Retreat to the
Ivory Tower
AS PIGOU DEVELOPED a new understanding of the country’s leader-ship and his relationship with it over the course of the 1920s, his work retreated to the pages of academic journals and to those of books “suited for experts.” As the Liberal Party and the Liberal intelligentsia waned in power, he confined himself to the fellows-only combination rooms and High Tables of Cambridge, to Buttermere, and to the Swiss Alps, surrounded by his colleagues and friends. The short experiment with popular outreach had reached its end. Even when among his friends, he spoke only rarely on “serious subjects.”1 Austin Robinson noted: “We talked climbing. We talked cricket,” but not economics.2 Pigou himself quipped that his “pen did all his thinking.”3 And that thinking was becoming less and less accessible to general audiences. By devoting greater attention to the mechanics of technical problems, Pigou may have still been seeking to “bear fruit” by furnishing an armament of knowledge. But the restriction of his audience was also a sign of defeat. His withdrawal to the academy at Cambridge did not just indicate a changing perception of the possibilities of government action. It signaled that the dream to engage in efforts that directly affected welfare was fading.
These developments occurred, however, during the period of Pigou’s career that would prove the most productive, a period when he consolidated his reputation as the most eminent economic voice of his generation. As he stepped back from participating in issues of policy, he was ascendant as a scientist “of the chair.”4 It is not unlikely that Pigou himself took some satisfaction in this transformation. Tucked between the pages of his own copy of one of his later books was an anonymously published review by Joan Robinson that described him as “the most austerely professional of all economists.”5
The 1920s were, after all, an austere time for Britain, for Liberals, and for Pigou. His generation had seen a golden era of nearly unchecked optimism—in British, imperial, and human progress—vanish, to be replaced with pervasive uncertainty.6 Britain’s economic future and her imperial dominance were in serious question, and liberalism itself was, in the words of Pigou’s old friend C.F.G. Masterman, being “crushed between the upper and nether millstones of privilege and revolt.”7 And, for the first time in his life, Pigou began to feel his age. In 1922, in a rare display of postwar leisure, he played an exhibition match of fives with fellow Old Harrovian and Trinity classicist J.R.M. Butler against two boys from Harrow and lost soundly.8 Indeed, being surrounded by young men at the height of their physical capacity in Cambridge put Pigou’s own lack of vigor in striking definition. And, of course, many of his best friends were former students and thus significantly younger than he. During the early twenties, he became close to Tom Gaunt, a student at King’s, a mountaineer and, like his school friend Jenkins, a future man of the cloth. Noel-Baker, with whom Pigou kept up, was also in peak physical condition; he won a silver medal at the 1920 Antwerp Olympics for the 1,500-meter race. In contrast, the twenties saw Pigou slowing down and laid up with a collection of physical ailments. A weak heart made climbing difficult, and digestive problems frequently confined the middle-aged mountaineer to bed. When he finally finished with his duties in London, Pigou was a changed man, older in both body and temperament.
Driven to Abstraction
As early as 1922, Pigou’s optimism about the ability of welfare economics to be put to practical use had become significantly muted. That September, the economic historian J. H. Clapham wrote a short piece in The Economic Journal noting that economists tended to refer to conditions of “decreasing returns to scale” or “increasing returns to scale” “as if everyone knew what that was.”9 Clapham was referring to the Marshallian approach to industries as units of analysis. On a basic level, the theory had intuitive allure. Some industries, it suggested, were characterized by increasing returns: able to produce each additional item at a lower and lower cost. Others experienced decreasing returns and produced at ever mounting cost. Elegant or not, Clapham mused, in reality, it seemed as if the notions of increasing and decreasing returns were mere “empty economic boxes”—concepts that existed in theory but were not filled with any real, measurable content.
