Monthly Archives: July 2014

Wealth & Welfare

We are about to move into a rolling commemoration of the Great War that will certainly not be over by Christmas, but promises to be an ongoing media event for the foreseeable future.  So many Australians and New Zealanders wanted to visit Gallipoli in 2015 that there would not have been room for them all on the beaches, so tickets have been allocated.  Battlefield tourism could well overwhelm the actual battlefields.  This is no bad thing, but in the process there is something that needs re-emphasis: that in among the complex impact of the Great War on Great Britain and Ireland, the perspectives of those who before the war had been in the forefront of social and political reform were shattered.  To appreciate this, we need to look back upon the aspirations and hopes of the years before the War not from the standpoint of today, but from that of the 1920s.  We need to find a way back to the prewar world that does not simply label it “prewar”.  Maynard Keynes made this point at the beginning of Economic Consequences of the Peace – that the prewar world was in some respects more “globalised”, more “modern”, than the world of the 1920s and 1930s, let alone the 1940s and 1950s.

This was the perspective of A. C. Pigou, Professor of Political Economy at the University of Cambridge since 1908.  He was elected in 1908 at the age of 30 as successor to Alfred Marshall, whose retirement had followed the publication of what quickly became recognised as the leading English-language textbook of economics in 1890, the foundation of the Economic Journal in 1891, and the establishment of the first honours economics degree in the world in 1903.  Cambridge was then, briefly, at the forefront of the new discipline of economics.

In 1912 Pigou published his book Wealth and Welfare, a work that hinged on an issue that Henry Sidgwick had first articulated in his Principles of Political Economy (1883).  Hitherto, Sidgwick noted, the “wealth of nations” was directly associated with the welfare of the populations of these nations.  The wealthier the nation, the better-off its citizens.  However, Sidgwick observed that the new emphasis upon the marginal utilities of consumers carried an interesting implication: that the more equal the distribution of wealth, the “wealthier” the nation.  As Gossen had already argued in 1854, the wealth of a whole kingdom had failed to make Louis XV “happier” than the poorest peasant; while the poorest peasant could be made “happier” with an infinitesimal fraction of the wealth commanded by his king.

Pigou’s book marked the beginning of a new genre of economic texts in Britain that would turn out to be shortlived, terminating in 1936 with Maynard Keynes’ General Theory.  Dealing with what we would call GDP, he sought to distinguish fluctuations in the growth of the economy from variations in degrees of poverty, and the manner in which redistribution from the relatively richer to the relatively poorer might be effected.

The reception of the book was overtaken by the outbreak of war.  Pigou, 36 when the war broke out, remained in Cambridge teaching, driving ambulances on the Italian front during vacations.  When conscription was introduced in 1916 he was subjected to a vicious campaign from Foxwell and Cunningham, two embittered and reactionary former colleagues of Marshall.  It was Neville Keynes, Maynard’s father, who as Registrary of the University of Cambridge handled Pigou’s plea of conscientious objection, at the age of 38 when the call-up included all males to the age of 40.

After the war Pigou played no part in the development of teaching in Cambridge.  He is more or less invisible in the Cambridge Reporter and the faculty archives.  There are no surviving papers.  He confined himself to courses of introductory lectures.  But in 1920 he published the Economics of Welfare, and with this marked the beginning of “welfare economics”.

The Economics of Welfare is a rather complicated revamp of Wealth and Welfare which I discuss in detail HERE.  But more importantly, it did not attract a great deal of attention until the fourth edition of 1932, by which time whole sections, even entire books, had been included, then expelled, from its covers.  Also of course, since the 1930s everyone has referred to the 1932 edition as if it represents a finished foundation, and entirely ignored the fact that this text was radically different from the 1920 version, which in turn was a new version of a 1912 original.  And so by looking at the progressive construction of Pigou’s Economics of Welfare it might be possible to reconsider the invention of a neoclassical “welfare economics” in the 1930s, so remote from the ideas and arguments of 1912.  The idea being that we might be able to ditch the certitudes of the 1930s that founded “modern economics”, and so find our way back to some rather more interesting ideas.

Furthermore, this perspective could well shed light on a rather more recent controversy, over Thomas Piketty’s argument about long-term changes in inequality in his recent book, Capital in the Twenty-First Century.  Much of the commentary seems to have been limited to whether his main contention about the concentration of wealth is right or wrong.  It seems fairly obvious that this is true: that we have entered a period of increasing inequality and growing impoverishment.  Whether this is something that could be comprehensively substantiated in the way Piketty wants is a different matter.  Here his leading question is suspect: “What are the grand dynamics that drive the accumulation and distribution of capital?”  Why should one need to think that there is any such “grand dynamic”?  I will take this up in my next post.