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Economics as a Public Science, Part I: The Economist’s Ethos and Modes of Persuasion

The Ethics of Political Economy: Pigou in the Public Sphere

L’éthique de l’économie politique : Pigou dans la sphère publique
Nahid Aslanbeigui et Guy Oakes
p. 237-263

Résumés

La carrière d’Arthur Cecil Pigou a été marquée par un projet clairement défini visant à éveiller le grand public aux questions économiques. Ce projet fut initié en 1903 et dura jusqu’au milieu des années 1950. Nous défendons ce qui suit : Pigou a soutenu que dans la société politique britannique de son temps, les citoyens étaient indirectement, mais en fin de compte, responsables de la politique économique. Cependant, il était convaincu que le public britannique était terriblement ignorant des affaires économiques et incapable de comprendre un raisonnement économique élémentaire sans le conseil d’experts. Selon lui, la responsabilité d’éclairer le public sur la façon de comprendre et d’évaluer la politique économique incombait aux économistes, une obligation qu’il a mise en œuvre dans divers essais, des conférences et des lettres au Times destiné au « corps général du public. »

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1. Pigou in the Arena

  • 1 On the tariff reform controversy see Sykes (1979) and Aslanbeigui and Oakes (2015b).

1On November 5, 1903, The Cambridge Review summarized the debate of November 3 in the Cambridge Union on free trade and tariff reform, the most heated fiscal issue of the day in British politics. The controversy had become inflamed in May, when the political wisdom and economic benefits of free trade—the corner stone of economic ideology in the Victorian era—were contested by Joseph Chamberlain, Colonial Secretary in the Conservative government of A.J. Balfour, committed imperialist, and self-anointed prophet of the tariff reform movement.1 An “extraordinary fervour” was on display in the Cambridge Union: “a house crowded and overflowing—an atmosphere charged with electrical excitement—tumultuous applause”—ad hominem speeches and personal invective, “and above all the fiery intensity and bitter sarcasm of Mr Pigou.” In the account of the Cambridge Review, Pigou eviscerated the case for protective and retaliatory tariffs by exposing the shoddy arguments of tariff reformers. In introducing unexplained data without analyzing causes, they embraced colonial trade at the expense of more profitable free trade, filling the pockets of “the richest and most idle class in Britain.” Chamberlain’s proposals would “establish vested interests, encourage trusts, stir up jealousy in our colonies,” and inevitably lead to import taxes on critical staples such as raw cotton, wool, and lumber—in short a “ruinous policy” for the British people (Cambridge Review, 1903, 55-56). This was A.C. Pigou as a young firebrand, the twenty-six year-old fellow of King’s College elected only the year before. His engagement in the tariff reform controversy included short books for the general reader and articles for political periodicals as well as extra-mural public speeches. In attacking the bases of an influential set of policies, he addressed the public in plain if sometimes polemically ornamented language, accessible to an audience with little or no economic expertise (Pigou, 1903a; 1903b; 1904a; 1904b; 1906a; 1906b).

2The political pedagogy that underpinned Pigou’s contribution to the tariff reform controversy marked the appearance of an important assumption in his thought that linked the conditions for effective economic policy to public sentiment on economic issues and the ethics of the economics profession. These linkages can be clarified by introducing the concept of a Pigouvian project of public economic enlightenment. The tutelage of the public on economic matters became a critical civic and professional responsibility of the economist when three circumstances intersected. (1) Influential policies flawed by errors in economic reasoning endangered British public interest. (2) Correcting flawed policies called for substantial changes in the conventional economic wisdom of the political class: parliamentarians, cabinet members, civil servants, and influential writers and editors of political weeklies that framed and reflected perceptions in Westminster and Whitehall. However, changes of such magnitude could be made only by recasting the sentiments of the electorate. Such a shift in the public mind called for basic competence in economic reasoning and judgment on plain facts of policy making. (3) The public could not be expected to grasp the elements of economic logic unless professionals in the discipline assumed an obligation to enlighten them on the issues at stake, how they should be understood, and policies that would be reasonable in light of a sound understanding.

3In this essay, we analyze Pigou’s project of public economic enlightenment, how he executed it, and some of the premises on which it was based. Although differences in rhetorical tone and polemical style are evident in his popular writings and lectures, their consistency in method and purpose over some four decades is remarkable.

4The plan of the ensuing investigation can be briefly sketched. Section 2 considers Pigou’s conception of the institutional importance of public economic enlightenment in the British polity of his time, the responsibilities it imposed on economists, and how he acted on them. Section 3 considers the question: who or what constituted the Pigouvian public? Section 4 reconstructs three moments in the history of British public economic enlightenment in which Pigou intervened: the labor problems following the Great War, the dangers of economic austerity in the 1930s as the British government grappled with the Great Depression; and the threats to the British economy posed by wage increases and inflation in the years following World War II. Section 5 concludes the essay with skeptical observations on Pigou’s principle of nonpartisanship as an ethical axiom governing conduct of economists in educating the public.

2. The Pigouvian Project of Public Economic Enlightenment

5The polity that is tied to the economy in Pigou’s writings was invariably the British state at the time of writing. The exigencies addressed by intelligent policy were the demands of the day and the imperatives visible on the political horizon. Long-term strategic planning, which became fashionable in the policy sciences after his death, was a vain exercise. Because of the imponderable contingencies of history, confident projections of the remote consequences of current trends were out of the question. Although British economic policy was an artifact of the mother of parliaments, a representative body chosen by eligible voters, Pigou had very little confidence in the policy judgment of voters, most of whom he regarded as economically illiterate. He also expressed occasional doubts about the economic savoir faire of British MPs and professional civil servants. Moreover, the democratic complexion of representative government compromised the benefits of expertise, such as it was. In his view, the institutional structure of British political economy imposed two formidable constraints on public policy. (1) A policy had reasonable chances of success only if it enjoyed the “general assent” of the public. Assent would be forthcoming only if the public understood the policy and believed in its efficacy and fairness. (2) However, citizens were unlikely to grasp the essentials of any policy because of their economic incompetence. Easily misled by economic charlatans, they were also likely to be duped by the propaganda of special interests. Untutored but often dogmatically confident in the rectitude of their opinions, they were oblivious to basic distinctions, such as the differences between saving and investing. In consequence, it was futile to suppose the public could follow arguments employed in even a simple piece of economic analysis. In order to perform their role as citizens—responding to Parliament with informed consent, reservations, or dissent—they needed primary education, even if informal, in economic reasoning and some facility in arriving at sound judgment on important issues of policy. And who would tutor the public on economic affairs? Pigou held that this responsibility fell to professional economists—it was an essential desideratum of the ethics of economics as a vocation.

6The necessity of public legitimation of economic policy, the general economic ineptitude of the public, and the obligation of economists to repair this deficiency were prominent themes in Pigou’s work. In his inaugural address delivered on the occasion of his election to the Cambridge chair of political economy vacated by Alfred Marshall, he noted the critical function of economic reasoning in demonstrating the fallacies in economic arguments popularly believed to be plausible. Because most British citizens seemed to believe that they were not only competent but “bound in solemn duty” to offer pronouncements on matters of policy, speaking “from the vantage point of complete ignorance concerning social science,” the result was unsurprising: “arguments repugnant to any form of logical reasoning are always in the air, and are always liable to influence the policy of a Democratic State.” It was the task of economists to “check misguidance” by correcting the economic logic of “untrained common-sense” (Pigou, 1908, 18-19).

