George Joseph Stigler (1911-92)
Peter R. Senn
George Stigler’s 1982 Nobel Prize for Economics was awarded to him for his seminal studies of industrial structure, the functioning of markets and the causes and effects of public regulation.
He thought ‘much the most’ important contribution was his theoretical work on the economics of information (Stigler, 1986, p. 105). Gary S. Becker (b. 1930) (1993, p. 763) agreed but also felt that ‘Stigler’s main scientific contributions were to the history of economic thought and to microeconomics, with a special emphasis on industrial organization’ (ibid., p. 762). Ronald Harry Coase (b. 1910; Nobel Prize, 1991), in his sympathetic memoir, wrote that Stigler was ‘seen at his best’ in his studies of the history of economic thought (Coase, 1991, p. 472). He was also a pioneer in the development of ‘public choice economics’.In addition to his Nobel prize, Stigler received many other honours. Among them were the National Medal of Science, 1987, and the position of President of the American Economic Association, 1964, President of the Mont Pelerin Society (of which he was a founding member), 1976 and President of the History of Economics Society, 1977. He received eight honorary degrees and was elected to the American Philosophical Society in 1955 and to the National Academy of Sciences in 1975. None of these honours was specifically related to his contributions to the subdiscipline of law and economics.
There is no mention of law and economics in the 1993 issue of the Journal of Political Economy (Anon, 1993) dedicated to his memory. His complete bibliography by Vicky M. Longawa (1993) does not have any article titles with the phrase ‘law and economics’ in it.1 Indeed, the term ‘law’ appears in the titles of only three of his articles. This is despite the fact that he had many publications in legal and law and economics journals, listed at the end of this entry, including ‘The economies of scale’ in the first issue of the Journal of Law and Economics (1958).
Most of his publications about the law were on the subjects in the field that gave him one of his several claims to fame, economic concentration and public regulation. Much of what he published outside the legal and law and economics journals was closely related to the field as it now stands. Only one of the many obituaries, that by C.R. McCann, Jr. and Mark Perlman (1993, p. 996) mentions law and economics. They discuss Stigler’s contribution under the rubric ‘Public policy, political economy and regulation’ (ibid., pp. 1003ff.). By way of examples, Peter Passell (1991), in the New York Times, and Robert L. Barro, in the Wall Street Journal, have nothing to say of his contributions in law and economics.
Stigler wrote no important book on law and economics, yet his was a decisive influence in shaping the approach and many of the methods of the subdiscipline of law and economics during its early development. His innovative contributions were necessary for the advancement of the field. If Stigler had not made them, someone else would have had to. The way they were made has obscured their significance. To understand this, some history and description is required.
From the most ancient pre-scientific writings on economic subjects it is clear that people knew that laws affected the economy. From its very beginnings as a social science at the hands of Adam Smith, economists have always recognized that there were profound and close relationships between law and economics. By the middle of the 1800s, economists in Europe and the United States had investigated the effects of laws on many subjects: slavery, child labour, interest rates, the value of money - to mention but a few.
The older writings on law and economics were mostly confined to obvious situations where the law affected economic activity. A conspicuous characteristic of this literature is that it was almost always based on explicit value judgements about the social effects of the laws and their economic consequences.
Most of these writings concerned the effects of the law on economic development, with the role of the state in social welfare a powerful secondary theme. The economic analysis was weak compared with the strength of the calls for changes in the law based on moral fervour. Faith that changing the law would improve welfare was widespread.Before the late 1800s, the main tools for economic analysis were solid logic, sound judgement and common sense. There were relatively few specifically economic tools, such as diminishing returns and comparative cost. With the coming of Alfred Marshall’s analytic engine and the triumph of marginalist analysis, the range of problems amenable to economic analysis was expanded.
Around the middle of the 1930s, a group of economists began theoretical research that transformed microeconomics into the mathematical framework of today. About the same time, or shortly after, there was a rapid development of mathematical techniques useful for economic analysis. The changes that followed brought greater precision and the ability to deal with a wider range of economic phenomena. It also meant results that were usually more abstract and less representative of the social world. Older economic analysis was closely tied to the circumstances of the problems with which it dealt.