Clapham’s piece was light hearted, filled with metaphors about economists wandering down the dusty aisles of hat-shops without looking inside the theoretical hatboxes. But for its humor, the article also had an edge. By suggesting that there was no compelling empirical evidence for particular firms or industries to be characterized as having increasing or decreasing returns, it challenged one of the most basic elements of the Marshallian framework.10 Furthermore, in its critique, it especially confronted the work done by Pigou. Clapham noted that Pigou was one of these wandering economists, “less concrete in his treatment than Dr. Marshall, further from the clod and much further from the machinery.”11
It is easy to imagine Clapham and Pigou themselves opening up dusty boxes for examination and hashing out the article’s contentions across the High Table at King’s. The pair had been colleagues for twenty years and friends for longer, so the matter may have been privately resolved well before Pigou’s public response appeared three months later.12 In his reply, also in The Economic Journal, Pigou worked with a soft touch, gently parrying Clapham’s queries in an earnest attempt to preserve his abstract apparatus. Whether or not the theory bore direct applicability for action, Pigou held, it was certainly of some value, since the concepts in question were “not just boxes” but “part of the machinery” used for making sense of the world. Moreover, the former commissioner noted, the boxes were already of some use by dint of their mere existence, since they often exposed the falsity of political rhetoric.13 Clapham, Pigou claimed, could “hardly deny that science may help practice by exposing the falsehoods of charlatanry.”14
Nevertheless, Pigou acknowledged the massive gap between theory and practice, and he offered his modest claims for the boxes’ usefulness with a set of hefty caveats. To be useful for constructive policy, the boxes would be need to be filled, not only with the vital piece of information concerning whether an industry was operating at increasing or decreasing returns to scale, but also with all sorts of other data. The economist would need to fill not just “bulky valises . . . but an intricate collection of little cases inside these” having to do with the particular shapes of demand and supply curves as well as elasticities.15 But after laying out such a monumental task, Pigou, as a theorist, demurred from carrying it out himself. He noted that no one had, as yet, succeeded in such an endeavor, and he was “very far from wishing to underrate [its] difficulty.”16 This new position on the practicability of theory was substantively duller than the shining statements he had made years earlier in Wealth and Welfare and The Economics of Welfare about economics bearing the fruit of policy. Pigou would focus increasingly on perfecting the theory itself as opposed to its applications in the real world.
Over the 1920s, Pigou found himself embroiled in further discussions about the applicability of theory to practice. In 1924, he had a short debate with a younger colleague at Cambridge, Dennis Robertson, over the classification of certain external diseconomies.17 Robertson raised a point that had nagged Pigou since Allyn Young’s 1913 review of Wealth and Welfare: that there was a substantive difference between an external diseconomy like pollution and the phenomenon like the one brought about by agricultural production, wherein one farm’s purchase of seeds might drive up the price of seeds for other farmers. Young had called this second kind not an external effect at all, but a “transference of purchasing power”; there was a market for seeds, but not one for pollution. Young claimed, in an argument echoed by Robertson, that it would not be useful to tax industries merely because of this effect.18 In 1924, Pigou agreed—at least in the case of diminishing returns—and changed the second edition of The Economics of Welfare, published that year, to reflect the critiques of his past work. In the process, he further cut back the role assigned to the government in his theory.
Four months later, in the midst of these mounting challenges, Alfred Marshall died. Pigou, as his most loyal disciple, was “entrusted with the task of dealing with” his teacher’s manuscripts and papers.19 He duly sorted through Marshall’s work at his late teacher’s home, Balliol Croft, in Cambridge, and helped Mary Paley Marshall with the mountain of tasks precipitated by her husband’s passing.20 In the heavy months that followed, Pigou worked with Macmillan, Marshall’s and his own publisher, to assemble a volume of selections from Marshall’s writing prefaced by a series of remembrances and an introduction by Keynes.21
Marshall’s death took a great deal out of his former student. In a moving memorial address delivered to students at Cambridge three months after his teacher’s passing, Pigou was at his most emotional: “The Master whom we all revere is dead: full of honour, full of years, his life-work done. . . . If it were possible I should wish to stand as an interpreter of his spirit . . . and hand on some message, not unworthy of his thought and of his life.22
Pigou’s interpretation was both uplifting and didactic. Marshall’s work, he claimed, was inspired by the certainty that “the brief lives of multitudes of our fellow men are shadowed with sorrow and strained with want.” And the message of Marshall’s own life was to throw oneself headlong into a project that helped those in need. Recalling a fading prewar liberalism, Pigou urged the listening students: “Do not hoard your life: spend it; spend it on an aim outside yourselves, the worth of which you feel.” Closing with a stanza from Tennyson’s “Merlin and the Gleam,” Pigou’s words rang out with emotion:
This is Merlin, and he is dying
This is Merlin who followed the gleam.23
“After it,” he exhorted, “follow it: follow the gleam.”