7In 1924, when the British government was planning for a return to the gold standard after effectively abandoning it at the beginning of the Great War, Pigou considered the wisdom of adopting an alternative monetary scheme that would loosen the ties that coupled British currency to gold. Although he made a case for a system proposed by the Yale economist Irving Fisher on the grounds of its price stability, he finally decided against it: the scheme was unfamiliar, and might even be incomprehensible, to the public.

In practical affairs, to introduce large changes the meaning of which most people cannot understand is dangerous. So far as the United Kingdom is concerned until the gold standard has been re-established, more elaborate improvements in our monetary system are not practical politics. When it has been re-established public opinion is unlikely, for some time, to sanction any formal departure from it (Pigou, 1924, 121; see also Pigou in HMSO, 1931, 54).

8Novel policies that represented a departure from convention, tradition, or what passed for common sense would not succeed. Stated in the academic discourse of our time, a policy that marked a paradigm shift would fail unless measures were taken to embed it in the public consciousness, forming a consensus in its support by developing a popular conviction in its good sense and fairness. Unlike Keynes, Pigou was profoundly suspicious of intellectually deft and ingenious policy innovations. In this respect, he rather than Keynes was the authentically Burkean political economist.

9In 1924, Pigou also criticized an unconventional policy to retire the national debt Britain had amassed during the Great War. Proposals for a capital levy, whereby owners of capital or other wealth would pay a large one-time tax, would be effective only if the public gave “general assent” to its practicability. That had not happened and could not be anticipated. Although a capital levy had enjoyed broad support immediately after the war, its time had passed: current opinion had solidified against it (HMSO, 1927, 443).

  • 2 After World War II, Pigou returned to the political dangers of a large gap between current economic (...)

10In 1929, Pigou delivered the Sidney Ball Lecture at Barnett House in Oxford, a center for adult civic education. In arguing that general economic study was important for both knowledge and practice, he considered the lag between the initial development of an economic theory and its reception by “the practical man.” The main explanation, he thought, did not lie in Parliament, overburdened with debate and administration and unable to keep abreast of current research. After all, Parliament had access to a “brilliant Civil Service” as well as independent expertise. The real reason: implementation of a policy often depended on “the degree of economic knowledge possessed by the general body of the public.” Returning to monetary policy, he claimed that “every economist knows that in the world of economists it would be easy to set up a monetary machine much superior to the gold standard: but in the world of actual men with their prejudices and ingrained beliefs, where perhaps not one in 100,000 understands the nature of money, it may be held that an attempt to do this would lead to disaster.” To Pigou, the lesson of the abysmal state of public understanding of money was clear. In order to perform their public function, economists could not in good conscience rest with education of the political class: “we need also that the main body of the people shall have some training in economics—sufficient training at least to perceive that they do not possess complete training.” Economists were obligated to ensure that their subject matter was understood “in some measure by the general body of educated men” (Pigou, 1929, 21-22).2 His Sidney Ball lecture was one of Pigou’s efforts to meet this obligation.

  • 3 Albert Einstein, Relativity: The Special and the General Theory was first published in German in 19 (...)

11In the preface to his last book (Pigou, 1955), Pigou addressed the difficulty of the project of public economic enlightenment: it was not an inordinately difficult enterprise. The conceptual and mathematical refinements of economic analysis could be disregarded. It was vital only to train the “plain man”—in Pigouvian parlance, “any educated person”—in the “central core of economic truth” and the basic tools of economic reasoning. In this fashion, citizens could learn how to judge the merits of policies to the extent needed for their own interests and public welfare. The requisite body of economic knowledge could “be made intelligible to any educated person who chooses to take a little trouble.” Reprising a favorite comparison, he observed that “if it is possible to remove the scaffolding from Einstein’s terrific structures, as Einstein himself has shown that it is, in such a way that laymen can get a good general idea of what they essentially are, the same thing should be possible in our own much easier field” (Pigou, 1955, v).3

  • 4 On Pigou’s theory of economic policy analysis and his engagement in the public sphere, see Aslanbei (...)

12In the opening pages of The Economics of Welfare, Pigou’s magnum opus, he compared economics to physiology: its ultimate value was determined by the fruits of its discoveries, its contributions to human well-being (Pigou, 1932, 5). He regarded it as self-evident that educating the public on economic affairs was one of these contributions, placing it squarely within the province of professional economics. Was it presumptuous on his part to suppose that he was qualified to instruct the British public on how to think about economic policy? Certainly not by the standards of his time. Regardless of party affiliation, British governments routinely appointed economists to commissions formed to investigate a host of economic problems. The list of those selected during the years of Pigou’s professorship is quite long and included William Ashley, William Beveridge, Edwin Cannan, John Clapham, Keynes, Dennis Robertson, and Lionel Robbins. Pigou himself served on the Committee of Economists formed by the Board of Trade (1916), the Committee on Currency and Foreign Exchanges after the War (1918), the Royal Commission on the Income Tax (1919), the Committee on the Currency and Bank of England Note Issues (1924), and the Committee of the Economists formed by Prime Minister Ramsay MacDonald (1930). In addition, he gave expert testimony to the Royal Commission on the Coal Industry (1919), the Committee on National Debt and Taxation (1924-1925), and the Committee on Finance and Industry (1930).4 Pigou’s confidence in the academic economist as the most authoritative source of expertise on public economic affairs conformed to the British political ethos of the period. His professorship (1908-1943), of course, spanned a long period: from the twilight of the long nineteenth century to the depths of World War II, from the Liberal cabinet of Herbert Asquith to the wartime cabinet of Winston Churchill. Parliaments and governments were formed and dissolved, and Treasury mandarins appeared and disappeared. However, a Westminster-Whitehall consensus on the expertise of academic economists in policy matters remained in place.

3. The Pigouvian Public

  • 5 According to the Oxford English Dictionary, ‘middle-brow’ first appeared in 1925 in Punch.

13The “general body of the public”? “The main body of the people”? “The general body of educated men”? Who or what constituted the Pigouvian public? True to form, the Professor did not satisfy readers with a taste for precision. By way of answering this question, he introduced terminology that was current in literary culture in order to indicate the demands his various writings made on readers: low-brow, middle-brow, highbrow—terms that distinguished the pretensions of a literary artifact as well as the cultural aspirations of readers. Originally derived from phrenology—people with high foreheads were believed to be highly intelligent, people with low foreheads, the ‘Neanderthals’, much less so—the term ‘high-brow’ became current in the early years of the twentieth century.5 Pigou claimed that a low-brow book such as Socialism vs. Capitalism was not a learned work but intended for “the general reader” (Pigou, 1937, v). Medium-brow books such as Lapses from Full Employment (1945) were “semi-popular,” addressing problems plagued by “a great deal of confused thinking” (Pigou to Macmillan, n.d., circa October 4, 1943, Macmillan Archive). Their aim was intelligibility and simplicity at minor costs to “unpracticed readers,” who would find some arguments challenging (Pigou, 1945, 5). These books, he thought, would be helpful to readers interested in policies “the implications of which they can’t possibly understand without some sound background” (Pigou to Macmillan, May 9, 1944, Macmillan Archive). High-brow works were theoretically sophisticated and fully intelligible only to economists well-versed in mathematics (Pigou to Macmillan, n.d., circa 1934-35; November 18, 1939; July 23, 1940, Macmillan Archive).

