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35-477: The committee took evidence from many leading economists of the day, such as Arthur Cecil Pigou , D. H. Robertson and Lionel Robbins , on the subject of unemployment. It decided in favour of the so-called Treasury view that expenditure on public works was not the answer, in spite of the signing of Addendum 1 by some of its leading members. This addendum, which was signed by Keynes, A.A.G. Tullock, J. Frater Taylor, Sir T. Allen, Ernest Bevin and R. McKenna, advocated

70-506: A commission has started the government cannot stop it. Consequently, governments are usually very careful about framing the terms of reference and generally include in them a date by which the commission must finish. Royal commissions are called to look into matters of great importance and usually controversy. These can be matters such as government structure, the treatment of minorities, events of considerable public concern or economic questions. Many royal commissions last many years and, often,

105-691: A different government is left to respond to the findings. Royal commissions have been held in Australia at a federal level since 1902. Royal commissions appointed by the Governor-General operate under the Royal Commissions Act 1902 passed by the Parliament of Australia in 1902. A defunct alternative is known as a Parliamentary Commission of Inquiry. Royal commissions are the highest form of inquiry on matters of public importance. A royal commission

140-460: A disadvantage. While the report dedicated only 300 words to such a disparity, the term Macmillan Gap is the most enduring part of the report. It was also one of the few recommendations which were acted upon. In response to the committee's suggestion, an institution was created in 1945 to finance small businesses: the Industrial and Commercial Finance Corporation . The maintenance of the exchange rate

175-476: A few cases—compelling all government officials to aid in the execution of the commission. The results of royal commissions are published in reports, often massive, of findings containing policy recommendations. Due to the verbose nature of the titles of these formal documents they are commonly known by the name of the commission's chair. For example, the “Royal Commission into whether there has been corrupt or criminal conduct by any Western Australian Police Officer”

210-616: A programme of public works and import restrictions. However the committee insisted that monetary policy should be concerned with 'the maintenance of the parity of the foreign exchanges before the avoidance of the credit cycle and the stability of the price level.' The committee published its findings and recommendations in the Report of Committee on Finance and Industry, or more simply, the Macmillan Report, in June 1931. The Macmillan Report "served as

245-441: A recession. Pigou’s contributions to solving unemployment serve as a basic foundation for understanding the phenomena of labor market externalities. His Theory of Unemployment , first published in 1933, describe many of the factors that contribute to unemployment, such as sticky wages, and an unwillingness to work at the market price. Both of these are factors that were given by Alfred Marshall and reinforced by Pigou. Up until

280-421: A result published the works on which his worldwide reputation rests. He specifically studied under Alfred Marshall and focused on normative economics. He became intrigued by welfare economics , which examines the overall benefit to society that comes from all the decisions made: those that individuals make about buying, selling and working, and those that firms make about production and employment. His first work

315-617: A scholarship to Harrow School , where he was in Newlands house and became the first modern head of school . The school's economics society is named The Pigou Society in his honour. In 1896 he was admitted as a history scholar to King's College, Cambridge , where he first read history under Oscar Browning . He won the Chancellor's Gold Medal for English Verse in 1899, and the Cobden (1901), Burney (1901), and Adam Smith Prizes (1903), and made his mark in

350-521: A teacher and builder of the School of Economics at the University of Cambridge , he trained and influenced many Cambridge economists who went on to take chairs of economics around the world. His work covered various fields of economics, particularly welfare economics , but also included business cycle theory, unemployment, public finance , index numbers , and measurement of national output . His reputation

385-480: A venue in which J. M. Keynes challenged the ' Treasury View '", according to economist Friedrich von Hayek . The report was largely authored by Keynes, and it recommended several Keynesian policies such as nationalization of the Bank of England (which later happened in 1946) and government regulation of international trade . Historian Charles Loch Mowat characterized these recommendations as "cautious" and said that, by

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420-506: A very important, original and valuable addition to the armoury of economic analysis". He later said that he had come with the passage of time to feel that he had failed earlier to appreciate some of the important things that Keynes was trying to say. Keynes, in turn, was very critical of Pigou, mentioning Pigou at least 17 times in The General Theory of Employment, Interest and Money , usually disparagingly. Keynes states that "[Pigou]

