Arthur Cecil Pigou

Last updated

Arthur Cecil Pigou
A.C. Pigou.jpg
Born(1877-11-18)18 November 1877
Ryde, Isle of Wight, England
Died7 March 1959(1959-03-07) (aged 81)
Academic career
Institution University of Cambridge
Field Welfare economics
School or
Neoclassical economics
Alma mater King's College, Cambridge
Influences Alfred Marshall, Henry Sidgwick [1]
Contributions Externalities
Pigou effect
Pigovian tax
Awards1899 Chancellor's Gold Medal
1903 Adam Smith Prize

Arthur Cecil Pigou ( /ˈpɡ/ ; 18 November 1877 – 7 March 1959) was an English economist. As a teacher and builder of the School of Economics at the University of Cambridge, he trained and influenced many Cambridge economists who went on to take chairs of economics around the world. His work covered various fields of economics, particularly welfare economics, but also included business cycle theory, unemployment, public finance, index numbers, and measurement of national output. [2] His reputation was affected adversely by influential economic writers who used his work as the basis on which to define their own opposing views. He reluctantly served on several public committees, including the Cunliffe Committee and the 1919 Royal Commission on income tax.


Early life and education

Pigou was born at Ryde on the Isle of Wight, the son of Clarence George Scott Pigou, an army officer, and his wife Nora Biddel Frances Sophia, daughter of Sir John Lees, 3rd Baronet. He won a scholarship to Harrow School, where he was in Newlands house and became the first modern head of school[ clarification needed ]. The school's economics society is named The Pigou Society in his honour. In 1896 he was admitted as a history scholar to King's College, Cambridge, [3] where he first read history under Oscar Browning. He won the Chancellor's Gold Medal for English Verse in 1899, and the Cobden (1901), Burney (1901), and Adam Smith Prizes (1903), and made his mark in the Cambridge Union Society, of which he was President in 1900. He came to economics through the study of philosophy and ethics under the Moral Science Tripos. He studied economics under Alfred Marshall, whom he later succeeded as professor of political economy. His first and unsuccessful attempt at a fellowship of King's was a thesis on "Browning as a Religious Teacher".

Academic work

Pigou began lecturing on economics in 1901 and started giving the course on advanced economics to second year students on which was based the education of many Cambridge economists over the next thirty years. In his early days he lectured on a variety of subjects outside economics. He became a Fellow of King's College on his second attempt in March 1902, [4] and was appointed Girdler's Lecturer in the summer of 1904. He devoted himself to exploring the various departments of economic doctrine, and as a result published the works on which his worldwide reputation rests. He specifically studied under Alfred Marshall and focused on normative economics. He became intrigued by welfare economics, which examines the overall benefit to society that comes from all the decisions made: those that individuals make about buying, selling and working, and those that firms make about production and employment. [5] His first work was more philosophical than his later work, as he expanded the essay which had won him the Adam Smith Prize in 1903 into Principles and Methods of Industrial Peace.

In 1908 Pigou was elected Professor of Political Economy at the University of Cambridge in succession to Alfred Marshall. He held the post until 1943.

In 1909 he wrote an essay [6] in favour of Land Value Taxation, likely to be interpreted as support for Lloyd George's People's Budget. Marshall's views on the land value tax were the inspiration for his view on taxing negative externalities. [7]

Pigou's most enduring contribution was The Economics of Welfare, 1920, in which he introduced the concept of externality and the idea that externality problems could be corrected by the imposition of a Pigovian tax (also spelled "Pigouvian tax"). In The Economics of Welfare (initially called Wealth and Welfare), Pigou developed Marshall’s concept of externality, which is a cost imposed or benefit conferred on others that is not accounted for by the person who creates these costs or benefits. Pigou argued that negative externalities (costs imposed) should be offset by a tax, while positive externalities should be offset by a subsidy. In the early 1960s Pigou's analysis was criticised by Ronald Coase, who argued that taxes and subsidies are not necessary if the partners in the transaction can bargain over the transaction. The externality concept remains central to modern welfare economics and particularly to environmental economics. The Pigou Club, named in his honour, is an association of modern economists who support the idea of a carbon tax to address the problem of climate change.

