The Chicago School of Anti-Monopolistic Competition: Stigler’s Scorched Earth Campaign Against Chamberlin

Comparing George Stigler to a Shakespeare Sonnet (Number 94) may seem like a reach, yet the use and abuse of powers of persuasion does bring to mind the following:

They that have power to hurt and will do none,

That do not do the thing they most do show,

That do not do the thing they most do show,

That do not do the thing they most do show,

Who, moving others, are themselves as stone,

Unmoved, cold, and to temptation slow:

They rightly do inherit heaven’s graces

And husband nature’s riches from expense;

They are the lords and owners of their faces,

Others but stewards of their excellence.

The summer’s flower is to the summer sweet

Though to itself it only live and die,

But if that flower with base infection meet,

The basest weed outbraves his dignity:

For sweetest things turn sourest by their deeds;

Lilies that fester smell far worse than weeds.

The title derives from the label with which Chamberlin stigmatized his opponents. This was not, although Stigler claims it to be the case, the first written example of the label ‘The Chicago School’ to denote a particular approach to economics. As Stigler himself explains:

Edward H. Chamberlin had written a chapter on the Chicago School in his Toward a More General Theory of Value in 1957, the earliest such explicit essay I have found. He found the school to be distinguished “by the zeal with which the theory of monopolistic competition has been attacked.” And called it the Chicago School of Anti-Monopolistic Competition. What was a minor recreational activity for us was the raison d’être to him! (Stigler 1988:150)

But as Chamberlin points out in that same quoted article, Stigler’s erstwhile classmate Martin Bronfenbrenner had used the same terminology earlier. (Ironically the school is characterized by Bronfenbrenner (1950:487) as being concerned with income redistribution via progressive taxation policies. Stigler would soon come to entirely reject this Henry Simons-inspired objective.)

The so-called Chicago School of economic policy, whose intellectual parent is Frank H. Knight, but whose best-known publicist is Henry C. Simons, author of Economic policy for a Free Society, believes these optimum conditions would in fact be realized quickly and painlessly in a free economy despite the complications raised by economic progress and the possible multiplicity or instability of equilibrium conditions, if three conditions were satisfied. (Bronfenbrenner 1950:487)

One wonders whether Stigler is being at least a bit deliberately disingenuous here in imputing an absence of a ‘Chicago School’ formulation within the profession prior to Chamberlin’s own specification. Suspicions regarding his intentions arise given his mastery over and finesse in using a wide range of rhetorical devices. Certainly Bronfenbrenner appears to be using terminology in common coinage at the time that he writes, though notice the classical liberal focus on policy as the definitive identity marker, rather than theory. To claim that Stigler was distinguishing two separate Chicago Schools (pre- and post-war) has limited credibility, since in 1957 such a distinction would have clearly been an anachronism. The post-war school was in its infancy with key players such as George Stigler still missing. Specifying two distinguishable schools at this moment would suffer from the same logical failing as labelling the recent conflict “World War I” in 1925. Moreover, while it is clear that Chamberlin was a classic hedgehog, more than self-obsessed with his one major idea, Stigler’s response to the theory should not be reduced to the status of some mild diversion, a simple game of noughts and crosses worth only passing attention. It is after all Chamberlin alone who became the target of a separate lecture during the series presented at the London School of Economics with Joan Robinson reduced to a bit player.

Of Mrs. Robinson’s work I need say little. It is amply clear, on a re-reading at this distant date, that her message was in no sense revolutionary, although at times her language was rebellious. … Her volume marks no break with the tradition of neo-classical economics; indeed it contains, I think, too uncritical an acceptance of the substantive content of orthodoxy. … Professor Chamberlin was a true revolutionary. (Stigler 1949a: 12–13)

He died in harness. The idea of George Stigler imitating his erstwhile teacher, Lloyd Mints, and shifting to a life of cabinet making (a skill Stigler happened to possess) for his last three decades remains inconceivable. To an alarming degree, what George Stigler was, was what he did. (Though he also managed to remain an unswerving family man.) Perhaps this is not remarkable amongst the very best academics. (Samuelson continued to occupy an office at MIT in his nineties.) Stigler could no more operate without the constant intellectual stimulation of ideas, than an opium smoker could remain at ease deprived of his pipe.

George was still a young man intellectually when he died at 81. I think he would have changed his views still further, unlike a lot of people who reach that age. They stop thinking. George always said to me, the reason he didn’t retire, and stayed around the University of Chicago was he didn’t want to become ossified. He wanted to be exposed to new ideas and to changes. (Conversation with Gary Becker, October 1997)

It is interesting that three of Stigler’s colleagues with vaguely similar backgrounds (East Coast/Jewish) all reacted in a similar way to his public persona.

But his public persona was this very strong Protestant father figure and you just don’t cross that father figure. (Conversation with Sam Peltzman, October 1997)

Claire Friedland and Sherwin Rosen expressed similar sentiments (conversations, October 1997).

Keep in mind that Stigler’s supervisor and idol while a graduate student at Chicago was Frank Knight, certainly no shrinking violet. Knight may provide an extreme example, but Chicago from its inception cultivated a ‘no holds barred’ academic approach.

It’s a sort of a “Marines” approach to Economics. Stigler was certainly one of the leaders of the Chicago School. I think that’s what distinguished the Chicago approach. We take what we do very seriously. And we take it as far as you can. You reinterpret the world. Becker has made a tremendous career for himself out of doing that with great success. That’s very much in the spirit of what’s been going on here. I think, to some extent, George was a product of that environment when he was a student here. (Conversation with Sherwin Rosen, October 1997)

The Industrial Organization workshop he founded at Chicago could best be described as a bull pit where the weak were customarily gored.

He had this workshop. People had their knives out. I participated in some of them. I think people were using George’s example. No prisoners were taken in other words. [laughs] And everybody just jumped in. It was just chaos those workshops. (Conversation with Sherwin Rosen, October 1997)

Growing up in Renton, Washington, the only son of immigrant parents, cultivated in Stigler a sense of being an outsider, a perspective that seemed impossible to eradicate despite a career full of accomplishments, awards and recognition. Perhaps that was one of the reasons that the University of Chicago proved capable of providing him with a congenial home from the days of his graduate studies. He seemed uncomfortable elsewhere. His stay at Columbia resembled more of a willed exile than a desired destination. From its inception, the economics department at Chicago strove to develop a critical, non-conformist view that seemed destined to clash with the ideas honored at the more establishment outposts of the East Coast.

It is perhaps a common American fault to view the world through a very provincial lens. Stigler’s studies and focus remained ineradicably fixed on US data, problems and issues. In his defense, however, one might add that this is not a startling trait among American economists.