455-412: Is a cost imposed or benefit conferred on others that is not accounted for by the person who creates these costs or benefits. Pigou argued that negative externalities (costs imposed) should be offset by a tax, while positive externalities should be offset by a subsidy. In the early 1960s Pigou's analysis was criticised by Ronald Coase , who argued that taxes and subsidies are not necessary if the partners in

490-475: Is a major ad-hoc formal public inquiry into a defined issue in some monarchies . They have been held in the United Kingdom , Australia , Canada , New Zealand , Norway , Malaysia , Mauritius and Saudi Arabia . In republics an equivalent entity may be termed a commission of inquiry . Such an inquiry has considerable powers, typically equivalent or greater than those of a judge but restricted to

525-534: Is either frictional or voluntary. However, the separation between frictional and voluntary unemployment is the first foray into understanding the way unemployment impacts the labor market until the publishing of Keynes General Theory . One of his early acts was to provide private financial support for John Maynard Keynes to work on probability theory. Pigou and Keynes had great mutual affection and regard for each other, and their intellectual differences never put their personal friendship seriously in jeopardy. Pigou

560-542: Is formally established by the Governor-General on behalf of the Crown and on the advice of government Ministers. The government decides the terms of reference, provides the funding and appoints the commissioners, who are selected on the basis of their independence and qualifications. They are never serving politicians. Royal commissions are usually chaired by one or more notable figures. Because of their quasi-judicial powers

595-512: Is unable to devise any satisfactory formula to evaluate new equipment against old when, owing to changes in technique, the two are not identical. I believe that the concept at which Professor Pigou is aiming is the right and appropriate concept for economic analysis. But, until a satisfactory system of units has been adopted, its precise definition is an impossible task." Pigou had strong principles, and these gave him some problems in World War I . He

630-572: The Cambridge Union Society , of which he was President in 1900. He came to economics through the study of philosophy and ethics under the Moral Science Tripos. He studied economics under Alfred Marshall , whom he later succeeded as professor of political economy . His first and unsuccessful attempt at a fellowship of King's was a thesis on "Browning as a Religious Teacher". Pigou began lecturing on economics in 1901 and started giving

665-436: The terms of reference for which it was created. These powers may include subpoenaing witnesses, notably video evidences, taking evidence under oath and requesting documents. The commission is created by the head of state (the sovereign, or their representative in the form of a governor-general or governor) on the advice of the government and formally appointed by letters patent . In practice—unlike lesser forms of inquiry—once

700-482: The Great Depression, due in part to the fact that employers were hesitant to continue to hire women and veterans. This new factor of unemployment, Pigou writes, could be solved with subsidies provided by the government to industries suffering the most, such as manufacturing. Keynes argues against several points that Pigou makes in his Theory of Unemployment , but the most visible is Pigou’s theory that unemployment

735-623: The United States. From this conclusion arose the term the "Macmillan Gap". As such, many Britons felt that their banks were failing their industrial base. This view did not consider the balance that banking institutions needed to strike between their depositors , who desired high interest rates and liquidity , and their debtors , that is, those in industry, who desired low-interest loans that could not be recalled quickly. Investments of relatively small amounts of money were riskier and more costly for lenders, which put small businesses seeking loans at

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770-491: The commissioners are often retired or serving judges. They usually involve research into an issue, consultations with experts both within and outside government and public consultations as well. The warrant may grant immense investigatory powers, including summoning witnesses under oath , offering of indemnities, seizing of documents and other evidence (sometimes including those normally protected, such as classified information ), holding hearings in camera if necessary and—in

805-488: The course on advanced economics to second year students on which was based the education of many Cambridge economists over the next thirty years. In his early days he lectured on a variety of subjects outside economics. He became a Fellow of King's College on his second attempt in March 1902, and was appointed Girdler's Lecturer in the summer of 1904. He devoted himself to exploring the various departments of economic doctrine, and as

840-701: The day. He was a foreign honorary member of the American Academy of Arts and Sciences , a foreign member of the Accademia dei Lincei , and an honorary resident of the International Economic Committee. He loved mountains and climbing, and introduced climbing to many friends, such as Wilfrid Noyce and others, who became far greater climbers. An illness affecting his heart developed in the early 1930s, however, and this affected his vigour, curtailing his climbing and leaving him with phases of debility for

