Arthur Cecil Pigou (; 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. 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. 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, 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, 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. 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 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.
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.