Richard Kahn: His Welfare Economics and Lifetime Achievement

Paul A. Samuelson

Cambridge Journal of Economics, 1994, vol. 18, issue 1, pages 55-72

Abstract: Kahn's principal novelty for welfare economics came in his 1935 work on Ideal Output. Marshall and Pigou had argued, somewhat confusedly, that industries with more than average increasing costs should be contracted by taxation, so that revenue collected could expand by subsidization of industries with less than average increasing costs. In the Robinson-Chamberlin era of recognizing deviations from perfect competition, Kahn gave a new and parallel argument. Expand by subsidy industries with more than average price-and-marginal cost deviations, while contracting by taxation industries with less than average such deviation. A. P. Lerner, presuming feasibility of perfect lump-sum taxes, showed Kahn's equilibrium not to be (what is today called) Pareto-optimal. Earlier, Frank Ramsey had shown that, under feasible excise-taxing neither Lerner nor Kahn achieve the optimum. Even more lasting than Kahn's welfare contribution was his 1931 anticipation of Keynes's 1936 income-multiplier paradigm. (c) 1994 Academic Press, Inc. Copyright 1994 by Oxford University Press.

Date: 1994

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