English economist and professor of political economy at Cambridge University from 1908 to 1943. Pigou is best known for his authoritative statement of old-style welfare economics. His Theory of Unemployment (1933) furnished English economist John Maynard Keynes with the best example of the classical economics Keynes so decisively rejected in General Theory (1936). Having unfairly served as Keynes's whipping-boy, Pigou nevertheless managed in old age graciously to acknowledge that Keynes had been largely correct.
In his fundamental work, The Economics of Welfare (1920), Pigou elaborated English economist Alfred Marshall's invention of the concept of externalities into a general economic theory of government intervention. Externalities occur when the actions of one economic agent unintentionally harm or benefit others, as a result of which the private costs or benefits of an activity diverge from their true social costs or benefits. Such cases of market failure, he argued, require government intervention in the form of taxes or subsidies to close the gap between private and social cost-benefit ratios. This is the liberal theory of state action that English-born US economist Ronald Coase so bitterly attacked in later years.
Pigou was born at Ryde on the Isle of Wight, the son of a retired army officer. He won a scholarship at an early age to the famous public school, Harrow, from which he won another scholarship to King's College, Cambridge, graduating in 1901. He began lecturing on economics at Cambridge in the same year, a task which he carried on without interruption until World War II. In these early days he was a brilliant lecturer, and his repeated insistence to students that ‘It's all in Marshall’ (referring to the works of Alfred Marshall) was largely responsible in the interwar years for the Marshallian orthodoxy of Cambridge economics. From 1927 onwards ill-health undermined the liveliness of his lecturing and the vigour of his writing. He gave up mountain-climbing, the full-time hobby of his youth, and gradually became the academic recluse of later years, famous for his absentmindedness and slovenly appearance. His stream of output, however, never lapsed.
His publications include Industrial Fluctuations (1927), A Study of Public Finance (1928), The Economics of Stationary States (1935), Employment and Equilibrium (1941), Socialism versus Capitalism (1937), Lapses from Full Employment (1947), The Veil of Money (1949), Keynes's General Theory: A Retrospective View (1950), and Essays in Economics (1952).
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Born: November 18, 1877, in Ryde, Isle of Wight, England; Died: March 7, 1959, in Cambridge, England; English; classical economics, neoclassical eco