Another story about George, I’ve always found it to be a problem, which is how incredibly American he was. I used to be shepherding these Latinos through and here they would come to some question in his Price Theory examination. “Explain something, something about the Dred Scott Decision” … But anyway you might want to just bear in the back of your mind, as you read through George Stigler’s work, how much did he cast his eyes beyond the borders? How heavily was economic thinking influenced by the things that happened beyond the borders? My hunch is relatively little. He was very much more American-oriented than the average economist. (Conversation with Arnold Harberger, October 1997)

The Japanese make a distinction between honne (inside face) and tatamae (outside face). In other words, you need to be careful when drawing conclusions based on superficial appearances. There is a tendency to simply see an article as unrelated to an author’s other work. In Stigler’s case, this would be a major mistake. He had a clear, connected vision and his work tended to fit together. Of course human emotions and desires muddle what anyone produces or writes. And in a certain sense, the side of Stigler that was fiercely private makes many of his objectives less than transparent.

So, the question really is, how does the one George transfuse into the other, or how do these two Georges live side-by-side in the same head. That is a puzzle that I’ve always had. (Conversation with Arnold Harberger, October 1997)

Attempting to investigate Stigler’s motives flies directly in the face of a key tenet of the Chicago approach to economics which he not only subscribed to, but also helped fashion. In this analysis, what is fundamental, the only element that in fact counts, is what can be measured. Given this methodology, economists are limited to observing what people do rather than what they say.

So, I think the emphasis on behavior, about what people actually do is the only thing you’ve got. Are people irrational? Probably, sometimes. But I don’t know if that’s going to concern me when I think about what happens when OPEC raised the price of oil. You can ask whether people really have feelings about the Arabs. You can worry about what these are. But, I don’t see where that’s going to help you out. (Conversation with Sherwin Rosen, October 1997)

For a few of these, see Stigler (1959, 1960, 1965, 1969, 1975). A working title of a review of Galbraith’s New Industrial State (1967) displays Stigler’s patent dismissive style of framing (and defaming) in his description of the author as “Galbraith—Puritan of the Left” (Box 23, Galbraith Folder—Stigler Archives, University of Chicago Library).

Stigler recognized that most economists are “more impatient to do good and probably … not sanguine about our ability to engage usefully in full time scientific work” (Stigler 1976:354). Though acknowledging the egotistical pleasure of pursuing the applause from one’s own peers, he was far from optimistic about the probable outcome flowing from such ambitions.

Nor, perhaps, are we wholly satisfied with what Samuelson calls our own applause—indeed we cannot be confident that this applause is unaffected by our policy positions. I concede to Samuelson, nevertheless that to a scientist educated hands make more melodious applause than ignorant hands, but too often the educated hands seem to be sat upon by educated asses. (Stigler 1976:354)

The obvious problem with wanting to define an economist as a scientist (rather than a commonplace engineer) caused Stigler to indulge in a bit of sleight of hand. The scientific economist would somehow discover the capability of pulling himself (or given the gender divide, occasionally herself) out of the self-interested, rent-seeking milieu in which economic agents operated. By some version of Gatsby-like re-creation, the economist, as scientist, would move perceptibly closer to the realm usually afforded to angels. This would not only free him of self-interest but of influences due to ideology or the specifics of time and place.

The dominant influence upon the working range of economic theorists is the set of internal values and pressures of the discipline. The subjects for study are posed by the unfolding course of scientific developments. (Stigler 1960:40)

I gradually realized, I don’t know when I realized, that he was one of the most fascinating examples … of how economists act, even though they say that economics ought to be value free (and it is sometimes value free). I find it extremely difficult to resist reading a lot of economic theory, politically. (Conversation with Mark Blaug, April 1998)

This belief epitomized his well-known difference with his close friend and colleague Milton Friedman. Shaping public views remained an important goal for the irrepressible Friedman. Stigler insisted that preaching when performed appropriately reached no further than the boundaries defined by the economics profession. Whether he really craved public anonymity, like Friedman’s brother-in-law, Aaron Director, is a much more subtle issue to determine.

On one other personal occasion I remember something related to this question coming up. I was at lunch with Milton Friedman and George Stigler at the Quadrangle Club in Chicago and I was then a very young man. And somehow the younger you are, the more evangelistic you are. So I would debate and argue with people about policy issues and as I recall Milton asked me if I would be interested in going on a tour of some campuses, I think in the Southern United States, to talk on these policy issues. Milton said, “What have you got to lose by doing this?” And George said at the table to me, “Only your anonymity.” So, on that occasion, I think he was hinting that maybe I ought to stick to my scientific work. (Conversation with Harold Demsetz, September 1997)

This took the more extreme form of arguing that there is no direct role for the economist in the formation of public policy. His belief in the efficiency of the political marketplace (which followed logically from employing consumer sovereignty as one’s starting point) and the parallel assumed rationality of individual voters allowed no other conclusion to be reached.

How to reconcile consumer sovereignty, or voter sovereignty, with his previous notions of inefficient government? Can we say this is illegitimate if the public wants it? Is that consistent with our extreme position on consumer sovereignty which is that no matter what horrible things the public wants, as free-market economists we can never question it. That’s certainly one of the basic principles of neoclassical economics. Consumer sovereignty is both the end of the story and the beginning. And we don’t argue with the consumer, no matter how self-destructive these demands are or how inappropriate. Anyway, if you want consumers to be free to choose in the marketplace, how can we argue with them in the political arena where, in a sense, they are acting as consumers too? Well, in his last years he was writing frequently about this. (Conversation with Claire Friedland, October 1997)

As previously indicated, for George Stigler, progress in economic thought was almost entirely internally driven rather than a reflection of outside events. In the same sense, ideological considerations could have little impact on economic research or the consensus reached by the profession. This approach would inevitably cause Stigler to be blind to his own ideological biases. Readers should remember that he was born into an age where American men were not given to Hamlet-like introspection. They acted rather than reflected. In Stigler we find a seemingly non-tragic Lear rather than an internally racked Macbeth. “Yet he hath but slenderly known himself,” (Shakespeare 1958:45). If carefully examined, the issue of scholarly motivation is actually far from clear cut. Certainly the 1930s were driven by a number of internal debates (including those centred on increasing returns) but it would take a daring leap of faith to claim that the work done did not reflect the unavoidable environment created by the Great Depression. Logically, as well as practically, it is impossible to completely escape one’s time and place.

Beginning with the 1930s, there was a period of very active work on economic theory, macro and micro, in both areas. What became prestigious was work in a kind of economic theory, namely pure and largely mathematical oriented. And it did not really have any considerable history. Now that period of change and development, that excitement, has disappeared. We are now in, what I would say is, a relatively flat period of additions to the structure. (Conversation with Milton Friedman, August 1997)

This nearly tongue-in-cheek remark tends to beg the question more than a sliver. By definition, any economist who would defend such measures is not a good economist. Therefore, not a single good economist would support such policies. Stigler may be correct here, but would know all too well that you need to define criteria first before placing someone in the category of “good economist”. Only then can such a statement be endowed with any redeeming value apart from the residual enjoyment gained from reading a well-fashioned dismissive and typically acerbic remark.

