Pigou assumed that the aim of social policy is to 'promote welfare'. But in order to simplifL this, he chose to restrict the range of his inquiry to 'that part of social welfare that can be brought directly or indirectly into relationship with the measuring rod of money'. He therefore suggested that, "this part of welfare may be called economic welfare". For an individual, Pigou identified economic welfare with satisfaction by assuming expected and realised Welfare Economics satisfaction from economic activity to be equal except in the case of the saving decision.
Pigou had assumed measurability and interpersonal comparison of utility, and had drawn some conclusions from the premise that aggregate social utility ought to be maximised. He explained this through the concept of 'ideal output or ideal allocation'.
For Pigou, a situation 'in which each several sort of resource is allocated in such a way that the last unit of it in any one use yields a physical product of the same money value as the last unit of it in any other use' is one of ideal allocation, irrespective of the distribution of money incomes. If it is a community comprising rich and poor people, then 'though it is true that aggregate satisfaction can be increased by departures from this type of allocation in ways deliberately designed to benefl poor people, it is probable that departures taken at random, e.g., through the operation of monopoly power, would diminish aggregate satisfaction'. Therefore, according to Pigou, such an allocation is properly called the ideal allocation with respect to the existing distribution of money income.