A neglected aspect of Pigou's work is his analysis of a range of labour-market phenomena studied by subsequent economists, including collective bargaining, wage rigidity, internal labour markets, segmented labour market, and human capital. [2] Sticky wages are when workers’ earnings don’t adjust quickly to changes in labour market conditions. This can slow an economy's recovery from a recession. [8]

Pigou’s contributions to solving unemployment serve as a basic foundation for understanding the phenomena of labor market externalities. His Theory of Unemployment, first published in 1933, describe many of the factors that contribute to unemployment, such as sticky wages, and an unwillingness to work at the market price. Both of these are factors that were given by Alfred Marshall and reinforced by Pigou. Up until the post-World War One era, frictional unemployment was understood as part of a functional market. However, Pigou also notes that there is another type of unemployment that emerges not because people are unwilling to work at market wages but because employers have lower demand for labor. [9] With the lack of employment that resulted from the devastation of four years of war, England suffered from an economic depression long before the Great Depression, due in part to the fact that employers were hesitant to continue to hire women and veterans. This new factor of unemployment, Pigou writes, could be solved with subsidies provided by the government to industries suffering the most, such as manufacturing. [9]

Keynes argues against several points that Pigou makes in his Theory of Unemployment, but the most visible is Pigou’s theory that unemployment is either frictional or voluntary. [10] However, the separation between frictional and voluntary unemployment is the first foray into understanding the way unemployment impacts the labor market until the publishing of Keynes General Theory.

One of his early acts was to provide private financial support for John Maynard Keynes to work on probability theory. [11] Pigou and Keynes had great mutual affection and regard for each other, and their intellectual differences never put their personal friendship seriously in jeopardy.

Pigou was generally critical of Keynesian macroeconomics and developed the idea of the Pigou effect on real money balances to argue that the economy would be more self-stabilizing than Keynes proposed. In a couple of lectures delivered in 1949 he made a more favourable, though still critical evaluation of Keynes' work: "I should say... that in setting out and developing his fundamental conception, Keynes made a very important, original and valuable addition to the armoury of economic analysis". [12] He later said that he had come with the passage of time to feel that he had failed earlier to appreciate some of the important things that Keynes was trying to say. [12]

Keynes, in turn, was very critical of Pigou, mentioning Pigou at least 17 times in The General Theory of Employment, Interest and Money , usually disparagingly. Keynes states that "[Pigou] is unable to devise any satisfactory formula to evaluate new equipment against old when, owing to changes in technique, the two are not identical. I believe that the concept at which Professor Pigou is aiming is the right and appropriate concept for economic analysis. But, until a satisfactory system of units has been adopted, its precise definition is an impossible task." [13]

Personal life

Pigou had strong principles, and these gave him some problems in World War I. He was a conscientious objector to military service when it required an obligation to destroy human life. He remained at Cambridge, but during the vacations was an ambulance driver at the front for the Friends' Ambulance Unit, and insisted on undertaking jobs of particular danger. Towards the end of the war he reluctantly accepted a post in the Board of Trade, but showed little aptitude for the work.

He was a reluctant member of the Cunliffe Committee on the Currency and Foreign Exchange (1918–1919), the Royal Commission on the Income Tax (1919–1920), and the Chamberlain Committee on the Currency and Bank of England Note Issues (1924–1925). The report of the last body was the prelude to the much criticised restoration of the gold standard at the old parity of exchange. Pigou was elected to the British Academy in 1925, but resigned later in 1947. In later years he withdrew from national affairs and devoted himself to more academic economics and writing weighty letters to The Times on problems of the day. He was a foreign honorary member of the American Academy of Arts and Sciences, a foreign member of the Accademia dei Lincei, and an honorary resident of the International Economic Committee.

He loved mountains and climbing, and introduced climbing to many friends, such as Wilfrid Noyce and others, who became far greater climbers. An illness affecting his heart developed in the early 1930s, however, and this affected his vigour, curtailing his climbing and leaving him with phases of debility for the rest of his life. Pigou gave up his professor's chair in 1943, but remained a Fellow of King's College until his death. In his later years he gradually became more of a recluse, emerging occasionally from his rooms to give lectures or to take a walk.

Pigou never married. He had good friendships, particularly in his later years. He had a penchant for complaining about politicians. [14]

Major publications

See also

Related Research Articles

Economics is a social science that studies the production, distribution, and consumption of goods and services.

Keynesian economics are the various macroeconomic theories and models of how aggregate demand strongly influences economic output and inflation. In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy. It is influenced by a host of factors that sometimes behave erratically and impact production, employment, and inflation.

<span class="mw-page-title-main">Macroeconomics</span> Study of an economy as a whole

Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as output/GDP and national income, unemployment, price indices and inflation, consumption, saving, investment, energy, international trade, and international finance.