Stigler here is specifically focused on policy alone rather than theoretical matters. In the realm of pure theory (where economics is equated to science from Stigler’s viewpoint) self-interest doesn’t enter (or perhaps does so much more subtly).

Such scientific information is value-free in the strictest sense: no matter what one seeks, he will achieve it more efficiently the better his knowledge of the relationship between action and consequences. (Stigler 1976a:350)

Notice how Stigler here tries to resolve the tension between the necessities of a self-interested academic and the objectivity he wants to attribute to the scientist. The pure researcher gains satisfaction and a sense of accomplishment (of doing good) from the process itself without widespread recognition.

I have already argued that within narrow limits these goals are compatible: the society wants and will benefit from increments of the objective knowledge of economic life. A few men actually adhere only to this type of work, eschewing all pronouncements on matters of current policy. … These near-saints of scholarship are wholly unknown to the public, and not always well-known within the profession. Frank Knight was an approximate illustration of this rare type. (Stigler 1976a: 353–354)

It is not clear that Stigler ever actually resolved this issue to his own personal satisfaction. He persistently claimed to be unmoved by the applause of the masses, yet at times seemed resentful of those who did gain public acclaim. So it is not clear that the acknowledgement of his peers was ultimately sufficient.

Perhaps that is what partly formed a bond between George Stigler and John Kenneth Galbraith. Stigler couldn’t resist twitting Galbraith as an attention-seeking populist in articles and reviews (1954, 1967, 1977). In reply, Galbraith, no rank amateur when it came to the caustic dismissal, fired back and possibly hit his target dead on.

I am reluctant to reply to Professor Stigler for I could seem to be urging the claims of my book against those of a very great classic. And I could conceivably be missing the deeper cause of Professor Stigler’s sorrow which may be not that so many read Galbraith and so few read Smith but that hardly anyone reads Stigler at all. (Galbraith quoted in Hession 1972: 89)

Predictability, operating at such a high level of degree, inevitably raises the question of ideology, beliefs held so firmly (whether consciously or not) that all evidence seemingly confirms these unassailable truths.

It seems to me that when you get to his [Stigler’s] later work, say with Becker, you know what the conclusion is going to be before you start the argument. In a sense, you’re assembling arguments to support a conclusion. I mean, that may be unkind and untrue but it’s an impression. And, it’s even more so in the work of Richard Posner. Have you read any of that? It seems to me that the plot is always the same, and the characters stay fixed. It’s the same thing, to some extent, one might say about Becker. But his work is so very good. And you learn so much from studying it, that that element in it is not a problem. (Conversation with Ronald Coase, October 1997)

Recent psychological research indicates that people tend to be significantly influenced by the strong views of others. Thus, unequivocally worded comments reacting to news articles or opinion pieces can steer subsequent debate in a chosen direction. Certainly preconceptions formed by reading reviews or listening to friends can shade the way in which films are viewed or restaurants experienced. Stigler would often employ dismissive, humorous or even downright cruel comments in an attempt to steer debate.

John R. Commons wrote on the legal foundations of capitalism in a book that I believe is impossible to read. Clarence Ayers started a school in Texas that never got beyond the state lines. (Stigler speaking in Kitch 1983:170)

Almost like a magician who spurns discussing the tools of his trade, Stigler rejected any analysis of economic rhetoric as essentially empty and unproductive. Although he believed fervently in the importance of marketing ideas, the sort of enterprise delineated by McCloskey was in his eyes a sideshow without any redeeming value.

To date, the only clear consequence of the study of rhetoric for economics appears to be conferences and volumes such as these. (Stigler 1989:840)

Stigler openly admitted that such a “no quarter given” strategy was simply a basic requirement for gaining acceptance or at least recognition of one’s argument. However this insistence on taking a hard-nosed approach fails to account for his almost instinctual strategy of attempting to immolate key positions which countered or opposed his deeply held views.

The tenacity with which people hold the ideas in which they have a proprietary interest is not due simply to vanity. A scholar is an evangelist seeking to convert his learned brethren to the new enlightenment he is preaching. New ideas encounter formidable obstacles, the foremost being indifference, but also the new ideas will often conflict with old ideas or clash with apparently contradictory experience. A new idea proposed in a halfhearted and casual way is almost certainly consigned to oblivion. A scholar who cannot convince himself that what he proposes is certainly true and possibly important is asking a good deal of others to generate enthusiasm for the idea. (Stigler 1988: 211)

Paul Sweezy never responded to Stigler’s attacks, perhaps the most irritating reaction possible. However Stigler’s reconceptualization or version of the kinked demand curve certainly determined the standard textbook depiction (see Freedman 1995). Stigler’s continuing annoyance, however, most probably arose from the model’s zombie-like persistence even after undergoing what he deemed to be an effective immolation.

I haven’t read it. I don’t think I ever did. I don’t think I was aware of it actually. I didn’t pay much attention to Stigler in those days. I was probably in one of my ultra-left moods, or something like that. (Conversation with Paul Sweezy, November 1997)

Viewed from a certain standpoint, the struggle engaged in by George Stigler is not unlike the Christian Church in its relentless crusades to eliminate heretics and other idolaters.

The philosopher, who considered the system of polytheism as a composition of human fraud and error, could disguise a smile of contempt under the mask of devotion, without apprehending that either the mockery or the compliance would expose him to the resentment of any invisible, or, as he conceived them, imaginary powers. But the established religions of Paganism were seen by the primitive Christians in a much more odious and formidable light. It was the universal sentiment both of the church and of heretics, that the daemons were the authors, the patrons, and the objects of idolatry. Those rebellious spirits, who had been degraded from the rank of angels, and cast down into the infernal pit, were still permitted to roam upon earth, to torment the bodies and to seduce the minds of sinful men. The daemons soon discovered and abused the natural propensity of the human heart towards devotion and, artfully withdrawing the adoration of mankind from their Creator, they usurped the place and honours of the Supreme Deity. By the success of their malicious contrivances, they at once gratified their own vanity and revenge, and obtained the only comfort of which they were yet susceptible, the hope of involving the human species in the participation of their guilt and misery. (Gibbon 2009:389)

In his more seminal articles, George Stigler had an almost prescient talent for asking the right questions even though simultaneously maintaining a persistently bad habit of knowing the answers to those questions in advance. In his attacks, the issue isn’t whether the objects of his wrath were flawed (more often than not, they were) but whether his methods were productive or not.

Both turned their dissertations under Young into seminal works. Knight’s work became Risk, Uncertainty and Profit (1921) while Chamberlin converted his into the first edition of Monopolistic Competition (1933). Chamberlin was a student of Knight when both were at the University of Iowa. Such an incestuous mingling of relationships is bound to make pinpointing the exact origin of specific ideas difficult, especially since Young, though very highly regarded, published sparsely, preferring to share his ideas generously with students and colleagues. Unfortunately, populating an academic environment with such idiosyncratic players almost inevitably yields a veritable hothouse of malicious rumor-mongering, envy and disdain.

