On Pigou’s Theory of Economic Policy Analysis

Abstract

The economics of A.C. Pigou is generally regarded as an ensemble of policies—chiefly ‘Pigouvian’ taxes and subsidies—designed to maximize economic welfare. We contest this view, arguing that Pigou was not a proponent of specific policies but rather a logician of policy analysis. Although he assessed welfare programs of his time, his judgments on policies were invariably prima facie, hedged and qualified by a formidable array of restrictive and contingent variables. Thus there are no definitively Pigouvian welfare measures. In Part I of the essay, we show that Pigou developed a blueprint for an analytical theory of economic welfare that specified the conditions an analysis of economic policy must satisfy in order to qualify as scientifically legitimate. In Part II, we examine his writings on public finance in order to explore the main inference he drew from this theory: the historicity of policy analysis, a critical aspect of his thought that has been largely neglected in the secondary literature.

Keywords

• Pigou (Arthur C.)
• methodology of economics
• public finance