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Pigou, Arthur Cecil

Pigou, Arthur Cecil




Arthur Cecil Pigou (1877–1959), professor of political economy at Cambridge University from 1908 to 1943, is today best known for his contributions to the theory of economic welfare. He succeeded Alfred Marshall as professor at the age of 31 (a remarkable fact in the mature society of Edwardian Cambridge), to the delight of Marshall but to the chagrin of the older generation, and particularly Foxwell, who had believed their claims superior. He remained a professor at Cambridge until his retirement and indeed continued to live in King’s College, of which he had been a fellow from 1902, until his death in 1959.

Pigou was born in 1877, the eldest son of Clarence Pigou and his wife, Nora, at Beachlands, Ryde, in the Isle of Wight, the family home of his mother. His father was a retired army officer, descended from a Huguenot line which had long had connections with India and China, first as traders, in later generations as civil servants. His mother’s family came from a line which had earlier won distinction and wealth in Irish administration. With such a family background it was rather a matter of course that Pigou should be sent, like his father, to Harrow, but it was his own very considerable abilities that won him an entrance scholarship. At Harrow he was a good enough athlete to win approval in an age in which athletics carried more honor than did scholarship and serious enough scholar to win many of the prizes open to Harrovians. He ended his schooldays as the first boy on the modern side to be head of the school.

He went to Cambridge as a history scholar of King’s College and spent his first two years reading history as a pupil of that remarkable oddity, Oscar Browning. But to his Cambridge contemporaries Pigou was best known as a leading figure in the Union Debating Society, where from his first term he made his mark and was outstanding as an orator, in a generation of brilliant speakers. It was not until his third year at Cambridge that Pigou began to study economics, and only because the Cambridge syllabus of that time required it as part of the moral sciences tripos. Thus, Pigou’s introduction to economics came first by way of history and second by way of philosophy and ethics. Indeed, until he became a fellow of King’s College and began to teach economics, Pigou could scarcely be regarded as a specialist in that subject. He had submitted, in his first attempt to obtain a fellowship at King’s, a thesis entitled Robert Browning as a Religious Teacher, which later became his first book, published in 1901. He had won the chancellor’s medal for English verse, as well as the Adam Smith prize for an essay on the principles and methods of industrial peace.

He began to lecture on economics in 1901, before his election to the King’s fellowship (at a second submission) and was made Girdler’s lecturer in the summer of 1904. He was lecturing in 1903, surprisingly, on the history of labor in the nineteenth century. But in 1901/1902 he had already begun to give to the second-year students the course on advanced economics that was the basis of the education of hundreds of Cambridge economists over the next thirty years.

In that course Pigou acted as expositor of the theoretical ideas developed by Marshall. Inevitably, as presented by Pigou, those ideas took a form of their own. But it was primarily through Pigou that the Marshallian tradition was handed down and became the Cambridge school of economics. While Marshall’s lectures had become less and less systematic as the years went on, Pigou (educated in the more systematic habits that the school of moral sciences had inherited from Sidgwick, whose lectures on ethics and political science he had attended) gave to the exposition of Marshall’s theories a clarity and architecture that they had lacked in Marshall’s personal teaching. To the end, Pigou remained a devoted and almost uncritical pupil of Marshall’s, indeed an almost idolatrous worshiper. It was Pigou, more than any other, who brought up a generation of Cambridge economists in the conviction that (in his often-repeated words) “it’s all in Marshall” and the belief that if they were in error, it was because they had misunderstood Marshall or had overlooked some essential passage in the holy writ. It was not until the coming of Piero Sraffa in the middle 1920s and of such younger lecturers as Joan Robinson and John Hicks in the 1930s that Cambridge escaped from an uncritical acceptance of the Marshallian orthodoxy; but then, and even much later, through Robertson, Guillebaud, and others of us, Cambridge retained its essentially Marshallian tradition.

