“Dosn’t thou ‘ear my ‘erses legs, as they canters awaay
Proputty, pioputty, proputty—that’s what I ‘ears ’em saay.”
—Alfred Tennyson

George Stigler won the Nobel Prize for Economics in 1982, the second member of the Chicago School to win that award in less than a decade (the other being Milton Friedman in 1976). These prizes are highly visible evidence of the renewed respectability of neoclassical, freemarket economics following the failures of central planning, regulation, redistribution, and Keynesian fiscal theory. Both Chicago winners are great communicators and gifted essayists. The central concern of these two collections of essays is the state of economics as a scholarly profession. While this may strike many as a concern guaranteed to ratify Carlyle’s description of economics as a “dismal science,” nothing could be farther from the truth. Stigler’s wit and style are as abundant as his knowledge.

The Intellectual and the Marketplace contains 18 essays constructed, as Stigler states in the preface, to “employ the weapon of mirth.” The essays are primarily directed at economics as practiced in academe. Whether it is the teaching of economics or economics as an academic career, there is certainly no lack of targets for satire in the Ivory Tower.

“The Conference Handbook” lists all-purpose introductory remarks and comments to be used when encountering the research of others. Stigler suggests that to save time, the cliches be standardized and referred to by number. Alternating #4, “Theorizing is not fruitful at this stage, we need a series of case studies” with #5, “Case studies are a clue, but no real progress can be made until a model of the process is constructed” would cover most situations, though the purist can simply dismiss matters with #1, “Adam Smith said that.” Unfortunately, too many people rely on a halfdozen references to arcane statistical methodologies to sound learned while rendering discussion sterile.

Stigler’s humor is merciless, whether the subject is “Stigler’s First Law of Sympathy” by which a casual attempt is made to quantify the intangible or “How to Pass Examinations in Economics” where true-false questions become worse than 50-50 propositions the more one thinks about them or “The High Cost of Model Changes” where he applies the Galbraithian criticism of the auto industry to publishing: he proposes that to lower costs to the public, only material written before 1900 be printed (reprinted) in sturdy bindings capable of enduring for generations. After all, he concludes, “most new knowledge is false; and the news got around in Athens.”

Not all the points behind the wry comments are critical. In “Meager Means and Noble Ends” he argues that since the basic economic assumption of scarcity applies to the supply of first-rate scholars, it is impossible for any university to excel in every field. Universities must specialize in a few areas and settle for adequacy in the rest. Students who want access to a wider variety of scholarship than any single school can offer should have greater freedom to combine programs from different colleges in pursuit of a degree.

The question of specialization figures in other essays. He is quite critical of the “encyclopedic texts” used in elementary economics courses. In two semesters everything from oligopoly theory to economic development, labor unions to fiscal policy, is thrown at students who have no prior background in the field. The result is usually confusion with too little time spent on any topic to gain an understanding of it. As anyone who has taught such courses knows, students respond to this barrage by memorizing enough material to get through each exam, then promptly forgetting it when the topic changes. Instead of giving students a sample of different areas, Stigler would concentrate on price theory (what real-world economists use 99 percent of the time): competition and monopoly, consumer choice and wage theory uncomplicated even by digressions into oligopoly or elasticity. The goal is for students to understand the logic of economic activity through repeated application of basic principles to a variety of cases.

The 18 essays in The Economist as Preacher are more serious in tone and display Stigler’s depth of scholarship in the history of economic ideas. In the title essay, he states that “the main task of economics has always been to explain real economic phenomena in general terms.” This invariably means dealing with public policy.

In talking to a non-economist, there is hardly anything in economics except policy for the economist to talk about. The layman is unequipped to discuss with an economist the problems that concern professional economists at any time. . . . The typical article in a professional journal is unrelated to public policy—and often apparently unrelated to this world.

In explaining economic phenomena, it is assumed that individuals will attempt to maximize their utility given the opportunities and constraints before them. Economists should only deal with “social policy and institutions, not individual behavior” to determine how changes in policy and institutional arrangements affect the aggregate result of individual actions. Economists are merely efficiency experts, “political arithmeticians.” Others can argue what should be done; economists will advise how to do it with the least cost in resources. Stigler is proud that economists in general do very little “preaching.”

This theme of positive economics is pursued in many of the essays. An important factor Stigler feels is often overlooked is the role of politics. Economic policy cannot be fruitfully debated in a vacuum. Economists who do so find that they have little influence on events. In theory, “we live in a world full of mistaken policies, but they are not mistaken for their supporters.” He rejects the notion that people will long support policies which produce effects opposite to what they want. Interest groups need economists to explain alternative results so that they can determine which policies to support.

