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Hello Mr. Pigou
I disagree with your idea of Pigouvian taxes. In your theory, you suggested that the government should intervene in the economy through the use of subsidies and changes in taxation to offset negative externalities such as pollution caused by a factory and subsidise positive externalities. I believe that it is not the government’s role to intervene in the economy of a nation. The market should be left alone and through the forces of the “Invisible Hand”, explained in my work, The Wealth of Nations, the economy would maximise in efficiency to produce greater wealth. You could argue that this would not benefit the social welfare of a society, however because of people’s self interests and their natural need to help each other, as explained in my work, The Theory of Moral Sentiments, social welfare would still improve.

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Hello Mr.Pigou,
Even though I agree with your proposal of Pigouvian taxes, I am hesitent to come to terms with your theory that the market would be self correcting due to period of deflation. I believe that government intervention would be necessary in order for the economic system to work, because I believe that a deflation is not caused due to a drop in aggregated demand, but instead, an uneven distribution of supply which should be controlled and managed.

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Professor Pigou, thank you for all you have done for me in my youth, though I must respectfully criticize one idea in your theory of unemployment. In it, you have unfortunately omitted one unstable factor which influences employment -that of the scale of investment.

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Hello Mr. Pigou
I agree with your proposal about pigouvian taxes. Your method to offset negative externalities is accurate, although it does contain some flaws. You pointed out one of the flaws, which is that the pigouvian tax assumes the government can calculate the marginal social cost of a negative externality. Also, the tax assumes that people know the extent of which the state can interefere with individual choices. Since you already recognized these problems, again, I agree with your theory of pigouvian taxes.

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Hello Mr. Pigou,

I must agree with you that unemployment is a natural result of inflation. However, this issue is more dependent on the status of innovation and entrepreneurs-the driving factor of the economy. In short, as innovation occurs, unemployment rises correspondingly: new technologies replace the labor that were mostly done by hand. Thus, unemployment is an inevitable aspect of economy. Additionally, it is not government intervention what stabilizes and props up the economy, but rather driven by entrepreneurs whose innovations replace old worn out business model in a process I call “creative destruction”.

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Hello Mr. Pigou,

While I agree with some of the ideas you present in the Pigou Effect, I disagree with your ideas in price discrimination and the Pigouvian Taxes. I support your views on how deflation  of an economy, without government intervention, would cause more buying power, which would cause expenditure to rise. I would also like to add that with deflation, lower prices would lead to lower wages, raising profits and improving the growth of the economy. Regarding Pigouvian Taxes, I am strongly opposed to the ideas you presented. I believe that taxes and tariffs would only harm the economy. Free trade is needed is needed to support and foster the growth of an economy. Government intervention would only slow the process, decreasing the efficiency and impacting the amount produced in a state.

David Ricardo

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Hello Mr.Pigou,
Although I find a strong congruency between our economic concepts through the idea that markets would be self-correcting it there was periods of deflation, it is my absolute belief that these periods of deflation is a result of imbalanced in production, contrary to your opinion that it is a result of a drop in aggregated demand. Moreover, I also believe that these periods of deflation are only a positive occurrence in the instance that it is a direct result of a gain in productivity within the economy; hence, the economy should always be close to full employment. Despite our agreement on this economic concept, I stongly disagree with your economic theory of Pigouvian Taxes. Instead, it is in my belief that any taxation the government imposes on the tax-payer is burdensome to production, which ultimately will hinder the health and growth of an economy as a whole.
-J.B Say

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Also known as the "Real Balance Effect" I have developed a link from balances to consumption in order to counter against the General Theory of Keynes. I argued that the market would be more self correcting if there were periods of deflation due to a drop in aggregate demand. The deflation would cause more buying power, which would cause expenditure to rise, which would correct the demand. This will be the opposite if there is inflation, which sees employment and output decrease due to less consumption. I believe that this happens naturally in the market economy. However, I must acknowledge that Keynes under-employment equilibrium will follow if there are inflexible wages and prices, or that sticky prices might still prevent reversion to natural output levels

