Pigou’s Influence on Clark: Work and Welfare

Abstract

In an earlier article, Hans Jensen documented institutional elements in the work of Alfred Marshall but concluded that they did not have an influence on institutionalism because these potential foundations were never discovered by institutionalists [Jensen 1990, 405-411]. While Jensen's analysis may be correct, Marshallian economics did have an impact on institutionalism in a roundabout way. Marshall's student, A. C. Pigou, through his advancement of welfare economics, made an impression on J. M. Clark. Clark once said that Pigou put 'Welfare Economics' on the map relative to social productivity vs. private acquisition [Seligman 1962, 203]. Clark's statement needs a context, however, because Pigou's welfare economics employed utility theory, a perspective of little appeal to institutionalists. Following Marshall, Pigou attributed welfare gains to the greater marginal utility a dollar of income had for the poor compared to the rich; a transfer of income from rich to poor increased total utility. Neoclassical economists have since dismissed this argument by pointing out the problem of making interpersonal utility comparisons [Little 1957, 8-14, 55-6]. Clark sided with Marshall and Pigou and deplored the reversal of their welfare conclusions [Clark 1957, 59]. Clark's regard for Pigou's welfare economics had a still stronger footing. Pigou also argued that welfare gains came from improving the quality of the work force through changes in the distribution of income or by improved working conditions, and he devoted much effort to the study of National Dividend and Labor. This article focusses on Pigou's link between work and welfare as a stimulus to Clark's development of the concept of the social overhead costs of labor. The focus and evidence presented in this article is limited by time and topic. Pigou and Clark