Father of welfare economics, founder of the concept of "externality"
An English economist, star pupil of Marshall and heir to his Cambridge chair, founder of welfare economics. He systematically studied 'externalities' — where one person's economic activity imposes on others a cost or benefit for which they do not pay, such as a factory's pollution harming nearby residents while the cost falls on society. He argued that government can, by taxation (later called the 'Pigouvian tax'), make the polluter pay for the social cost it causes, correcting the market's failure. This idea is the theoretical source of today's environmental taxes, carbon taxes, and all 'polluter pays' policies. He was also the chief target of Keynes's criticism in the General Theory — the classical orthodoxy Keynes challenged.
Pigou asked a question still urgent today: a factory belches black smoke and makes money, but the cost — the fouled air, the sickened residents — is borne by society as a whole, while the factory pays nothing. His answer: the government should tax pollution, making the factory count that 'external cost' into its own books. Today's carbon taxes and environmental taxes are, in essence, modern versions of this 'Pigouvian tax.'
Below are how modern works borrow or reinterpret this name or story — not the original material. The two differ, so keep them apart.