely met in sessions of the Fiscal Policy Seminar at Harvard under the direction of Alvin H. Hansen and John H. Williams. (Harvard Course catalogue, Graduate School of Public Administration, attachment in a letter from Walter Salant to Richard Musgrave. January 1988. RAM Papers, Box 5. Also available on Irwin Collier's blog [http://www.irwincollier.com/harvard-economics-hansen-and-williams-fiscal-seminar-1937-1944/].) See also Musgrave's note to Mr. Thurston (December 18, 1945) where he refers to a recent discussion with Colm. (Federal Reserve Board. The Marriner S. Eccles Document Collection.) Moreover, the Gerhard Colm Papers in the Library of Congress contain a dozen letters from or to Musgrave covering the whole 1950s decade (in Boxes 2, 3, 4, 5, 6, and 24).

29 In a first reaction to Musgrave's (1959) discussion of public wants, Colm restated his opposition to the individualistic approach to public expenditures. He regretted that Musgrave followed the Samuelsonian perspective on social/collective goods, but insisted in trying to reach mutual understanding out of respect and admiration for Musgrave and Samuelson. (Colm to Musgrave (cc. to Samuelson), April 29 1959, Gerhard Colm Papers, Library of Congress, Box 6, Folder 5.)

30 A year after having read Musgrave's Theory, Colm (1960b) published a paper detailing his view of the public interest, and referred to Musgrave's idea of merit wants in a footnote.

31 Unpublished and undated, but very likely from 1944 or early 1945. 46 pages. RAM Papers, Box 8, Princeton University Library.

32 Johnson (2015, p. 21) argues that “the institutional approach did not eschew value judgements or stop investigating questions when the subject veered into law, politics or sociology”. Musgrave admired Groves and Hansen for their “positive and courageous approach to the solution of public policy problems—the kind of attitude which expressed [their] Midwestern progressive faith that ultimately things can be done reasonably” (Musgrave, Heller, and Buchanan 1972, p. 66).

33 Moss (2005) claims that the American institutionalist bedrock was a fertile ground for Musgravian public finance and explains its relative rapid success, compared to Public Choice. Interestingly, Gruchy (1972) considers Colm as a neo-institutionalist thinker.

34 Hansen was hired by Harvard in 1937, the year he served as President of the AEA. Musgrave left Harvard for the Fed in 1941, but came back often to participate in the Fiscal Policy Seminar. Even before returning to academia, Musgrave led a project of essays in honour of Hansen (Income, Employment and Public Policy. Essays in Honor of Alvin H. Hansen, published by W.W. Norton & Co. in 1948.) Musgrave and Hansen also co-chaired a fiscal expertise mission to Germany in 1951. Musgrave (1976) titled his eulogy to Hansen: “Caring for the Real Problems.”

35 Trained at the University of Iowa, Howard Bowen published a paper on social goods (1943) which came close to Musgrave's (1939) reconstruction of the Lindahl model. Bowen (1948) refers to Musgrave (1939), and Musgrave (1957a, 1959) refers to Bowen (1948).

36 The focus on redistribution of some specifically important goods (“silver bullets” to fight poverty) will become an important strand of interpretation of merit goods in the 1970s. See Burrows (1977).

37 In his testimonial, Richard A. Musgrave (1957b, p. 111) also briefly mentioned the problem of merit wants, though without using the expression.

38 Council of Economic Advisers: Walter Heller, Kermit Gordon, James Tobin, Gardner Ackley, Paul Samuelson, recorded interview by Joseph Pechman, 1 August 1964, John F. Kennedy Library Oral History Program.

39 See letters, Henry to Musgrave, and Musgrave to Henry. 2005. RAM Papers, folder ‘Letters’, Box 5, Princeton University Library. The group of some 40 men organised by Thomas Fineletter also included fellow economic colleagues of Musgrave: Seymour E. Harris, E. Cary Brown, Stanley Surrey, Gerhard Colm, Alvin Hansen, Paul Samuelson, John K. Galbraith, and Walter W. Heller (Schlesinger and Harris 1957, p. xx). Musgrave, Colm, Heller, Surrey, and Brown constituted the ‘tax group’ in the larger Fineletter circle. (Memorandum from Colm to Heller, Musgrave, Surrey cc. Brown, 21 September 1956, Gerhard Colm Papers, Library of Congress, Box 5, Folder 5.)

40 Consumption–key to Full Prosperity. Toward rising living standards. Conference on Economic Progress 1957. pp. 35–6. Keyserling hired Colm on the CEA. In 1957, Keyserling participated in a group of 21 economists advising the Democratic Party on the problem of living standards, which also included K. Galbraith, S. Harris, W. Heller and R. Musgrave. (“High Costs Made issue by Butler,” The New York Times, Sep. 12 1957, p. 21) Keyserling represented the older generation closer to the idea of the New Deal, than to the New Economics of the 1960s. On the historiography of Liberalism in the 1950s, see Beck (1987). See also “Oral History interview with Leon H. Keyserling”, Washington, DC, May 1971. Harry S. Truman Library. [https://www.trumanlibrary.org/oralhist/keyserl3.htm]

41 M.S. Handler, “27 Specialists Start Flow of Ideas to White House”, The New York Times, May 3, 1964. And “What the future holds for America. As the President's ‘Idea Men’ See it. U.S.” News and World Report, June 15^, 1964. Musgrave (1966) also defends the Great Society programs. On the imperative of sharing the wealth, see also Hansen (1957, p. 146 ff.).

42 For instance, Colm and Geiger (1958, p. 58) argued that decent living standards for everyone was a shared value at the time.