The Economics of Welfare

Pigou, Arthur C.
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London: Macmillan and Co.
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4th edition.
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Part I, Chapter IX


§1. IN the two preceding chapters nothing was said about the possible reactions which the changes we have been contemplating may have on the numbers of the population. This omission must now be remedied. To the broad conclusions which were reached relating respectively to the size and distribution of the national dividend, it may be objected that an increase in the income per head is again reduced to its old amount, and, therefore, that it leads to no lasting benefit. In practice this argument is most often used about the effects of an increase in the income of manual workers; and it is, of course, much more plausible in this field than in any other. It will, therefore, be enough to examine this aspect of it. I shall consider it first from the point of view of the whole world, or of a single country imagined, for the purposes of the argument, to be isolated, and afterwards shall inquire how far the results achieved need to be modified for a single country constituting one among the associated family of modern nations. In the argument to be developed under these two heads it must be understood that the additions to the income of wage-earners that we have in mind do not include additions brought about by the offer, on behalf of the State, of deliberate and overt bounties upon the acquisition of large families. Under the old Poor Law in the United Kingdom bounties were, in effect, given; our present income-tax law acts in a slight degree in the same sense; and in a law passed in France*104 shortly before the war a similar policy was adopted. This class of addition to the income of the poor has, of course, a tendency to augment population, and, in some practical problems, the point is of importance. For the present, however, we are concerned with additions that do not offer a special differential inducement to the begetting of children.


§2. If we provisionally ignore the deeper-seated reactions which increased income may exert upon wants and tastes, our discussion virtually resolves itself into an inquiry into the validity of the celebrated "iron law of wages." According to this "law," expanding numbers continually press the earnings of the workpeople down to "subsistence level," thus making it impossible for their real income per head in any circumstances to increase. It should be noted in passing that, even if there really were such a law, the proposition that better fortune for the workers increases economic welfare would not be definitely disproved. For it might still be urged that, provided the average working family attains in the whole period of life any surplus of satisfaction over dissatisfaction, an increase of numbers implies by itself an addition to economic welfare.*105 But, for my present purpose, there is no need to press this doubtful point. Population does not tend to expand in such a manner as to hold down income per head to a predetermined "subsistence level." It is true, no doubt, that the direct and immediate result of an increase in the dividend accruing to any group is likely to be some increase of population. It is well known that the English marriage rate was negatively correlated with wheat prices in the earlier part of the nineteenth century and was positively correlated with exports, clearing-house returns and so on in the latter part:*106 and that the rate of mortality falls with growing wealth, and vice versa. But it is contrary to experience to assert that increased income stimulates population to so large an extent that the individual earnings of workpeople are brought down again to the level they occupied before the improvement. There are two ways in which the manual workers can use their increased claims over material things, namely, to increase their numbers and to increase their standard of comfort. The distinction between these two ways is well illustrated by the following contrasted passages from Malthus's Principles of Political Economy. On the one hand, he found that the greater wealth resulting from the introduction of the potato into Ireland in the eighteenth century was "spent almost exclusively in the maintenance of large and frequent families." On the other hand, when the price of corn in England fell between 1660 and 1720, a considerable portion of the workpeople's "increased real wages was expended in a marked improvement of the quality of the food consumed and a decided elevation in the standard of their comforts and conveniences."*107 It is not possible to prophesy a priori the proportion in which increased resources will be devoted to these two uses. The proportion will vary at different times and in different places. Leroy-Beaulieu, for example, suggests that the population use has been predominantly followed in recent times in Belgium and Germany, and the standard-of-comfort use in other European countries.*108 But—and this is the point—it is practically certain that the population use will not be allowed to absorb the whole fruits of increased command over nature.


