Arthur Cecil Pigou (; 18 November 1877 – 7 March 1959) was an English

economist An economist is a professional and practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this ...

. As a teacher and builder of the School of Economics at the

University of Cambridge , mottoeng = Literal: From here, light and sacred draughts. Non literal: From this place, we gain enlightenment and precious knowledge. , established = , other_name = The Chancellor, Masters and Schola ...

, he trained and influenced many Cambridge economists who went on to take chairs of

economics Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and intera ...

around the world. His work covered various fields of economics, particularly

welfare economics Welfare economics is a branch of economics that uses microeconomic techniques to evaluate well-being (welfare) at the aggregate (economy-wide) level. Attempting to apply the principles of welfare economics gives rise to the field of public econ ...

, but also included

Business cycle Business cycles are intervals of Economic expansion, expansion followed by recession in economic activity. These changes have implications for the welfare of the broad population as well as for private institutions. Typically business cycles are ...

theory, unemployment,

public finance Public finance is the study of the role of the government in the economy. It is the branch of economics that assesses the government revenue and government expenditure of the public authorities and the adjustment of one or the other to achie ...

index numbers In Statistics, Economics and Finance, an index is a statistical measure of change in a representative group of individual data points. These data may be derived from any number of sources, including company performance, prices, productivity, and ...

, and measurement of

national output A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product (GDP), gross national product (GNP), net national income (NNI), and adjusted nati ...

.Nahid Aslanbeigui, 2008. "Pigou, Arthur Cecil (1877–1959)," ''

The New Palgrave Dictionary of Economics ''The New Palgrave Dictionary of Economics'' (2018), 3rd ed., is a twenty-volume reference work on economics published by Palgrave Macmillan. It contains around 3,000 entries, including many classic essays from the original Inglis Palgrave Diction ...

'', 2nd ed
Abstract.
/ref> 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 An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...

Early life and education

Pigou was born at

Ryde Ryde is an English seaside town and civil parish on the north-east coast of the Isle of Wight. The built-up area had a population of 23,999 according to the 2011 Census and an estimate of 24,847 in 2019. Its growth as a seaside resort came af ...

on the

Isle of Wight The Isle of Wight ( ) is a county in the English Channel, off the coast of Hampshire, from which it is separated by the Solent. It is the largest and second-most populous island of England. Referred to as 'The Island' by residents, the Isle of ...

, 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 (The Faithful Dispensation of the Gifts of God) , established = (Royal Charter) , closed = , type = Public schoolIndependent schoolBoarding school , religion = Church of E ...

, where he was in Newlands house and became the first modern head of school. 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 King's College is a constituent college of the University of Cambridge. Formally The King's College of Our Lady and Saint Nicholas in Cambridge, the college lies beside the River Cam and faces out onto King's Parade in the centre of the city ...

, where he first read history under

Oscar Browning Oscar Browning OBE (17 January 1837 – 6 October 1923) was a British educationalist, historian and ''bon viveur'', a well-known Cambridge personality during the late Victorian and Edwardian eras. An innovator in the early development of p ...

. He won the

Chancellor's Gold Medal The Chancellor's Gold Medal is a prestigious annual award at Cambridge University for poetry, paralleling Oxford University's Newdigate Prize. It was first presented by Prince William Frederick, Duke of Gloucester and Edinburgh during his time as ...

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 The Cambridge Union Society, also known as the Cambridge Union, is a debating and free speech society in Cambridge, England, and the largest society in the University of Cambridge. Founded in 1815, it is the oldest continuously running debatin ...

, 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 Alfred Marshall (26 July 1842 – 13 July 1924) 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. I ...

, whom he later succeeded as professor of

political economy Political economy is the study of how Macroeconomics, economic systems (e.g. Marketplace, markets and Economy, national economies) and Politics, political systems (e.g. law, Institution, institutions, government) are linked. Widely studied ph ...

. 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, 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

and focused on normative economics. He became intrigued by

, 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. 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

in succession to Alfred Marshall. He held the post until 1943. In 1909 he wrote an essay in favour of

Land Value Taxation A land value tax (LVT) is a levy on the value of land without regard to buildings, personal property and other improvements. It is also known as a location value tax, a point valuation tax, a site valuation tax, split rate tax, or a site-value ...

, likely to be interpreted as support for

Lloyd George David Lloyd George, 1st Earl Lloyd-George of Dwyfor, (17 January 1863 – 26 March 1945) was Prime Minister of the United Kingdom from 1916 to 1922. He was a Liberal Party (United Kingdom), Liberal Party politician from Wales, known for lea ...