14Pigou’s low and middle-brow works were exercises in public economic enlightenment. Economics in Practice (1935) was a collection of six such lectures. Four were given in 1934 at LSE, which wanted them published. Pigou agreed to LSE’s terms on the condition that the lectures not be “of an abstruse character, but on matters of general interest and more or less popular in tone.” The other two were given to a similar audience in Cambridge (Pigou, 1935, v). After their visit to the Soviet Union, Sidney and Beatrice Webb published Soviet Communism: A New Civilization? (1936), which Pigou reviewed for The Economic Journal. He wrote Beatrice that he was “making up some popular lectures about socialist central planning” but had doubts about publication (Pigou to Beatrice Webb, January 13, 1937, WHB/IIb/36 [Parts V and VI]). Written in the manner of the lectures in Economics in Practice, they became Socialism vs. Capitalism. The book proved wildly popular and was reprinted ten times between 1938 and 1960. Lapses from Full Employment, published in April 1945 as the European war was ending, was reprinted in September 1945 and again in 1949. Income: An Introduction to Economics (1946) comprised seven lectures he delivered at the request of a Cambridge professor for an audience of engineering students. Believing they would have a wider appeal, Pigou attempted to “provide an outline sketch of an important part of economics that shall be intelligible and, if possible, interesting to non-economists,” including soldiers returning from the war “who would like to get a general idea of what economics is about” (Pigou, 1946, v; Pigou to Macmillan, September 26, 1945, Macmillan Archive). It was also a success. Selling nearly 3000 copies in its first three weeks of publication, it was printed twice in 1946 and twice in 1948 (Pigou to Macmillan, October 8, 1946, Macmillan Archive; Pigou, 1955, v-vi). The Veil of Money (1949a) was reprinted in 1950, 1956, and after his death in1960 and 1962.

15The Pigouvian public seems most closely comparable to the readership of the political press where he occasionally published, periodicals such as the Edinburgh Review, the Contemporary Review, and the Speaker—which became the Nation in 1907, later the Nation and Athenaeum, and still later the New Statesman and the Nation. Based predominantly in London, they targeted a middle class of reform-minded readers: largely metropolitan, broadly liberal, and progressive (Koss, 1984). In sum, the Pigouvian public should not be conflated with the British public, conceived as citizens of Britain eligible to vote. The public Pigou attempted to enlighten was limited to men and women with the disposition and intellectual faculties to follow analyses of economic policy that were simple and lucid but generally spelled out in some detail. A socioeconomic status that supplied resources adequate to support periodical subscriptions, book purchases, and the leisure to read them was also necessary; or, failing that, access to libraries where patrons could find his books and articles. Pigou claimed that he entered economics to solve the social and human problems created by unemployment (Pigou, 1912, vii), an important cause of poverty. Neither the unemployed nor the impoverished enjoyed the income or leisure presupposed by the project of public economic enlightenment. Pigou’s low and middle-brow readers fell into a much smaller and more fortunate class.

16Did Pigou suppose that only the economic judgments of the British Bildungsbürgertum carried weight in influencing the decisions of the political class? Or did he perhaps think that an increasing sophistication in the economic reasoning of the middle class would also elevate the economic sentiments of the working class and the poor, translating into a more propitious effect on policy making? Pigou did not address these questions.

4. How to Think About Economic Policy

4.1. Lessons in Labor Problems following the Great War

  • 6 The economy and finance of the war became leitmotifs of Pigou’s writings for the public during and (...)

17By early 1915, expectations on the part of all major belligerents of a short European war of only a few months had been shattered. The rapid mobility that marked the early weeks of the war was succeeded by relative stasis: hundreds of kilometers of fixed and deeply entrenched forces on both sides of the Western Front and a system of industrialized killing and destruction with no end in sight. In February and December 1915, Pigou published two articles for a general readership explaining the anticipated costs of the war (Pigou, 1915a; 1915b). They were followed by two public lectures at Cambridge on the same theme in January-February 1916 (Cambridge University Reporter, 25/1/1916, 469) and an article in the Contemporary Review on the distributive impact of the costs (Pigou, 1916b). In spring 1916, he published a “little book”—The Economy and Finance of the War—that drew heavily on the earlier material and provided a more thorough account of the costs of the war and how they might be covered (Pigou, 1916c, 5).6 The book concluded with a brief chapter, “After the War,” sketching the critical problems Britain would face once a peace accord had been reached: demobilization, an immense national debt, redistribution of national income to the disadvantage of workers, and a vigorous economic boom that would surely be followed by a disastrous economic collapse (ibid., 84-89). Still optimistic that the war would end soon in spite of the continued stalemate on the Western Front and the British introduction of conscription in January, he published two papers in quick succession on how to understand these problems. The first (Pigou, 1916a) was written for leaders of working class organizations, the second (Pigou, 1916d) for policy makers.

  • 7 In addition to Pigou, three other illustrious presenters were on hand. Arthur Greenwood was a civil (...)

18On July 21-23, 1916, the Working Class Associations held a conference at Ruskin College. Established in 1899, named after John Ruskin—renowned Victorian art critic and author—and located in Oxford although not one of the Oxford colleges, it offered educational opportunities to workers who did not enjoy access to British universities. Eighty-two delegates from fifty-two working-class organizations—representing societies of workmen, cooperatives, unions, operatives, managers, and clerks—attended lectures on postwar reorganization of industry, commerce, and finance. In his contribution on “The Disorganization of Industry, Commerce, and Finance: The Problems to Be Faced,” Pigou considered the postwar predicament of British workers.7 The economic transition to peace, he explained, would not be comparable to the economic mobilization for war. The British declaration of war was immediately followed by a brief period of “shock, confusion and uncertainty.” Stock and foreign exchange markets collapsed, trade was disrupted, and unemployment ensued. However, the war created an enormous demand for personnel and military goods, causing a rapid economic rebound (Pigou, 1916a, 5-6). Transition to peace would be less simple and more protracted, and for several reasons. The immediate postwar increase in consumer demand would not offset the extraordinary contraction in demand that would follow demobilization. Pervasive unemployment would be inevitable, and because the institutional structure of labor exchanges that matched job vacancies with labor supply was in its infancy, it could prove durable. Although it was not Pigou’s intention to propose policies—he was at the conference to elucidate problems, not to offer solutions—he suggested that strengthening the network of exchanges could clear labor markets more expeditiously. The economic needs of the long-term unemployed could be alleviated by unemployment insurance, with the understanding that their situation was a well-deserved holiday financed by the state (ibid., 6-8).