§ 3. The preceding argument, as was indicated at the outset, leaves out of account the deeper-seated reactions that may be set up by expanded earnings. An important school of writers, headed by Professor Brentano, admits that the direct and immediate effect of enhanced material prosperity in any class will, in general, be to increase the marriage rate and, therewith, the birth rate. They maintain, however, that the enhanced prosperity will, in the long run, bring about the development of a higher spiritual and cultural level, in which more forethought is exercised about children and more satisfactions rival to that of having children come to the front. Hence, they urge, in the long run an increase in the income of any class is likely to lead to no increase at all, but actually to a decrease, in their birth rate and their numbers.*109 Thus Professor Brentano declares that a permanent improvement in wealth and culture, "as a comparison of different ranks, as well as of the same ranks and the same people at different stages of development, has shown us, results in a diminution of births.... As prosperity increases, so do the pleasures which compete with marriage, while the feeling towards children takes on a new character of refinement, and both these facts tend to diminish the desire to beget and to bear children."*110 Those persons, for instance, who have something to leave to their children are more affected by the fact that, if their family is large, what is left at their death must be divided into a number of small parts, than those who have nothing to leave and act apart from economic motives. Detailed confirmation of this view is afforded by Dr. Heron's statistical study of London in 1906. In certain selected districts he found the correlation co-efficients between the number of births per 100 wives and various indices of social status. The indices chosen were the proportion of occupied males engaged in professional occupations, the number of female domestic servants per 100 families, the number of general labourers per 1000 males, the proportion of the population living more than two in a room, and the number of paupers and of lunatics per 1000 of the population. A low index of prosperity and a high birth rate were found to go together. Against this result there had to be set the fact that a low index of prosperity was also accompanied by a high rate of infant mortality. Investigation, however, showed that the excess of mortality was not sufficient to balance the excess of births; and the conclusion emerged, that "the wives in the districts of least prosperity and culture (and, of course, these poor wives were married to poor husbands) have the largest families."*111 Furthermore, a comparison between the conditions of 1851 and 1901 brought out the startling fact "that the intensity of this relationship has almost doubled in the last fifty years."*112 Heron's results have been amply confirmed by later investigations over a wider field. Thus Mr. Yule writes: "At the present date (1920) there is no doubt that marriage fertility is, on the whole, broadly speaking, graduated continuously from a very low figure for the upper and professional classes to a very much higher figure for unskilled labour."*113 In like manner Dr. Stevenson, as the result of an elaborate study, concludes: "The difference in fertility between the social classes is small from marriages contracted before 1861, and rapidly increases to a maximum for those of 1891-96. The slight subsequent approximation between the classes may be apparent rather than real. The difference in fertility between the social classes is, broadly speaking, a new phenomenon."*114 Up till the middle of last century, though the upper classes, whose full earning capacity develops later than that of manual workers, tended to marry later, and so to have somewhat fewer children, this tendency was nearly balanced by the lower mortality among them. Their fertility after marriage was not much less, and the survival rate among them only a little lower. Now, in consequence of the relatively large fall in their fertility, the survival rate among them is very much lower.*115 The inferences suggested by these statistical facts are, indeed, less firmly based than they appear to be at first sight. The correlation between high prosperity and low birth rate may be partly due to the fact that a man with a small family is in a better position to accumulate a fortune, and that between rich districts and low birth rate may be partly due to the accumulation of domestic servants and other dependants—a particularly infertile class—in these districts.*116 Moreover, a part of the correlation between wealth and small families is probably due to the fact that physiologically infertile stocks, having their property divided among fewer persons on inheritance, tend, on the average, to be more than ordinarily rich.*117 But these considerations, important as they are, do not, there is reason to believe, completely account for the observed facts. What has been said of the deeper-seated reactions of prosperity appreciably strengthens our conclusion that an improvement in the fortunes of the poor is not likely, in an isolated community, to cancel itself by causing a large expansion of population.


§ 4. When account is taken of the fact that, in the modern world, no country is isolated from the rest, the issue becomes less plain. Of course, if the real income of the manual working class anywhere is increased because the average level of capacity among that class has been raised, no inducement is thereby offered to immigration from elsewhere. But, if their real income is increased through some discovery, or invention, or stroke of policy that improves the economic position of one country considerably more than it improves that of others, an inducement is offered. The same thing happens if legislative or other measures bring about a transference of income from the richer to the poorer members of some one community—provided, of course, that poor persons who have immigrated are not excluded from the benefits of these measures.*118 These considerations are very important; for they show that many causes tending to increase the real income per head of the wage-earners in a single country will ultimately exercise a smaller influence in that direction than they appear likely to do at first sight. It should not be forgotten, however, that that very immigration, which lessens their effect at the point of primary impact, involves indirectly an improvement in the fortunes of labour elsewhere. Hence, in any event, the beneficial influence of the changed conditions is not destroyed, but is merely spread over a wider area. In the country primarily affected some addition to economic welfare is necessarily secured.