Marshall had been something of a father figure and was probably the person Pigou had respected most. One of the most striking manifestations of that regard lay in his penmanship. By the 1920s, Pigou’s once elegant handwriting had degenerated into a mass of nearly incomprehensible scratchings and blots. But in letters to Marshall, the lines and arcs corralled themselves into comprehensible, even neat words.24 No other correspondent received such generous treatment from Pigou’s pen; in fact, several of his correspondents transcribed his letters in the process of decoding them.25
Marshall’s passing was thus a profoundly personal loss for Pigou, but the death also resonated for a man who, without a family of his own, was confronting his own failing health. In October 1925, Pigou was “laid up in a nursing home with a temporarily strained heart” and “off work for a month or more.”26 He spent that time in Marylebone in London, just a five-minute walk from the houses of both his brother and sister and only a short journey from the Kensington home of his friend Philip Noel-Baker, who had become Professor of International Relations at the University of London.27 A penciled letter to Macmillan written during the stay at the rest home bore the writing of a feeble patient. After discussing his plans for future work after his strength returned, Pigou apologized. “I hope this is intelligible, but I’m not feeling up to much at the moment.”28
Almost as importantly, the death of his teacher was also a deep professional loss, for now Pigou was indisputably the most prominent Marshallian economist alive. This position was soon heightened when F. Y. Edgeworth died in early 1926. As his teachers’ generation faded away, Pigou himself increasingly emerged as a recognized elder of his discipline. Of the thirteen scholars who gave lectures in economics for the Tripos in the year of Marshall’s death, only two, Clapham and the statistician Udny Yule, were older than Pigou, and neither of these men were theoreticians.29
Thus, when the Marshallian theoretical system came under fundamental attack in 1926, Pigou was particularly ready to defend it. The challenge arrived in the form of an Economic Journal article by the Italian economist Piero Sraffa, who would move to Cambridge the following year. Sraffa questioned the usefulness of the core Marshallian premise of free competition, which held that markets were sufficiently large and brisk to prevent individual firms from determining the prices of the goods they sold.30 Sraffa argued that there was a tension between the reality of external (dis)economies on one hand and the commitment to conditions of perfect competition on the other. Either a firm’s actions had major effects on the operations of other firms in the same industry by way of external effects, or if perfect competition held, they did not. The same reasoning, he contended, could be applied to industries.31 Ultimately, Sraffa suggested that, according to the Marshallian system, demand did not play a part in setting a commodity’s equilibrium price, a result that threw the entire system into question. The solution that Sraffa offered in his article was to abandon the conceptual framework of perfect competition for a type of monopolistic model wherein individual firms were not merely passive price takers, but were able to affect the price and quantity of industrial output.32
In his response, Pigou tried to achieve a compromise between perfect and imperfect competition, but the result was a clear espousal of orthodox Marshallian theory. In short, he held that the (dis)economies were external to individual firms but not to industries, thereby preserving the possibility of classifying whole industries as having increasing or decreasing marginal returns, which Sraffa had rejected in his article. This was, in some ways, a reasonable response, and one from which economists would later draw, but it did little to address and less to stem the tide of criticism attacking the basis of the Marshallian system, criticism that would only mount over the course of the decade.33
The theoretical disputes with Clapham, Robertson, and Sraffa grew into one of the major debates of the 1920s and ultimately resulted in the erosion of the Marshallian theory of value and a fundamental challenge to the established conception of supply and demand. For Pigou, they also mattered because of their implications for his welfare economics. Conceptualizing industries as practicable units that could be classified as bearing increasing or decreasing returns to scale allowed such units, in theory, to be manipulated by taxes and bounties to improve the social weal. Indeed, Pigou’s system of bounties and taxes was fundamentally based on their existence.34 However, his sparring with Clapham, Robertson, and especially with Sraffa was also largely motivated by concerns about preserving Marshall’s legacy.35 The “master” had left Pigou with a citadel, and it fell to him to defend it. Indeed, as time passed, and as he himself grayed, Pigou found himself with ever-weightier loads of responsibility, perceived and actual.