19Pigou anticipated that at a later stage of demobilization, the economy would reach a relatively normal state. The economic welfare of workers during this phase would depend on how the government chose to finance the war. He asked his audience to consider two modes of financing and explore their implications with him: taxation and loans, which he had analyzed in earlier publications (see for example Pigou, 1916c, 66-83). A heavy reliance on taxes during the war would leave insignificant debt to be repaid through postwar tax revenues. On the terms of this policy, the position of workers would depend on the strength of labor supply and demand. Pigou predicted that labor supply would approximate immediate prewar levels. Reduction in the number of male workers due to wartime casualties would be offset by the number of women who, having entered the labor force during the war, would continue to work after an armistice. Postwar labor demand could also be expected to return to prewar levels. Because the war was not fought on British soil, widespread destruction of British capital stock was unlikely. Nor did Pigou anticipate substantial depreciation. Capital stock, which was indispensable to the prosecution of the war, would be protected from wear and tear. Ruling out major shifts in labor market conditions and assuming industrial peace, he predicted average postwar real wages to settle around prewar levels, forming a basis for peacetime wage negotiations. Strikes and lockouts, however, were very likely. Thus the machinery of industrial peace—an institutional structure that established systematic procedures for conciliation, mediation, and arbitration—would be critical. Failure to create such a structure would mean that a new era of European peace would be marred by industrial war in Britain (Pigou, 1916a, 8-10).

20Pigou also spelled out in simple and stark terms the implications for workers of accumulating a large national debt. If the state financed the war by borrowing, it would be compelled to repay loans through increased postwar tax revenues. Indirect taxes—a regressive mode of taxation—would punish workers disproportionately. If, on the other hand, the state raised revenue through a progressive tax system, the rich and the middle classes would pay, sparing the working class from the debt burden (ibid., 11).

21Shortly after his appearance at Ruskin College—it seems that this is the only conference of any kind that he attended in the years of his professorship—Pigou published “Labour Problems after the War” in Contemporary Review (Pigou, 1916d). Addressing policy makers, he foresaw three dangers on the postwar horizon and offered suggestions on how to avert them. The most serious was the prospect of widespread labor disputes, an issue he had discussed at Ruskin College. Underscoring the importance of creating “tribunals” that would resolve such disputes long before they led to strikes or lockouts, he argued that legislation was needed to regulate labor relations in “all industries of national importance” (ibid., 334). However, legislation alone would not be sufficient. The effectiveness of labour tribunals would depend on whether the state provided them with basic guidelines on how to arrive at recommendations. Pigou believed that wage disputes were the most disruptive of all labor problems and considered in some detail how the tribunals should proceed after the war. Adding more particulars to his Ruskin College presentation, he proposed that immediate prewar real wages form the basis of postwar wage negotiations (ibid., 335-340). Although he recognized that postwar conditions could invalidate any forecast of labor demand and supply, he regarded this contingency as inconsequential. It was only essential that tribunals accept some level of wages as a preliminary basis for negotiations. Otherwise, chaos would ensue. Prewar wage levels had a “far better chance of acceptance with goodwill by people in general,” he supposed, than any alternative. The benefits of preventing strikes and lockouts would far outweigh the cost of imperfect forecasts (ibid., 340).

22The second major problem that merited the attention of policy makers was postwar labor immobility. Reallocating the demobilized workforce would be complicated and most likely hampered by ignorance of market conditions on the part of economic agents and the costs they would incur in moving from one occupation or industry to another. Pigou believed that, in principle, labor exchanges could facilitate postwar mobility. Because many labor decisions took place outside the exchange system, however, the Labour Exchanges Act of 1909 had been relatively ineffective. A new parliamentary act was in order to perfect the system, ensuring that it would be “in complete readiness to act” when needed, and Pigou offered several suggestions on how parliamentarians might approach this problem (ibid., 342). The act would require all businesses in an area to register with the local labor exchange, listing jobs for their workers who had served in the war. In the first six months of transition, businesses would also be required to employ any additional workers through the exchanges or inform them immediately of any labor contracts made without their assistance. In addition, the act would direct workers to register with the local exchange in their last place of employment. Any war bonus or gratuity intended for returning war veterans would be paid through the exchanges. A list of registered workers classified according to their industrial background and the date they registered would be maintained by the exchanges and distributed to prospective employers. Exchanges would also share lists of local labor shortages or surpluses. Pigou did not believe that the institutional arrangements he proposed would eliminate the threat of unemployment altogether. Those who failed to find jobs would receive state-sponsored unemployment benefit paid through the exchanges until the system offered them employment suitable for their skills and at commonly accepted wage rates (ibid., 342-343). At a minimum, his legislative primer gave parliamentarians rudimentary but indispensable ideas they could use in planning how to draft legislation.

23A third postwar problem was tied to the generally accepted belief that the war would be followed by “an enormous volume of unemployment.” Based on this belief, the public called for the implementation of job creation programs immediately after the advent of peace, to be sponsored by both local authorities and the central government. Pigou thought that a postwar phase of national pessimism and mass unemployment was exceedingly unlikely. Excessive optimism was much more probable, with the potential of “a tremendous industrial boom” and a vast misallocation of resources. In Pigouvian economic logic, postwar enthusiasm to repair and renew assets neglected during the war would create a fleeting but robust demand in engineering and construction. National and local public work projects would exacerbate this demand and attract more men into these lines of work. However, the demand would fall in two to three years, resulting in a “serious slump” for builders, construction workers, and engineers. A “cautious and conservative banking policy” was the more prudent course, forestalling a boom by “mercilessly” deterring “wild-cat schemes.” Public economic welfare would be best served by ignoring the “inevitable popular clamour” for public works, delaying them until the boom in the industries affected had evaporated (ibid., 344-345).

24Although Pigou offered qualified and contingent policy proposals in his writings and addresses on the economics of the war in 1915-1916, they were ancillary to his main objective: to elevate the level of public economic discourse on the war by engaging audiences with plainspoken argument. He regarded the problems raised by postwar fiscal policy as fraught with dangers. Ill-founded decisions by policy makers acting on misguided public expectations would damage British interests for years by obstructing a smooth transition to a robust peacetime economy. In his speeches and writings on the transition to peace, Pigou addressed both the public and their political representatives in order to illuminate the difficulties that could be anticipated.

4.2. Elucidating Interwar Austerity Policy

  • 8 On the Austrian, German, and British financial crises of 1931, see Accominotti (2012), Eichengreen (...)
  • 9 On the British imperial preference system in the interwar period, see Glickman (1947) and Drummond (...)

25In autumn 1931, Neville Chamberlain, British Chancellor of the Exchequer, was struggling with the consequences of the European financial crisis precipitated by the collapse in May of Credit-Anstalt, the largest Austrian commercial bank. In June and July, its failure had caused a run on German banks, which had borrowed heavily from British financial institutions. The judgment in Whitehall was that nationalization of several German banks and standstill arrangements that protected debtors and postponed debt amortization had damaged British finance, resulting in a loss of confidence in the sterling.8 With a view to reestablishing the standing of the pound, Chamberlain proposed several measures—chiefly protective and preferential tariffs as well as deep cuts in public-sector wages and unemployment insurance—but he declared himself at a loss to know where additional public economies might be found.9 Existing austerity measures were deeply unpopular. Pensions for war veterans, the aged, and widows were generally regarded as politically untouchable; the same might hold true for health and unemployment insurance. In the end, he registered a vague hope that two government committees appointed to investigate local public works expenditure would shortly determine whether substantial savings in providing local services were feasible (The Times, 1932a).