From its early beginnings as a distinctive subdiscipline in the late 1950s, to the developed and expanding field of the mid-1990s, analysis in law and economics came to rely on a number of basic concepts and tools. The most important and distinctive of these are transaction costs; some hypotheses about maximization, for example of wealth, income or health; concepts of ownership, such as property rights and the optimal division of these; consideration of risk and uncertainty; and the effects of legal and economic changes. These are used within the framework of microeconomics which rests upon such ideas as scarcity, the valuation of alternatives and opportunity costs.
The main methods of law and economics are quantitative and empirical.
An important methodological requirement is that results should be testable by means of falsification. Predictions should be verifiable on the basis of empirical evidence. A hallmark of the subdiscipline is the application of economic theory, mostly microeconomic, to subjects that now encompass the entire legal system. The scope of economics is virtually coextensive with that of the law. Public choice economics makes government one of the subjects of economics. Never abandoned was the faith that changing the law, by adding new ones, or eliminating or adjusting old ones, could improve social welfare.The subdiscipline of law and economics can be seen as having two, often overlapping, approaches. One is in the application of economic analysis to the workings of the legal system. The other is the study of the way the legal system influences the performance of the economic system. With this picture of the field, it is now possible to get some idea of Stigler’s influence on both approaches during its formation. He drew attention to important costs that had not been fully recognized - the costs of obtaining information are an important component of transaction costs.
Stigler was a total empiricist in the sense that he had a passion for measurement coupled with the belief that both theory and practice had to have verifiable evidence of their effects. An empirical orientation and commitment to quantitative evidence for the testing of hypotheses were outstanding characteristics of his work. Both of these characteristics are now firmly entrenched in the field of law and economics. Stigler’s influence was very important in establishing them as standards for the field. Today there are few journals that would accept an article without a falsifiable hypothesis based on an empirical foundation.
Law and economics owes another of its characteristics to Stigler. Work in the field often avoids the complexities of the interdependence of the parts of the legal system. In this it follows Stigler’s treatment of the oligopoly problem.
It often assumes that the actors on the legal scene - legislators, judges, lawyers, regulators and policemen - will solve the details of their problem because it is in their interests to do so. This was a forerunner of the ‘efficiency’ assumption, now a common one.Stigler’s influence was important in establishing the necessity for a strong foundation in microeconomics as a requirement for the development of work in all the fields in which he was interested. The necessity for a solid microeconomic foundation is now recognized widely in studies of law and economics.
Another of his contributions stemmed from the way he changed how economists analyse governmental regulations. His work in this field opened new vistas for intellectual inquiry. Government regulation begins with laws. The questions that Stigler posed about the way regulations actually worked, and the technical sophistication with which he answered them, were unprecedented.
Stigler changed the way economists looked at the role of government. For a long time, most economists thought that the primary economic role of government was to correct private market failures. Stigler showed that other things were going on and ended the tendency of economists to accept conclusions about the role of government without empirical verification. It was a short step from expanding these ideas about regulation to the entire field of law. He extended the economists’ rational behaviour model to regulation. He argued that political behaviour was rational and needed more sound analysis: ‘The failure to analyze the political process - to leave it as a curious mixture of benevolent public interest and unintentional blunders - is most unsatisfactory’ (1981, p. 9). There is now a large body of literature based on the assumption of rationality for subjects far different from those of utilities which were his early preoccupation.
Stigler insisted that sound theory had to generate empirically refutable implications if it was to be taken seriously.
Work that did not meet these specifications he immediately exposed and sometimes ridiculed. Along with his colleagues at the University of Chicago (hereafter Chicago), he set new standards of analytical rigour for the profession. Not quantifiable, but a requirement if a scientific field is to advance, are scientific standards. These Stigler embodied and advanced. His work exemplified the standards of intellectual integrity, analytical rigour and a respect (perhaps ‘devotion’ is a better word) for evidence. Every topic he studied was subject to acute intellectual analysis. Stigler insisted upon, and his work also reflects, the practical uses of economics with empirical support for theory. He stood for the idea that, if economic theory is taken out of law and economics, you remove the skeleton which supports the rest.2Stigler was always guided by the idea that freedom - an important requirement for work in the social sciences - was the greatest good. Both his professional work and his activities that had political overtones were influenced by a commitment to a free society. His political views on government intervention were driven by factual investigations. He, like Milton Friedman (b. 1912, Nobel Prize 1976), was one of those rare specimens of economists in his understanding of the fundamental ideas of science.
