How Pigou Solved a Fundamental Theoretical Problem
https://doi.org/10.26794/2308-944X-2021-9-4-46-59
Abstract
In this paper, the author critically analysed a unique passage of Pigou's 1933 “The Theory of Unemployment”. Here he is faced with a fundamental theoretical problem in the definition of the national dividend or national income, which has far-reaching consequences on the comprehension of the circulation of money. Pigou is one of the few economists who have noticed this problem and discussed it in the history of economics. The problem can be stated as follows: the part of the value of output that makes up for depreciation; is or is not up for division? Does or does not it become income (that is, wages and profits) in the aggregate? The passage analysed in this paper is exceptional in the history of economics. It is so, first, because it faces the problem. Secondly, but no less important, because Pigou, despite his hesitations, holds the nowadays minoritarian position that the value of the part of the output that makes up for depreciation does not become income for any economic factor. This view implies that this part of the output is not up for division and, therefore, is not a part of aggregate income.
About the Author
K. Ormazabal
University of the Basque Country (Universidad del Pais Vasco / Euskal Herriko Unibertsitatea)
Spain
Spain
Kepa Ormazabal, Doctor of Philosophy, Professor (Full)
Department of Economic Analysis
School of Economics and Business Administration
(Barrio Sarriena s/n, 48940 Leioa, Bizkaia Campus, Spain)
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Review
For citations:
Ormazabal K. How Pigou Solved a Fundamental Theoretical Problem. Review of Business and Economics Studies. 2021;9(4):46-59. https://doi.org/10.26794/2308-944X-2021-9-4-46-59
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