26On October 12, The Times published a letter from Francis Wrigley Hirst, a free-trade journalist and former editor of The Economist (1907-1916). Was it not, Hirst asked, the job of the Chancellor to determine where and how it was prudent to cut expenditure (Hirst, 1932)? Hirst’s letter became grist for an editorial leader that same day. In the view of the editors, British public policy, routinely oscillating between indefensible extremes of enthusiasm for state expenditure and zealous advocacy of parsimony, had no basis in careful analysis. They issued an invitation to all economists to specify the circumstances under which expansionary or contractionary measures would benefit the public, hoping that it was “not too late to think out and apply consistently over a period of years a policy combining wise saving with wise spending” (The Times, 1932b).

27Into the breach created by this challenge stepped Pigou, who drafted a response and contacted Keynes on tactics for recruiting signatories whose endorsement would carry weight, “creating an impression of authoritative opinion.” The public, Pigou thought, would see a well-crafted consensus statement made by leaders of the field as incontrovertible. To maximize the public impact of the letter, he suggested several economists of great repute. Edwin Cannan was the president of the Royal Economic Society. D.H. Macgregor held the Drummond Professorship in Political Economy at Oxford, and William Beveridge was director of the London School of Economics (LSE). Robertson was a reader at Cambridge, and G.D.H. Cole held the same position at Oxford. Walter Layton was editor of The Economist, and Henry Clay was an advisor to the Bank of England. And of course there was Pigou himself. He also proposed three economists who enjoyed a substantial reputation as “men of affairs:” Keynes, Josiah Stamp, and Arthur Salter. In his thinking, reception of the statement would depend not only on substance, style, and rhetoric. The prestige of the signatories might be paramount. Since men of affairs were well-known, it was best to place the name of Beveridge or Stamp in first place. As for academics, “it is not the names, but the positions that would carry weight” (two letters from Pigou to Keynes, October 12, 1932, JMK/CAC/1).

28Keynes found Pigou’s draft “excellent” and dispatched it to all the economists on his list except Clay, Cole, and Robertson. In the end, Layton, Salter, Stamp, and Macgregor signed (letters from Keynes to Pigou and Cannan, October 13, 1932, JMK/CAC/1). Macgregor’s name was placed first, followed by Pigou, Keynes, Layton, Salter, and Stamp. Although the signatories acknowledged that they did not speak for all economists, they doubted that many economists would dispute their position. Noting that during the Great War voluntary reduction in private consumption had released resources that could be spent more fruitfully in waging the war, they argued that circumstances were markedly different in 1932. If households increased savings, resources they released would not be consumed by “an insatiable war machine” or invested in capital construction by either the public or the private sector. On the contrary, a reduction in consumption would exacerbate the pessimism of investors planning to build factories and equipment with the objective of producing consumer goods. The same argument held for local authorities, who generally built swimming pools, libraries, and museums. By foregoing expenditure, those who practiced austerity would become “martyrs by mistake,” damaging themselves as well as others. The principal consequence of this error in economic reasoning was clear. “Through their misdirected good will the mounting wave of unemployment will be lifted still higher” (Macgregor et al., 1932a)

29The letter, published October 17, 1932, generated considerable controversy. Sympathetic readers made various suggestions for expenditure. Edwin Thompson, who had been Lord Mayor of Liverpool in 1930-31, estimated that half a million British men could afford to buy new suits, hats, or shoes on the following day or at least for Christmas. “What a miniature boom in trade would be created!” Cecilia Boston of Compton, Guilford, in Surrey, proposed that each affluent individual spend modest sums on families who were struggling economically. And Raymond Unwin, an influential architect and social reformer, recommended that local authorities borrow idle bank deposits for building construction to alleviate the perennial British shortage of adequate housing (Thompson, 1932; Boston, 1932; Unwin, 1932).

30Pigou’s plan also came under attack from both professional and arm-chair economists. Ernest Benn, publisher and laissez-faire publicist, and one W.W. Paine co-authored a response that registered a profound distaste for reasoning by analogy from expenditure by private citizens to expenditure by local authorities. Private spending, if devoted to “fruitful and worthy objects” and not “mere luxuries,” was indispensable in creating employment. Expenditure on libraries, museums, and swimming pools, on the other hand, was a futile way to address the nation’s unemployment problem. Writing on the assumption that the magnitude of loanable funds was fixed, they faulted the signatories for failing to grasp that all spending for public works inevitably reduced available funds once business confidence returned. At that point, expenditure on plant and equipment would produce “50 or 100 times the amount of employment” that could be expected from public works (Benn and Paine, 1932).

31A joint letter from four distinguished economists at LSE—T.E. Gregory, F.A. von Hayek, Arnold Plant, and Lionel Robbins—took essentially the same line, arguing that the analysis of unemployment policy must answer three questions: Was it wise to hoard money? If not, was it preferable to spend or to invest? Finally, were private and public investment equivalent? The LSE answer to the first question was consistent with Pigou’s. Hoarding money was deflationary and economically unsound in a depression. There was disagreement on the other questions. Pigou and his co-signatories seemed to think that all expenditure—whether on consumption or investment—was equally productive, a view the LSE economists rejected. The world economy faced the daunting problem of a depression in investment. They argued that buying existing securities, a form of saving, would increase bond prices and, following a time lag, stimulate new issues of securities that would support investment in plant and equipment. It was “little short of disaster” for Pigou and company to suggest that purchasing securities or depositing money in building societies would damage economic recovery. In their view, the most egregious error of the letter of October 17 was its support for deficit spending. Creating additional public debt would increase interest rates and reduce investment. The most effective policy for unemployment lay in eliminating obstacles to “trade and free movement of capital” (Gregory et al., 1932; see also Cannan, 1932).

32The LSE letter demonstrated that one of Pigou’s cherished convictions about the discipline of economics was naïve at best. There was, he thought, a large “central core of economic truth” essentially uncontested by professionals. Disagreements arose at the margins or on issues of relative unimportance, such as the choice of more or less equivalent analytical techniques or terminological preferences. The LSE letter showed that the scope of consensus was much narrower than Pigou had supposed. If that was the case, the project of public economic enlightenment might prove to be contentious and protracted, a possibility he had not anticipated.

33In a subsequent letter to The Times, Pigou and his colleagues tried to clarify “a fundamental confusion” that could “render discussion futile and paralyse remedial action.” The confusion lay in an implicit but decisive assumption underpinning the objections of critics: the premise that the economy was always at full employment. If that were the case, increased expenditure on public pools and museums would indeed reduce funds available for private investment. However, the premise was catastrophically mistaken. As “conclusive evidence of unemployment statistics” demonstrated, current resources were far from being fully employed. It followed that under prevailing conditions, deployment of idle resources would increase national income and hence the funds needed for private investment. The assumption of full employment in an era of unemployment, Pigou and his colleagues wrote, “misses the whole point of our contention” (Macgregor et al., 1932b).

