George Stigler Research Paper

At Chicago, Stigler was particularly influenced by Frank H. Knight, under whom he wrote his dissertation, Jacob Viner, who taught economic theory and international economics, John U. Nef, economic historian, and their younger colleague, Henry Simons, who became a close personal friend and whose A Positive Program for Laissez Faire greatly influenced many of Stigler’s contemporaries.

‘At least as important to me,’ Stigler writes (1988, pp. 23–5), ‘as the faculty were the remarkable students I met at Chicago,’ and goes on to list W. Allen Wallis, Milton Friedman, Kenneth Boulding, and Robert Shone from Britain, Sune Carlson from Sweden, Paul Samuelson, and Albert G. Hart—all of whom subsequently had distinguished careers.

In 1936, Stigler was appointed an assistant professor at Iowa State College (now University), and shortly thereafter was married to Margaret Mack. The Stiglers had three sons: Stephen, a professor of statistics at the University of Chicago, David, a lawyer in private practice, and Joseph, a businessman. Mrs. Stigler died in 1970, tragically without any advance warning. George never remarried.

In 1938, Stigler accepted an appointment at the University of Minnesota, going on leave in 1942 to work first at the National Bureau of Economic Research and then at the Statistical Research Group of Columbia University, where he joined a group directed by W. Allen Wallis that was engaged in war research on behalf of the armed services. When the war ended in 1945, George returned to the University of Minnesota, but remained only one year, leaving in 1946 to accept a professorship at Brown University, where he also remained only one year before moving to Columbia University in 1947 and then, in 1958, to the University of Chicago where he remained the rest of his life. At Chicago, he became an editor of the Journal of Political Economy, established the Indus- trial Organization Workshop, which achieved recognition as the key testing ground for contributions to the field of industrial organization, and in 1977 founded the Center for the Study of Economy and the State, serving as its director until his death in Chicago on December 1, 1991.

Stigler served as President of the American Economic Association in 1964, and of the History of Economics Society in 1977. He was elected to the National Academy of Sciences in 1975. He received the Alfred Nobel Memorial Prize in Economic Science in 1982 and the National Medal of Science in 1987.

Stigler’s governmental activities included: serving as a member of the Attorney General’s National Committee to Study the Antitrust Laws, 1954–5; Chairman, Federal Price Statistics Review Committee, 1960–1; member, Blue Ribbon Panel of the Department of Defense, 1969–70; Vice Chairman, Securities Investor Protection Corporation, 1970–3; Co-Chairman, Blue Ribbon Telecommunications Task Force, Illinois Commerce Commission. 1990–1.

2. Scientific Contributions

Stigler made important contributions to a wide range of economic areas: (a) history of thought, (b) price theory, (c) economics of information, (d) organization of industry, and (e) theory of economic regulation. In addition, (f ) he wrote many influential essays and reviews, and was a long-time editor.

2.1 Intellectual History

Intellectual history was Stigler’s first field of specialization and remained a continuing interest throughout his life. His doctoral dissertation, published as Production and Distribution Theories, was followed by a steady flow of perceptive, thoughtful, and beautifully written articles and books interpreting the contributions of his predecessors. Almost single-handedly, he kept the field alive, despite widespread lack of interest within the profession. More recently, he succeeded in bringing about a revival of interest in the field, which is currently flourishing. In the words of one of his students, ‘The versatility of his work in [the history of economic thought] has been matched by its depth and insight—and unmatched by any other historian of economic thought’ (Sowell 1987, p. 498; the rest of this paragraph draws from Sowell’s excellent summary of ‘Stigler as an Historian of Economic Thought’). In addition to analyzing the theories of particular economists, he examined particular concepts, such as perfect competition and utility, traced trends in the economics profession, considered the influence of economic theories on events and vice-versa, and the meaning of originality. Many of his important articles in this area are collected in a 1965 volume, Essays in the History of Economics.

The history of thought provided a rich seedbed for Stigler’s wide-ranging scientific work. Stigler regarded economic theory, in the words of Alfred Marshall, as ‘an engine for the discovery of concrete truth,’ not as a subject of interest in its own right, a branch of mathematics. Few economists have so consistently and successfully combined economic theory with empirical analysis, or ranged so widely.

2.2 Price Theory

Stigler’s first important publication after his doctoral thesis was a textbook, The Theory of Competitive Price, published in 1942, followed by four revised versions under the title The Theory of Price (1946, 1952, 1966, 1987). His textbook is unique among intermediate textbooks in price theory in its systematic linking of highly abstract theory to observable phenomena. It is unique also in its concise yet rigorous exposition.