Stigler is a loyal “friend of Adam Smith” but points out in three essays that Smith had a blind spot on politics. “Smith gave a larger role to emotion, prejudice and ignorance in political life than he ever allowed in ordinary economic affairs.” Smith blamed mercantilism on “national jealousy and animosity” defining power politics merely as emotions. Smith, of course, did not completely overlook politics. Stigler lists more than two dozen instances where Smith links legislation to particular interest groups. Smith was a harsh critic of the merchants and industrialists whom he thought controlled Parliament. However, Stigler believes that Smith did not fully adopt a view that “the procuring of favorable legislation is a commercial undertaking.”

The classical economists of the 19th century, despite their reputation for laissez faire, were not opposed to all government intervention in the economy. Smith supported the Navigation Acts and usury laws. J. S. Mill supported public education and called for limits on hours of work for children. Alfred Marshall endorsed public housing. Stigler concludes that “the same economist could and did repel the state with one hand and beckon it with the other.” To understand this, one first has to reject classical economic theory as an ideology. It is a tool, a means, not an end. An economist supports or opposes a particular policy on the basis of whether he believes it will produce a desired result.

Thus when Nassau Senior and Robert Torrens opposed limits on hours of work for women, it was not on grounds of natural rights, but because they thought such limits would reduce family income, raise production costs, and generate unemployment if British industry became less competitive in foreign trade. Stigler quotes Smith’s acknowledgment that certain regulations which he endorsed were violations of natural liberty, but that the benefits to the community outweighed this cost. However, such choices can only be ratified by empirical analysis. Stigler is concerned because public policy is not often subjected to such analysis. Debates are based on opinions and intentions, not evidence.

Stigler does not have a high opinion of those schools of thought which are based on ideology rather than performance. Marxism is an obvious example, and Stigler cites praise for the policies of Joseph Stalin found in the works by Ronald Meek and Oskar Lange to illustrate the absurd lengths to which ideological partisanship can go under the guise of economics. He also criticizes the Austrian school on the other end of the ideological spectrum.

The Austrian school could survive into the twentieth century only because its main bonds were opposition to historical and empirical research and loyalty to economic liberalism—the early agreement of its members on value theory did not persist, nor extend to capital theory or monetary theory.

Stigler spends a considerable amount of time on the history of economic thought and its role in the education of economists, yet he says little about the study of economic history. Virtually every economics department has courses in economic thought for its majors, but many neglect economic history. Economic history is the study of how economic systems have operated under a variety of conditions. It is the record of experience and the only real laboratory available. However, it often falls through the crack between two disciplines. Economics and business majors consider history to be boring and historians do not have sufficient economic training to feel comfortable with it. But does this not also reveal a preference for theory over practice among academic economists?

Do economic theories have much influence? In themselves, Stigler doubts it. Only if economic conditions or the political environment are able to create a demand for a theory will it prosper. There is a market for ideas to which scholars respond.

Ideas without demands are simply as hard to sell as other products without demands. If anyone . . . wishes to become an apostle of the single tax after the scripture of Henry George, for example, I recommend that he or she acquire and cherish a wealthy, indulgent spouse.

A wealthy spouse or patron may enable a scholar to pursue any idea (as Engel’s fortune sustained Marx), but if there are not wider communities of interest who believe that the policy implications of the idea will benefit them, it will be impossible to convince them to adopt it purely on its intellectual merits. One reason Stigler suggests for the popularity of central planning and regulation among academic economists is the role of government as both a patron and consumer of such ideas.

Keynes responded to the Great Depression with a theory which served to justify the kinds of policies most governments were already using to combat mass unemployment. The Corn Laws were not repealed in 1846 merely on the strength of Richard Cobden’s oratory (which had been resisted for quite some time) but because it was becoming apparent that England’s farms were incapable of feeding the nation. Free trade triumphed on the issue of food imports out of necessity but has yet to win universal approval because it is still based more on theory than careful empirical work. Its opponents can more easily produce data on plant closings, trade deficits, and unemployment to rally the public.

It is impossible to give more than a sample of the topics covered by the three-dozen essays in the two Stigler collections. Thought-provoking is the best description as Stigler discusses the uses of scientific biography, the obsession with equality, the theories of Richard Kuhn and Thomas Merton on the progress of knowledge, or the debate between the friends and enemies of the competitive economy. He even manages to make essays on the kinked oligopoly demand curve and on marginal utility theory interesting, an effort alone worthy of a Nobel Prize.

His adherence to the essential correctness of the free-market economy never wanes, nor does his wit.

Producers make profits by discovering more precisely what consumers want and producing it more cheaply. Some may entertain a tinge of doubt about this proposition, thanks to the energy and skill of Professor Galbraith, but even his large talents hardly raise a faint thought that I live in a house rather than a tent because of the comparative advertising outlays of the two industries.

By the same token, readers should of self-interest choose Stigler’s books over those of the competition. They are the superior output of a very productive mind.

 

[The Intellectual and the Marketplace, by George Stigler; Harvard University Press; Cambridge, MA]

[The Economist as Preacher and Other Essays, by George Stigler; University of Chicago Press; Chicago]