Stigler began his autobiographical lecture: ‘It is a good rule that a scientist has only one chance to become successful in influencing his science, and that is when he influences his contemporaries’ (Stigler, 1986, p. 93). His personal life, a near-perfect example of his rule, casts some light on both his influence and his development. It gives clues to the answers to two questions: ‘By what means did Stigler affect the early development of law and economics?’ and ‘Why is there not more direct recognition of his contributions?’.3 How Stigler affected the early development of law and economics is explained by one of the ways he did it, through close personal association with those who were important in shaping the field. Why there is not more direct recognition of his contributions is directly related to this: many were made in face-to-face interactions.
His public fame came from the usual sources. He influenced his own students through ideas and personality and generations of others through his popular textbook. His colleagues were also primarily influenced by his personality and ideas. Prolific and high-quality writings, presence at professional meetings and editorial activities made him widely known and respected among economists. He edited the Journal of Political Economy for 19 years, beginning when he was 61 years old. He was an imposing, for some an awe-inspiring, figure, more than six feet tall. Quick and witty, he wrote with a rare grace.
His influence on law and economics had a somewhat more private and personal origin. It centred on Chicago, where many of the methods, analytical techniques and concepts important in the study of law and economics were developed. Stigler began his graduate studies at Chicago in 1933, at the age of 22, just at the exciting time when the modern transformation of economics was in its infancy. Important influences came from some of the most significant economic minds of the time. Among them were Frank Hyneman Knight (1885-1972), under whom he wrote his doctoral dissertation, Henry Calvert Simons (1899-1946), who was a close friend, and Jacob Viner (1892-1970). He received his doctorate from Chicago in 1938.
For most of his academic life he was closely associated with people who shaped the new field: Aaron Director (1901-2005), Coase and Friedman. Stigler and Friedman were friends from the time they were at Chicago in the mid-1930s. Stigler took a class in statistics from Director in the 1930s, but only became a close friend from the time of the first meeting of the Mont Pelerin Society, in 1946. Coase joined the faculty in 1964 and also became a close friend.
Stigler joined the Chicago faculty in 1958. The economics community was then in ‘a stage of high prosperity’. Indeed, an argument could be made, on the basis of Nobel prizes alone, that no other university had a comparable economics faculty during Stigler’s time. He acknowledged the importance of social relationships when he wrote that ‘it is difficult to do creative work if one is not in a congenial intellectual environment’ (Stigler, 1986, p. 101). He might have added that being well financed helped.
There are many testimonies to the importance of the stimulating and collegial environment the early workers found at Chicago. Both Coase and Stigler tell the story, in more than one place, of how the Chicago economists, including Friedman, met at the home of Aaron Director to hear Coase, whom they had invited to defend his work (Stigler, 1988, p. 75; Coase, 1996, p. 107; Kitch, 1983, p. 221). One outcome was Coase’s famous article on the problem of social cost - one of the most cited in the literature. Another was the convincing of a group of brilliant economists of the possibilities inherent in the new idea.
Director’s fame as one of the founders of law and economics was also a result of personal interaction. All of those around him recognized his brilliance, but he did not write. He left that to his colleagues and students. One consequence is that many of his ideas are found in the writings of others. An example, from probably hundreds, is Stigler’s article, ‘Director’s law of public income redistribution’ (1970). In 1981, many of the key figures in the early development of law and economics met in Los Angeles to pay tribute to Coase and Director as founders of the field. The transcript of that meeting was edited by Edmund W. Kitch. It is full of evidence of the force of the personal interactions, including the constant discussion and correction of ideas.
Kitch makes the point that innovation came from the fringe, not the mainstreams of economics and the law (Kitch, 1983, p. 233). Stigler was part of the mainstream in the fields of industrial organization, the functioning of markets, the causes and effects of public regulation, the economics of information and the history of economic thought. He was part of the fringe in his work on economics and the law. Stigler’s contributions were of a unique kind and made in a highly personal way. Both the contributions and the way they were made were shaped by circumstances at Chicago at the time.
