History of Economic Thought. A. Pigou's theory of economic well-being (the most important)

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History of Economic Thought. A. Pigou's theory of economic well-being (the most important)

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60. THE THEORY OF ECONOMIC WELFARE A. PIGOU

Arthur Cecil Pigou (1877-1959) - English economist representative of the Cambridge school. In work "Welfare Economics" (1924) developed a practical toolkit for well-being based on premises of neoclassical theory: the theory of diminishing marginal utility, subjective and psychological approaches to the evaluation of goods and the principles of utilitarianism.

Based on these messages Pigou displays theory of taxation and subsidies, where the main principle of taxation is the principle of the least total sacrifice, i.e. equality of marginal sacrifices for all members of society. Based Pigou's theory of diminishing marginal utility justifies the need for progressive taxation, since, under the condition of diminishing marginal utility of money, transfer income from the rich to the poor would increase the general welfare.

Wealth maximizationBy Pigou, involves not only a system of progressive income taxation, but also the measurement of so-called external effects and the organization of income redistribution through the mechanism of the state budget.

Pigou notes that GNP does not accurately reflect the level of general well-being, since the state of the environment, the nature of work, and forms of leisure are real welfare factors. Therefore, situations of growth in the level of general well-being are possible while the level of economic well-being remains unchanged.

Pigou analyzes in detail the situations when the activities of the enterprise and consumers have "externalities", which do not have a monetary measure, but have a real impact on well-being. One can give an example of negative “external effects” - environmental pollution as a result of industrial activities of enterprises. Depending on the sign of externalities, public costs and benefits can be either greater or less than private ones.

RџSЂRё welfare calculation the discrepancy between marginal private net product and marginal social net product must be taken into account. The negative side effects of economic activity should be taxed, which was later called "taxation in the spirit of Pigou".

Interested in welfare theories Pigou and the conclusion he draws from the recognition of the theory of interest developed Boehm-Bawerkom, котор� �й с� � ит� � л, � � то percentage is a reward for waiting in the conditions of preference for current goods in the future. Recognizing that our gift of foresight is not perfect and we evaluate future blessings on a decreasing scale, Pigou concludes about the difficulties of implementing large-scale investment projects with a long payback period (including investments in education) and wastefulness in the use of natural resources.

He concludes that the state should not only to ensure the maximization of social welfare through the mechanism of income redistribution and taking into account "external effects", but also to ensure the development of fundamental science, education, and implement environmental projects, protecting the "interests of the future".

Author: Tatarnikov E.A.

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