One of his earliest papers (1939) broadened the concept of a short-run cost curve to accommodate the observation that firms faced with fluctuating demand could build flexibility into their fixed equipment at a cost of not achieving the lowest possible cost for a particular output.

Another early paper (1945) presented a formal analysis of determining the minimum cost of an adequate diet, supplemented by an empirical calculation of the minimum cost—one of the earliest applications of linear programming. ‘The procedure,’ he explained, ‘is experimental because there does not appear to be any direct method of finding the minimum of a linear function subject to linear conditions’ (p. 310). Two years later George Dantzig provided such a direct method, the simplex method, now widely used in many economic and industrial applications (1987).

Like these two examples, Stigler’s many later contributions to price theory were a by-product of seeking to understand puzzling real world phenomena, and are best discussed in that context.

2.3 Economics Of Information

‘The Economics of Information’ is the title of a seminal article, published in 1961. In his intellectual autobiography, Stigler termed it, ‘My most important contribution to economic theory’ (1988, pp. 79–80). The article begins, ‘one should hardly have to tell academicians that information is a valuable resource: knowledge is power. And yet it occupies a slum dwelling in the town of economics. Mostly it is ignored’ (Stigler 1961, p. 213).

This brief 12-page article is a splendid illustration of several of Stigler’s unique virtues: creativity, which he defined as consisting ‘of looking at familiar things or ideas in a new way’; the capacity to extract new insights about those seemingly familiar things; and the ability to state his main points in a provocative and eminently readable way.

Stigler illustrates the importance of subjecting information to economic analysis with two familiar observations—that there is generally no single ‘market price’ but a variety of prices that ‘various sellers (or buyers) quote at any time’ and that ‘advertising … is an enormously powerful instrument for the elimination of ignorance … and is normally ‘‘paid’’ for by the seller.’ In each case, he presents a sophisticated analysis that explains what determines the observed phenomena, an analysis that has empirical implications capable of being contradicted by observation. He concludes that ‘The identification of sellers and the discovery of their prices are only one sample of the vast role of the search for information in economic life’ (quotes from Stigler 1988, pp. 213, 220, 221, 224).

As occurred throughout his career in every field Stigler touched, this research paper was less important for the particular familiar observations that it analyzed than for giving birth to an essentially new area of study for economists. There followed an outpouring of further studies by him but even more by his students and others that have radically altered the accepted body of economic theory.

This aspect of his influence was stressed in the citation for his Nobel Prize, which noted that Stigler’s ‘studies of the forces which give rise to regulatory legislation have opened up a completely new area of economic research … Stigler is also recognized as the founder of ‘‘economics of information’’ and ‘‘economics of regulation,’’ and one of the pioneers of research in the intersection of economics and law.’

2.4 The Organization Of Industry

The Organization of Industry is the title of a book published in 1968. Its ‘main content,’ Stigler says in the preface, ‘is a reprinting of 17 articles I have written over the past two decades [including the ‘‘Economics of Information’’] in the area of industrial organization. Although the main topics in industrial organization are touched upon, the touch is often light. The ratio of hypotheses to reasonably persuasive confirmation is distressingly high in all of economic literature, and it must be my chief and meager defense that I am not the worst sinner in the congregation.’ Far from being the worst sinner, Stigler’s main contribution to the field, both in this book and later writing, was the use of empirical evidence to test hypotheses designed to explain features of industrial organization. Article after article combines subtle theoretical analysis with substantial nuggets of empirical evidence, presented so casually as to conceal the care with which the data were compiled and the effort that was expended to determine what data were both relevant and accessible. These articles record the shift in Stigler’s views on antitrust—from initial support of an activist antitrust policy to skepticism about even a minimalist policy.

One of the most influential of the articles in the book was on ‘The Economies of Scale’ in which he introduced ‘the survivor principle’ as a way to use market data to determine the efficient size of an enterprise in a particular industry. The approach has since become widely accepted.

In 1962, he published an article, in collaboration with Claire Friedland, his long-time associate, entitled ‘What Can Regulators Regulate? The Case of Electricity,’ which concluded that regulation of electric utilities had produced no significant effect on rates charged. Schmalensee (1987, p. 499) notes that ‘This essay stimulated a great deal of important empirical work on public regulation in the USA. It also posed a basic problem: if regulation does not generally achieve its stated objectives, why have so many agencies been established and kept in existence?’