People's Budget The 1909/1910 People's Budget was a proposal of the Liberal government that introduced unprecedented taxes on the lands and incomes of Britain's wealthy to fund new social welfare programmes. It passed the House of Commons in 1909 but was bloc ...

Marshall Marshall may refer to: Places Australia * Marshall, Victoria, a suburb of Geelong, Victoria Canada * Marshall, Saskatchewan * The Marshall, a mountain in British Columbia Liberia * Marshall, Liberia Marshall Islands * Marshall Islands, an i ...

's views on the land value tax were the inspiration for his view on taxing negative externalities. Pigou's most enduring contribution was ''The Economics of Welfare'', 1920, in which he introduced the concept of

externality In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's (or parties') activity. Externalities can be considered as unpriced goods involved in either co ...

and the idea that externality problems could be corrected by the imposition of a

Pigovian tax A Pigouvian tax (also spelled Pigovian tax) is a tax on any market activity that generates negative externalities (i.e., external costs incurred by the producer that are not included in the market price). The tax is normally set by the government ...

(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 Ronald Harry Coase (; 29 December 1910 – 2 September 2013) was a British economist and author. Coase received a bachelor of commerce degree (1932) and a PhD from the London School of Economics, where he was a member of the faculty until 1951. ...

, 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 Environmental economics is a sub-field of economics concerned with environmental issues. It has become a widely studied subject due to growing environmental concerns in the twenty-first century. Environmental economics "undertakes theoretical or ...

. The

Pigou Club The Pigou Club is described by its creator, economist Gregory Mankiw, as "an elite group of economists and pundits with the good sense to have publicly advocated higher Pigovian taxes, such as gasoline taxes or carbon taxes." Description Thes ...

, named in his honour, is an association of modern economists who support the idea of a

carbon tax A carbon tax is a tax levied on the carbon emissions required to produce goods and services. Carbon taxes are intended to make visible the "hidden" social costs of carbon emissions, which are otherwise felt only in indirect ways like more sev ...

to address the problem of

climate change In common usage, climate change describes global warming—the ongoing increase in global average temperature—and its effects on Earth's climate system. Climate change in a broader sense also includes previous long-term changes to E ...

. A neglected aspect of Pigou's work is his analysis of a range of labour-market phenomena studied by subsequent economists, including

collective bargaining Collective bargaining is a process of negotiation between employers and a group of employees aimed at agreements to regulate working salaries, working conditions, benefits, and other aspects of workers' compensation and rights for workers. The i ...

, wage rigidity,

internal labour market Internal labor markets (ILM) are an administrative unit within a firm in which pricing and allocation of labor is governed by a set of administrative rules and procedures. The remainder of jobs within the ILM is filled by the promotion or transfer o ...

s, segmented labour market, and

human capital Human capital is a concept used by social scientists to designate personal attributes considered useful in the production process. It encompasses employee knowledge, skills, know-how, good health, and education. Human capital has a substantial ...

. 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. 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. 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. 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. 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 John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...

to work on probability theory. 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 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 19 ...

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".Times Obituary, March 1959 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. Keynes, in turn, was very critical of Pigou, mentioning Pigou at least 17 times in ''

The General Theory of Employment, Interest and Money ''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 ...

'', usually disparagingly. Keynes states that " igouis 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."

Personal life

Pigou had strong principles, and these gave him some problems in

World War I World War I (28 July 1914 11 November 1918), often abbreviated as WWI, was one of the deadliest global conflicts in history. Belligerents included much of Europe, the Russian Empire, the United States, and the Ottoman Empire, with fightin ...

. He was a

conscientious objector A conscientious objector (often shortened to conchie) is an "individual who has claimed the right to refuse to perform military service" on the grounds of freedom of thought, conscience, or religion. The term has also been extended to object ...

military service Military service is service by an individual or group in an army or other militia, air forces, and naval forces, whether as a chosen job (volunteer) or as a result of an involuntary draft (conscription). Some nations (e.g., Mexico) require a ...

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 The Friends' Ambulance Unit (FAU) was a volunteer ambulance service, founded by individual members of the British Religious Society of Friends (Quakers), in line with their Peace Testimony. The FAU operated from 1914–1919, 1939–1946 and 1946 ...