34In “Economy and Waste”—a public lecture delivered at LSE in 1934—Pigou examined the implications of the above arguments for austerity. Confusions and misunderstandings, in his view, had belabored an essentially straightforward matter, with “disastrous consequences” for policy. The controversy over austerity, therefore, gave Pigou an ideal occasion to make a case for public economic enlightenment: “the need for popular expositions of very simple truths, about which among serious students there is little or no dispute”—a curious observation in light of the joint LSE letter two years earlier (Pigou, 1935, 26). Pigou hoped to clarify the issues at stake by a series of rudimentary, step-by-step analyses. He began by identifying land, labor, and capital as productive resources. In a market economy such as Britain, resources were allocated by millions of independent decisions made by private economic actors as well as public authorities. Although the outcome of these decisions was clear, the process that led to them was not. It was the complexity of the process of resource allocation that led to confusion. Once this process began, “the fog of misunderstanding” enveloped not only resource allocation decisions, but “the simple fundamental facts as well” (ibid., 31).

35The effects of an economizing campaign depended on the state of the economy. Pigou asked his audience to distinguish a long-run economy, defined by full employment, from an economy in the short-run, in which unemployment is a distinct possibility. In the long run, or during a war, there were three types of waste: (1) technical inefficiencies due to incompetence; (2) allocation of resources to sectors that employ them less productively than they could be used elsewhere; (3) and allocation of resources that responded to the demands of “plutocrats,” neglecting the needs of the poor. Assuming full employment and no waste, a governmental economizing campaign would allow the private sector to employ more resources and increase production. In the short run, on the other hand, the economy could easily experience a fourth type of waste: unemployment. In that case, an economizing campaign would have quite different consequences. Cutting public expenditure by reducing either public borrowing or taxation would increase the size of idle balances. Because the funds released would not be used by the private sector, resources—especially labor—would become idle. Pigou believed that the case against economizing in the Great Depression was as clear as the argument in its favor during the Great War. Increasing public expenditures in recessions would create economic benefits as long as their rate of return was higher than zero (ibid., 36, 48).

36If Chamberlain’s austerity campaign was so obviously wrongheaded, how had it become official policy? Pigou blamed the highly complex nature of the Depression, the consequences of which were magnified by a government deficit, a run on the pound, and a political crisis. The austerity campaign began when the government attempted to establish fiscal discipline, balance the budget, and restore confidence in the sterling—all necessary to maintain the gold standard. Although economizing at the local level had no bearing on this objective, it was quickly adopted; nor did it end in 1931, when the gold standard was abandoned and the need for balanced budgets disappeared. A simple confusion had led to a deeply flawed policy. Policy errors, economic damage, and incalculable human suffering could have been avoided if political leaders and the public had achieved a proper understanding of basic economics. “Our national education in elementary economics,” Pigou concluded, “is still incomplete” (ibid., 49-50).

4.3. A Public Tutorial on the British Economy following World War Two

  • 10 On the economic history of Britain in the interwar years and after World War II, see Matthews (1968 (...)

37In the 1930s, Pigou wrote chiefly about unemployment, which ranged between 8.5 and 17 percent. For most of the decade, inflation was insignificant, and he ignored it. The economic landscape of the decade following World War II differed dramatically, with the average unemployment rate a mere 1.63 percent and the actual rate never exceeding 2.2 percent. These historically low rates can be explained by a number of factors, including the commitment of the government to maintaining full employment. The average inflation rate, on the other hand, was over 5 percent during the same decade. In February 1948, Sir Stafford Cripps, Chancellor of the Exchequer, announced a policy of wage restraint that enjoyed trade union support and stabilized the inflation rate for two years. However, that policy could not withstand the cost pressures created by the 1949 devaluation of the sterling by 30 percent. After their full impact on the economy, the inflation rate rose above 9 percent for two consecutive years (1951-1952). Pigou’s worries over the conjunction of a policy of full employment, wage increases, inflation, staggering balance of payment problems, and further damage to the country’s currency seemed to have been confirmed.10

38In 1949, Pigou delivered the Stamp Memorial Lecture at LSE, choosing as his theme “Wage Statistics and Wage Policy.” Taking note of trends in wages over the previous seven decades, he explored two questions with his audience of economics students and members of the public: Under what conditions could workers increase their wages without creating adverse economic consequences? And what could be expected if these conditions were not met (Pigou, 1949b, 26)? In considering the first question, he employed standard neoclassical reasoning. If markets were imperfect and labor was exploited—wages falling below the value of the marginal product—higher nominal wages would increase real wages without creating unemployment. In perfectly competitive markets, a nominal wage increase would have the same effect, at least on the assumption that the wage increase was followed by a proportionate increase in labor productivity. In all other cases, a real wage increase would lead to higher unemployment rates.

39In 1949, Britain was in a liminal state, executing a protracted transition from total mobilization for war to a peacetime economy. Gaining new powers during the war and energized by the monumental victory of the Labour Party in the general election of July 1945, workers had strengthened both their absolute and relative economic position through large increases in real wages (Pigou, 1949b; Bowers, 1985; Rollings, 1988). And yet higher rates of unemployment were not in sight. How could this apparent anomaly be explained? Pigou believed that the explanation lay in political expectations of the public. The postwar British citizen had imposed a “primary duty” on the government to avert high rates of unemployment. However, this expectation entailed dangers that had not been understood. Without the deterrent of unemployment, a wage-price spiral could ensue, resulting in uncontrolled inflation that would punish people on fixed incomes and damage creditors. Such an eventuality would also make British exports more expensive, exacerbating balance of payments difficulties that threatened to reduce Britain to penury (Pigou, 1949b, 30-31). The Stamp Memorial Lecture was only one entry in a public tutorial that Pigou conducted in lectures and in print during the years following the war. His theme was to explain how wages, inflation, and balance of payments were connected. The public had not grasped the risks inherent in these connections, which were invisible in the political discourse of the time. However, they could be exposed by elementary economic arguments.

  • 11 Although Pigou’s article “The Food Subsidies” was initially published in The Economic Journal (1948 (...)

40In 1948, Pigou had addressed these problems in The Economic Journal by considering food subsidies and the question of their elimination.11 Between November 1947, when Cripps became Chancellor, and July 1948, the estimated annual cost of subsidies had risen by 17.5 percent to a sum of £470 million (The Times, 1948). What, Pigou asked, “ought to be done about these subsidies now” (Pigou, 1948, 204-205)? He claimed that economists generally agreed that food subsidies had no place in “normal peace-time policy.” Firstly, they were a mode of income redistribution; but there were more effective methods for transferring income from the rich to the poor—allowances for children, health insurance, and old-age pensions among them. Secondly, they misallocated resources, drawing them into a sector that became spuriously profitable. However, the decision on whether to retain food subsidies did not rest on an assumption of economic normality. Under the extraordinary circumstances of postwar Britain, the chief question to consider was the consequences that would follow if the subsidies were eliminated or substantially reduced (ibid., 205).

41In answering this question, Pigou examined two policies: reducing both subsidies and taxes, and reducing subsidies and using the proceeds to increase the state budget surplus (ibid., 206-207). Assuming a fixed exchange rate and no demands for wage increases following the reduction, Pigou analyzed the consequences of both policies. By cutting taxes, the government would weaken the disincentives of a steeply progressive tax system that had benefitted workers enormously at the price of penalizing investors. Workers, who stood to gain from higher economic growth, could tolerate higher food prices. On the other hand, if the government used its savings to increase its budget surplus, a “considerable disinflationary effect” would follow. Consumers would not dramatically reduce their consumption of food, a necessity for survival. Instead they would cut discretionary consumption, thereby reallocating resources to the export sector and alleviating the current-account deficit (ibid., 208). Thus each policy had merits.