875-470: The land value tax were the inspiration for his view on taxing negative externalities. Pigou's most enduring contribution was The Economics of Welfare , 1920, in which he introduced the concept of externality and the idea that externality problems could be corrected by the imposition of a Pigovian tax (also spelled "Pigouvian tax"). In The Economics of Welfare (initially called Wealth and Welfare ), Pigou developed Marshall’s concept of externality, which

910-433: The post-World War One era, frictional unemployment was understood as part of a functional market. However, Pigou also notes that there is another type of unemployment that emerges not because people are unwilling to work at market wages but because employers have lower demand for labor. With the lack of employment that resulted from the devastation of four years of war, England suffered from an economic depression long before

945-440: The rest of his life. Pigou gave up his professor's chair in 1943, but remained a Fellow of King's College until his death. In his later years he gradually became more of a recluse, emerging occasionally from his rooms to give lectures or to take a walk. Pigou never married. He had good friendships, particularly in his later years. He had a penchant for complaining about politicians. Royal Commission A royal commission

980-524: The time of its publication, they "had been almost overtaken by events". Its members disagreed on some points and one member dissented on its findings. These opinions and reservations were included in the report's extensive addenda. The report also asserted that "the relations between the British financial world and British industry ... have never been so close as" those respective relationships in Germany and those in

1015-718: The transaction can bargain over the transaction. The externality concept remains central to modern welfare economics and particularly to environmental economics . The Pigou Club , named in his honour, is an association of modern economists who support the idea of a carbon tax to address the problem of climate change . A neglected aspect of Pigou's work is his analysis of a range of labour-market phenomena studied by subsequent economists, including collective bargaining , wage rigidity , internal labour markets , segmented labour market, and human capital . Sticky wages are when workers’ earnings don’t adjust quickly to changes in labour market conditions. This can slow an economy's recovery from

1050-509: Was a conscientious objector to military service when it required an obligation to destroy human life. He remained at Cambridge, but during the vacations was an ambulance driver at the front for the Friends' Ambulance Unit , and insisted on undertaking jobs of particular danger. Towards the end of the war he reluctantly accepted a post in the Board of Trade , but showed little aptitude for the work. He

1085-956: Was a reluctant member of the Cunliffe Committee on the Currency and Foreign Exchange (1918–1919), the Royal Commission on the Income Tax (1919–1920), and the Chamberlain Committee on the Currency and Bank of England Note Issues (1924–1925). The report of the last body was the prelude to the much criticised restoration of the gold standard at the old parity of exchange. Pigou was elected to the British Academy in 1925, but resigned later in 1947. In later years he withdrew from national affairs and devoted himself to more academic economics and writing weighty letters to The Times on problems of

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1120-510: Was affected adversely by influential economic writers who used his work as the basis on which to define their own opposing views. He reluctantly served on several public committees, including the Cunliffe Committee and the 1919 Royal Commission on income tax . Pigou was born at Ryde on the Isle of Wight , the son of Clarence George Scott Pigou, an army officer, and his wife Nora Biddel Frances Sophia, daughter of Sir John Lees, 3rd Baronet . He won

1155-500: Was agreed to be the first priority by all, including the signatories of Addendum 1. Two months after the report was published the UK came off the Gold Standard and the exchange rate depreciated immediately by 2% and continued downwards for 12 months. Arthur Cecil Pigou Arthur Cecil Pigou ( / ˈ p iː ɡ uː / ; 18 November 1877 – 7 March 1959) was an English economist . As

1190-455: Was generally critical of Keynesian macroeconomics and developed the idea of the Pigou effect on real money balances to argue that the economy would be more self-stabilizing than Keynes proposed. In a couple of lectures delivered in 1949 he made a more favourable, though still critical evaluation of Keynes' work: "I should say... that in setting out and developing his fundamental conception, Keynes made

1225-546: Was more philosophical than his later work, as he expanded the essay which had won him the Adam Smith Prize in 1903 into Principles and Methods of Industrial Peace . In 1908 Pigou was elected Professor of Political Economy at the University of Cambridge in succession to Alfred Marshall. He held the post until 1943. In 1909 he wrote an essay in favour of Land Value Taxation , likely to be interpreted as support for Lloyd George 's People's Budget . Marshall 's views on

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