And in fact it was always rumored that what was good in Risk, Uncertainty and Profit came from Allyn Young, who never published much. The rumor about Chamberlin’s economics was the same. … I think this is not true in either case. (Conversation with Paul Samuelson, November 1997)

Though self-defined as staunch defenders of Marshall’s heritage, their preciseness in the application of the perfect competition model missed the very essence of Marshall’s approach. His method grounded in practical reality was a deliberate fudge, an attempt to stretch static techniques to cover dynamic analysis. Such an approach provided guideposts for economic thinking rather than any precise mechanism. In this regard at least, Marshall maintained the core principles of the earlier classical liberal economists (Mill being the clearest example). The earlier Chicago approach, as exemplified by such staff members as Viner, Simons or Knight, tended to follow Marshall in spirit rather than opt for a more simple-minded, literal or fundamentalist reading. However, Friedman and Stigler seemed determined to equate Marshall with a strict employment of partial equilibrium analysis. The more elusive or slippery elements would have clashed with their dogged insistence on following a self-identified, scientific approach. This denoted a possible confusion, allowing precision to become muddled with insight.

The Statical theory of equilibrium is only an introduction to economic studies; and it is barely even an introduction to the study of the progress and development of industries which show a tendency to increasing return. (Marshall quoted in Loasby 1989:69)

The three would have only existed as an inseparable trio (along with soon-to-be wives) during the academic year 1934–1935. The more administratively minded Wallis would bring them together once more during the last few years of the war at the Statistical Research Group (Columbia University). Finally it was Wallis once again, acting as the Dean of Chicago’s Graduate Business School, who persuaded Stigler to return to Chicago as Walgreen Professor (jointly appointed to the Economics Department and Business School).

Twenty-five years for the tale to unfold

Yo-ho-ho and again there are three

Walgreen was good and Kimpton was bold

Yo-ho-ho and again there are three. (Friedman 1993:771)

From his own writings, and from those who knew him, it is clear that Stigler was greatly influenced by a very limited number of people (few other than Friedman, Director or Becker could sway his thoughts). Unquestionably all of the most influential of them held (or were poised to hold) fundamentally conservative political views.

Aaron Director, for example, would never have written a good letter of recommendation for somebody who wasn’t a staunch conservative, but neither would Milton. (Conversation with Paul Samuelson, October 1997)

The reverence in which Knight was held by graduate students in the 1930s approached an almost cult-like level.

At that stage he was, as many people were at the University of Chicago, quite besotted with Frank Knight. George’s thesis topic was Carl Menger, the father of the mathematician Karl Menger with a ‘K.’ I remember a sentence he said. He said, “Carl Menger is very good, but everything good that is in him is already, (I can’t say already) in Frank Knight.” Frank Knight’s influence on the student body was profound and not, I say in retrospect, a hundred per cent positively constructive. … Knight had a very strong influence on George Stigler and all the graduate students. (Conversation with Paul Samuelson October 1997)

Ultimately Stigler’s objectives ran at cross-purposes to Knight’s skeptical view of economics. He turned increasingly toward the price theory learned under the tutelage of Jacob Viner.

He changed in his view about Knight, the assessment of Knight’s work. I think that his opinion of Knight went way down. He still thought Knight’s work was important, but nowhere nearly as important as he did when he was an undergraduate and a young person. And contrariwise, his assessment of Viner went up and that’s the same for Henry Simons. If you look at parts of the Program for Laissez Faire, it doesn’t look that interesting at this stage, so he went down on that. (Conversation with Gary Becker, October 1997)

Logically, an economist, according to Stigler, must assume that underlying economic relationships persisted across time. This view is behind conceptualizing or speaking even metaphorically about economic laws. Once committed to such laws, we are then strolling within the domain of the natural environment rather than in a world where a combination of art, judgment and pragmatism form the basis for progress.

If the problems of economic life changed frequently and radically and lacked a large measure of continuity in their essential nature, there could not be a science of economics. An essential element of a science is the cumulative growth of knowledge, and that cumulative character could not arise if each generation of economists faced fundamentally new problems calling for entirely new methods of analysis. (Stigler 1983:533)

Contrast this position with the sharply distinguishable approach favored by Keynes that imagined economics as an approach to analysis, rather than a machine for mechanically churning out results.

It seems to me that economics is a branch of logic, a way of thinking; and that you do not repel sufficiently firmly attempts a la Schultz to turn it into a pseudo-natural-science. One can make some quite worthwhile progress merely by using your axioms and maxims. (Keynes 1973: 296–297)

In the 1930s at least, many in the profession still followed Marshall in taking a cautious approach to theory, wary of imposing a physics-like agenda on the discipline. In his presidential speech to the American Economic Association, a future colleague of Stigler’s (John Maurice Clark) could sum up the past and present by reminding his audience of crucial limitations inherent in theoretical approaches. (Contrasting Clark’s speech with Stigler’s, almost thirty years later, reveals to a considerable degree the transformation of the profession’s methods and approaches.)

… while a picture of perfect equilibrium deals in its way with forces which are at work in the actual world, the form in which it presents these forces will almost inevitably need to be modified when we move on to the task of studying them as they actually operate. (Clark 1936:4)

It is easy to see Stigler as jumping from one idea to the next without stopping to root out crucial details. Some colleagues tended to see him more as type of hybrid fox/hedgehog in knowing many big things. But there is an underlying consistency and universal basis in all his post-war work. His vision of market efficiency made price theory the overall glue holding all his work together. He attempted to push the logic of perfect competition to its explanatory limits. While someone like Chamberlin was an obvious, if even obsessive, hedgehog, Stigler might best be pictured as a hedgehog disguised as a fox.

Surprisingly, this was one of the rare moments when Stigler did not read closely from the same Book of Common Prayer as his intellectual comrade, Milton Friedman. For Stigler, any resort to such a vaguely founded principle could only undermine the scientific progress of the discipline, positing a causative value that lacked any real explanatory power.

I don’t know how important ideology is, but think it is unimportant. You don’t know how important it is, but think it is important. My position is better because I try—feebly and so often unsuccessfully—to use a trusted theory of human behavior to explain social phenomena. Your position is worse because you try—with marvellous ease—to explain the mysteries by a deus ex machina. (Letter from George Stigler to Milton Friedman, 29 March 1984)

Self-interest couldn’t simply remain a useful assumption to pose, or a reasonable characterization of a dependable human motivation. The assumption itself had to be testable, universal and consistent. Actions which then might appear to have alternative explanations must undeniably reveal themselves, upon examination, to be driven by narrow self-interest.

Man is eternally a utility maximizer, in his home, in his office—be it public or private—in his church, in his scientific work, in short, everywhere … I believe it is a feasible and orthodox scientific problem to ascertain a set of widely and anciently accepted precepts of ethical personal behavior and to test their correspondence with utility-maximizing behavior for the preponderance of individuals. My confidence that the test would yield this result will be disputed by many people of distinction, and that argues all the more for making the test. (Stigler 1982: 35–37)

Given Stigler’s unassailable belief and unshakable conviction, he could logically find no place in which ideological preferences were free to lurk.

