Warren Samuels on George Stigler as a Political Economist

|Peter Boettke|

In his rememberance of Stigler after his passing, Warren Samuels characterized Stigler's economics as follows:

George was a neoclassicist, a certain type of neoclassicist; if he was more than a neoclassicist he was also an Austrian economist; his version of neoclassicism was an interesting blend of Marshallian and Austrian economics. I am more eclectic than George, and certainly an institutionalist of the old school. In any event, I think he appreciated not only that I took the Chicago School seriously but that I lauded the old, Frank Knight-Henry Simons version of the School relative to his version.

In reading through Stigler's work, from his dissertation to his work on industrial organzation, political economy, and even his Memoirs of an Unregulated Economist one is struck by Stigler's wit, logical mind, and his ability with the art of criticism.  He is an equilibrium always theorist, but he often tells a background story of dynamic adjustment to changing circumstances, and error prone actors slouching their way toward that equilibrium.

Samuels saw this, I see this, but it often gets lost in discussions of his ideas.  Why would that be the case?  My working hypothesis is derived from Richard Wagner and relates to the issue of foreground and background in analysis.  Within Austrian economics (the work of Mises, Hayek, Rothbard and Kirzner), the processes of adjustment to change is in the foreground, but lurking in the background is the equilibrium state of affairs where the induced variables of the market are perfectl aligned with the underlying variables of tastes, technology and resource availability.  In the Chicago style price theory of Stigler and Becker, it is the opposite --- the equilibrium position is in the foreground, and lurking in the background is a story about entrepreneurial alertness to opportunities for mutually beneficial exchange, and the ceaseless processes of adjustment that are the compositive outcome of innumerable actions of diverse individuals within an economy.

This is why the work of James Buchanan on market theory and the price system, and not just his contributions to political economy and social philosophy, should be required reading for all young people interested in advancing the theory of the market process.  His work is in a significant way the perfect blend of Austrian economics and Chicago economics --- and provides the foundation for his unique contribution in developing Virginia Political Economy.

Discuss.

Comments

[Steve Miller]

In my view all good economists should have a little George Stigler on the shoulder who always asks why the observed state of affairs isn't already efficient. Think about Robert Frank's elk story with a Stigler on your shoulder!

[Roger Koppl]

Pete,

Seem right to me. Personally, it was Machlup who really clarified these issues. Equilibrium is in the model, not the world. Equilibrium is a tool of a mental experiment that isolates cause and effect. The initial equilibrium assures you that all the movements of your process story are caused only by the disturbing cause. The final equilibrium assures you that you have captured all the effects of that cause. The adjustment story is the meat of the sandwich.

[Roger Koppl]

. . . really clarified these issues *for me*

[Peter Boettke]

Roger,

Yes, but doesn't that intellectual discipline raise serious challenges to the Lachman type position and in fact favor Kirzner, especially his "Meaning of market process" presentation.

Machlup's "misplaced concreteness" is very important.

Pete

[NC]

Discuss? It's all in there.

The only thing I may add is that as the thoughts and writings of Warren Samuels and James Buchanan (and Stigler as per Samuels' cite in your post) illustrate, most interesting work may come from the blending of different traditions/schools of thought rather than from a single, inward-looking tradition/school.

[Roger Koppl]

Pete,

My solution to the "Lachmann problem" was Machlupian. I don't think Machlup does too much damage to the problem statement. But Machlup's perspective points to a solution that Lachmann did not really see. I don't think Machlup was quite there either, actually. Machlup was too sanquine, Lachmann too skeptical. The agent in our model trying to formulate an expectation has the same basic epistemic problem as the "observing" economist who is trying to predict the future. Once you make that move, if you are in possession of a Machlupian subjectivism with ideal types of varying degrees of anonymity, then you can offer the Machlupian solution to the Lachmann problem.

All of this discussion underlines the fact that Austrian economics is a form of neoclassical economics. Robbins' famous "Essay" is now generally thought of as a statement of "neoclassical" economics. When it first came out, however, it was recognized as "Austrian."

[Richard Ebeling]

A primary area in which Stigler was most certainly NOT "Austrian" was in his views on methodology of economics.