With responsibility came testiness. When Pigou encountered an ill-informed letter in the Times from a would-be economic commentator who had not undergone rigorous training, he replied, a task he considered his duty as “Chairman of the Faculty Board for Economics and Politics.” In responding to academic challenges to his and Marshall’s work, Pigou typically took a firm, though accommodating tone. But he was far less generous when defending economics from attacks made by outsiders, and his response to the Times seethed with cold anger. In the offending letter, which appeared in 1926, just months after the General Strike of some 1.7 million workers, Sir Ernest Benn, a publisher and an active critic of socialism, warned that there was “grave reason for suggesting that economics is in danger of degenerating as a science through the importation of a veiled political bias.” Benn claimed that universities were “led by the nose by Socialists,” and that the teaching, particularly at Cambridge (perhaps because of the presence of the communist Maurice Dobb), demanded greater scrutiny.36 Pigou’s response was quick and savage. In a few sentences, he countered the substance of Benn’s claims, noting that the latter had not read the lists of lectures or examinations, and sarcastically noting that the external examiners included “the notorious Socialists Sir Josiah Stamp and the present editor of the Economist [Walter Layton].”37 But the real message of Pigou’s letter was that Benn was to be dismissed out of hand. Pigou’s words burned with dismissive indignation at the fact that a layperson—especially a propagandizing publisher—would attempt to dictate academic policy and lecture scientists about the objectivity of their work. At Cambridge, Pigou fumed, teachers were appointed without “inquiry . . . into political opinions.” Once appointed, teachers had a duty to “teach what is true, irrespective of whether Sir Ernest Benn . . . may happen to be aware of it.” Pigou charged on:
For an outsider, ignorant of our practice and an amateur in our subject, to charge us with violating it is an impertinence. For myself I make no answer to such a charge; of my colleagues with whose personality and qualifications I, unlike Sir Ernest Benn, happen to be acquainted, I flatly assert that it is untrue.38
The virulence with which Pigou responded was a result of more than just a Cantabrigian disdain. Benn’s attack hit a nerve. Pigou’s contention was that economics was scientific in large part because it was nonpartisan. Indeed, he saw his retreat from public life as consistent with a sort of apolitical insulation. This belief was reflected in his biting response to Benn in two ways. First, Pigou explicitly noted that at Cambridge, truth came before and above politics. And in directing Benn to mind his own business and his impertinences, Pigou also figured Cambridge as a closed citadel whose walls protected academics from an often misunderstanding public.
Major Works and the Height of Prestige
As Pigou resettled himself in academia after his forays to London, welfare—at least in abstraction—continued to preoccupy his thoughts. He revised The Economics of Welfare for second and third editions, which appeared in 1924 and 1928, and the two major new books he produced over the course of the decade, Industrial Fluctuations (1927) and A Study in Public Finance (1928), were both related to his canonical work. The tone of these two works, however, was somewhat different from that of The Economics of Welfare. They were the most academically rarefied of his books to date, and they employed a much greater quantity of technical and mathematical language, with the result that the reading public would have a much harder time accessing their meaning.39 They were addressed to colleagues and no one else. As Pigou would write some years later, “conversation is fostered and knowledge advanced if Hindus are allowed to talk to one another in Hindustani. . . . Ought not some economist sometimes to have the privilege of these Hindus?”40
These were the words of a man who was slowly but surely retreating, in the words of Austin Robinson, “into the ordered life of a recluse.” During the academic year, he continued to live inside King’s, taking his dinner night after night in the college Hall. Every afternoon, he would walk west out of the college and through the fields surrounding Cambridge to the village of Coton, two and a half miles away. His routines would be broken only rarely: by visits from friends, holidays, and slightly more regularly by the lectures he delivered three times a week throughout the academic year. As Robinson noted, “the lectures cost him little effort.”41 He had taught the general course in economics for the better part of two decades, and the other topics on which he expounded were always related to his book project of the moment.
The books themselves provided Pigou’s principal occupation. He worked on them constantly: at Cambridge during term time, at Lower Gatesgarth during vacations, and in the Alps over the course of his annual summer holiday. In writing and revising his books in the 1920s, Pigou saw his goal as the same as Marshall’s: to contribute knowledge that, if successfully applied, might improve the societal lot by addressing the major social ills of the time. Unemployment, malnutrition, even unfair compensation were all problems that attracted the attention of reformers and politicians, but any potential action would require knowledge and understanding. In particular, at least in Pigou’s estimation, they required economic understanding. Thus, after stepping back from direct discussions with policymakers, Pigou set himself a less proactive task: to develop a scientific theory that, by explaining economics as a whole, would be able to offer guidance in easing the major social problems confronting interwar Britain.