The simplest way to test the role of ideology as a nonutility maximizing goal is to ascertain whether the supporters of such an ideology incur costs in supporting it. If on average and over substantial periods of time we find (say) that the proponents of “small is beautiful” earn less than comparable talents devoted to urging the National Association of Manufacturers to new glories, I will accept the evidence. But first let us see it. (Stigler 1982:35)

It should be noted that Stigler did appear as an expert witness for clients in legal disputes and was well aware of the danger of shading analysis to win the battle. However, reference here is made to the more frequent case where Stigler is his own client fighting for a set of deeply held values and beliefs. By turning discussion into an adversarial process, the very nature of one’s analysis and investigative procedure must correspondingly change.

As Viner recounted his participation to me many years later, he began testifying as an objective academic student of price theory. After sharp cross-examination by the attorneys for the other side, however, he found himself becoming more and more defensive of the government’s position and more and more critical of the steel companies. That adversarial process had turned him into an adversary. (Stigler 1988a: 130)

He only attacked alternative theories that he viewed as threats. Reaching this category required two characteristics. The theory had to be gaining popular support within the profession (or at least holding its own across a widespread swathe of economists) and it had to be basically irreconcilable with price theory, namely by offering a viable alternative to perfect competition as the starting point for economic analysis. Thus despite an acknowledged (and growing) contempt for Clark’s workable competition, Stigler refrained from any concerted professional attack. Though it is true that he did make a dismissive remark in his Nobel Prize speech (Stigler 1983:536), as well as in the classroom.

Few, if any, areas of economics have as much confusion, circular reasoning, definitional traps, and fervent nonsense as industrial organization. It was the perfect place for Stigler to conduct a Demolition Derby. Nor was he hesitant about the task. Theories like “monopolistic competition” and “countervailing power,” which were treated reverently at Harvard (where they originated), were eviscerated by Stigler. Another concept—one I had wrestled with in vain at Harvard—was “workable competition,” which he didn’t deal with at all in the course. When I asked Stigler after class one day what it meant, he replied, “It means such competition as pleases the economist who is talking.” (Sowell 1993:787)

Taking on Clark’s theory would have failed to meet both fundamental criteria for action. (It never achieved the appeal of monopolistic competition.) Plus, he might have wanted to avoid an unnecessary and unproductive feud with a Columbia colleague, keeping in mind the Knight/Douglas hissy fit at Chicago in the 1930s.

This created more damage than if the underlying purpose was merely a matter of occupying the time of mediocre graduate students in much the way that Stigler sought to dismiss Mason’s case-study approach to industrial organization. Harrod similarly dismissed Tinbergen’s econometric analysis as being of only trifling importance. “Otherwise the ordinary competent researcher finds nothing to do but write a history of the Milk Marketing Board, or to indulge in the mathematical but rather fruitless refinements of the green publication of the L.S.E.” (Harrod, letter to Keynes 1973: 298–299)

At least to some degree this collectivist or group responsibility would appear to contradict Stigler’s increasing insistence on narrow self-interest as the sole driving motivation and all-encompassing basis for human action. Though, at an earlier and more unformed stage of his career, he would have found at least some room for a Knightian hierarchy of altruism. These exceptions would seem to depend on their proximity to a web of close personal relationships that might underlie the actual exchange. In fact, Stigler’s continuing extension of his own binding ties to department, university and professional activities stood as a distinct affront to his unyielding insistence on ascribing human actions solely to narrow self-interest. All choices could be rationalized, at least retrospectively, in this manner. However when examined more carefully, such altruistic actions remained recalcitrant in lying outside that narrow sphere of operations.

I raised this issue with him in a slightly different guise. When George was skeptical as I said about the altruism issue I said, “Look George, look how generous you are to your children. Are you doing that out of self-interested motives? Who are you kidding? You’re not doing it out of that.” He looked at me and he didn’t answer and he knew he wasn’t doing that out of self-interested motives. He was actually very generous with his family, as he was with people in general. So, I think George, when pressed hard like I did there, would admit there is a motive beyond simply selfish self-interest. (Conversation with Gary Becker, October 1997)

Stigler attributed this propensity to his training at Chicago and particularly the influence of Frank Knight. His claim seems justified, though he did take to this decidedly aggressive approach like a politician to graft. In 1948 Stigler had begun his long struggle to escape from the shadow of Knight and perhaps unbeknownst to him, from the kingdom of Marshall as well, but the combative stance and belligerence of his mentor remained.

Chicago had a strong influence upon us. One lesson that I learned, or possibly overlearned, was that of scepticism toward received beliefs and authoritative reputations. Knight in particular was prepared to dispute the Ten Commandments. I suspect that we heard the word “nonsense” too often. I certainly came away believing that the popular acceptance of an idea was little support for its validity. On the other hand, the school failed to immerse some of us in what, in retrospect, was a major irreversible wave of the future—the systematic use of statistical data to estimate economic relationships and to test economic theories. (Stigler 1988a:26–27)

He did in fact have an uncanny ability to home in on key issues and questions of an economic nature. Whether his perceived solutions ultimately held water is an issue beyond the focus of this analysis, but his ability to raise and tackle essential issues is difficult to deny.

His judgments were very good. As I say, he could get the right conclusion from inadequate data. And, I don’t know how you do that … I mean, how you explain that sort of thing. He had an intuition that was always very good. And I think it particularly helped when he was dealing with the history of economic thought. For then you have to think, there is so much you don’t know. You’ve got to fill in the background. But he filled in the background. (Conversation with Ronald Coase, October 1997)

Trust of course provides an efficient short-hand for judging issues. Or in the case of the inner Chicago circle, Milton Friedman deciding whether someone was “one of us,” to use a phrase he often employed. The group forming around George Stigler, Milton Friedman and Allen Wallis synchronized to that particular tune and when convenient even deliberately ignored empirical evidence which they found inconvenient. Such behavior unilaterally contradicted the empirically tested evidence that they persistently championed.

Now what you have to understand with somebody like Allen Wallis, and so to a degree those people who were in his circle, is that Allen Wallis had the sharpest priors—I’m using the language of Bayesian probability—of anybody I have ever known. Almost no new data could change his view for this reason. On the other hand, if he thought of somebody as a dangerous, or an incompetent thinker, but Jimmy Savage assured him that the man was very smart and had good judgement that carried more weight with Allen Wallis than a two-year study of the person’s vitae and an audit of his writings. There’s an in-group of the good guys and the much larger out-group. This showed itself in things that aren’t even political. (Conversation with Paul Samuelson, November 1997)

George Stigler had turned much of his attention away from the strict confines of industrial organization when a resurrected game theory became the leading analytical tool in the very field that Stigler had done so much to shape and define. (His work on regulation and political markets is not so much a departure as a continuation of his earlier work in industrial organization.) As always, he was painfully blunt in his estimation of employing this particular technique. However, speaking in all fairness, at the time of his death in 1991, a lot of the empirical results that he required had failed to develop. But even granting these circumstances, his time line still seems peremptory, if not arbitrary at best. Typically, he made his unadorned opinion of the game-theoretic approach known to his colleagues in tones that were hardly equivocal.