42In Pigou’s analysis, the crux of the policy decision was not a choice between cutting taxes and increasing the budget surplus. On the contrary, it was the question of how workers would respond to the withdrawal of subsidies. If they acquiesced in a policy of wage restraint, food subsidies could be cut immediately regardless of how the savings might be invested. But if they demanded generous wage increases to cover higher food prices, he was reasonably certain that the weight of public opinion would support them. In light of the prospect of worker intransigence, the prudent course was to retain subsidies because of their anti-inflationary effect (ibid., 209).

43In “The inflationary Gap,” an article Pigou wrote in 1951 and published in Essays in Economics (1952), he considered how the war and its aftermath had transformed the office of the Chancellor of the Exchequer. Before the war, he claimed, the primary obligation of the Chancellor was to forecast government expenditures and ensure that revenues sufficient to cover them would be in place. Following the war, the job had become much more complex, requiring forecasts of the magnitude of national income and foreign loans as well as their allocation among private and public consumption and investment. In addition to meeting the expenses of the state, the Chancellor was responsible for preventing three economic perils: mass unemployment, sustained high inflation—which could end in monetary collapse and socioeconomic chaos—and continuous balance of payments problems on a scale that would place the nation “under the continuing threat of a large crisis” (Pigou, 1952, 167-169). Pigou ruled out the possibility of mass unemployment on the grounds of “a general conviction” that it was “an intolerable social evil” (ibid., 168). Thus his focus on inflation and current-account deficits.

44In Pigouvian economics, an inflationary gap appeared when aggregate demand consistently outstripped aggregate supply. Two forces could create such a gap: chronic increases in government spending that were not offset by reductions in private expenditure; and large increases in nominal wages in the absence of rising productivity or a threat of mass unemployment (ibid., 170-171). The Chancellor, who assumed that government expenditure was the real cause, faced several strikingly unattractive options. Reductions in public expenditure on education, housing, the civil service, or the judiciary would “arouse a violent outcry” (ibid., 174). The public would also strenuously oppose cuts in transfer payments such as retirement benefits, food subsidies, or health expenditures for the poor. Finally, a monetary policy that cut private spending by raising interest rates would have the unpalatable consequence of increasing the cost the Treasury incurred for borrowing. If the inflationary gap was caused by wage policy, the Chancellor’s options were no better. He could try to contain wage increases by persuasion—essentially bargaining with trade union leaders. Although the Chancellor’s 1948 policy of wage restraint had been supported by trade unions for a few years, Pigou regarded this tactic as unreliable, particularly when wage pressures were caused by factors over which workers had no control such as higher costs of food due to bad harvests or higher prices of imports (ibid., 167-177). Suppose that the Chancellor attempted to appease workers by means of a quid pro quo agreement of wage restraint in exchange for higher transfer payments or reduced tax rates. Pigou had no confidence here either, since workers regarded the latter benefits as “their due in any case” (ibid., 178-179). A more radical measure would force wage rates down by increasing unemployment, a hopelessly unrealistic idea. “In the present climate of opinion a Chancellor who brought this about would soon lose his office” (ibid., 179-180). Pigou, therefore, guided readers through a thicket of modestly difficult arguments, each of them suggesting that current inflationary problems were essentially irresolvable. Pigouvian public economic enlightenment could obviously lead to cheerless results. In his view, the postwar British state had created an institutional structure and validated public economic expectations that made the execution of sound economic policy impossible.

45Pigou’s contemporary reputation is based largely on his analyses of circumstances under which the state can improve on market outcomes. In writing for the public on how to think about policies intended to improve economic welfare, he invariably employed the case-by-case logic that forms the methodological basis of his academic economic analyses, arguing that a policy that might succeed in some historical conditions would be likely to fail in others. This historicist premise and its commitment to the contingency and relativity of economic life are evident in what he wrote on Chamberlain’s economizing campaign in the 1930s. He was convinced that the immanent dynamic of markets operated on a long-run, self-correcting mechanism. Thus policies that he believed might undermine the efficient operation of this mechanism were never on his agenda. However, he was also convinced that the conditions under which markets could be expected to self-correct varied with historical circumstances. Policies favorable to self-correction in peacetime might fail badly in wartime. The same consideration held for the efficacy of policies in periods of high and low unemployment. The latter conviction was prominent in his account of the dangers of a post-1945 wage-inflation spiral. If Britain allowed political management of economic policy to override the inner logic of market mechanisms, elimination of the threat of unemployment would destroy the ability of markets to self-adjust. In that event, economic havoc would ensue.

5. Public Economic Enlightenment and the Principle of Nonpartisanship

46Our analysis explores Pigou’s conception of the responsibility of economists to educate the British public on the fundamentals of economic policy. However, he also considered a larger question regarding the role of economists in public life. The British polity, as Pigou understood it, was a sphere of perpetual conflict in which political parties contended for ascendancy on issues of both principle and power. In the Pigouvian project of public enlightenment, what was the proper role of the economist in this struggle?

  • 12 Is it paradoxical that Pigou had full confidence in the British state but was skeptical of the comp (...)

47In “An Economist’s Apologia,” one of the public lectures Pigou gave at LSE in 1934, he noted the increasingly important role that economics had come to play in political controversy—“partisan political debate,” as he called it. If he took a jaundiced view of this phenomenon, it was because he believed that politicians first decided on a course to pursue, only then considering arguments that were favorable to their position. British politicians, it seemed, did not employ economic reasoning as a way to arrive at the truth but as “a kind of brickbat useful on occasion for inflicting injury on their opponents.” Pigou counseled economists not only to establish distance from political controversy, but to cultivate a “detached mind.” Young economists ambitious to play a role in public affairs should not be tempted to trim their conclusions in order to conform to the interests of a political party. Borrowing from the biblical story of Jacob’s older twin brother Esau, who traded his birthright to Jacob for a bowl of lentils, Pigou’s lesson was severe: the economist who yields to this temptation commits “an intellectual crime” by selling “his birthright in the household of truth for a mess of political pottage” (Pigou, 1935, 8-9). This uncompromising ethic was reaffirmed in the lecture “One Way of Looking at Economics,” delivered at the University of London in 1950. Here he insisted that the economist not become an advocate of political ideology or an apologist for a political party, faction, or movement. Economists were bound by “one clear duty”: commitment to truth, an unconditional imperative demanding “single-minded veracity.” Above all, “they must not look about for arguments designed to support some particular set of politicians.” Thus the Pigouvian prescription against political partisanship on the part of economists. Because the economist was a “servant of society,” he “must own no unconditional allegiance to any party” (in Pigou, 1952, 82, 84).12

