The Economics of Welfare
By Arthur C. Pigou
WHEN a man sets out upon any course of inquiry, the object of his search may be either light or fruit—either knowledge for its own sake or knowledge for the sake of good things to which it leads. In various fields of study these two ideals play parts of varying importance. In the appeal made to our interest by nearly all the great modern sciences some stress is laid both upon the light-bearing and upon the fruit-bearing quality, but the proportions of the blend are different in different sciences. At one end of the scale stands the most general science of all, metaphysics, the science of reality. Of the student of that science it is, indeed, true that “he yet may bring some worthy thing for waiting souls to see”; but it must be light alone, it can hardly be fruit that he brings. Most nearly akin to the metaphysician is the student of the ultimate problems of physics. The corpuscular theory of matter is, hitherto, a bearer of light alone. Here, however, the other aspect is present in promise; for speculations about the structure of the atom may lead one day to the discovery of practical means for dissociating matter and for rendering available to human use the overwhelming resources of intra-atomic energy. In the science of biology the fruit-bearing aspect is more prominent. Recent studies upon heredity have, indeed, the highest theoretical interest; but no one can reflect upon that without at the same time reflecting upon the striking practical results to which they have already led in the culture of wheat, and upon the far-reaching, if hesitating, promise that they are beginning to offer for the better culture of mankind. In the sciences whose subject-matter is man as an individual there is the same variation of blending as in the natural sciences proper. In psychology the theoretic interest is dominant—particularly on that side of it which gives data to metaphysics; but psychology is also valued in some measure as a basis for the practical art of education. In human physiology, on the other hand, the theoretic interest, though present, is subordinate, and the science has long been valued mainly as a basis for the art of medicine. Last of all we come to those sciences that deal, not with individual men, but with groups of men; that body of infant sciences which some writers call sociology. Light on the laws that lie behind development in history, even light upon particular facts, has, in the opinion of many, high value for its own sake. But there will, I think, be general agreement that in the sciences of human society, be their appeal as bearers of light never so high, it is the promise of fruit and not of light that chiefly merits our regard. There is a celebrated, if somewhat too strenuous, passage in Macaulay’s Essay on History: “No past event has any intrinsic importance. The knowledge of it is valuable, only as it leads us to form just calculations with regard to the future. A history which does not serve this purpose, though it may be filled with battles, treaties and commotions, is as useless as the series of turnpike tickets collected by Sir Matthew Mite.” That paradox is partly true. If it were not for the hope that a scientific study of men’s social actions may lead, not necessarily directly or immediately, but at some time and in some way, to practical results in social improvement, not a few students of these actions would regard the time devoted to their study as time misspent. That is true of all social sciences, but especially true of economics. For economics “is a study of mankind in the ordinary business of life”; and it is not in the ordinary business of life that mankind is most interesting or inspiring. One who desired knowledge of man apart from the fruits of knowledge would seek it in the history of religious enthusiasm, of martyrdom, or of love; he would not seek it in the market-place. When we elect to watch the play of human motives that are ordinary—that are sometimes mean and dismal and ignoble—our impulse is not the philosopher’s impulse, knowledge for the sake of knowledge, but rather the physiologist’s, knowledge for the healing that knowledge may help to bring. Wonder, Carlyle declared, is the beginning of philosophy. It is not wonder, but rather the social enthusiasm which revolts from the sordidness of mean streets and the joylessness of withered lives, that is the beginning of economic science. Here, if in no other field, Comte’s great phrase holds good: “It is for the heart to suggest our problems; it is for the intellect to solve them…. The only position for which the intellect is primarily adapted is to be the servant of the social sympathies.”… [From the text]
First Pub. Date
1920
Publisher
London: Macmillan and Co.
Pub. Date
1932
Comments
4th edition.
Copyright
The text of this edition is copyright © 1932. This book is available through Transaction Publishers, Inc. Direct all requests for permissions and copyrights to Transaction Publishers, Inc.