, and insisted on undertaking jobs of particular danger. Towards the end of the war he reluctantly accepted a post in the

Board of Trade The Board of Trade is a British government body concerned with commerce and industry, currently within the Department for International Trade. Its full title is The Lords of the Committee of the Privy Council appointed for the consideration of ...

, 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 A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from the la ...

at the old parity of exchange. Pigou was elected to the

British Academy The British Academy is the United Kingdom's national academy for the humanities and the social sciences. It was established in 1902 and received its royal charter in the same year. It is now a fellowship of more than 1,000 leading scholars span ...

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 ''The Times'' is a British daily national newspaper based in London. It began in 1785 under the title ''The Daily Universal Register'', adopting its current name on 1 January 1788. ''The Times'' and its sister paper ''The Sunday Times'' (fou ...

'' on problems of the day. He was a foreign honorary member of the

American Academy of Arts and Sciences The American Academy of Arts and Sciences (abbreviation: AAA&S) is one of the oldest learned societies in the United States. It was founded in 1780 during the American Revolution by John Adams, John Hancock, James Bowdoin, Andrew Oliver, and ...

, a foreign member of the

Accademia dei Lincei The Accademia dei Lincei (; literally the "Academy of the Lynx-Eyed", but anglicised as the Lincean Academy) is one of the oldest and most prestigious European scientific institutions, located at the Palazzo Corsini on the Via della Lungara in Rom ...

, and an honorary resident of the International Economic Committee. He loved mountains and climbing, and introduced climbing to many friends, such as

Wilfrid Noyce Wilfrid ( – 709 or 710) was an English bishop and saint. Born a Northumbrian noble, he entered religious life as a teenager and studied at Lindisfarne, at Canterbury, in Francia, and at Rome; he returned to Northumbria in about 660, and ...

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.Chapter 8 and epilogue, The First Serious Optimist: A. C. Pigou... by Kumekawa, Ian

Major publications

* ''Browning as a Religious Teacher'', 1901. * ''The Riddle of the Tariff'', 1903. * "Monopoly and Consumers' Surplus", 1904, ''Economic Journal''. * '' Principles and Methods of Industrial Peace'', 1905. * * "Review of the Fifth Edition of Marshall's Principles of Economics", 1907, ''Economic Journal''. * "Producers' and Consumers' Surplus", 1910, ''Economic Journal''. * ''Wealth and Welfare'', 1912. * ''Unemployment'', 1914. * '' Some Aspects of the Housing Problem'', Warburton Lecture, 1914. * "The Value of Money." 1917, ''Quarterly Journal of Economics'', 32( 1), pp
38– 65
* — 4th ed. 1932
Pdf
* ''A Levy on Capital and a Levy on War Wealth'', 1920 (London: Humphrey Milford) * "Empty Economic Boxes: A reply", 1922, ''Economic Journal''. * ''The Political Economy of War'', 1922. * "Exchange Value of Legal Tender Money", 1922, in: ''Essays in Applied Economics''. * ''Essays in Applied Economics'', 1923. * ''Industrial Fluctuations'', 1927. * "The Law of Diminishing and Increasing Cost", 1927, ''Economic Journal''. * ''A Study in Public Finance'', 1928. * "An Analysis of Supply", 1928, ''Economic Journal''. * ''The Theory of Unemployment'', 1933. * ''The Economics of Stationary States'', 1935. * "Mr. J.M. Keynes' General Theory of Employment ...," 1936, ''Economica'', N.S. 3(10), pp
115–132
* "Real and Money Wage Rates in Relation to Unemployment", 1937, ''Economic Journal''. * "Money Wages in Relation to Unemployment", 1938, ''Economic Journal''. * ''Employment and Equilibrium'', 1941. * "The Classical Stationary State", 1943, ''Economic Journal''. * ''Lapses from Full Employment'', 1944. * "Economic Progress in a Stable Environment", 1947, ''Economica''. * ''Aspects of British Economic History 1918-1925'', 1947 (London: Macmillan) * ''The Veil of Money'', 1949. First-page chapter-previe
links
* ''Keynes's General Theory: A retrospective view'', 1951. * ''Essays in Economics'', 1952.

References

Notes

Sources

External links

* {{DEFAULTSORT:Pigou, Arthur Cecil 1877 births 1959 deaths English economists Environmental economists Welfare economists Neoclassical economists People educated at Harrow School Alumni of King's College, Cambridge Presidents of the Cambridge Union British conscientious objectors People associated with the Friends' Ambulance Unit English mountain climbers People from Ryde Professors of Political Economy (Cambridge, 1863) Fellows of the British Academy