48Can Pigou’s principle of nonpartisanship accommodate the project of public economic enlightenment? Is public economic enlightenment situated beyond political values, transcending all interests that might jeopardize a commitment to the truths of economic science? Partisanship is an epistemological concept, and its roots lie deeper than the policies of British political parties. As a method for enlightening the public, Pigouvian economic reasoning is an assessment of policy. An assessment presupposes an epistemic locus or premise from which it is produced and its merits judged. In his work on the economic dislocations following the Great War, the austerity policy of the 1930s, and wage increases and inflation following World War II, Pigou’s premise was always the British social order of the day and the welfare of the British public. In his view, the existing regime of established institutions could not be uncoupled from public well-being: the latter was anchored in the former. This was not a politically neutral or nonpartisan position. The merits of the policies that Pigou assessed could have been evaluated from other perspectives that were not only independent of the established order but inconsistent with it. Consider economists who yielded to the temptations of the sirens of power and prestige and sold their place in the household of truth. What was the epistemic locus of that household? Even if the basis of Pigouvian nonpartisanship were granted—the economist as servant of society—there is no politically neutral conception of the British social order of his era. It can be understood from a variety of divergent positions, each of which is arguably consistent with the facts of British life. Should British institutions be conceived from the standpoint of the New Liberalism or the Fabianism of Pigou’s early career? Toryism in its various incarnations? The Labour Party of the 1920s, the shop-floor socialism of the Trade Union Congress, or the political philosophy of the welfare state? There are other possibilities. Each potentially legitimate but contestable conception of British society defines a political space in which the work of public economic enlightenment can take place. But none of these positions is politically neutral.

49The principle of nonpartisanship seems to entail two possibilities for publicly engaged Pigouvian economists, and neither is appealing. Either economists who labor in the household of truth serve some version of the established order, in which case they violate Pigou’s principle of nonpartisanship. Or they serve in some politically transcendent world, occupying a household of truth situated in a metaphysical sphere beyond partisanship. In the latter case, they are mysterious godlike analysts, “detached minds” hovering over the contingencies of economic and political life. If this argument is sound, Pigou has dug an epistemological pit and fallen into it. His conception of public economic enlightenment ends in the choice: partisanship or metaphysics.

Our thanks to Dr. Claudio Köser for his invaluable help with our research at Cambridge. Thanks also to participants of the conference on Economics and Public Reason, held in Lausanne in May 2018, two anonymous referees, and the editors of the special issue of the Journal for constructive suggestions. Research was generously supported by the Jack T. Kvernland Chair, Monmouth University.

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Webb, Sidney and Webb, Beatrice. 1936. Soviet Communism: A New Civilization? New York: Charles Scribner’s Sons.

Welles, Benjamin. 1950. Britain to Modify ‘Freeze’ on Wages. The New York Times, June 23, 12.

Williams, David. 1963. London and the 1931 Financial Crisis. Economic History Review, 15(3): 513-528.

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Annexe

Archives

Macmillan Archive, Add55 199-200, Vol. CDXV-CDXIV, The British Library, London.

The Papers of John Maynard Keynes (JMK), King’s College Archive Centre, Cambridge.

The Papers of William Henry Beveridge (WHB), London School of Economics, London.

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Notes

1 On the tariff reform controversy see Sykes (1979) and Aslanbeigui and Oakes (2015b).

2 After World War II, Pigou returned to the political dangers of a large gap between current economic expertise and public economic literacy. In war as in peace, if the state “tried to go more than a short distance ahead of what general opinion sanctioned, the administrative machine would break down under the strain” (Pigou, 1952, 205).

3 Albert Einstein, Relativity: The Special and the General Theory was first published in German in 1916. It was translated into English in 1920 and subsequently appeared in many editions. In his preface, Einstein explained that the book was written for interested readers who lacked training in the mathematics of theoretical physics.

4 On Pigou’s theory of economic policy analysis and his engagement in the public sphere, see Aslanbeigui and Oakes (2015a).

5 According to the Oxford English Dictionary, ‘middle-brow’ first appeared in 1925 in Punch.

6 The economy and finance of the war became leitmotifs of Pigou’s writings for the public during and immediately after the war, eventually morphing into his classic work: A Study in Public Finance (Pigou, 1928). We have explored this body of work, which lies beyond the scope of the present paper, elsewhere (Aslanbeigui and Oakes, 2016).

7 In addition to Pigou, three other illustrious presenters were on hand. Arthur Greenwood was a civil servant, a Labour Party activist, and the editor of the Athenaeum. Sidney Webb was a prominent Fabian socialist, one of the founders of the New Statesman and the London School of Economics, and a member of the governing committee of the Labour Party. Alfred Zimmern was a historian and one of the first British academic specialists in international relations. The proceedings of the conference met with “widespread appreciation.” After the first and second printings sold out, demand still remained strong (N.A., 1916, 2).

8 On the Austrian, German, and British financial crises of 1931, see Accominotti (2012), Eichengreen and Jeanne (2000), Forbes (1987), James (2002), Schubert (1992), and Williams (1963).

9 On the British imperial preference system in the interwar period, see Glickman (1947) and Drummond (2006).

10 On the economic history of Britain in the interwar years and after World War II, see Matthews (1968); Welles (1950); iCalculator (2009-2018); and Social Democracy for the 21st Century (2013).

11 Although Pigou’s article “The Food Subsidies” was initially published in The Economic Journal (1948), it was reproduced in his Essays in Economics (1952), a compilation intended for the general reader.

12 Is it paradoxical that Pigou had full confidence in the British state but was skeptical of the competence of British politicians and not averse to cutting observations on their powers of reasoning and integrity? Can his celebration of the British polity be reconciled with the disdain he sometimes expressed for its politicians? Before convicting him of inconsistency on this point, we should consider that Pigou made an implicit but unequivocal distinction between the institutions of political power and the persons who held political office. He had no doubts about the soundness of the British political order. After centuries of evolution, its structures and performance had improved immensely, especially since the Victorian era, producing corresponding benefits for the public. However, he believed it was a mistake to conflate political institutions with political actors, which he seems to have regarded as a fallacy of composition. The British state set international standards for expertise and probity. British political leaders, on the other hand, were susceptible to commonplace human frailties—incompetence, indifference, avarice, and venality. Although this distinction seems facile and may be indefensible, it is Pigou’s distinction, and it explains his firm belief in British political institutions even as he sometimes found their personnel wanting.

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Pour citer cet article

Référence papier

Nahid Aslanbeigui et Guy Oakes, « The Ethics of Political Economy: Pigou in the Public Sphere », Œconomia, 9-2 | 2019, 237-263.

Référence électronique

Nahid Aslanbeigui et Guy Oakes, « The Ethics of Political Economy: Pigou in the Public Sphere », Œconomia [En ligne], 9-2 | 2019, mis en ligne le 01 juin 2019, consulté le 14 novembre 2019. URL : http://journals.openedition.org/oeconomia/5660 ; DOI : 10.4000/oeconomia.5660

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Auteurs

Nahid Aslanbeigui

Jack T. Kvernland Professor of Philosophy and Corporate Social Policy, Monmouth University, naslanbe@monmouth.edu

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Guy Oakes

Emeritus Professor of Philosophy, Monmouth University, goakes@monmouth.edu

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Les contenus d’Œconomia sont mis à disposition selon les termes de la Licence Creative Commons Attribution - Pas d'Utilisation Commerciale - Pas de Modification 4.0 International.

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