Market Mechanics 77 



is the same for both. Such a proposition cannot be demonstrated 

 analytically. Hence, we cannot say that one man's gain though it 

 be very large, increases the aggregate of welfare more than the 

 decrease in welfare associated with the uncompensated loss of 

 another's. Our efficiency criteria, in the practical case, will not lead 

 unambiguously toward an increase in social welfare. 



If systematically applied in the water resources field, however, 

 our efficiency criteria will lead to an increase in social product 

 valued at market (or imputed) prices. ^° That is, our benefit-cost 

 criteria will lead to an increase in the social valuation of the total 

 output, even though we cannot say that the resulting distribution 

 of income will increase, diminish, or leave unchanged social welfare. 

 But we know from empirical investigations that a rise in national 

 output in modern societies has been attended by greater equality 

 in its distribution.*° Neither the rise in material output nor the 

 greater equality of distribution of the social product offends the 

 predominant ethical values of an equalitarian political democracy. 

 Accordingly, there is reason — if not a scientifically demonstrable 

 case — for believing welfare will be increased generally by systematic 

 application of the economic efficiency criteria.^^ We claim no more 

 for our efficiency criteria. 



To the extent that multiple purpose river projects will normally 

 require some financing out of tax revenues, we have to acknowledge 

 the theoretical possibilities of tax effects on the marginal adjust- 

 ments in the resource allocative process. This problem is not 

 significant from the standpoint of considerations faced in this 

 study. But financing by means of taxation has significant implica- 

 tions of another sort for our evaluation of costs in the efficient 

 investment criterion. Accordingly, we shall take some time to 

 arrive at an opportunity cost for water resources investment funds 

 in the next chapter, which represents a different approach to the 

 problem than any previously employed in benefit-cost analysis. 



^This accepts the institutionally imposed restraint on public investment in 

 the purely private sector. 



"This point we owe to S. V. Ciriacy-Wantrup, "Concepts Used as Economic 

 Criteria for a System of Water Rights," Land Econotnics, November 1956, p. 307. 



*' This does not deny exceptions or the application of "higher criteria" in 

 particular cases. For a generalized defense of this position see Franklin M. 

 Fisher, "Income Distribution, Value Judgments, and Welfare," Quarterly Journal 

 of Economics, August 1956. 



