Pigou on War Finance and State Action

This paper reviews Arthur C. Pigou's intellectual contribution to the debates on economic policy during World War I in Britain, showing how many of his ideas on the subject can be traced back to his major pre-war work, Wealth and Welfare. Initially, we present Pigou's arguments in favour of an increase in taxation and on how individual choices affect the distribution of war costs over time. Attention is also drawn to his understanding of the nature of inflation in Britain during the war, as well as to his remarks about the efficacy of state wartime controls continuing into the post-war era. Pigou's rejection of Ricardian equivalence and his concerns with Britain's massive national debt are considered in regard to the controversy over the convenience of a capital levy after the war. Lastly, his recommendations on European political and financial reconstruction are addressed, along with his specific proposals for state action in matters connected with national defence.