In these years it was as a lecturer that Pigou was at his best. The Cambridge economists of the 1920s owed to Keynes their sense of the importance of the economic issues and their sense of urgency to achieve essential reforms; but it was primarily to Pigou (and also, in later years, to Dennis Robertson and others) that they owed their training in the disciplines of economic reasoning. The same qualities that one finds in Pigou’s books were paramount in his lectures. Clarity of analysis, division and subdivision where it was appropriate, a willingness to follow an argument through to the end and to refine it as it needed to be refined, all these were the characteristics of his own presentation and of what he demanded in others. Curiously, this eloquence and clarity in teaching did not ordinarily carry over, as it did so abundantly in the case of Keynes, to an enjoyment of personal argument and discussion with his pupils. We admired Pigou; after a lecture we would sometimes shyly ask him a question, and he would answer, either jocularly or even more shyly. But most of us as undergraduates hardly knew him outside a lecture room, while we knew Keynes quite intimately, through his Political Economy Club.

Pigou’s first book on economics, Principles and Methods of Industrial Peace, an expansion of his Adam Smith prize essay, appeared in 1905. It is interesting to go back to that book, not only for its matter but also for its method, which remained characteristic of Pigou throughout his life and which deeply impressed his pupils. He applied to economic material the method of the philosopher, clarifying the issues, dissecting them and analyzing them, trying to see how different assumptions regarding the material might modify conclusions— the analytical method applied with great precision to an essentially qualitative argument. He used statistics but rarely, and only to establish or to indicate the order of magnitude of some relevant fact. This is very far from the form of argument of the modern, statistically minded economist. While Pigou, as his working life continued, gradually acquired the habits of mathematical economics, he was not by instinct and training a mathematical economist. His thinking remained primarily that of a philosopher trained in analysis. His first book eschews mathematics completely.

Welfare economics. It was in 1912 that Pigou published the book which, in retrospect, is the most important of his works—Wealth and Welfare, as it was called in its first edition. It was expanded vastly over the next thirty years and, as The Economics of Welfare (1920a), played a major part in the education of the Cambridge economists of the 1920s and 1930s, and indeed of economists generally. Those who came to it when it had acquired middle-aged embonpoint would do well to restudy it in its slimmer, more youthful, and more rapidly moving form. Its characteristics are those of the 1905 book—beautiful clarity of reasoning and thought; the method of qualitative analysis rather than of statistical argument; the sparing introduction of mathematical argument, and only where necessary to a precise formulation. Above all the early version possessed a beauty of architectural design and construction that was lost as new extensions were added over the years.

Pigou’s ultimate reputation will, one suspects, depend on the judgment by future generations of the work in the field of economic welfare that was principally enshrined in that book. He started from two existing ideas, to be found, in the Cambridge tradition, in the work of Marshall and of Sidgwick. Marshall had discussed (as had Bastiat and others before him) the concept of maximum satisfaction and the conditions under which an economy would achieve it. Sidgwick, in dealing at a less rigorous level with the same problem, had made use of the idea of divergence between utility to the individual and utility to society. Pigou’s book was more ambitious. He set out to examine, first, the full conditions of maximum satisfaction; second, the conditions under which private and social product (as he preferred to call them) might be different, so that the maximum would not be achieved under a system of private enterprise; and third, the measures which might be taken to bring the two into equality. In one important respect Pigou’s work was fundamentally different from that of his successors in the field of welfare theory. He was primarily concerned (as his first chapter shows) with “fruit” rather than “light”: with writing a theory of welfare that was applicable in practice.

Pigou’s definition of maximum economic welfare made it dependent on the average volume, the distribution, and the variability of the national dividend. Any course, he argued, which without compulsion increased efficiency and the volume of the dividend or which increased the proportion of the dividend which was received by poor persons or which (without diminishing its volume or injuring its distribution) diminished the variability of the dividend would increase economic welfare.

The greater part of Wealth and Welfare as originally written, and an ever-increasing part of it as it grew through the various editions of Economics of Welfare, was devoted, in the first place, to the differences between social and private marginal net products arising from imperfect divisibility, to elements of monopoly and similar factors, and to the methods of controlling monopoly and otherwise correcting these divergencies; second, it considered methods of remunerating labor and the practicability and desirability of interference to raise the wages of poorer workers. Wealth and Welfare treated rather scantily the whole question of taxation as it involves transfers from the relatively rich to the relatively poor, which later editions of Economics of Welfare treated more fully and systematically.