2.5 Economic Regulation

‘The Theory of Economic Regulation’ (1971b) attempts to answer that question. It is one of a series of contributions by Stigler to what has since come to be called ‘public choice’ economics: the shift from viewing the political market as not susceptible to economic analysis, as one in which disinterested politicians and bureaucrats pursue the ‘public interest,’ to viewing it as one in which the participants are seeking, as in the economic market, to pursue their own interests, and hence subject to analysis with the usual tools of economics. The seminal work that deserves much of the credit for launching ‘public choice,’ The Calculus of Consent, by James Buchanan and Gordon Tullock (1962), appeared in the same year as the Stigler– Friedland article.

The ‘central thesis of the article,’ Stigler wrote, ‘is that, as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit.’ He notes that two ‘alternative views of the regulation of industry are widely held. The first is that regulation is instituted primarily for the protection and benefit of the public at large or some large subdivision of the public. The second view is essentially that the political process defies rational explanation.’ He then gives example after example to support his own thesis, which is, by now, the orthodox view in the profession, concluding: ‘The idealistic view of public regulation is deeply imbedded in professional economic thought. The fundamental vice of such a [view] is that it misdirects attention’—to preaching to the regulators rather than changing their incentives (quotes from Stigler 1971b, p. 3).

‘Smith’s Travels on the Ship of State’ (1971a), published in the same year as ‘The Theory of Economic Regulation,’ raises the same question on a broader scale. Smith gives self-interest pride of place in analyzing the economic market, but does not give it the same role in analyzing the political market. Smith’s failure to do so constitutes Stigler’s main—indeed, nearly only—criticism of the Wealth of Nations, that ‘stupendous palace erected upon the granite of self interest’ (Rosenberg 1993, p. 835). The same theme pervades many of Stigler’s later publications.

2.6 Essays, Editorship, And Reviews

In addition to his prolific academic publications, Stigler published a great many essays for a broader audience, many given as talks to a wide variety of audiences. The most important are collected in three volumes, The Intellectuals and the Marketplace (1963), The Citizen and the State (1975), and The Economist as Preacher (1982). ‘There he (the intelligent layman) will find a potpourri of wit and seriousness blended with a high writing style’ (Demsetz 1982, p. 656). ‘For 19 years Stigler was a very successful editor of the Journal of Political Economy. Under his leadership this journal solidified its high reputation among economists’ (Becker 1993, p. 765).

Stigler was also a prolific reviewer of books. His complete Bibliography: lists 73 reviews in 24 publications ranging from strictly professional, such as the Journal of Political Economy (22) and the American Economic Review (10) to the popular, such as the Wall Street Journal (5), and the New York Times (3), and dating from 1939 to 1989.

Stigler’s last book, his intellectual autobiography, published in 1988, Memoirs of an Unregulated Economist, is a delight to read. As I described it at the time: ‘Stigler’s memoirs are a gem: in style, in wit, and above all, in substance, they reflect accurately his own engaging personality and his extraordinarily diverse contributions to our science.’

3. Concluding Comments

An evaluation of Stigler’s scientific contribution would be incomplete without recognizing his role as a teacher and colleague. As teacher, he inspired his students by his own high standards, and instilled a respect for economics as a serious subject concerned with real problems. As one of his students, Thomas Sowell, wrote (1993, p. 788): ‘What Stigler really taught, whether the course was industrial organization or the history of economic thought, was intellectual integrity, analytical rigor, respect for evidence—and skepticism toward the fashions and enthusiasms that come and go.’

Stigler supervised many doctoral dissertations at both Columbia and the University of Chicago. According to Claire Friedland, Stigler’s associate for many years, he served on more than 40 thesis committees at Chicago, and perhaps 40 more at Columbia, and chaired a considerable fraction of those committees. His students come close to dominating the field of industrial organization.

Stigler was an extremely valuable colleague. He provided much of the energy and drive to the interaction among members of the Chicago economics department, business school, and law school that came to be known as ‘The Chicago School.’ His Workshop in Industrial Organization was an outgrowth of a law school seminar started by Aaron Director that Stigler cooperated in running when he came to Chicago. His relations were especially close with Aaron Director, Gary Becker, Richard Posner, Harold Demsetz, and myself, enhancing significantly the scientific productivity of all of us.

Bibliography:

1. Becker G S 1993 George Joseph Stigler, January 17, 1911– December 1, 1991. Journal of Political Economy 101: 761–7
2. Buchanan J M, Tullock G 1962 The Calculus of Consent. University of Michigan Press, Ann Arbor, MI
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7. Sowell T 1987 Stigler as an historian of economic thought. In: Eatwell J, Milgate M, Newman P (eds.) The New Palgrave: A Dictionary of Economics. Stockton Press, New York, Vol. 4, pp. 498–9
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