- Preface to the Third Edition
- Note to the Fourth Edition
- Part I, Chapter 1
- Part I, Chapter 2
- Part I, Chapter 3
- Part I, Chapter 4
- Part I, Chapter 5
- Part I, Chapter 6
- Part I, Chapter 7
- Part I, Chapter 8
- Part I, Chapter 9
- Part I, Chapter 10
- Part I, Chapter 11
- Part II, Chapter 1
- Part II, Chapter 2
- Part II, Chapter 3
- Part II, Chapter 4
- Part II, Chapter 5
- Part II, Chapter 6
- Part II, Chapter 7
- Part II, Chapter 8
- Part II, Chapter 9
- Part II, Chapter 10
- Part II, Chapter 11
- Part II, Chapter 12
- Part II, Chapter 13
- Part II, Chapter 14
- Part II, Chapter 15
- Part II, Chapter 16
- Part II, Chapter 17
- Part II, Chapter 18
- Part II, Chapter 19
- Part II, Chapter 20
- Part II, Chapter 21
- Part II, Chapter 22
- Part III, Chapter 1
- Part III, Chapter 2
- Part III, Chapter 3
- Part III, Chapter 4
- Part III, Chapter 5
- Part III, Chapter 6
- Part III, Chapter 7
- Part III, Chapter 8
- Part III, Chapter 9
- Part III, Chapter 10
- Part III, Chapter 11
- Part III, Chapter 12
- Part III, Chapter 13
- Part III, Chapter 14
- Part III, Chapter 15
- Part III, Chapter 16
- Part III, Chapter 17
- Part III, Chapter 18
- Part III, Chapter 19
- Part III, Chapter 20
- Part IV, Chapter 1
- Part IV, Chapter 2
- Part IV, Chapter 3
- Part IV, Chapter 4
- Part IV, Chapter 5
- Part IV, Chapter 6
- Part IV, Chapter 7
- Part IV, Chapter 8
- Part IV, Chapter 9
- Part IV, Chapter 10
- Part IV, Chapter 11
- Part IV, Chapter 12
- Part IV, Chapter 13
- Appendix I
- Appendix II
- Appendix III
Part II, Chapter VIII
HINDRANCES TO EQUALITY OF RETURNS DUE TO RELATIVE VARIATIONS OF DEMAND IN DIFFERENT OCCUPATIONS AND PLACES
§ 1. WE have now to introduce a new conception, that of the relative variations of demand in different parts of the industrial field. If the amount of any sort of productive resource demanded at a given price at all points collectively is constant, and the amounts demanded at the several points individually are variable, the relative variation of demand between two periods, say, between two successive years, may be measured by the sum of the excesses of the amounts demanded in the second year, at those points where there are excesses, over the amounts demanded in the previous year at the same points. If the demand for the productive resource at all points collectively is not constant, this variation may be measured, either by the sum of the excesses of the amounts demanded in the second year over the amounts demanded in the previous year at the same points, or by the sum of the deficiencies of the amounts so demanded over the corresponding amounts of the previous year,
according as the one or the other of these sums is the smaller.
§ 2. On the basis of this description, it can readily be shown that the influence of impediments to movement, in causing departures from equality of returns, is, in general, greater, the greater are the relative variations of demand in the sense just explained. For let attention be concentrated upon those impediments, which are not adequate to prevent returns from being equalised in “the long run,” but suffice to prevent the movements required to equalise them immediately.
If the various parts of the industrial field are fluctuating relatively to one another, impediments of this order will keep returns
always unequal. Mill’s illustration from wave movements on the ocean is wholly apposite. Under the influence of gravity, there is a constant tendency to equality of level in all parts; but, since, after any disturbance, this tendency takes time to assert itself, and since, before the necessary time has elapsed, some fresh disturbance is always introduced, equality of level does not in fact ever occur. It is evident that the average amount of inequality of level depends in part on the magnitude of these disturbances. It is, similarly, evident that the average degree of inequality of returns depends in part, in respect of any system of impediments to movement, upon the size of the relative variations which the demands for productive resources at different points in the industrial field undergo. It is the task of the present chapter to distinguish the principal influences upon which the magnitude of these relative variations in different circumstances depends.
§ 3. First, it is plain, in so far as the demands for the services of productive resources in different occupations and places are affected by independent causes, anything that promotes variations in any particular occupation or place is likely to enhance the relative variations of demand as a whole. Thus all the factors affecting particular industries, which we shall be studying for a different purpose in Chapter XX. of Part III., are also relevant here.