Like Marshall and other systematic thinkers of the late nineteenth century, Pigou believed that economics could provide a comprehensive set of theoretical models to describe the world, an “organon” universally applicable to practical questions. And indeed, Pigou envisioned all of his own major works as belonging to such a unitary corpus.42 At its center was The Economics of Welfare, which entered its third edition in 1928. Considered the first and best theoretical explanation of economic growth at the time it came out, the tome was also held to be one of the premier comprehensive works on economics for students and scholars alike. American economist Frank Knight titled his review of the second edition “Economics at Its Best.”43 It was also economics at its more socially conscious. The Economics of Welfare was, after all, as its first pages laid out, meant to serve “the social sympathies.”44
However, even his work on welfare did not prove immune to the changes that were narrowing Pigou’s audience and dampening his tone. In the transition from Wealth and Welfare (1912) to The Economics of Welfare (1920), Pigou amended his purpose. Whereas he had begun writing for explicitly ethical reasons, by the 1920s, welfare economics had become much more of a technical project. In a letter written years later to Pigou, Hugh Dalton observed that the first and last paragraphs of Wealth and Welfare “have always been my ethical starting point for economic journeys, and I have been sorry that they dropped out from successive editions of E[conomics] of W[elfare].”45 These omitted passages, which explicitly stated, “welfare means the same thing as good,” were imbued not only with an optimism, but also with a certitude of purpose. In the introduction, Pigou wrote: “Whether the life of man ends with his physical death, or is destined to pass unscathed through that gateway, the good and the evil that he experiences here are real; and to promote the one and restrain the other is a compelling duty.”46 The conclusion was even more stirring. “First we must understand our task and prepare for it,” Pigou wrote, “and then, in the glow of sunrise, by united effort, we shall at last, perhaps achieve.”47
The four editions of The Economics of Welfare, published after the war in 1920, 1924, 1928, and 1932, never returned as explicitly to the original ethical origin. Instead, they were more observational, more reserved, more entwined with theoretical debates about measurement and prediction. Their introductions and conclusions, though still laced with ethics, took more pragmatic tones than did their predecessor. In the transition from Wealth and Welfare to The Economics of Welfare, the language of good and evil and the quotations from Moore were excised. Instead, The Economics of Welfare started with a description of the type of science economics was to be—a practical one—and how it would “elucidate . . . the actual world of men and women as they are found in experience.”48 The revision of the book’s ending was more striking still. Whereas Wealth and Welfare concluded with a exhortation to “united effort,” The Economics of Welfare ended without a formal conclusion, a striking parallel of Pigou’s own unfinished task of putting his welfare economics into practice.
The new books Pigou penned in the middle years of the 1920s made even greater departures from the buoyant animating spirit of Wealth and Welfare. They were self-consciously observational and predictive, with much greater emphasis on statistical analysis. For the first time in one of his books, large inset graphs featured prominently in Industrial Fluctuations, which came out in 1927. Though they were not technical in the sense that the word is used today, Pigou certainly saw them as scientific, and their scholarship and “painstaking thoroughness” were widely noted. 49
Pigou had started working on Industrial Fluctuations in 1925, and as he corrected proofs in late 1926 and early 1927, he began to see it as an addition to The Economics of Welfare: a sort of extended appendix that focused on the volatility of national income.50 Just before embarking on his annual summer holiday in the Alps, he suggested in vain to his publisher that it might be published together with a new edition of The Economics of Welfare as a “sort of three-volume treatise,” a reflection of how many pages the books together would run.51 But though Pigou may have seen his new work as neatly dovetailing with his old, the books had decidedly different styles of exposition. Industrial Fluctuations showed off both data and mathematical modeling, with seventeen tables of statistics and twenty charts and graphs, features that barely appeared at all in The Economics of Welfare.52 These nontextual elements and the corresponding glosses made the book feel as if it were at a further remove from the emotive and ethically founded prescriptions of past work.