It’s OK to try game theory. But to stick around for twenty years and come up with a result that anything is possible and then to say that this is economics. This is almost the way George would be talking if he was sitting here. “Having you and your six friends argue about a lemma, that’s progress!” He wouldn’t be indignant. He would be laughing. He would be dismissive. Saying, “You’re dopes. You’re dopes.” What should you do with them George? “Exile them to Samoa.” Dismissed with a wave of the hand. (Conversation with Sam Peltzman, October 1997)

Colleagues and friends testified to an almost compulsive need to achieve his goals, perhaps even reaching to the level of being a workaholic. He was impatient with himself and with others.

George was a very kind of protestant-ethic guy. He was hard working. He had a conscience. If he didn’t finish what he set out to finish by a certain day, he was upset. “Oh, I haven’t done what I intended to do.” He was always setting deadlines with me. “Let’s try to finish this by Friday.” Well, if economics had waited 200 years for this, why are we trying to finish it by Friday? (Conversation with Claire Friedland, October 1997)

In a statement she may have come to regret later, Claire Friedland claimed that “Much of his work centered around saving the damsel in distress, neoclassicism, from her attackers” (Friedland 1993: 780). The claim, whether subsequently disowned or not, is painfully accurate, but too easily open to misinterpretation. It transforms Stigler into some sort of latter-day Quixote figure, where the allusion carries with it some distinctly negative baggage. Such a response encapsulates an understanding which remains the direct opposite of what is intended. Some readers may in fact perceive such an analogy to be largely demeaning, if not trivializing, of the issues with which Stigler battled. Reaching this particular conclusion would, however, indicate a much greater familiarity with the Broadway musical version than with Cervantes’ classic novel. Don Quixote’s tilting at windmills has connotations which signal a more serious, underlying importance to what may appear to be only buffoonish behavior. Quixote was in no sense some figure of fun that is best dismissed lightly. He grappled with that badly defined boundary separating necessary from delusionary belief. In a parallel effort, the problems Stigler faced and attacked were at the forefront of professional importance. These were the giants with the temerity to masquerade as harmless windmills. Often only Stigler’s own perspicacity allowed him to sprint ahead of the academic pack and recognize these unexplored dangers. He possessed a rare knack for sensing what issues were indeed essential to clarifying and deepening the discipline. Both Stigler and Quixote demonstrate the undeniable importance of belief as forming the underlying foundation of action. Moreover, what appeared to be a metaphoric “tilting at windmills” at the start of the Chicago counter-revolution would, with marked persistence, allow a transformation which would turn those comical mills into countless vanquished giants.

Heavens knows whether there be a Dulcinea in the world or not, and whether she be a notional creature or not. These are mysteries not to be so narrowly inquired into. Neither have I engendered, or begot that lady. I do indeed make of her the object of my contemplations, and as I ought, look on her as a lady endowed with all those qualifications that may raise the character of a person to universal fame. (de Cervantes 1993:553)

Not for Stigler the sardonic jest of Anatole France in his reflection on the mirage of economic choice.

The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread. (France 2009: 51)

Freedman (1995) discusses the way in which Stigler managed to reframe the manner in which the profession discussed the kinked demand curve. Notice Stigler’s (1947) use of the dismissive framing device deployed in the title, “The Kinky Oligopoly Demand Curve and Rigid Prices.” As Rosewell Perkins remarked when introducing George Stigler as the dinner speaker for the 65th Annual Meeting of The American Law Institute, “That [the title] sounds to me not only humorous but perhaps a bit salacious” (Perkins 1988:60).

This evaluation accords with Milton Friedman’s recollection of how he and his fellow graduate student, George Stigler, reacted when the two volumes came out in 1933.

My recollection is not worth much, but for what it’s worth, it’s that the Robinsonian emphasis on the individual firm economics, the analysis of marginal revenue and marginal cost, fitted in very well with what we were otherwise thinking. There were no problems about that. (Conversation with Milton Friedman, August 1997)

Such an estimate is oddly consistent with Robinson’s latter evaluation of her early work.

In the introduction to the first volume of her Collected Economic Papers Joan Robinson declared that when she “worked out The Economics of Imperfect Competition on assumptions” she “took the wrong turning;” the correct path would have entailed “abandoning the static analysis and trying to come to terms with Marshall’s theory of development.” (Loasby, 1989b:71)

An intriguing discussion of this debate is covered by George Shackle (1967).

Given Marshall’s almost pathological need to qualify and fudge, it is hardly surprising that in the desire to make the analytics more rigorous, much of the subtlety was lost. The problem remains that Marshall used his models more as a story-telling device. For economists who feel the urge to pose as mature scientists, the idea of telling tales around a campfire would be deemed beneath their professional dignity.

…as Samuelson rightly observed, what is in Marshall cannot be revealed by reading Marshall alone. What one sees is very largely a reflection of one’s own viewpoint. (Loasby 1989a:47)

Certainly Marshall’s method predictably would only end up frustrating a mathematical economist of Samuelson’s mould for whom Marshall’s approach could only create a confused and muddled analysis.

How did a wise Second Wrangler get himself into this quagmire? His gratuitous attempt to treat increasing returns (to scale) processes by his competitive SS-DD cross was his fatal idiocy. He knew better. Anglo-Saxon economics lost 10 years [1922–1932] working out of his unnecessary swamp. (Letter from Paul Samuelson to George Stigler, February 27, 1991)

I recently reread all of Marshall … I did not begin with a high opinion of Marshall (he was overpraised by my teachers and I rebelled). But I ended with a diminished opinion. He shows no development and this from a highly unsatisfactory 1880 state. He never got partial equilibrium right: not only did he fail ever to work out the demand functions for independently-additive utilities; he never shows that he knew how to do so. He simply stopped working at his mathematical economics. (Letter from Paul Samuelson to George Stigler, April 11, 1990)

Even theoretical developments that seem stubbornly internal to a discipline cannot be completely divorced from the time and place in which the debate occurs. Economists do not develop or continue to live in the equivalent of a hermetically sealed cacoon. Their thinking must to some degree be shaped by their surroundings. Even the marginal revolution of the late nineteenth century, which appears to be part of an internal questioning of value theory, cannot be isolated and kept apart from the contending scientific classicism of Marx and its revolutionary content. Marshall, the great ameliorist, was to some degree guided by his need to present the workings of the marketplace in a more favorable light, allowing the march of history to yield increased fruits of labor shared equitably by all.

