The great economist Armen Alchian turned 98 yesterday. Armen is the father of the UCLA tradition in economics. I had the great honor of having Armen on my dissertation committee and cannot imagine being prouder of my association with him. Armen’s contributions to economics as diverse as they are penetrating. Armen was one of the few economists capable of producing fundamental insights and advancements in macroeconomic and microeconomic theory, quantitative methods, as well as produce pathbreaking work in the economics of property rights and the theory of the firm.
Armen’s classic paper with Harold Demsetz (AER, 1972) coupled with Klein, Crawford and Alchian’s seminal analysis of vertical integration and the holdup problem (JLE, 1978) give him a prominent spot in the theory of the firm literature and transaction cost economics. Those papers rank 12th and 30th, respectively, in Kim et al‘s list of the top economics papers since 1970. Alchian’s other scholarly contributions are remarkable. Consider his collected works in two volumes. Perhaps most well known among them are neither of the two papers discussed above but “Uncertainty, Evolution and Economic Theory” (1950), in which Armen lays out the case for a survival principle to be applied to efficient individual behavior – notwithstanding heuristics and irrational motivations. Armen was ahead of his time in considering (along with the work of Becker and others at the time) rationality as an outcome of market institutions rather than merely an assumption. Alchian’s work on learning and the costs of production was equally pathbreaking (see Reliability of Progress Curves in Airframe Production, 1963).
Armen’s contributions to economics as a teacher were equally remarkable. Nobel Laureate William F. Sharpe captures some of this in his autobiographical exposition explaining Alchian’s influence on his own career:
Armen Alchian, a professor of economics, was my role model at UCLA. He taught his students to question everything; to always begin an analysis with first principles; to concentrate on essential elements and abstract from secondary ones; and to play devil’s advocate with one’s own ideas. In his classes we were able to watch a first-rate mind work on a host of fascinating problems. I have attempted to emulate his approach to research ever since. When I returned to pursue the PhD degree, I took a field in microeconomics with Armen and he also served as chairman of my dissertation committee.
Former FTC Chairman Timothy Muris and my GMU colleague characteristically cuts to the heart of matters:
Armen Alchian was unexcelled in teaching economics to lawyers. He often presented economics socratically – a technique familiar to lawyers. For years Armen was one of the most popular instructors in Henry Manne’s programs for teaching economics to lawyers. In short courses, he taught literally hundreds of federal judges and law professors.
TOTM readers will be familiar with my annual posts calling for a Nobel Prize for Alchian. Susan Woodward, a former co-author of Alchian, has authored a wonderful chapter on Alchian’s contributions to law and economics that will appear in the Cohen & Wright Pioneers of Law and Economics volume.
As Armen’s long-time collaborator William Allen put it in his own letter to the Nobel Committee on Armen’s behalf:
Economics is a broad discipline in methodology, as the Committee is fully aware, ranging from detailed historical, institutional, legalistic description to totally abstract, arcane theory. All such approaches, techniques, and emphases are appropriate. But there is much specialization among the members of the fraternity. And, increasingly, the profession has dealt in rigorous, elegant manipulation, even when the work is purportedly empirical—and even when the substantive results hardly warranted such virtuoso flair. Professor Alchian is a splendid technician, and he has contributed significantly and conspicuously to general “theory.” But, in contrast to many, he has always appreciated that the final payoff of Economics is elucidation of the real workings and phenomena of the world. I know of no one at any time who has had a finer sense of how to use economic analytics to explain the world. Sometimes the explanation requires involved, complex analysis, and Professor Alchian does not fear to use the tools which are required; what is uncommon is his lack of fear in using the MINIMUM tools which are required. In large part, his peculiar genius (the word is used advisedly) is to make extraordinarily effective use of elemental, and often elementary, techniques of analysis. And a host of people—many of whom are now in strategic positions in universities, in government, in the legal system, in the world of business and finance—have enormously benefited from the tutelage of Professor Alchian. … I present Armen Alchian as a giant—a giant who, because of his lack of pretension, is easily overlooked by laymen and even by some supposed professionals—who has greatly honored his profession and uniquely contributed to its usefulness. He would grace the distinguished fraternity of Nobel Laureates.
Well said. Here are some Alchian links for interested readers:
- A Biography and another profile hosted at David Levine’s website
- Uncertainty and Economic Evolution: Essays in Honor of Armen A. Alchian (edited by John R. Lott, Jr.)
- A 2000 Liberty Fund interview by Daniel K. Benjamin in the Intellectual Portrait series
- Alchian’s “Property Rights” entry to the Concise Enyclopedia of Economics
- A profile of Alchian in the UCLA Daily Bruin in 2006
- Fred McChesney’s entry on Alchian’s pathbreaking contributions to economic science is available here
- David Henderson’s entry on Alchian in the Concise Enyclopedia of Economics here.