Much of Pigou’s work, as far as it relates to monopoly, to pricing policies of public activities, and to wage bargaining, for example, has been so thoroughly absorbed into the present corpus of economic doctrine that it has long ceased to be identified consciously with his name. Antipathy to his conclusions has been much keener and much more continued with regard to his argument that measures to equalize incomes would increase economic welfare. Pigou himself in 1912 was a liberal —neither an extreme radical nor a socialist. He was almost certainly thinking in terms of minor, marginal changes within the framework of a liberal society. By definition he excluded redistributions which would so affect incentives as to reduce the national dividend. But his conclusions were inherently so radical that they evoked criticism and resistance among economists who would not have felt equally critical of his more familiar and acceptable arguments where they related to monopoly or public utility pricing. Once these criticisms had been voiced, other economists felt bound, from a purely academic standpoint, to examine their validity.

In later editions Pigou slightly modified his actual presentation of the argument for increased welfare with less inequality of income, but the essentials remained the same. He began by assuming that individuals are of similar temperament and anticipating the potential criticism that at present rich and poor are temperamentally different, argued that there is evidence that with greater income equality and with time any differences of temperament and taste would disappear. He satisfied himself, by appeal to evidence based on social inquiries, that the assumption he proposed was a plausible one. But in a strict sense, he did not prove it.

The subsequent discussions of welfare theory have started with the problem of the meaning and measurability of utility and that of the validity of interpersonal comparisons and have inevitably led to the difficulties of measuring the national income in welfare terms and defining the circumstances in which it can be said to have increased. In particular, ingenious attempts have been made to identify the cases in which, without any interpersonal comparisons and thus without ambiguity, welfare can be said to have been increased. But even with the addition of the compensation principle, these discussions have tended to leave untouched a large number of real cases in which (as in the case of redistributional taxation) the poorer may be supposed to benefit at the expense of the richer who will suffer some loss; even the compensation principle does not provide a complete and satisfactory solution. Pigou himself took no active part in these discussions, but he was persuaded in 1951 (when he was in his 74th year) to contribute to the American Economic Review a short article which shows his final thinking.

In this final summing up of his thinking, Pigou argued, first, that (in Bertrand Russell’s words) satisfactions are not in principle incomparable, even if they are not directly measurable. One can thus attach meaning to marginal changes. But he conceded that one cannot hope to establish absolute magnitudes of total utility or to be able to answer the question (which in his Study in Public Finance [1928] he had attempted to answer) whether a tax proportioned to total income will inflict equal sacrifice upon everyone, whatever the size of his income. Second, he turned to interpersonal comparisons and argued that “the utilities enjoyed by different people are not in their nature incomparable.… The question whether they are comparable in fact is a more difficult one” (1951, pp. 291–292). His final stand so well states not only his own attitude and that of Robertson (who in this, as in many other respects, remained his pupil and adherent) but also the attitude of many working economists, other than the specialists in this field, that it deserves quotation in full:

Now, if we take random groups of people of the same race and brought up in the same country, we find that in many features that are comparable by objective tests they are on the average pretty much alike; and, indeed, for fundamental characters we need not limit ourselves to people of the same race and country. On this basis we are entitled, I submit, to infer by analogy that they are probably pretty much alike in other respects also. In all practical affairs we act on that supposition. We cannot prove that it is true. But we do not need to do so. Nobody can prove that anybody besides himself exists, but, nevertheless, everybody is quite sure of it. We do not, in short, and there is no reason why we should, start from a tabula rasa, binding ourselves to hold every opinion which the natural man entertains to be guilty until it is proved innocent. The burden is the other way. To deny this is to wreck, not merely Welfare Economics, but the whole apparatus of practical thought. On the basis of analogy, observation and intercourse, inter-personal comparisons can, as I think, properly be made; and, moreover, unless we have a special reason to believe the contrary, a given amount of stuff may be presumed to yield a similar amount of satisfaction, not indeed as between any one man and any other, but as between representative members of groups of individuals, such as the citizens of Birmingham and the citizens of Leeds. This is all that we need to allow this branch of Welfare Economics to function. Of course, in working it out, positive conclusions can only be reached subject to very important qualifications, (ibid., pp. 292–293)

Pigou, that is to say, remained to the end a believer in the validity of the welfare economics that he had done so much to create. He admitted that certain conclusions rested on assumptions that could not be proved, but he believed that these assumptions accorded best with the available evidence. He believed that the economics of policy making was a serious academic study and not merely a politically loaded exercise. In some repects Pigou, even if imprecise, at least was on the side of the angels: If he believed, rather than proved, that a transfer from richer to poorer was likely to increase welfare, it was, one suspects, partly because he was the sort of person he was.