That said, Industrial Fluctuations was nevertheless an expanded and revised version of part III of Wealth and Welfare.53 Like its earlier iteration, Industrial Fluctuations was framed by ethics inasmuch as it was premised on the understanding that periods of booms and busts were socially harmful. Booms and busts tended to result in lower overall income than a corresponding period of stability, and the brunt of cycles was typically borne disproportionately by “the unfortunate few” who were often the least able to cope with them.54 Moreover, the resulting unemployment brought “serious evils,” like the “haunting sense of insecurity and danger” experienced by the unemployed poor.55 But more than he had ever before, in Industrial Fluctuations, Pigou concentrated on the slew of economic costs and diseconomies associated with joblessness. “Considerable spells of unemployment,” he wrote, might “damage a man’s technical capacity and, what is much more important, the general make-up of his character.” If “self respect” and the “habit of regular work” were lost, “the man, once merely unemployed is found to have become unemployable.”56 The result was that “industrial fluctuations . . . involve a substantial loss of economic welfare,” both for the worker and the nation.57
In substance, Industrial Fluctuations offered a sweeping taxonomic exposition and a synthesis of various existing theories of the business cycles.58 It argued that the expectations of businessmen, and nothing else, caused economic conditions to undulate. Specifically, businessmen responded to three sorts of impulses: real (e.g., a poor harvest), psychological (e.g., forecasting errors), and monetary (e.g., exogenous factors like changes in foreign debt). Cycles were precipitated and sustained not by one type of these impulses, but by a complex combination of them, and the “sum of their effects” was “something much bigger than the joint effect of all of them taken together.”59 This interplay made Pigou’s conceptual framework for fluctuations almost impossible to model.60 Despite this, and in marked contrast to past work on welfare, Pigou included a great deal of empirical work, mapping historical cycles in addition to developing a theoretical apparatus for describing how businessmen behaved. But while businessmen were at the center of Pigou’s story of cycles, they were not his audience, as the technical and mathematical nature of his work limited its accessibility. In a letter to Hugh Dalton some years later, Donald Chapman, the general secretary of the Fabian Society (who had himself studied economics at Cambridge), confessed that he had stopped reading Pigou during this period as he feared subsequent work “might be as incomprehensible as some of his stuff on the trade cycle.”61
Though comprehensive, the book was not groundbreaking, and its policy prescriptions were hardly extreme. Monetary policies were found useful in damping cycles of boom and bust, as were certain fiscal policies meant to create demand in depressions so as to stabilize demand throughout economic cycles.62 Pigou, alluding to work of the British economic statistician Arthur Bowley, drew attention to the fact that government spending patterns mirrored the general cyclical fluctuations of national prices and argued that the government ought to shift its spending so that its own peaks aligned with the general market’s troughs.63 To some extent, municipal governments already employed this strategy of “setting up a small ebb and flow of its own to some extent counteracting the flow and ebb of private industry,” a point that had been made in the Minority Report of the Royal Commission on the Poor Laws back in 1907 and echoed by Pigou in Wealth and Welfare.64 However, Pigou’s deep scorn for the general public kept him skeptical of state-directed relief programs. Works projects, after all, had to rely on “a miscellaneous collection of relatively inefficient people,” untrained and undisciplined.65
As in his previous work, Pigou noted that “the old doctrine of the economic harmonies . . . that, in general, the pursuit by individuals of their private self-interest will make the sum of economic satisfaction a maximum” was “subject to large qualifications.” Certain initiatives that were meant to align the individual and collective interest, he argued, could improve economic welfare.66 But in recom-mending state action, Pigou trod very carefully, with significant skepticism of too heavy a government hand. The government was, at most, to watch the aggregate indicators of economic health and apply “a brake or a stimulant.”67 This could mean restricting or expanding credit, shifting its spending schedule, or providing bounties to certain nationally essential industries. Much of the lengthy section devoted to “remedies” concerned ways that the government could make the market function better. The state was to restore confidence and stability by adhering to the gold standard; it was to increase labor mobility; and, above all, it was to ensure that wages were able to adjust rapidly.68 Thus, though Pigou put forward recommendations that were technocratic insofar as they would be implemented by state bureaucrats, by highlighting the importance of flexible prices, he circumscribed the role of the government in mitigating crises. In Wealth and Welfare and The Economics of Welfare, an ethical desire had motivated Pigou to create a conceptual framework that justified new sorts of ameliorative action to protect the social from the individual. Though Industrial Fluctuations justified state intervention on similar grounds, its message was much less provocative, and its exposition made for a considerably less strident call to action.