Although many scientists are dogmatic - Stigler was fond of the quotation to the effect that progress does not happen until the old professors die off - he was not. This trait, along with his curiosity, undoubtedly affected both the range of his interests and his influence. He was always able to change his mind on the basis of evidence and logic, not a conspicuous characteristic of his, usually vocal and second rate, detractors. Two examples of change must suffice. In his Memoirs he tells how Coase changed his mind (Stigler, 1988, pp. 73ff.). The other example is his shift from an activist antitrust policy early in his career to a minimalist antitrust policy. In his early career he believed that regulated industries would and could avoid effective regulation. He later revised this as he became convinced that regulators and those in charge of antitrust enforcement used weak economic analyses and responded to political pressures which did not have the desired results of increasing competition. In short, they often captured the regulation process and used it for their own purposes.
Like his personality, much of what he wrote was provocative, in the sense that it forced people to think about what he said. His mordant wit made him difficult to like for those who did not know him well. Although often called ‘conservative’ by his enemies or those who did not understand him, he was really non-partisan. The political positions he took were derived from his approach to economics. Historians of economic thought are not always kind to those whose work gets integrated into a field. Sometimes, as in Stigler’s case, when influence comes the way it did, their work is virtually forgotten. When an approach and methods become part of the fabric of a discipline, the names of the pioneers are likely to be neglected.
Stigler was one of the great economists of his generation. He left his mark on everything he touched. The things he insisted upon, sound theory and logic and empirical verification for work on practical problems, are now some of the hallmarks of the modern study of law and economics. In many ways, each new application of law and economics is a tribute to the value of Stigler’s contributions.
When answers are found to the questions Stigler raised in his work on the history of economic thought about whether there are laws or regularities that shape the growth of knowledge itself, then it will be possible to put his contributions to the development of law and economics into a more precise framework. Until that time, the matter must be left with the recognition that his approach, the standards he represented, the methods he used and the subjects he chose to study are now firmly embodied in the field.
Notes
1. One of his most cited articles is not in the bibliography. ‘The scientific uses of scientific biography: with special reference to John Stuart Mill’ in The Economist as Preacher and Other Essays was reprinted. The note on the title page (p. 86) says that the source was James and John Stuart Mill: Papers of the Centenary Conference, ed. John M. Robson and Michael Laine (Toronto: University of Toronto Press, 1976).
2. It is interesting that some of the features of the study of law and economics are the basis for hostility in many welfare state countries. Some of the hostility stems from misunderstandings. Law and economics is not equivalent to microeconomic theory or private enterprise, nor is it against government intervention. Stigler’s approach was to use the best theory possible to find out, on an empirical basis, what the economic results of laws and regulations are. He felt that it was next to criminal for economists to advocate policies for which results were not obtainable or known.
3. Obvious explanations for the lack of direct recognition of his contributions to the early development of law and economics are that he made none, or those that he made were inconsequential. These can be dismissed in the light of the evidence.
Stigler’s publications in legal and law and economics journals
1948 ‘Review of Eugene V. Rostow’s book, A National Policy for the Oil Industry' Yale Law Journal.
1951 ‘Review of Richard B. Tennant’s book, The American Cigarette Industry", Yale Law Journal.
1955 ‘Mergers and preventative anti-trust policy’, University of Pennsylvania Law Review. 1958 ‘The economies of scale’, Journal of Law and Economics.
1961 ‘Private vice and public virtue’, Journal of Law and Economics.
1962 ‘What can regulators regulate? The case of electricity’ (with Claire Friedland), Journal
of Law and Economics.
1963 ‘United States v. Loew's Inc. A note on black-booking’, Supreme Court Review, 1963.
1965 ‘The dominant firm and the inverted umbrella’, Journal of Law and Economics.
1965 ‘The economic effects of the antitrust laws’, Journal of Law and Economics.
1967 ‘Comment’ (on ‘The application of an entropy theory of concentration to the Clayton Act’), Yale Law Journal.
1969 ‘Alfred Marshall’s lectures on progress and poverty’, Journal of Law and Economics.