Public involvement and retreat. Throughout his life he was a passionate believer in justice; this was apparent in the way he handled all the problems of running the faculty of economics at Cambridge. If you were working with him, you had to satisfy him that what you proposed was a completely just solution of the problem in hand. To him it was just and proper, whatever could or could not be proved about capacity to absorb satisfactions, that the poor should be treated as if they were equal in value and capacity to the rich. If one could invent exceptions, the exceptions would seem, to anyone of his Victorian uprightness, a case of special pleading. He was always a protector and defender of the underdog. At moments we could visualize him as the severe but just head of the school at Harrow.

Pigou’s early years, before he was made professor, were the years of the great tariff disputes. Fresh from his triumphs in the Union debates, Pigou threw himself into the conflict and toured the country making free-trade speeches. The probable line of his argument can be deduced from political pamphlets, including The Riddle of the Tariff (1903), and from the much more sophisticated and academic Protective and Preferential Import Duties (1906). But to those who knew him only later in life, what is interesting is that at this stage he was a speaker widely in demand and responsive to those demands, anxious to influence public opinion and policy. With Alfred Marshall he was a signatory in 1903 of the professors’ letter to The Times, which gained some notoriety in the tariff disputes of the day. In this phase of his life he was very far from being the recluse he became in later years.

His powerful conscience created problems for him when war came in 1914, as was the case with many of his Cambridge contemporaries. Although still young (he was then 36), he was not prepared to undertake military service that entailed an obligation to destroy human life. But he devoted all his university vacations to driving an ambulance for a Friends’ ambulance unit, and he insisted, no doubt at the instigation of the same conscience, on undertaking jobs of particular danger. Toward the end of the war he was persuaded by Clapham, in peacetime one of his colleagues at King’s, to accept a post in the Board of Trade. He achieved, however, no distinction as a civil servant. It could not be claimed for him that he ever possessed the practical administrative abilities that carried Keynes, Walter Layton, Hubert Henderson, and others of the Cambridge economists of that generation rapidly into positions of authority and responsibility. He was never, as an economist, quick to see intuitively the order of magnitude and the potential dangers of economic forces, and he was never a person to whom colleagues turned instinctively for advice in the sphere of economic policy making. This limitation betrayed him when, first as a member of the Cunliffe Committee of 1918–1919 and later as a member of the Chamberlain Committee of 1924–1925 on currency and Bank of England note issues, he was one of those who recommended an early return to the gold standard at the pre-1914 exchange rate—a policy that was to be flagellated by Keynes in his Economic Consequences of Mr. Churchill (1925). From the early 1920s onward, Pigou withdrew, save for brief exceptions and an occasional letter to The Times, from taking part in national affairs and devoted himself more and more completely to Cambridge.

Increasingly, over these years, Pigou retreated into the ordered life of a recluse. He lectured a couple of hours a week in a course which, excellent as it was, remained essentially unchanged for twenty years and cost him little effort. He worked incessantly and regularly at his books. He consumed all that was written in economics, seeking always realistic illustrations for quotation in his own work, and in addition he devoured every detective story available. He would march out on an afternoon walk to Coton or thereabouts. Within this private world were a few privileged friends. They were usually chosen because they shared his love of mountains, and they climbed with him at Buttermere, where he had built a house, or in the Alps. No account of Pigou would be complete without mention of the mountains. These he loved, with these he illustrated problems in his lectures, and a keen and to these he hurried away when term ended. He was enthusiastic, but not a supremely great, climber; he introduced to climbing many who, like Wilfrid Noyce, became greater climbers. Around Buttermere he invented and pioneered new rock climbs. In the Alps he achieved most of what is possible to the best. Into this private world few women were admitted; the exceptions in later life were the wives of his climbing friends and other women who knew him in that life. His clothes progressively became more and more those of a hermit, and one never knew in what sartorial disarray or in what superannuated castoffs he would next appear.