§ 5. The above discussion disproves the suggestion that the beneficial effect on economic welfare of an increase in the real income of wage-earners will be neutralised by an expansion of population. It does not, however, disprove the suggestion that the beneficial effect on economic welfare of transferences of income from the rich to the poor will be so neutralised. For, in order to that result, it is not necessary that the gain of economic welfare to the poor should be destroyed—only that it should be made smaller than the loss of economic welfare to the rich. It cannot be denied that this might happen. But, in a country where the distribution of wealth is as uneven as it is in the United Kingdom; and where, therefore, there are many high incomes which could be largely cut down with very little injury to economic welfare, the chance that it will happen may reasonably be regarded as small.

Notes for this chapter

Cf. Economic Journal, Dec. 1913, p. 641.
But Cf. Sidgwick's observation: "It seems at least highly doubtful whether a mere increase in the number of human beings living as an average unskilled labourer lives in England can be regarded as involving a material increase in the quantum of human happiness" (Principles of Political Economy, p. 522, note). A population, which, in given conditions, maximises this quantum, seems to have a much better claim to be called the optimum population than a population which maximises real income per head. The practice, which has gained a certain currency, of using the term in this latter sense is, therefore, unfortunate.
Cf. Pareto, Cours d' èconomic politique, pp. 88 et seq. Cf. also Marshall, Principles of Economics, pp. 189-90.
Principles of Political Economy, pp. 252 and 254. Mr. Wright, commenting on the fall in the birth rate in the later nineteenth century, suggests that increased command over nature is more likely to be taken out in an improved standard of comfort when it manifests itself in a fall of prices than when it manifests itself in higher money wages; for people do not readily see behind money (Population, p. 117).
La Repartition des richesses, p. 439.
Cf. Mombert, Archiv für Socialwissenschaft, vol. xxxiv. p. 817. Cf. also Aftalion, Les Crises periodiques de surproduction, vol. i. pp. 208-9.
Economic Journal, 1910, p. 385.
The Relation of Fertility in Man to Social Status, pp. 15 and 19. M. Bertillon has shown that, in general, a high birth rate and a high death rate are correlated (La Depopulation de la France, pp. 66 et seq.). This correlation is partly due to the fact that the death of children induces parents to get more, and partly to the fact that a high birth rate often means many children born in poor circumstances and so likely to die. Thus, Dr. Newsholme suggests that the observed correlation "is probably due in great part to the fact that large families are common among the poorest classes, and these classes are specially exposed to influences producing excessive infant mortality" (Second Report on Infant Mortality [Cd. 6909], p. 57). A similar conclusion as regards the North of England is reached in Elderton's Report on the English Birth-rate, Part I.
The Relation of Fertility in Man to Social Status, pp. 15 and 19.
The Fall in the Birth-rate, p. 31.
Journal of the Royal Statistical Society, 1920, p. 431.
Cf. Journal of the Royal Statistical Society, 1920, p. 417.
Cf. Leroy-Beaulieu's argument: "II se trouve dans les quartiers riches une plus forte proportion de ménages âgés, de gens retraités, de domestiques, classe particuliérement stérile, et personnes qui ne passent qu'une partie de l'année à la ville; la natalité enregistrée doit done y être plus faible, sans qu'on puisse rien en inférer. On qualifie le XVIe arrondissement qui compte 135,000 habitants comme un arrondissement riche et le VIIIe également qui, de son côte, compte 104,000 habitants. Or, il est manifeste que les gens vraiment riches ne représentent pas la dixiéme partie, peut-être pas même la vingtiéme partie, de la population de ces arrondissements dits riches; les gens opulents ne se comptent pas, même á Paris, par centaines de mille; le gros de la population de ces arrondissements est composé de domestiques, de concierges, de petits boutiquiers et d'ouvriers d'élite. Les conclusions que l'on tire de la natalité dans les quartiers dits riches de Paris sont donc sans valeur" (La Question de la population, p. 399).
Cf. Darwin, "Eugenics in Relation to Economics and Statistics," Journal of the Royal Statistical Society, 1919, p. 7.
The inducement to immigration offered by old-age pensions might be kept very small by a rule requiring previous residence of, say, 20 years as a condition of qualification; for a far-off benefit affects action but slightly, the more so if, as in this case, the possibility of death makes it uncertain as well as distant.

Part I, Chapter X

End of Notes

13 of 73

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