Neoclassical economics is an approach to economics in which the production, consumption, and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a good or service is determined through a hypothetical maximization of utility by income-constrained individuals and of profits by firms facing production costs and employing available information and factors of production. This approach has often been justified by appealing to rational choice theory.

<span class="mw-page-title-main">Alfred Marshall</span> British economist (1842–1924)

Alfred Marshall was an English economist, and was one of the most influential economists of his time. His book Principles of Economics (1890) was the dominant economic textbook in England for many years. It brought the ideas of supply and demand, marginal utility, and costs of production into a coherent whole. He is known as one of the founders of neoclassical economics.

<span class="mw-page-title-main">Nicholas Kaldor</span> Hungarian-British economist

Nicholas Kaldor, Baron Kaldor, born Káldor Miklós, was a Cambridge economist in the post-war period. He developed the "compensation" criteria called Kaldor–Hicks efficiency for welfare comparisons (1939), derived the cobweb model, and argued for certain regularities observable in economic growth, which are called Kaldor's growth laws. Kaldor worked alongside Gunnar Myrdal to develop the key concept Circular Cumulative Causation, a multicausal approach where the core variables and their linkages are delineated. Both Myrdal and Kaldor examine circular relationships, where the interdependencies between factors are relatively strong, and where variables interlink in the determination of major processes. Gunnar Myrdal got the concept from Knut Wicksell and developed it alongside Nicholas Kaldor when they worked together at the United Nations Economic Commission for Europe. Myrdal concentrated on the social provisioning aspect of development, while Kaldor concentrated on demand-supply relationships to the manufacturing sector. Kaldor also coined the term "convenience yield" related to commodity markets and the so-called theory of storage, which was initially developed by Holbrook Working.

<i>The General Theory of Employment, Interest and Money</i> 1936 book by John Maynard Keynes

The General Theory of Employment, Interest and Money is a book by English economist John Maynard Keynes published in February 1936. It caused a profound shift in economic thought, giving macroeconomics a central place in economic theory and contributing much of its terminology – the "Keynesian Revolution". It had equally powerful consequences in economic policy, being interpreted as providing theoretical support for government spending in general, and for budgetary deficits, monetary intervention and counter-cyclical policies in particular. It is pervaded with an air of mistrust for the rationality of free-market decision making.

<span class="mw-page-title-main">Francis Ysidro Edgeworth</span> Irish economist (1845–1926)

Francis Ysidro Edgeworth was an Anglo-Irish philosopher and political economist who made significant contributions to the methods of statistics during the 1880s. From 1891 onward, he was appointed the founding editor of The Economic Journal.

Maurice Herbert Dobb was an English economist at Cambridge University and a Fellow of Trinity College, Cambridge. He is remembered as one of the pre-eminent Marxist economists of the 20th century.

In economics, the Pigou effect is the stimulation of output and employment caused by increasing consumption due to a rise in real balances of wealth, particularly during deflation. The term was named after Arthur Cecil Pigou by Don Patinkin in 1948.

The history of economic thought is the study of the philosophies of the different thinkers and theories in the subjects that later became political economy and economics, from the ancient world to the present day in the 21st century. This field encompasses many disparate schools of economic thought. Ancient Greek writers such as the philosopher Aristotle examined ideas about the art of wealth acquisition, and questioned whether property is best left in private or public hands. In the Middle Ages, Thomas Aquinas argued that it was a moral obligation of businesses to sell goods at a just price.

The neoclassical synthesis (NCS), neoclassical–Keynesian synthesis, or just neo-Keynesianism was a neoclassical economics academic movement and paradigm in economics that worked towards reconciling the macroeconomic thought of John Maynard Keynes in his book The General Theory of Employment, Interest and Money (1936). It was formulated most notably by John Hicks (1937), Franco Modigliani (1944), and Paul Samuelson (1948), who dominated economics in the post-war period and formed the mainstream of macroeconomic thought in the 1950s, 60s, and 70s.

<span class="mw-page-title-main">Paul Davidson (economist)</span> American macroeconomist (born 1930)

Paul Davidson is an American macroeconomist who has been one of the leading spokesmen of the American branch of the post-Keynesian school in economics. He is a prolific writer and has actively intervened in important debates on economic policy from a position critical of mainstream economics.