It was through exposure while climbing that he acquired an illness affecting the heart, which from the beginning of the 1930s increasingly curtailed both his climbing and his other activities. This affliction greatly impaired his vigor and energy and left him, through the rest of his life, with intermittent phases of debility. It affected his lecturing: in the 1920s he had been vigorous and immensely stimulating; in the 1930s the liveliness and stimulus somehow slipped out of the lectures; and in his later years, although essentially unchanged, they had lost something of their power to grip an audience. And in the same way, something of the vigor and domination departed from his writing, distinguished as it still remained.

Other writings. Over these years he had written much. Unlike the present generation, he tended to write books rather than articles, although on occasion he contributed the latter also. In 1914 appeared Unemployment, a small, popular book in which Pigou, following the thinking of that time, attributed unemployment principally to lack of flexibility of wage rates. In the 1920s there appeared two books reflecting his interest in war finance, A Capital Levy and a Levy on War Wealth (1920b) and The Political Economy of War (1921), books which had great influence on current thought. In 1923 a collection of his journal articles was published, entitled Essays in Applied Economics; in this volume was included an important article which had first appeared in 1917 in the Quarterly Journal of Economics, “The Value of Money.” In a period in which economists at Cambridge were all expectantly waiting for Marshall to publish his formulation of monetary theory (Money, Credit & Commerce appeared only in 1923), this 1917 article had for long been the only printed source other than Marshall’s evidence before the Gold and Silver Commission.

Industrial Fluctuations (1927), A Study in Public Finance (1928), and The Theory of Unemployment (1933) continued Pigou’s stream of output. They represent the most distinguished work of the pre-Keynesian epoch and played a significant part in the rapid development of economics during that period. Inevitably these books, in retrospect, have become dated more than his work in other fields. But one wonders whether some of this work, with its emphasis on variations of harvests, on variations of the rates of invention and of consumer stock-building of newly invented durables, and on other nonmacroeconomic factors, may not be overdue for rediscovery and adaption to newer macroeconomic theories.

In 1935 there followed The Economics of Stationary States. This book, which appeared shortly after the publication of the ideas developed by Chamberlin and Joan Robinson and makes occasional use of concepts worked out by them, is in another sense very remote from their thinking. Pigou set himself the question of the way in which equilibrium is reached in a stationary state, defined rigorously as one in which the population, its quality and age and sex distribution, its stock of equipment, technology, and tastes, are all fixed. He approached his results through a long series of simplifying assumptions, beginning with Robinson Crusoe economics and progressing only by stages into the problems of specialization and exchange and a monetary economy with markets, many commodities, elements of monopoly, of transport cost, and the rest. He rejected the idea of a progression from perfect competition to monopoly through a chain of closer and less close substitutes. He assumed that “there can only be one single type of (homogeneous) commodity or service. Commodities that are good substitutes for one another are not, as is sometimes suggested, in ‘an imperfectly competitive market’ My use does not allow this. In respect of any number of different commodities or services, however good substitutes they may be, there are at least that number of different markets” (1935, pp. 77–78).

Pigou was, in fact, not directly concerned in this book with the same problems as Chamberlin and Joan Robinson. As “The Passage to Real Life,” its last chapter, makes clear, this work on stationary states presented itself to his mind as a path-clearing operation in a longer progress toward a more dynamic economics. But he conceived of the development of an economy, not as more or less steady, dictated by continuous technical progress and capital accumulation, but rather as a set of steps— stationary states that are disturbed by spasmodic changes in technology, in accumulation, or in other factors. A new set of environmental conditions would imply a transition (which, he emphasized, lay outside the scope of the book) toward a new stationary state. This work represents Pigou’s analytical skill at its highest. But it made curiously little impression on contemporary economics, either in Cambridge, elsewhere in England, or in America, and it now seldom receives detailed study. A rereading discloses some of the difficulties of relating Pigou’s thinking to that of others. He seldom acknowledged an idea; his acknowledgments are more numerous than a very unworthy index would suggest, but they are, as always, almost entirely acknowledgments of facts or terminology. That he had read and absorbed a great deal is evident. But, like Keynes, he was never a writer who began with a systematic reading of the literature of his predecessors and contemporaries.

