OBITUARY: Professor James Meade

James Meade was one of the greatest economists of his generation. He, more than anyone since John Maynard Keynes, influenced the way in which economic policy is now discussed in Britain. He also made a direct impact on post-war policy when as a civil servant in the Second World War he wrote the first draft of the White Paper on Full Employment and the first outline of Gatt, the General Agreement on Tariffs and Trade.

Meade's aim was to fashion economics so that it could improve the human lot. He stood in the great tradition of utilitarian political economy running through John Stuart Mill, and his chief interest was the use of economics as a guide to policy. It is largely due to him that British economics has achieved its greatest international distinction in the field of "public economics".

Meade was an egalitarian, both in his ideas and in his life. He felt that economics should concern itself not only with the size of the cake but with how unequally the cake was distributed. For the sake of greater equality one should be willing to accept some loss of efficiency. Thus economic policy analysis required a framework in which any proposal (on trade, taxation, employment or whatever) could be evaluated by first describing its actual results and then assessing their impact on aggregate human welfare. Meade provided such a framework.

His first major field of study, for which he won his Nobel Prize in 1977, was the theory of international trade and customs unions. Meade was of course a free trader. But his volumes on international economic policy, published in the early 1950s, go far beyond that issue. In them he introduced the notion of the economic "second best": if there is an unavoidable distortion in an economy, economists should not just complain but should also say what is the "second-best" optimum, taking the unavoidable inefficiency into account.

From trade theory Meade turned to the distribution of income and wealth, writing the seminal treatise Efficiency, Equality, and the Ownership of Property (1964). This more than anything else restimulated the concern of British economists with inequality. Like many Englishmen educated in public schools (he himself went to Malvern College, before Oriel College, Oxford), Meade was very conscious of the wide differences between people, both in their genetic make-up (he was treasurer of the Eugenic Society) and in the opportunities life offered them. He was worried that technical change would reduce the less able members of society to penury. The only solution was an effective system to redistribute income.

In the 1970s Meade's chance came to examine this issue in detail. He was asked by the Institute for Fiscal Studies to chair a Committee on the Structure and Reform of Direct Taxation. The resulting report was a tour de force which has influenced all subsequent debate. It helped to propel the tax system further in the direction of taxing expenditure rather than income. And it clarified the debate on income maintenance, where Meade was increasingly attracted to the idea of a basic citizen's income.

As unemployment grew in the Seventies and Eighties Meade turned once more to that issue. As a young man he had chosen to study economics because he hated unemployment. In the war he had written the first draft of the White Paper which pledged the Government to pursue a high and stable level of employment. For 30 years they had done this successfully, but now unemployment was back, together with high inflation.

To Meade it was clear that demand management could not produce permanently lower unemployment. The role of demand management was to set the nominal magnitudes in the economy (and especially inflation), while it was the role of microeconomic policy and institutions to determine the level of employment. Once articulated by Meade this increasingly became the orthodox view, repeated for example by Nigel Lawson in his 1984 Mais Lecture. In Meade's view the best aim for microeconomic policy is to stabilise the growth in total money spending. While this neo-Keynesian approach, as Meade called it, has never become official government policy governments have come steadily nearer to pursuing it.

But, if Meade's macroeconomics became the orthodoxy his remedies for unemployment did not. As Meade pointed out unemployment occurs when wages are set above the level at which people are willing to supply labour. So in his book Wage Fixing (1982) Meade proposed that in wage disputes there should be compulsory arbitration with the arbitrator choosing that wage which would lead to the highest level of employment. Although he argued this case strongly, especially in the SDP which he belonged to, it received little support.

He then turned to a different approach, proposing that firms should become partnerships between labour and capital where each worker would receive a specified share of the firm's revenue. To make sure that outsiders were not excluded they could join with a lower initial claims than insiders. This became Meade's final vision of the good society.

In the post-war period Meade was above all a man of ideas. But before that he mixed in the world of action. In the 1930s he was an active Fabian and friend of Dalton and Gaitskell. In 1938 he went to work for the League of Nations, in which he believed deeply. From 1940 to 1947 he worked in the Economic Section of the Cabinet Office, and for the last two years was its director. While he was there he and Richard Stone first produced the national accounts as we know them. But his greatest achievement was probably to draft the British proposals for Gatt, which led to the open system of multilateral trade and the post-war economic miracle.

That would be enough claim to fame, but Meade's greatest writing was to come. In 1947 he joined the London School of Economics, which he loved and where he probably did his best work. After 10 years he moved to Cambridge, where he completed his Principles of Political Economy, which were too taxonomic in character to be wholly successful. The political divisions in the Cambridge Faculty of Economics made him unhappy and he retired from his chair six years early. He continued writing up to his death, inspiring the young associates with whom he worked and respected throughout the profession. In October the Institute for Fiscal Studies organised a four-hour seminar to discuss his last book, Full Employment Regained, published this year. It was completely natural that half the country's leading economists should have been there.

Meade was a much-loved man with extraordinary gentleness and modesty for someone with such a driving intellect. He was in every sense a gentleman. He was a beautiful singer, an excellent carpenter, and a great family man. He disliked pomp and characteristically refused the offer of a knighthood.

As an economist he represented the highest values. He strove to improve the world by the use of reason, honest argument and accurate thought. On any assessment he was among the greatest Englishmen of the age.

Richard Layard

James Meade was unhappy with the Maastricht approach to monetary union, writes Martin Weale. He advocated instead a parallel currency, which would be set up with a guarantee that it would not inflate. EU members could then choose whether to use it, to peg their currencies to it or to float. A monetary union could evolve without any rigid timetable and, importantly, there would never be a point at which it could be said that the project had failed.

His concerns about the links between monetary and fiscal policy in a monetary union resurfaced in his most recent article (in the Scandinavian Journal of Economics) in the spring. How would one avoid unstable interactions generated by monetary and fiscal authorities competing with each other?

His students in the 1950s had seen this problem demonstrated clearly. He had supervised the construction of a hydraulic model of the economy by Bill Phillips at the LSE. This model allowed for separate adjustment of monetary and fiscal policy by different people. The result was often that they were soaked with water. Cambridge has just restored its Phillips machine with advice from James Meade. He took great pleasure in seeing it in working order in the engineering workshop last summer, but he was alas too unwell to attend its inauguration in the newly named Meade room two weeks ago.

James Edward Meade, political economist: born Swanage, Dorset 23 June 1907; Fellow, Hertford College, Oxford 1930-37, Bursar 1934-37; member, Economic Section of League of Nations, Geneva 1938-40; Economic Assistant, Economic Section, Cabinet Office 1940-45, Director 1946-47; CB 1947; Professor, LSE 1947-57; FBA 1951; Professor of Political Economy, Cambridge University 1957-68; Fellow, Christ's College, Cambridge 1957-74; Nobel Prize for Economics (with Bertil Ohlin) 1977; books include National Income and Expenditure (with Richard Stone) 1944, The Theory of International Economic Policy (2 vols) 1951-55, Efficiency, Equality, and the Ownership of Property 1964, Principles of Political Economy (4 vols) 1965-76, Wage Fixing 1982, Demand Management (with David Vines) 1983; married 1933 Margaret Wilson (one son, three daughters); died Little Shelford, Cambridgeshire 22 December 1995.