Of the many jokes economists tell about themselves, this is my favorite. Two graduate students overtook Professor Paul Samuelson as he walked. “There's a beggar at the corner,” they told him, “who, when offered the choice between fifty cents and a dollar, always takes the fifty cents.” Samuelson replied, “He's irrational or it's impossible.” When reassured that the beggar had his wits about him, Samuelson decided to see for himself. “In my left hand, I have fifty cents; in my right, one dollar; you may have whichever one you prefer,” Samuelson said to the beggar.

“I'll take the fifty cents,” the man answered without hesitation.

After giving him the two quarters, Samuelson asked, “Don't you understand that a dollar is worth twice as much as fifty cents?”

“Of course I do.”

“Then why did you take the fifty cents?”

“Had I taken the dollar,” the beggar replied, “economists wouldn't troop down here every day to offer me the choice.”

Welfare economics rests on “one fundamental ethical postulate,” namely, that the preferences of individuals are to count in the allocation of resources. This approach to social policy assumes that, for any social decision, preferences are already given and “that the role of the social decision process is just to follow them.” In this framework, “preferences are treated as data of the most fundamental kind. Value, in the economic sense, is ultimately derived from individual preferences.”