Throughout this period there were numerous revisions of The Economics of Welfare; there were, in fact, four main editions and six additional reprintings between 1920, when Wealth and Welfare first acquired its new name, and 1952. These occupied most of Pigou’s time. There were also a variety of smaller books of essays and lectures; as well as some elementary and pedagogic writings of lesser importance. These latter include Income (1946), The Veil of Money (1949), and Essays in Economics (1952). For a period they had their place in the teaching of economics.

Relationship with Keynes. Keynes’s General Theory appeared in 1936. It affected Pigou doubly. First, Keynes had dared to attack Marshall, for whom Pigou had more than a pupil’s reverence. The contemporary Cambridge belief that “it’s all in Marshall” was certainly Pigou’s belief. But it was enshrined in the more fundamental belief that if you could not find it in Marshall, it was because Marshall had had to write for the general reader and not because the idea would have been anything new to Marshall. That apart, Keynes had made his chief attack on the classical economics as embodied in Pigou’s Theory of Unemployment (1933). Thus, Pigou was on the defensive–principally, I think, because of Marshall; while he had a great sense of authority as professor, he was not a vain man, and as subsequent events showed, he was not unprepared to admit that he had been in the wrong. His defense took the form of a severe review of the General Theory in Economica. He condemned Keynes’s “patronage extended to his old master Marshall,” and his iconoclastic treatment of classical economists as a group. Thus, indignantly, he imagined Keynes making the following attack: “Professor Pigou, in a book on Unemployment,… has committed a variety of sins. Professor Pigou is a classical economist; therefore the classical economists have committed these sins!” (Pigou 1936, pp. 115–116). In defense of Marshall, Pigou was prepared, if necessary, to sacrifice himself.

Whether Keynes could have achieved a radical rethinking of economics without wounding, as he did, Pigou and Robertson, among others, is a question that will be eternally debated. I have always believed that this was the sad but necessary cost of the revolution of thought. With Robertson, the wounds went so deep that they never could be healed. With Pigou, time brought a healing. And indeed the wounds were never as severe: Keynes and Pigou were both fellows of King’s; they dined at the same high table; they immensely respected each other. And Keynes, anxious as he was to see his theories accepted, was almost equally anxious to see Pigou’s reputation preserved; he was very conscious that in attacking Pigou, he was attacking ideas which he himself had held only a few years earlier. When Pigou asked for something to be published in the Economic Journal, which at that time Keynes and I edited, Keynes would accept it without demur but would seek to persuade Pigou to agree to minor changes on points where he believed that subsequent discussion might show Pigou to be wrong. When Keynes was ill for a period and I accepted from Pigou, and printed as Pigou wrote it, the article “Real and Money Wage Rates in Relation to Unemployment” (1937), Keynes was greatly distressed lest I should have done something that might discredit Pigou. It was an oddly tolerant and mutually admiring relationship, which never came near to reaching the misery of the cleft between Robertson and Keynes.

Pigou continued his work on the problems of the General Theory, publishing in 1941 Employment and Equilibrium, which remains a vigorous defense of the classical position, with new refinements but with essentially the traditional approach. He emphasized the multiplicity of the causes of unemployment and argued that it results from a complicated system of interrelated factors. He brought to the surface the real-balance effect that has since come to be associated with his name. This socalled Pigou effect identifies one of the possible ways in which rising prices may tend to reduce excessive demand and thus restore equilibrium: they decrease the net indebtedness of the public sector to the private sector, and this reduction in the real assets of the private sector may serve to lower aggregate demand. But Pigou’s thinking in this field continued to change and develop; he had, indeed, a remarkable fertility of mind until well into his seventies. And in 1949 Pigou, eight years after retirement, asked some of us who were then running the economics faculty at Cambridge whether he might have a couple of lectures in which to say certain things about the General Theory. In those two lectures, even more moving to hear than to read, he said, in effect, that he had come to feel, with the passage of time, that he had failed to appreciate some of the important things which Keynes had been trying to argue in the General Theory and that he had been oversevere in his Economica review. It was the noble act of a scrupulously honest man, who put truth beyond vanity and another’s reputation beyond his own.