Whatever happens, every individual is a child of his time; so philosophy too is its own time apprehended in thoughts. It is just as absurd to fancy that a philosophy can transcend its contemporary world as it is to fancy that an individual can overleap his own age, jump over Rhodes. If his theory really goes beyond the world as it is and builds an ideal one as it ought to be, that world exists indeed, but only in his opinions, an unsubstantial element where anything you please may, in fancy, be built. (Hegel 1967:11)

The profession itself immediately after World War II seemed intent on understanding why and how their profession had tacked so noticeably away from its more traditional theoretical headings. This became a repeated subject for discussion at the annual American Economic Association meetings.

This can only mean that some very general and considerable change was going on for some time prior to 1929 in the region of the basic preconceptions upon which all economic thinking rests, or even in the region of the social attitudes and apprehensions of which such postulates are rationalizations. That is, it must have transpired somewhere before the level of abstraction on which for the most part economic analysis now takes place. (Ayres 1946:114–115)

Pigou served as a negative inspiration for a number of economists. Coase, as a case in point, seemed driven to redirect economics away from the dangerous chasms that Pigou’s work engineered.

Knight recognizes and satirizes the idea that the model of perfect competition reflects perceptible market operations. In fact, the sort of costless, frictionless world depicted employing textbook-like logic was at best absurd.

The difficulty is, of course, avoided if “friction” be so broadly defined that “perfection mobility” means the absence of all resistance to the human will. But in a world where a breath could transform a brick factory building into a railway yard or an ocean greyhound there would be no need for economic activity or economic science. (Knight 1921: 34)

John Hicks would reach a diametrically different response to the more drastic alternative of acquiescing to a terminal demolition of partial equilibrium analysis. In essence, he appeared willing to allow the reach of economics to be much more circumspect, in order to preserve the basic analytic apparatus provided by perfect competition.

It has to be recognised that a general abandonment of the assumption of perfect competition, a universal adoption of the assumption of monopoly, must have very destructive consequences for economic theory. Under monopoly the stability conditions become indeterminate; and the basis on which economic laws can be constructed is therefore shorn away. … It is, I believe, only possible to save anything from this wreck—and it must be remembered that the threatened wreckage is that of the greater part of general equilibrium theory—if we can assume that the markets confronting most of the firms with which we shall be dealing do not differ very greatly from perfectly competitive markets. … At least, this get-away seems well worth trying. We must be aware, however, that we are taking a dangerous step, and probably limiting to a serious extent the problems with which our subsequent analysis will be fitted to deal. Personally, however, I doubt if most of the problems we shall have to exclude for this reason are capable of much useful analysis by the methods of economic theory. (Hicks quoted in Loasby 197:873)

The work is actually a presidential address Young gave before Section F (Economic Science and Statistics) of the British Association for the Advancement of Science. Unlike most economists, his career was cut short at the early age of 52. (Perhaps not young for poets or mathematicians, but practically cut down in his youth for an economist.) Nonetheless he influenced a number of noted economists including Frank H.​ Knight, Edward Chamberlin, Nicholas Kaldor and Lauchlin Currie.

Young has often been praised as influential and his 1928 paper seen as a forerunner of endogenous growth theory. However, not all economists have been equally impressed.

I do not wonder that you have found Young on Increasing Returns somewhat enigmatic. That has always been my reaction. When I have asked those who profess to understand its main substance to explain that to me, from half a dozen volunteers I get six different answers. The article is like a Rorschach blot: looking at it, you fabricate your own profundities. (Letter from Paul Samuelson to James Buchanan, April 12 1990)

Unsurprisingly this has led to accusations that Chamberlin essentially simply repackaged Young’s ideas.

From Earl J. Hamilton

University of Chicago

February 14, 1973

Dear Professor Blitch:

… It is a pity that I could not foresee your request for information concerning Allyn Young before I began packing to leave Duke, for I took extensive lecture notes under him in two major courses and preserved them until 1944. One thing that my notes taken in 1924–1926 conclusively showed was that every worthwhile idea in E. H. Chamberlin’s subsequent work on imperfect competition had been clearly expounded by Allyn Young in class long before Chamberlin put pen to paper. Curiously, Young credited Cournot for most of what he said! He was the epitome of modesty (quoted in Sandilands 2009:22).

Later, 7 April 1999, Samuelson wrote that “My words about Knight and Chamberlin were to correct an impression that each of these were mere dummies who spoke with the voice of the master ventriloquist. Young himself spoke against such exaggerated rumors—which was not to deny that he did them lots of good” (Sandilands 2009:34).

Ferdinand Pecora was the flamboyant chief counsel of what was officially designated as an inquiry into the Wall Street Crash by the United States Senate Committee on Banking and Currency. Pecora seemed to take unbounded joy in humiliating banking chiefs (for instance the head of National City Bank). What became something of a staged show trial of the banking sector delivered a substantial measure of popular appeal, given the circumstances of that period (early 1933).

Gardiner Means (1896–1988) was a Harvard-trained economist lifted out of obscurity by Roosevelt’s New Deal. His insistence on greater competition to combat market power makes him something of a romantic, at least when viewed from a more modern perspective. (Though operating from a diametrically opposed political perspective, like Henry Simons, he insisted on the necessity of small competitive firms as the best defense against market malfunctions.) Curiously, the power of his arguments and his rising fame depended on his statistical work in a period when the employment of such tools remained a novelty. Stigler (1965a) in his AEA presidential address would champion a new empirically based economic science not unlike that produced by Means, but one that employed correct analysis in stark contrast (in his opinion) to the misuse of statistics by the likes of Means. In some sense, he was Stigler’s doppelganger (though it must be left to individual taste or perspective to determine which one was Jekyll and which was Hyde). Both were ideologically charged, reluctant to admit errors and skilled marketers of their views. The two conducted an unresolved and unresolvable conflict that spanned decades. Their core argument, focused on the existence of administrative prices, reflected irreconcilably opposed beliefs in the existence of private economic power. What was at stake was ideologically fuelled by their policy concerns. Sadly for these two avowedly empirical economists, no conceivable evidence seemed capable of changing their minds.

Both of them, both of these men had taken strong positions on this … I [James Kindahl] almost come close to saying, that they had taken these positions before I was born. That’s not true, but it certainly was before I was born as an economist. I could have predicted George Stigler’s predictions before I signed up from what I’d learned in graduate school of his writings. And I could have predicted, to a great extent, Gardiner Means’ predictions and you could guess what I learned at graduate school about Gardiner Means. (Conversation with James Kindahl, October 1997)

Though Stigler as a student was an enthusiastic backer of Simons’ program, by the time he came to write his intellectual autobiography he looked back on that enthusiasm more than a bit ruefully. However, he did realize that it had to be evaluated according to the tenor of the time. Perhaps this tacit re-evaluation underscores a reality not explicitly recognized by Stigler. The classification of classical liberalism, the view identified with that position, clearly can change over time, at least if it is to be stretched to include Stigler and his colleagues.

