PROFESSOR PIGOU'S "ECONOMICS OF WELFARE"
PROF. PIGOU'S Economics of Welfare1 occupies a unique position in the history of economic thought. It is the culmination of the great Neo-classical tradition; and yet at the same time it marks a departure from it. For in his attempt to systematise his predecessors' concrete ad hoc approach to welfare economic problems Prof. Pigou has arrived at a concept of the general optimum; and this concept of the optimum, although perhaps not as logically stringent as the Paretian optimum, represents a significant intermingling of the concrete particular approach of the English economists and the formal general approach of the continental economists. A brief study of so monumental a work as the Economics of Welfare must necessarily be selective and we shall concentrate here on the theoretical backbone of Prof. Pigou's system contained in Parts I and I I of his book.
The Neo-classical element in Prof. Pigou's approach can be clearly seen from a strong admixture of those ideas which originate in the classical physical level of analysis.
Thus although Prof. Pigou defines economic welfare subjectively as quantities of satisfaction which can be brought into relation with the measuring rod of money, he goes on to explain that "economic causes act on the economic welfare of any country, not directly, but through the making and using of that objective counterpart of economic welfare which the economists call the national dividend or national income "(op. cit., 4th ed., p. 31). When we turn to his definition of the national dividend (taken over from Marshall) the influence of the classical physical productivity approach becomes apparent. He defines it as the flow of goods and services annually produced after maintaining capital intact, as opposed to Prof. Fisher who defines it as the flow of goods and services actually consumed during the year (ibid., p. 34).____________________