It is not easy to place Pigou in the theogony of economists. In the reactions of the 1960s he has probably been more underrated than any other economist of first distinction. Outside the field of welfare economics, one does not instantaneously associate him with any of the major instruments of economic analysis that one uses daily. He is not, in that sense, to be ranked with Smith, Ricardo, Marshall, or Keynes, if one thinks only of the British school. But modern economics would have been very different without him. Marshall was almost certainly right in thinking that Pigou was the proper successor to create a new disciplined and professional school of analytical economics in Cambridge. As teacher and creator of a tradition within Marshall’s economics tripos, he set a pattern for a generation of Cambridge economists, and Pigou’s pupils, teaching a Pigouvian version of Marshall’s economics, are widely distributed around the Anglo-Saxon world. But Pigou’s innate and notorious shyness, ever increasing as the years went by, cut him off from all informal discussion of economics, both with Cambridge colleagues and foreign visitors. Pigouvian economics came from the brain of Pigou and from his reading of published material; it was not refined by the cut and thrust of personal argument. Occasionally he would ask privileged pupils and friends (David Champernowne for example) to help him with mathematical or other analysis and accept from them criticism and suggestions. But to the ordinary run of his Cambridge colleagues he could not have been more different from Keynes and Robertson in these respects. Even those of us who were privileged to stay with him in the mountains learned to limit our conversation to the problems of ascents, the merits and demerits of the authors of detective stories, and, occasionally, the flaws in a book on economics, to save the others the labor of reading it.

Pigou’s isolation from the world inevitably meant isolation from foreign economists. He read conscientiously, but he was not sufficiently intimate with any non-Marshallians to project himself into their minds and thinking; and he was too loyal an admirer of Marshall to want very much to do so. Pigou’s great qualities were those of the classical economists. He was, it might truly be said, the last of the classical school and the last of the great Victorians, who had the misfortune to survive to an age which had lost its reverence for them. He himself showed to the end unflagging interest in the work of the younger generation and no trace of embitterment at its development of economics along lines that he had not foreseen.

Austin Robinson

[See alsoConsumption function; Money, article onQuantity theory; Welfare economics; and the biographies ofKeynes, John Maynard; Marshall; Robertson; Sidgwick.]


1901 Robert Browning as a Religious Teacher: Being the Burney Essay for 1900. London: Clay.

1903 The Riddle of the Tariff. London: Johnson.

1905 Principles and Methods of Industrial Peace. New York: Macmillan.

(1906) 1935 Protective and Preferential Import Duties. London School of Economics and Political Science.

1912 Wealth and Welfare. London: Macmillan.

1914 Unemployment. New York: Holt.

(1917) 1951 The Value of Money. Pages 162–183 in American Economic Association, Readings in Monetary Theory. Philadelphia: Blakiston. → First published in Volume 32 of the Quarterly Journal of Economics. It is thought that Pigou’s first title for the essay was “The Exchange Value of Legal Tender Money,” and it appears under this title in Essays in Applied Economics 1923.

(1920a) 1960 The Economics of Welfare. 4th ed. London: Macmillan.

1920b A Capital Levy and a Levy on War Wealth. New York: Oxford Univ. Press.

(1921) 1941 The Political Economy of War. New & rev. ed. New York: Macmillan.

1923 Essays in Applied Economics. London: King.

(1927) 1929 Industrial Fluctuations. 2d ed. London: Macmillan.

(1928) 1956 A Study in Public Finance. 3d ed., rev. New York: St. Martins.

1933 The Theory of Unemployment. London: Macmillan.

1935 The Economics of Stationary States. London: Macmillan.

1936 [A Book Review of] General Theory of Employment, Interest and Money, by J. M. Keynes. Economica New Series 3:115–132.

1937 Real and Money Wage Rates in Relation to Unemployment. Economic Journal 47:405–422.

(1941) 1949 Employment and Equilibrium: A Theoretical Discussion. 2d rev. ed. London: Macmillan.

(1946) 1948 Income: An Introduction to Economics. London: Macmillan.

1949 The Veil of Money. London: Macmillan.

1950 Keynes’s General Theory: A Retrospective View. London: Macmillan.

1951 Some Aspects of Welfare Economics. American Economic Review 41:287–302. → This article forms Appendix XI of the 1952 and subsequent printings of Economics of Welfare (1920a).

