Entrepreneurship, knowledge and employment

Are welfare expenditures productive?

Perrotta Cosimo, former professor of the History of economic thought

ESHET Conference - Madrid, June 2018 Are welfare expenditures productive? Abstract There is a sort of puzzle about the implementation of the welfare state (ca. 1950-1975). Was the public expenditure which supported it unproductive, although socially beneficial, or was it economically productive? Most economists of the period thought it was unproductive. The neo-classical authors believed so in principle. Public spending is per se wealth subtracted to private investment, the only productive one (but see Hansen for an insightful exception). Thus, the welfare state hinders development. Like all the public expenses, it must be reduced as much as possible. The Marxists, paradoxically, did not thing differently, due to Marx’s classical approach. However, according to them this growing unproductive employment of the surplus was required by capital itself. The aim was avoiding the excessive production of surplus which would have produced gluts on the market. To mention just the biggest authors, see Sweezy, Gillmann, Monopoly Capital, etc. Moreover most of the Marxists considered all kinds of intellectual and skilled labour as unproductive. This was just when accumulation started to rely increasingly on the growth of intellectual labour. The Post-Keynesians did see the productiveness of the welfare expenditure, but only in order to increase demand. It was not a real investment which increased the social wealth. But, this kind of expenditure could foster production only in the short run. In the long term it would become unsustainable. However, if the welfare expenditures were an investment, why the welfare state entered, at the end of the 1970s, and endless crisis? Because the further growth required new products and new fields of investment. This had been made clear by a crowd of economists, since Ricardo and Say up to Löbl, Pasinetti and Kindleberger: gluts can be avoided at the condition that accumulation varies the kinds of products, extends refined consumption an


Keywords: welfare state - productiveness

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