A Study in Public Finance, which appeared a year later, in 1928, continued in a similarly scholarly vein. Pigou noted in its preface that it was to be taken together with The Economics of Welfare and Industrial Fluctuations.69 But though Public Finance was continuous with the tradition of Pigou’s welfare economics, the new work was even less suitable for lay audiences than was Industrial Fluctuations. Readers not already familiar with Pigou’s work would have significant trouble parsing the nuances of Pigou’s meaning for, as Hugh Dalton, writing in Economica, noted: “This third member of the trilogy . . . has less the appearance of a well-proportioned system and more that of a series of elaborations.”70 Public Finance also relied more heavily on equations than did its predecessors. “The abstract and, in spots, involved mathematical treatment,” one reviewer observed in the increasingly important American Economic Review “makes the reading difficult.”71
Difficulty, however, did not prevent academic reviewers from commending the work. Though Dalton compared it unfavorably to Pigou’s past books, he also noted its “great merits relatively to the general body of modern writing on Public Finance.” Pigou touched “no topic without illuminating it, and his logical skill in organising a discussion is unsurpassed among living economists.”72 Allyn Young was even more effusive. “Professor Pigou is constantly an explorer. His interest is always in the margins or frontiers where, by dint of painstaking analysis, new knowledge is to be had.”73
In no small part, Public Finance responded to the unique economic problems that had arisen from the Great War. The first chapter concerned principles of compensation for commandeered materials, and the last discussed arguments for and against a massive capital levy of the sort that he had proposed nearly a decade before.74 The book also reflected Pigou’s own experience on government committees; the chapters on financing government expenditure through bank credits addressed the very problems the Cunliffe and Chamberlain-Bradbury Committees had faced, and in them, he provided justifications for several of the groups’ conclusions.75
As a book primarily about taxation, Public Finance also drew from Pigou’s experience on the Royal Commission on the Income Tax. Most of its pages studied specifics of tax schemes, calibrating tax levels and explaining how different types of taxes—land taxes, commodity taxes, or taxes on windfalls—might be implemented so as to take into account the distortions taxes caused in patterns of consumption.76 Pigou’s specific analyses were undergirded by a general principle of taxation: that taxes were to elicit the smallest possible aggregate sacrifice of general wellbeing across a society. This principle, he noted, was distinct from taxing people so as to make their sacrifices equal, though he also held that similar people should be made to sacrifice similarly. Each of these principles—“least sacrifice” and “equality” was important and, in resolving any tensions that arose between them, both “ultimate” principles were to “be brought before the tribunal of something more ultimate still, i.e. the principle of maximum good.”77 Fortunately, such a trial would not entail a messy optimization problem, since the two moral dicta overlapped. In practice, “tax arrangements that conform to the principle of least sacrifice always and necessarily conform also to the principle of equal sacrifice among similar and similarly situated persons.”78 This followed from conventional Marshallian reasoning. Sacrifices were minimized when the marginal sacrifice experienced by individuals was equal across the society.
Pigou, like his contemporaries, approached his subject with an unquestioned understanding that taxes were necessary because of their role in raising revenue; he made no comment on what might now be understood as macroeconomic policy. Pigou, at least in 1928, did not conceive of the purpose of government spending and finance as the improvement of overall national economic health, and the few pages he devoted to government expenditure focused largely on the determination of fair compensation for wartime appropriations.79 Public Finance was not intended to advocate taxes as a way to directly improve social wellbeing. Instead it was meant to offer a heuristic analysis of tax forms and a framework for calibrating tax systems so they met existing revenue needs in the best possible way: a way that would take into consideration both fairness and efficiency.
Even on these grounds, Pigou was hesitant to make concrete policy recommendations. One notable exception concerned taxes on foreign trade, to which he remained firmly opposed on the grounds of faulty administration, though he admitted that “conditions may easily arise in which a country would benefit from restricting the importation of particular competitive goods.” He also took a stance on unearned income; echoing the pre-war Liberal refrain, he called for higher taxes on unearned as opposed to earned income.80 He similarly endorsed other old Liberal schemes: a graduated income tax, as the 1920 commission had recommended, and a system of death duties and taxes on monopolies and windfalls.81 However, he concluded, all of these were “matters for technical experts” and “no final judgment can be passed upon the merits of the policy here sketched out except in collaboration with them.”82 Pigou himself, after all, was not a technical expert, but a theorist.
Though his work became more technical, as noted before, Pigou’s output throughout the 1920s retained ethical elements. In this respect, Public Finance should be seen as it was intended: as a rigorous “supplement” to his work on welfare, a lengthy appendix concerned with the intricacies of fiscal policy.83 But Public Finance was even less a call to action for the interventionist state than was Industrial Fluctuations. A comparison with one of the first works he wrote on taxation, the 1909 pamphlet on land taxes, is arresting. In 1909, Pigou had claimed that if a man were to find “an unexplained £100,000 in his garden, it is surely monstrous to vest the whole of this treasure-trove in the individual and none of it in the State.”84 There were no such decisive normative judgments in Public Finance.
