Ian Kumekawa: The First Serious Optimist: A.C. Pigou and the Birth of Welfare Economics

DOIhttp://doi.org/10.1111/jols.12066
AuthorDavid Campbell
Publication Date01 Dec 2017
THE FIRST SERIOUS OPTIMIST: A.C. PIGOU AND THE BIRTH OF
WELFARE ECONOMICS by IAN KUMEKAWA
(Princeton NJ: Princeton University Press, 2017, x + 332 pp., £27.95)
In 1920, the year in which his most important work, The Economics of
Welfare, appeared, Arthur Cecil Pigou (1877±1959), Professor of Political
Economy in the University of Cambridge (1908±43), arguably was the most
influential economist in the world, certainly outside the United States.
Leaving aside his important service to the teaching of economics and his
being what would now be called a public intellectual, Pigou made important
theoretical contributions to a wide range of topics. But it is on his
formulation of the economics of piecemeal intervention, and in particular of
the concept of the externality as a rationale of such intervention, that his
contemporary significance, and interest to the readers of this journal, rests.
Economists had, of course, been concerned with social problems prior to
Pigou ± his predecessors in the `Cambridge School' of economics, Henry
Sidgwick (p. 20) and Alfred Marshall (p. 29), were prominent in this regard
± and previously had reasoned on the basis of something like the externality:
Adam Smith certainly did so. But it was Pigou who placed all this on a
unified theoretical basis, which, in part because of the influence of his usage,
is now known as welfare economics.
The terms in which Pigou formulated the externality, of a divergence
between the private and social net products of an investment, have fallen into
desuetude, and not only is none of the modern terminology of welfare
economics ± social welfare function, social cost, market failure, public
goods, indeed the externality itself ± attributable to Pigou, but those
economics were developed in ways which often treated his specific approach
as obsolete (pp. 163±4, 199). As economists generally are an illiterate lot,
being much mentioned but little read by them is a very common fate, but
Pigou shared it profoundly. When in 1960, the year after Pigou's death,
Ronald Coase's vehement criticism of the `Pigouvian tradition' in `The
Problem of Social Cost'
1
appeared, Coase was directing his fire at a tradition
he by then saw as `largely . . . oral'. Paradoxically, Coase's criticism, which
placed Pigou at the centre of economic arguments for intervention which had
long made but gestural reference to him, has been the main impulse to the
current recognition of Pigou's importance.
The book under review does not make much of this, but when seeking to
establish Pigou's contemporary interest it does emphasize the establishment
in 2006 of `the Pigou Club' of academic economists and, more importantly,
powerful public figures who advocate what they claim are Pigouvian
interventions which reverse a former period of unwise deregulation (pp. 4±5,
209±10). The member of the Club who will be best known to the readers of
this journal is Richard Posner, but whilst Posner's membership shows the
719
1 R. Coase, `The Problem of Social Cost' (1960) 3 J. of Law and Economics 1, at 28±42.
ß2017 The Author. Journal of Law and Society ß2017 Cardiff University Law School

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