1970 ‘Director’s law of public income redistribution’, Journal of Law and Economics.
1971 ‘The law and economics of public policy: a plea to scholars’, Journal ofLegal Studies. 1971 ‘Henry Calvert Simons’, Journal ofLaw and Economics.
1974 ‘Law enforcement, malfeasance and compensation of enforcers’ (with Gary S. Becker),
Journal of Legal Studies.
1975 ‘Determinants of participation in presidential elections: comment’, Journal of Law and
Economics.
1975 ‘The effects of economic policies on votes for the presidency: some evidence from
recent elections: comment’, Journal of Law and Economics.
1976 ‘The sizes of legislatures’, Journal of Legal Studies.
1978 ‘Wealth and possibly liberty’, Journal of Legal Studies.
1980 ‘An introduction to privacy in economics and politics’, Journal of Legal Studies.
1983 ‘The literature of economics: the case of Berle and Means’ (with Claire Friedland), Journal of Law and Economics.
1983 ‘What does an economist know?’, Journal of Legal Education.
1985 ‘The extent of the market’ (with Robert A. Sherwin), Journal of Law and Economics.
1985 ‘The origin of the Sherman Act’, Journal of Legal Studies.
1989 ‘Address’ (to the 65 Annual Meeting of the American Law Institute, 19 May), Proceedings.
1989 ‘Two notes on the Coase theorem’, Yale Law Journal.
1992 ‘Law or economics’, Journal of Law and Economics.
Full publication details for the items above can be found in the Longawa bibliography cited below.
References
Anon, (1993), ‘In Memoriam: George J. Stigler’, Journal of Political Economy, 101 (5), October, 759.
Barro, Robert L. (1991), ‘An unregulated economist’, Wall Street Journal, col. 3, p. 14, s. A, Monday, 9 December.
Becker, Gary S. (1993), ‘George Joseph Stigler: January 17, 1911-December 1, 1992’, Journal of Political Economy, 101 (5), October, 761-7.
Breit, William and Roger W. Spencer (eds) (1986), Lives of the Laureates: Seven Nobel Economists, Cambridge, MA: MIT Press.
Coase, Ronald (1991), ‘Stigler, George J.’, in Edward Shils (ed.) (1991), Remembering the University of Chicago: Teachers, Scientists and Scholars, Chicago: University of Chicago Press.
Coase, Ronald (1996), ‘Law and economics and A.W. Brian Simpson’, Journal of Legal Studies, 25 (1), January, 103-19.
Kitch, Edmund W. (ed.) (1983), ‘The fire of truth: a remembrance of law and economics at Chicago, 1923-1970’, Journal of Law and Economics. 26 (1), April, 163-234.
Longawa, Vicky M. (1993), ‘George J. Stigler: a bibliography’, Journal of Political Economy, 101 (5), October, 849-62.
McCann, C.R., Jr. and Mark Perlman (1993), ‘On thinking about George Stigler’, Economic Journal, 103 (419), July, 994-1014.
Passell, Peter (1991), ‘George Joseph Stigler dies at 80; Nobel prize winner in economics’, New York Times, col. 1, p. 12, s. B, Tuesday 3 December.
Stigler, George J. (1970), ‘Director’s law of public income redistribution’, Journal of Law and Economics, 13 (1), April, 1-10.
Stigler, George J. (1976), ‘The scientific uses of scientific biography: with special reference to John Stuart Mill’; reprinted in The Economist as Preacher and Other Essays, Chicago: University of Chicago Press/Oxford: Blackwell, 1982.
Stigler, George J. (1981), ‘The economist as preacher’; reprinted in The Economist as Preacher and Other Essays, Chicago: University of Chicago Press/Oxford: Blackwell, 1982.
Stigler, George J. (1982), The Economist as Preacher and Other Essays, Chicago: University of Chicago Press/Oxford: Blackwell.
Stigler, George J. (1986), ‘George J. Stigler’, in William Breit and Roger W. Spencer (eds) (1986), Lives of the Laureates: Seven Nobel Economists, Cambridge, MA: MIT Press.
Stigler, George J. (1988), Memoirs of an Unregulated Economist, New York: Basic Books.
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