§ 4. Secondly, when the demands for a commodity that is being produced in several centres fluctuate as between the centres, anything that prevents variations of demand for the commodity from being reflected in variations of demand for productive resources lessens the relative variations of demand for these resources. The practice followed by some firms of giving out work on commission in times of over-pressure to other firms in the same industry that are temporarily slack has this effect. When the firms engaged in an industry combine into a single concern, this device can, of course, be carried further. Orders, at whatever point they originate, can be spread among the members of the combination in such wise that
there are no relative variations in the several demands for resources to meet these orders.
§ 5. Thirdly, there are sometimes at work causes which bring about definite transfers of demand from one group of occupations to another. The most obvious of these are seasonal changes in climatic conditions; in the summer, for example, people want less gas for lighting but more petrol for motoring than they do in the winter. Shiftings of taste, under the influence of fashion, from one class of luxury article to another are on the same plane. Yet again, even when every individual’s tastes remain unaltered, the transfer of income from people with one set of tastes to people with another set involves a transfer of demand from the products favoured by the first class to those favoured by the second. Thus an improvement in the incomes of the poor at the expense of the rich would cause the demand for poor men’s goods to grow, and that for rich men’s to contract: and this change would be reflected in the demands for productive resources to make the two sorts of goods.
§ 6. Fourthly, there are at work certain general causes, which affect the demand for productive resources in a large number of occupations in the same sense, but in different degrees. Thus the psychical, monetary and other factors that underlie what are commonly called cyclical fluctuations in industry involve, for reasons which I have endeavoured to explain elsewhere,
*47 much more violent swings in the demand for instrumental goods than in that for the general run of consumption goods. This, of course, means that demands for productive resources to produce these two sorts of goods fluctuate relatively to one another. Any policy, therefore, that succeeded in mitigating the swing of cyclical industrial fluctuations, would, incidentally, also lessen the
relative variations in the demands of different industries.
§ 7. If we suppose ourselves starting from a position of equilibrium and imagine
any relative variation of demand to occur as between two occupations, until the appropriate transfer of productive resources has taken place the national dividend must fall below its maximum. But, nevertheless, it
is for some purposes important to distinguish between relative variations in which the demands in both occupations have moved in the same direction and relative variations in which one demand has risen and the other fallen.
Where wage earners maintain rigid rates of wages in the face of falling demand, it will be possible for those displaced from a depressed industry to find employment in an expanded one, but not possible for them to find employment in one which, though less depressed, is itself depressed in some degree. To eliminate obstacles to movement—provided that the expense of doing this were not too great—would, therefore, help the national dividend in the first case, but would have no effect upon it in the second.
§ 8. In conclusion it should be noted that relative variations in the demand for productive resources, whether between places or between occupations, may be expected to have different effects according as they take place rapidly or slowly. If one occupation or place declines slowly while another expands slowly, adjustment may be made to the new conditions without it being necessary for any actual transfer of resources to take place between them. All that need happen is that in the declining occupation or place, capital, as it wears out, and workpeople, as they retire or die, are not fully replaced; while newly created capital and young men and women coming to industrial age are turned into the expanding place or occupation to the extent required to fit the enlarged demand. In these conditions, no actual transfer of capital or labour being required, obstacles in the way of transfer do no harm to the national dividend. When, however, relative variations of demand take place rapidly, adjustment cannot be fully made in the way described, and, if it is to be made, actual transfers must take place. Here, therefore, obstacles to movement necessarily injure the dividend, and the elimination of them (if this could be accomplished without too great cost) would benefit it. Where exactly the line between “gradual” and “rapid” relative variations lies from the standpoint of this discussion, depends on the rates at which, in the occupations and places concerned, capital equipment normally decays and the labour force
normally requires replacement. As will be observed presently in another connection, the proportion of the annual flow to total stock is, in general, much larger among women workers than among men workers.
*48
Industrial Fluctuations, Part I. chapter ix.
post, Part III. Chapter IX. § 6.
Part II, Chapter IX