1952 Essays in Economics. London: Macmillan.


Brahmananda, P. R. 1959 A. C. Pigou (1877–1959). Indian Economic Journal 6:466–487.

Champernowne, David G. 1959 Arthur Cecil Pigou, 1877–1959. Journal of the Royal Statistical Society Series A 122:263–265.

Johnson, Harry G. 1960 Arthur Cecil Pigou, 1877–1959. Canadian Journal of Economics and Political Science 26:150–155.

Keynes, John Maynard 1925 The Economic Consequences of Mr. Churchill. London: Woolf.

Keynes, John Maynard 1936 The General Theory of Employment, Interest and Money. London: Macmillan. → A paperback edition was published in 196 by Harcourt.

Keynes, John Maynard 1937 The General Theory of Employment Quarterly Journal of Economics 51: 209–223.

Marshall, Alfred (1923) 1960 Money, Credit & Commerce. New York: Kelley.

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Arthur Cecil Pigou

Arthur Cecil Pigou

The English economist Arthur Cecil Pigou (1877-1959) is best known for his basic contributions to the theory of welfare economics and for his defense of neoclassic economics against the attacks of the Keynesian school.

Son of an army officer, A.C. Pigou was born on Nov. 18, 1877. Educated at Harrow and King's College, Cambridge, he compiled a brilliant record that included numerous prizes. He was made a fellow of King's College in 1902 and, in 1908, succeeded Alfred Marshall in the chair of political economy.

Like Marshall, Pigou felt that the study of economics could be justified only as a means of improving human society. Building upon the base of Marshallian economics, he set out modifying, expanding, and adapting the apparatus so that it could be directly applied to the exploration of ways and means by which social intervention would yield benefits in terms of economic welfare.

Wealth and Welfare (1912) contains, in embryonic form, the central core of Pigou's contribution to economic theory. Beginning from the proposition that economic welfare depends upon the size, the manner of distribution, and the variability of the national dividend, Pigou carefully analyzed the competitive economic system to find how it falls short of the ideal and the means by which the ideal can be achieved. The central concept of his analysis was the distinction between private and social net product—private product being the product that accrues to the individual making a decision concerning production, and social net product being the net product that accrues to society as a result of the decision. In a competitive economy, decisions are made in such a way as to maximize private net product but not necessarily social net product. Appropriate taxes and subsidies could, however, make private and social net products equal, thus leading each individual to behave in a way that maximizes social welfare.

In 1933 Pigou published The Theory of Unemployment, a book that was held in great esteem by orthodox economists. As such, it became a prime target for attack by John Maynard Keynes in his General Theory of Employment Interest and Money (1936). Pigou answered with several books and articles in which he attempted to reformulate his position in the light of Keynes's criticisms. In the end, his most lasting contribution was to point out that, as long as wage and price flexibility exists, the value of assets, the prices of which are fixed in money terms, will rise as wages and prices fall, reducing the propensity to save and, consequently, increasing the propensity to consume. It follows from the "Pigou effect" that Keynes's "under-employment equilibrium" is not a true equilibrium but a state of disequilibrium occasioned by inflexible wages and prices.

Pigou died on March 7, 1959, at the age of 81.

Further Reading

No biography or complete bibliography of Pigou's work has been published. The King's College Library catalog lists almost 30 books and over 100 pamphlets and articles. For background see Philip Charles Newman, The Development of Economic Thought (1952); Edmund Whittaker, Schools and Streams of Economic Thought (1960); and Ben B. Seligman, Main Currents in Modern Economics: Economic Thought since 1870 (1962). □

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Pigou, Arthur Cecil

Arthur Cecil Pigou (pĬ´gōō), 1877–1959, British economist, grad. King's College, Cambridge. He was a lecturer at University College, London, and at Cambridge. He was professor of political economy at Cambridge from 1908 to 1943. He served as a member of the committee on currency and foreign exchange (1918) and of the royal commission on income tax (1919). He was a leading exponent of the theory that economic waste due to unemployment, poor health, and poor housing is a responsibility of society, which should bear the costs. Among his many works are Wealth and Welfare (1912), The Economics of Welfare (1920), The Political Economy of War (1921; new ed. 1941), The Theory of Unemployment (1933), Socialism versus Capitalism (1937), and Income: An Introduction to Economics (1946).

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