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Working Paper 51


Strange as it may seem, mainstream neoclassical economics has no concept of poverty. The concept used in neoclassical economics is utility or economic welfare, which following Pigou often is limited to those things which can be subjected to “the measuring rod of money”. It is assumed individuals attempt to maximize utility or welfare subject to a constraint, such as income. From an analytical perspective the level of utility, or the level of such things as wellbeing, income or expenditure is irrelevant; there is no notion in economics of insufficiency and hence of poverty. This is rather odd. None the less, if one overlooks this curiosity of economics and accepts the dictionary definition of poverty as “the state of one who lacks a usual or socially acceptable amount of money or material possessions,” then two important implications follow.


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