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I made a distinction between different levels of price discrimination. Price discrimination also called price differentiation, occurs when a firm sells the same product at different prices, either to the same or different consumers , seek to sell additional output to consumers without lowering the price of the units that are already being sold so as to maximize their profits. I made three degrees for price discrimination. The first one given when the monopolist charges each unit with a price that is equal to the consumer’s maximum willingness to pay for that unit. The second degree  depends on the amount bought by the consumer as in quantity discounts. Finally, the third degree or market segmentation of price discrimination occurs when there are several differentiated market segments to which the firm will apply different prices, e.g. student or third age discounts.

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My fundamental work The Economics of Welfare was published in 1920 and mainly focuses on externalities.

Another highly-regarded book I wrote is called the "The Theory of Unemployment" and has been attacked by my colleague, John Maynard Keynes

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Pigouvian Taxes - My best moment in Economics

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Pigouvian Taxes - My best moment in Economics

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In the year 1920, I invented the pigouvian tax to offset negative externalities. A spillover cost from an economic entity that negatively affects the social welfare. The Pigouvian tax is used in government intervention and would be able to make the market economy reach equilibrium if all the costs of an economic activity is considered. By employing pigouvian taxes, the government and the private industries would be able to "internalize" all of the costs of an economic entity's activities.

One example of how this imposing of taxes may work is in factories. Factories contribute to pollution and thus, is a detriment to society in the form of dirtied property, health risks etc. Therefore, taxes will force the factories to compensate for their negative spillovers or externalities.

My solution of taxes have been most famously challenged by Ronald Coase.  In 1960, he published the book "The Problem of Social Cost." He argued that because there are two parties involved, Pigouvian taxes may do more harm than good, for example, if there was someone practicing piano next to your study, you would tell them to stop, but what if the person playing piano was the next Bach? He proposed that a better solution would be for the two parties to make a bargain. Of course, although I died right before he published his theory, I would disagree, because in bargaining, several other factors would be introduced, and there is also the possibility of empty promises. Also through scientific methods, as neoclassical economists do, I have concluded mathematically that it will not benefit society as a whole if we let the factory continue to pollute nonstop without some sort of intervention. If not, the market would not reach equilibrium as not all costs are considered and I will consider it a market failure.

I reluctantly agree with fellow Austrian economist, Ludwig von Mises. Who illustrates that a government cannot issue the most socially optimal Pigouvian tax without knowing the most efficient outcome. Precise measurements must be used in order to prevent overestimating or underestimating the external costs involved.

Pigouvian taxes have already been proposed in the form of a carbon tax.

For positive externalities, like planting flowers in the neighborhood that will increase the value of the real estate in the community, I propose the opposite of taxing, subsidizing these good deeds. People have coined this as the Pigouvian subsidy, and the subsidies can be done through private philanthropy and the government.

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I, Arthur Cecil Pigou was a renowned British economist noted for my research in welfare economics. I was born in the 19th century (November 18, 1877) to a retired army officer in Ryde, Isle of Wight, England and died in Cambridge in the 20th century (March 7, 1959)

I studied history at King's College, Cambridge until I became interested in economics after meeting Alfred Marshall. I became one of Alfred Marshall's best students and was named as Marshall's replacement after his retirement in political economics in 1908. I graduated in 1901 and  started lecturing at Cambridge in the same year.  In my early days, I insisted my students Marshallian economics-or early Marginalism- that consumers will purchase things that will bring the most personal satisfaction. I further developed his concept of externalities to justify government intervention.

In the early years, I was very lively and a brilliant lecturer, but from 1927 onwards, ill-health has undermined my liveliness and the vigor of my writing. I gave up my full-time hobby, mountain climbing and became the infamous academic recluse.