Here, he was strongly a positivist in his orientation.

The following is from his 1964 presidential address before the AEA:

"The age of quantification is now full upon us. We are now armed with a bulging arsenal of techniques of quantitative analysis, and of a power -- as compared to untrained common sense -- comparable to the displacement of archers by cannon . . .

"It is the basic article of work as well as of faith of the modern economist that at a minimum one must establish orders of magnitude, and preferably on should ascertain the actual shapes of economic functions with tolerable accuracy . . .

"It has been a slow development, contributed to by an early development in some natural sciences but mostly by the demonstrated successes of the [economic] pioneers of the quantitative method . . . It is a scientific revolution of the very first magnitude . . .

"I am convinced that economics is finally at the threshold of its golden age -- nay, we already have one foot through the door . . . This is prophecy, not preaching."

(From: George J. Stigler, 'The Economist and the State,' in "The Citizen and the State" [Chicago: University of Chicago Press, 1975] pp. 55-56)

I am aware that in his "Five Lectures on Economic Problems" (New York: Macmillan, 1950), Stigler has an often insightful chapter on the uses and limits of the mathematical method in economics. Yet, nonetheless, his AEA presidential address, coming a quarter of a century later, clearly shows his confidence in and central importance of economics increasingly becoming "quantitative science."

And, thus, strongly suggests that he suffered from the error of scientism in these wider issues of the methodology and method in economics.

Richard Ebeling

[Josh S]

The less central equilibrium is in your theory, the more likely it is to be a decent theory. Too much equilibrium is bad for the brain, because solutions of highly nonlinear systems often do not behave like perturbations of equilibria.

One reason Austrian econ has a natural appeal to me is that, since it focuses so much on the hierarchy of individual preference and information flows via the price mechanism, it doesn't seem to really need equilibrium. The way it's formulated, you don't need to imagine preferences or prices being static in order for the ideas to make sense. Quite to the contrary in fact--when you understand the price system as informational, it makes far more sense for prices to be continually moving, as they do in real life. Innovation and creative destruction don't need to be grafted on to the basic Austrian framework but rather fit naturally in the system.

A lot of it comes down to what you mean by "the economy." The Keynesian tends to mean GDP, aggregate employment, and some gross monetary measures, none of which are intrinsically dynamic concepts. The Austrian tends to mean a buzzing hive of individuals constantly looking for ways to satisfy their wants. There's more intrinsic dynamism there, which is why I think the basic Austrian outlook is more right.

[K Sralla]

Josh S and I see things much the same way. Excellent recent comments!

[Allan Walstad]

"the processes of adjustment to change...ceaseless processes of adjustment...."

Adjustment is part of the story, but not the main part. The main part is CREATING change through more-or-less revolutionary invention. No process of mere adjustment gets us from hunter-gatherer to where we are now. Adjustment by itself leads to equilibrium. Equilibrium is stagnation. Equilibrium might as well be socialism.

[Rafe Champion]

A nice call from Richard Ebeling as usual! Taking up the point from Josh and Allan, don't miss Buchanan and Vanberg, "The market as a creative process" originally 1991 and anthologized in the third edition of Hausman (ed) The Philosophy of Economics. Strange that David Harper (1996) and (2003) has not got more traction in the field, probably because he draws on Popper who has been consigned to oblivion in academia. Some of his books are kept in print by a lay readership. I had to travel to Columbia MO to find this piece by accident (thanks to Pete Klein). http://labsel.pesarosviluppo.it/Modules/ContentManagment/Uploaded/CMItemAttachments/How%20Entrepreneurs%20learn.pdf

[Jerry O'Driscoll]

I'm with Roger on Machlup and Lachmann.

But, please, Stigler was not any kind of Austrian economist. He hated Austrian economics.

[Peter Boettke]

Jerry,

If you look at Henry Manne's comments on a post a few weeks ago, he says all the Chicago and UCLA people did not distinguish AE from themselves, but instead saw themselves as working in a line of research that was consistent with Mises and Hayek. And that the growing sense of tension was more clash of personalities than substantive disagreement. I think your own account of UCLA confirms that picture.