Writing to Keynes in 1929, Pigou noted the recovery of his health: “My heart is now nearly as good as new” and joked “I plan to renovate my head next!”85 The joke, however, was an apt metaphor for Pigou’s transformation over the 1920s. By the end of the decade, Pigou was paying ever more attention to solving technical problems than to their ethical impetuses. Rather than the means to societal improvement, the creation and maintenance of his organon had become an end in itself. Moreover, it was an end that Pigou felt he had reached. With the completion of Public Finance, he declared to his publisher that he had covered “most of the subject matter of general economics.”86 But as his theoretical apparatus grew into its own, Pigou’s hope for its practical application ebbed. By 1929, the year after Public Finance appeared in bookshops, he had entirely abandoned his long-held claim that the economist’s central project was to bear fruit rather than light. In an address delivered at Oxford that spring, Pigou reversed his priorities. “The primary function of economic analysis ends with the provision of knowledge,” he claimed, but “the knowledge that it provides may help in some measure—not in great measure, because many factors of a non-economic character are also relevant—to guide practice.”87 Pigou’s comprehensive framework for understanding economic behavior was more or less complete, but it had been hollowed out. The organon lay ready to help understand economic reality but not to direct policymakers.
Within the academic community, however, Pigou’s organon was almost universally respected. Moreover, the unity and influence of his own work was mirrored by that of his school. When Pigou succeeded Marshall to the Cambridge Chair of Political Economy in 1908, he inherited the position of power from which British economics had been shaped.88 After Marshall’s death in 1924, the forty-seven-year-old Pigou was the undisputed link back to the time of the Cambridge tradition’s birth and the father figure for a flowering economics program. For the better part of the 1910s and 1920s, he presided over an ideologically and methodologically united economics faculty: a Marshallian consensus. The number of Tripos graduates tripled from around twenty in 1920 to nearly sixty a decade later.89 The Departmental Library of Economics, which contained a good many books donated by Sidgwick and Marshall, grew out of its old home in the Divinity School and was moved to much larger spaces near the law schools on Downing Street in central Cambridge, the same building in which most economics lectures were held. There was growth in the faculty as well. Whereas six economists taught at Cambridge in 1910, there were twelve in 1925.90 Of those, two, Keynes and Pigou, had been students of Marshall and one, C. W. Guillebaud, was Marshall’s nephew.91 Seven had taken the Economics Tripos at Cambridge, meaning that they had been Pigou’s students.92 The cohort responsible for the instruction of economics thus formed an identifiable and self-perpetuating “Cambridge School.” And at the school’s center was Pigou. Responsible for the general course on economic theory offered to second- and third-year students as well as a variety of other rotating courses, Pigou was by far the most important teacher of economics at the university during the period.93
The 1920s certainly witnessed economic debates in Cambridge—the articles by Clapham, Robertson, and Sraffa provide examples—but the serious disagreements arose between the “Cambridge School” as a unit and other schools of thought, among them the individualist-oriented “Austrian School” and a strain just beginning to take root closer to home at the LSE. Throughout the period, though Cambridge was home to a diverse array of economic thinking, it displayed a generally unified front to the outside world.94 When Pigou wrote to congratulate Dennis Robertson on a new book, his highest praise was that the work was a “great flower for the ‘Cambridge School.’” And when Pigou himself had published an equation that led to a new conception of money demand in 1917, the concept became known not as the “Pigou k,” but as the “Cambridge k.”95
In and outside his home institution, Pigou’s reputation in the 1920s was imposing; his scholarship earned him what one reviewer called the “high position which he occupie[d] among the world’s economists.”96 In 1927, after two previous nominations in 1913 and 1917—both of which had been quashed by a group led by the embittered Foxwell and William Cunningham—he was finally elected to the fellowship of the British Academy.97 The next year, he was elected as a foreign honorary member of the American Academy of Arts and Sciences. His 1929 delivery of the Sidney Ball Lecture, an annual talk at Oxford on social policy, showcased him as a thinker at the top of his field, one who fluently discussed the importance of the latest statistical tools to the analytical method.98 Pigou could bask in the praise of his colleagues. In 1927, Josiah Stamp, the fellow economist on the of the Income Tax Commission, noted that “a new work . . . from Professor Pigou bids fair to be itself an economic event of some importance.” In the words of his reviewers, his work was “very scholarly,” “most authoritative,” and characterized by “organic unity and massive solidity.”99 It was, in short, “worthy of a Professor of Political Economy in the University of Cambridge.”100 Pigou, to use the word of his friend Dennis Robertson, was a “giant.”101