Arthur Cecil Pigou was a British economist who was a leading figure in Cambridge economics. He is best known for his work in welfare economics. As a professor, he focused totally on Marshallian economics.
Pigou extended Marshall's work on externalities in his book,"The Economics of Welfare". In this book, Pigou argued that the inherent existence of externalities is in itself sufficient justification for government intervention. The reason being that social costs are higher than private costs in regard to negative externalities and vice versa. The form of government intervention he advocated was taxes or subsidies, which are now commonly called, "Pigovian taxes & subsidies". The economist, Ronald Coase, came along in the 1960's to disprove the necessity of Pigovian taxes and subsidies when people affecting and people affected, can easily get together and bargain. Pigou's work is still timely due to the fact that Coase's assumption fails for many externalities.
The earliest form of the real balance affect was also introduced by Pigou, and thus named the "Pigou Effect". He applied this to the behavior of an economy in a depression when the price level was low. According to the Pigou Effect, prices would not continue to fall indefinitely because when the price level is low, the real value of maney balances is high--consumers make a capital gain on their money holdings --higher spending than would exist for a given real income.
Works by Arthur Cecil Pigou:
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