Pigou’s The Economics of Welfare (1932 ) but lacks his subtlety of analysis, is based on the understanding that these costs are “externalities” – a market failure. The truth is, however, that our understanding of these costs and how to deal with them in terms of public policy is still far from settled.ĢConventional economic theory regarding social costs, which stems from A. * Article published in RCCS 95 (December 2011).ġIn a stimulating book published recently, entitled The Value of Nothing, Raj Patel very clearly illustrates, by means of several examples, the diversity, range and above all the importance of social costs resulting from business activities within the framework of contemporary capitalism (Patel, 2011, in particular ch.The nature of the problem is discussed initially, followed by a presentation, albeit brief, of two fundamental fault lines separating the prevailing conventional approach and Kapp’s heterodox one: the concept of efficiency adopted and the way in which the question of valuation of social costs is viewed. William Kapp, according to whom social costs are an intrinsic and inevitable problem within the institutional context of capitalism. This article contrasts the different concepts of social costs existing in economics literature, ranging from the identification of the problem as a “market failure” to the more heterodox (and less well-known) concept of K. The wide range of costs originating from business activities within the framework of capitalism and subsequently externalised or, more accurately, transferred to other agents or to society as a whole with no repercussions on the price mechanism, is one particularly striking example of these limitations. Even so, their limitations cannot, and should not, be ignored. The markets are a powerful economic coordination mechanism.
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