Social Value, Taxation, and Public Finance

An important Progressive Era legal-economic debate concerned whether value, or welfare, was “individual” or “social.” The mathematics of marginalism worked only by assuming individual market choice. By contrast, evolutionary social science spoke of “instincts” that were not autonomous, but dictated by an evolutionary process in which successful survival characteristics were common across a species. For more than two decades economists, social scientists, and legal writers chose sides in this debate. Mainstream economists gradually adopted a “methodological individualism,” while social scientists moved toward a behaviorism that evaluated welfare socially instead of individually. This debate had profound implications on legal policy, particularly on taxation. Among the issues were the justifications for progressivity in income tax, the appropriate range of “public goods” that could be supplied by government, and the use of “Pigouvian” taxes to control socially harmful conduct.