Origin of the Idea

The real balances effect is also known as the Pigou effect, after its originator, Arthur C. Pigou. (1877-1959). Pigou was born on the Isle of Wight in England, and studied at Cambridge University. He eventually became the chair of political economy at Cambridge University, succeeding Alfred Marshall, who influenced Pigou greatly. Pigou was a welfare economist, meaning that he was concerned with how to maximize social well-being beyond the scope of the individual. He contributed to theories of income distribution, externalities, and price discrimination.