Involuntary unemployment occurs when a person is unemployed despite being willing to work at the prevailing wage. It is distinguished from voluntary unemployment, where a person chooses not to work because their reservation wage is higher than the prevailing wage. In an economy with involuntary unemployment, there is a surplus of labor at the current real wage. This occurs when there is some force that prevents the real wage rate from decreasing to the real wage rate that would equilibrate supply and demand. Structural unemployment is also involuntary.

Public economics(or economics of the public sector) is the study of government policy through the lens of economic efficiency and equity. Public economics builds on the theory of welfare economics and is ultimately used as a tool to improve social welfare. Welfare can be defined in terms of well-being, prosperity, and overall state of being.

<span class="mw-page-title-main">Keynesian Revolution</span> Economic theory

The Keynesian Revolution was a fundamental reworking of economic theory concerning the factors determining employment levels in the overall economy. The revolution was set against the then orthodox economic framework, namely neoclassical economics.

<span class="mw-page-title-main">History of macroeconomic thought</span>

Macroeconomic theory has its origins in the study of business cycles and monetary theory. In general, early theorists believed monetary factors could not affect real factors such as real output. John Maynard Keynes attacked some of these "classical" theories and produced a general theory that described the whole economy in terms of aggregates rather than individual, microeconomic parts. Attempting to explain unemployment and recessions, he noticed the tendency for people and businesses to hoard cash and avoid investment during a recession. He argued that this invalidated the assumptions of classical economists who thought that markets always clear, leaving no surplus of goods and no willing labor left idle.

<i>An Essay on Marxian Economics</i> 1942 book by Joan Robinson

An Essay on Marxian Economics is an analytical essay written by in 1942 by economist Joan Robinson. The essay deals with the orthodox teachings of capital accumulation, the essential demand crisis and real wages by comparing it to Karl Marx's Das Kapital. It is a wide-ranging critique on Marx and Orthodox economics while also arguing for a long-term economic view that builds on the problems that Marx first identified in the exploitative nature of capitalism.

Marxism and Keynesianism is a method of understanding and comparing the works of influential economists John Maynard Keynes and Karl Marx. Both men's works has fostered respective schools of economic thought that have had significant influence in various academic circles as well as in influencing government policy of various states. Keynes' work found popularity in developed liberal economies following the Great Depression and World War II, most notably Franklin D. Roosevelt's New Deal in the United States in which strong industrial production was backed by strong unions and government support. Marx's work, with varying degrees of faithfulness, led the way to a number of socialist states, notably the Soviet Union and the People's Republic of China. The immense influence of both Marxian and Keynesian schools has led to numerous comparisons of the work of both economists along with synthesis of both schools.



  1. Medema, Steven G. (1 December 2008). ""Losing My Religion":Sidgwick, Theism, and the Struggle for Utilitarian Ethics in Economic Analysis". History of Political Economy. 40 (5): 189–211. doi:10.1215/00182702-2007-066.
  2. 1 2 Nahid Aslanbeigui, 2008. "Pigou, Arthur Cecil (1877–1959)," The New Palgrave Dictionary of Economics , 2nd ed. Abstract.
  3. "Pigou, Arthur Cecil (PG896AC)". A Cambridge Alumni Database. University of Cambridge.
  4. "University intelligence". The Times. No. 36717. London. 17 March 1902. p. 11.
  5. Kishtainy, Niall (2017). A little history of economics : revised version (First ed.). Yale University Press. p. 72. ISBN   978-0300206364.
  6. Pigou, Arthur Cecil (1909). The policy of land taxation. New York, Longmans, Green. OCLC   12218279.
  7. "ESHET CONFERENCE – The Practices of Economists in the Past and Today – Amsterdam". Archived from the original on 20 December 2016. Retrieved 20 August 2015.
  8. Haltom, Renee. "Sticky Wages" (PDF). Jargon Alert. Retrieved 21 April 2020.
  9. 1 2 Pigou, Arthur (1933). Theory of Unemployment. Frank Cass and Company Limited. ISBN   0714612421.
  10. Keynes, John Maynard (1936). General Theory of Employment, Interest, and Money. Palgrave Macmillan.
  11. Keynes Timeline
  12. 1 2 Times Obituary, March 1959
  13. Keynes, John Maynard (1936). The General Theory of Employment, Interest and Money. Houndsmills: Palgrave Macmillan. ISBN   978-0230-00476-4.
  14. Chapter 8 and epilogue, The First Serious Optimist: A. C. Pigou... by Kumekawa, Ian


Further reading