Not saying there aren't significant differences, but there are also some similarities.

Pete

[Jim Rose]

Jerry,
Stigler would be turning in his grave at the thought of being a double-secret Austrian economist.

Alchian, who is alive and well as far as I know, has many Hayekian roots and certainly so in University Economics (1967) which he co-wrote with Allen. This textbook is timeless.

Alchian is rewriting Universal Economics (2005) for a paperback edition.

Alchian may join Coase in publishing a new book at the age of 100. Good on them. May we all.

The website for Alchian’s forthcoming paperback is http://web.me.com/donallisonjr/UniversalEconomics/web-content/index.html

[NC]

At a very early stage of his career, Stigler wrote "The Economics of Carl Menger"that was published in the Journal of Political Economy in 1937. This was his first major paper and it was reprinted in his "Production and Distribution Theories". And as Roll who reviewed this book in the American Economic Review wrote, "His treatment of the Austrians is particularly good, because it seems particularly sympathetic." Stigler may have come to "hate" Austrians later, but this does not seem to have been the case at the start of his career. (Of course, he did not like BB's theory of capital, like Menger.) But, this does not make him an "Austrian economist" as Samuels said.

[Troy Camplin]

Kirzner and Lachmann are both right -- the economy is simultaneously moving away from and toward equilibration. Between the two is the far-from-equilibrium state, which is inherently creative.

[Mario Rizzo]

I was a student of George Stigler. I took his courses, attended his workshop, he funded my fellowship, and was for a time the chair of my dissertation committee. I can say, without hesitation, that he had no sympathy for Austrian economics or for Hayek. The quotation from Samuels is totally wrong amd misconceived.

(Incidentally, despite his knowledge of my views, Stigler and I got along well. He liked people who would politely stand up to him but seemed to have an open mind.)

[Rafe Champion]

Mario, people might be interested in your joking exchange with Stigler after he won the Nobel.

"I sent him a letter congratulating him and said jokingly that I understood he received it in large part because of his essay praising Menger. He wrote back saying that I was incorrect. He received the prize for his essay criticizing Eugen von Boehm-Bawerk! (It should be noted that Menger himself did not like Boehm-Bawerk’s capital theory.)" http://www.csmonitor.com/Business/ThinkMarkets/2011/0224/Carl-Menger-still-woth-reading

I knew I saw a joke about that somewhere, thanks for google!

In that piece on Menger, you suggested that his Aristotelianism was a bit of a mess. I think that has been rehabilitated by Barry Smith who found in Menger an approach that is practically identical to the program developed by Popper in his debate with the positivists in physics.

http://www.criticalrationalism.net/2010/08/17/popper-smith-and-the-aristotelianaustrian-program/

[Mario Rizzo]

I once accused Stigler of dismissing all of non-positivist social science. He answered "Such as it may be!"

[Greg Ransom]

What Boettke calls Stigler's "background" Hayek called science & causal explanation -- and Friedman belittled as "scholastic" philosophy (although in fact it is at the center of his "Free to Choose" material).

What Boettke calls Stigler's "foreground" Hayek point out is mere tautology built out of "givens" knowable to one mind -- and Friedman identified this as "science" which he believed could be verified as "instrumentally true" and "genuine" just-like-real science "science" via "testing" and "prediction" using statistical data.

Indeed, Friedman believed that all conversations in political economy, e.g. over the validity of central planning, limited government, etc. could be brought to conclusion simply by bringing statistical "data" to bare, a position once shared for all intents and purposes by Paul Samuelson. (See Friedman's 1975 letter to Hayek on how only statistics could decide questions in political economy.)

Unless someone provides me evidence otherwise, I'd assert that Stigler & Friedman didn't understand how science worked, didn't understand how explanation worked, and, didn't understand how to construct a non-pathological articulation of the workings of explanation and causation in economic science.

[Greg Ransom]

What kind of treatment did Stigler give to Bohm-Bawerk's & Hayek's work on the economics of production goods in his dissertation for Frank Knight?

[Greg Ransom]

Mario,

What parts were it that Stigler didn't like about Austrian economics?

And what didn't he like about Hayek?