Arthur Cecil Pigou This page intentionally left blank Arthur Cecil Pigou Nahid Aslanbeigui Department of Economics, Finance, and Real Estate, Monmouth University, New Jersey, USA and Guy Oakes Leon Hess Business School, Monmouth University, New Jersey, USA © Nahid Aslanbeigui and Guy Oakes 2015 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2015 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN: 978–0–230–25271–4 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. In memory of Kobra and Hadjar, feminists ahead of their time This page intentionally left blank Contents Acknowledgements viii List of Abbreviations x 1 Pigou in the Foreground 1 2 ‘The Most Brilliant Young Man I Know’ 13 3 Developing A Framework 42 4 The Theory of Policy Analysis 97 5 The Cost Controversies 136 6 The Robbins Critique 175 7 Confrontations with Keynes 193 8 Legacy: Demythologizing a Cambridge Eccentric 242 Bibliography 274 Index 297 vii Acknowledgements Our warmest thanks to our editor, Tony Thirlwall, who read the entire draft and wrote abundant notes that improved the quality of the manu- script. We are also grateful to David Collard, who read a long chapter and offered helpful suggestions. Thanks also to participants of three conferences: the International Workshop on Welfare Economics and the Welfare State, Historical Re-Examination, Sano-Shoin, Hitotsubashi University, Tokyo, in March 2013; the mini-conference on A.C. Pigou, Robinson College, Cambridge University, in November 2013; and the HOPE Conference on Market Failures, Duke University, in April 2014. We are indebted to Professor Ryo Hongo for his generosity in sharing some of Pigou’s work to which we lacked access. In compiling our bibli- ography of Pigou’s work, we benefited from Professor Hongo’s own bibliography, which he has made available online. Thanks to Philip Noel-Baker and David Gaunt for valuable conversations. For permission to quote unpublished copyrighted material, we acknowledge the following: Ms Emily Boyle for permission to publish from the papers of C. Ryle Fay; the Syndics of Cambridge University Library for permission to publish from the minutes of meetings of the Faculty Board of Economics and Politics; the Provost and Scholars of King’s College Cambridge for permission to publish from the papers of John Maynard Keynes; the British Library of Political and Economic Science for permission to publish from the papers of Lionel Robbins; the Master and Fellows of Magdalene College for permission to publish from the Arthur Benson diaries; and Mr Philip Noel-Baker for permis- sion to publish from the papers of Baron Philip Noel-Baker. We thank the Cambridge Central Library for permission to reproduce the photo- graph of Pigou from the Cambridgeshire Collection. Peter Groenewegen, Michael McLure, Doug Munro, Peter Ludlow, and Hugh Gault were generous in helping us locate copyright holders of some private papers. For archival assistance, we are grateful to the archivists and librarians of Churchill College, King’s College, the Marshall Library of Economics, Magdalene College, and the University Library at Cambridge University; the British Library; Harrow School Archive; the University of Sheffield; and the British Library of Political and Economic Science (LSE). We are especially indebted to archivists at King’s College, Cambridge – Jacky Cox viii Acknowledgements ix and Patricia McGuire – for their help in deciphering Pigou’s challenging handwriting. We thank the Journal of the History of Economic Thought for permission to reproduce passages from ‘Keynes as Editor: The Economic Journal , the Keynesian Revolution, and the Pigou Affair, 1936–1938’; Œconomia – History/Methodology/Philosophy for permission to reproduce sections from ‘On Pigou’s Theory of Economic Policy Analysis’; and History of Political Economy for permission to draw on ‘The British Tariff Reform Controversy and the Genesis of Pigou’s Wealth and Welfare , 1903–1912.’ For editorial assistance, we thank Linda Fette Knox and Christopher Liljestrand. Our special thanks go to Robert S. Berardo for research assistance. Research on this book was supported by a sabbatical grant, Grants-in- Aid-for Creativity, Jack T. Kvernland Chair, and the Leon Hess Business School Business Council, Monmouth University. We gratefully acknowl- edge a Franklin Research Grant awarded by the American Philosophical Society and a visiting fellowship at Clare Hall College, Cambridge. List of Abbreviations AB Arthur Benson ACP Arthur Cecil Pigou CUA Cambridge University Archives CUR Cambridge University Reporter EJ Economic Journal HMSO His Majesty’s Stationary Office JMK John Maynard Keynes JNK John Neville Keynes JTS John Tresidder Sheppard JVR Joan Violet Robinson KCAC King’s College Academic and Tutorial Records LR Lionel Robbins LSE London School of Economics NBKR Philip Noel-Baker OB Oscar Browning x 1 Pigou in the Foreground Cambridge professor of political economy Soviet spy? On 29 May 1979, The Guardian published excerpts from a forthcoming book by Richard Deacon, a pen name used by Donald McCormick. His most sensational revelation was the accusation that Arthur Cecil Pigou (18 November 1877–7 March 1959), Alfred Marshall’s successor in the Chair of Political Economy at Cambridge University, was the myste- rious ‘Fourth Man’ in the Cambridge spy ring operated by the KGB. The first three were Guy Burgess, Donald Maclean, and Kim Philby, all of whom had studied at Cambridge in the early 1930s. Working as agents at the same time that they held important posts in the Foreign Office or the intelligence services – for a time, Philby was a leading candidate for chief of MI6 – they passed secret British and American intelligence to the Soviets in the early years of the Cold War. Burgess and Maclean escaped to Moscow in 1951, when they realized they faced imminent exposure. Philby, although compromised and forced to resign from MI6, continued to flourish in the British journalistic and intelligence estab- lishment, living by his considerable charm and wits. He finally made his way to Moscow in 1963. In McCormick’s imagination, however, Pigou was the master spy of the KGB Cambridge stable. He had proven to be not only ‘an astonishingly deceptive character’, but, for some 50 years, ‘the most secret and in many respects one of the most effective Russian agents in Britain’ (Deacon 1979). The apparent recluse residing in his ‘ivory tower’ – his rooms at King’s College – had established contacts with Soviet apparatchiks while mountaineering in Switzerland during the interwar years. With his uncanny memory and formidable powers of analysis, he was able to convey valuable information to the Soviets in brief dispatches, including critical advice on financial policy at a 1 2 Arthur Cecil Pigou time when they desperately needed it. However, his crowning achieve- ment was success in recruiting agents – ‘Marxist plums’ – targeting the Cambridge undergraduates he took on alpine mountaineering expedi- tions. His criteria for identifying promising candidates for espionage work were surprisingly simple: a commitment to ‘universal socialism’ and a talent for alpine climbing (ibid.). McCormick’s charges had a perverse a priori attractiveness. A professor of economics at Cambridge during the 1930s, when many bright students had become disenchanted with capitalism, a homoerotic don who had befriended undergraduates for years and maintained close and affectionate ties with some of his former students, Pigou seemed well- placed and disposed to play the part McCormick had written for him. However, the conception of Pigou as an agent of the KGB, working in secret for the cause of a Soviet revolution in Britain, is so preposterous that one hardly knows where to begin. Pigou devoted his professional career of more than 50 years to strengthening the British economy in order to improve the welfare of British citizens. In doing so, he regarded the economic institutions of his time and their sociopolitical underpin- nings as given, embedded in traditions that formed a fragile civiliza- tional structure. Subjecting that structure to arcane policies devised by clever intellectuals entailed immense risks of damage for the economy, with corresponding consequences for welfare. Although an Edwardian progressive – a political species that the Soviets regarded as more dangerous than apologists for capitalism – it is not credible to suppose that Pigou in a hypothetical secret life embraced any ideology, regardless of its location on the political spectrum. Aside from these larger consid- erations, there are also plain facts that McCormick either ignored or did not know.