Henry Simons had preached a form of laissez-faire in his famous 1934 pamphlet A Positive Program for Laissez Faire, but what a form! He proposed nationalization of basic industries such as telephones and railroads because regulation had worked poorly. (I am reminded of the king who was asked to award a prize to the better of two minstrels. After hearing the first, he said, “Give the prize to the second.” Simons urged an extremely egalitarian policy in the taxation of income and detailed regulation of business practices such as advertising. Much of the program was almost as harmonious with socialism as with private-enterprise capitalism. (Stigler 1988a:148–49)

It is interesting to note how far from Simons, George Stigler (as well as Milton Friedman and Aaron Director) would travel. That markets needed careful government oversight to maintain a competitive level would soon become anathema to Stigler, though a firm belief in the need to attack concentrated economic power would remain a hallmark of his stated position throughout the 1950s (see Stigler 1952).

He comes from a background in which a tough anti-trust policy is absolutely consistent with liberal economic policy and it’s absolutely consistent with powerful market forces operating and so on and so forth. You have to remember the time. He was a student of Henry Simons who was the incarnation of that view. Markets would be great if we didn’t have advertising. Simons is on record saying stuff like that. Markets would be great if we had atomistic competition. Just like the textbooks tell us. Right. So that’s his background and I’m sure he believed that. He believed that. There was no contradiction in his belief system. (Conversation with Sam Peltzman, October 1997)

The NRA (National Recovery Administration) tackled the seeming irreconcilable objectives of individual choice and monopoly power by interposing government as the protector and champion of economic freedom. Effective intervention would serve to rein in monopoly power. However, Stigler’s eventual approach would be to deny any pervasiveness of monopoly power and instead label government as the chief aggrandizer and abuser of power. Thus private monopoly was reclassified as a strategic Trojan Horse enabling the unwanted intrusion of the visible government hand.

Self-doubt was never part of Stigler’s public persona. “A second and related trait of scholars is that they seldom change their minds” (Stigler 1988a:210). Complete confidence was part and parcel of his extended marketing campaign to guide the profession away from the bogs and swamps of false persuasion and inchoate theory. Showing signs of wavering or hedging would be to undermine the compelling rhythms which imbued the economist’s story with a patina of truth. In a similar sense, providing a discernible whiff of doubt would be as much out of character as having Don Quixote cavalierly dismiss the romance of chivalry as containing no more than a collection of bedtime stories. Yet there are moments of introspection when even a Don Quixote can exculpate his behavior by falling back on the necessity for holding to consistent and public beliefs, no matter what whiffs of lingering doubt might remain. Stigler’s confidence in markets, in their efficient performance, never wavered. There might be private acknowledgements of intractable problems. Yet in his published work or public presentations such difficulties or potential stumbling blocks were not accorded a bare whisper.

But I don’t think that George had misgivings. I think that his presentation was what he felt. He had confidence in his theory and he felt that his data supported it. The defects, they are always mentioned somewhere, not in strong terms, but they are always there. Maybe they’re in a footnote or an appendix, but the defects in the data, as far as we were aware of them, are there. We always tried, of course, to find a way to overcome them. But I think it was really a personality thing that saw him always presenting everything with great confidence. He was always a kind of rhetorician, although, he did give that bad review of the McCloskey book on rhetoric. (Conversation with Claire Friedland, October 1997)

This same inherent confidence thus allowed him to maintain without exception that vested self-interest motivated regulation and public policy.

Like when he was confronted with some fact about regulation, he would say “Ah, you’re going to find some Congressman was bought off. [laughter] You are actually going to find that. That’s what you’re going to find. Are you sure that you didn’t find that this Congressman wasn’t on the take?” (Conversation with Sam Peltzman, October 1997)

Yet he lived in a world (the academic sphere) ruled by ideas, one in which he seemed to believe that those ideas, rather than self-interest, were the dominant and decisive factor. Though not entirely unaware of this paradox, he often seemed drawn to the idea that the observer (economist) could somehow be removed from the realm in which the observation occurred (the world of self-interest). This portrait of the economist as the neutral scientist paints a picture of an academic capable of being swayed by evidence alone.

In contrast to the thrust of the microeconomic revolution as represented by Chamberlin, macroeconomics, as reconstructed and pioneered by Keynes, deliberately ignored the problem of monopoly, dismissing it as an unfruitful distraction, given the nature of his objective. Debates that centered on the existence and degree of economic power, or on alternative theories of the firm, would shunt analysis and any subsequent debate onto a less productive spur line. His focal point was not the structure of markets or the degree of competition, but rather the inherent nature of any market based system when viewed in the aggregate. Especially in the USA, raising questions about monopoly would have fatally shifted the debate onto terrain that came to be stubbornly inhabited by Gardiner Means. Unlike England or the Continent, the USA had a long tradition in which such market power played a dominant role in any discussion of economic policy or reform. (Perhaps this reflects a long-held American sympathy for the underdog, a tendency to support David rather than Goliath.) The anti-trust provisions and progressive tradition of the late nineteenth and early twentieth centuries lack any real parallel with economic concerns elsewhere. In contrast, Keynes sets out to show that even competitive markets, which by definition were efficiently self-regulating, inherently faced demand-constrained conditions. Thus the core issue driving the economic collapse of the 1930s lay in the limitations and incentives of the aggregated economic agents rather than in the reflection of any specific market structure.

The then political balance of the majority Democratic Party, heavily dependent on its ‘Solid South’ wing, ensured that the more radical aspects of Roosevelt’s New Deal would never see the proverbial light of day.

See Hawley (1966) for a useful account of the warring factions vying for dominance during the New Deal. Speaking of Roosevelt’s early economic policy, Hawley points out:

Within a single piece of legislation, the authors of the measure had made room for the aspirations and programs of a variety of economic and political groups. But in a phraseology that could be used to implement any of several policies, they had laid the basis for confusion and controversy. (Hawley 1966:20–21)

The seeming irreconcilable problem presented by markets remained the irrepressible conflict between individual choice and monopoly power.

The trend of modern industrialism has been determined in all countries by two conflicting tendencies: The one toward liberation of the individual from ties and codes inherited from the middle ages and the mercantilist era; the other toward integration on a more or less monopolistic basis. (Stolper quoted in Hawley 1966:4)

Stigler would easily slice this presumably Gordian knot by downgrading and even denying the pervasiveness of monopoly power. He instead developed a clear tendency to focus on government as the prime source of monopoly power and economic abuse. Such a strategic framework becomes clear, at least initially, in the five lectures Stigler delivered in 1948 at the London School of Economics. These are the very same lectures in which Stigler’s virulent attack on Chamberlin’s monopolistic competition occurs.

Compare Stigler’s war-time experience to that of Galbraith. Though each, at least for a time, worked for the same price-setting agency both drew diametrically opposite lessons from that period. In some ways, the reactions were predictable based on their prior positions and backgrounds. There were no “road to Damascus” moments of transcendence. Rather, this bureaucratic experience nurtured ideological slants that would later blossom during the Cold War. However, working in these administrative salt mines did not immediately set Stigler off down the specific path that would define the remainder of his academic career. This apotheosis would better be served by his Mont Pelerin ascent, including his initial bonding with Aaron Director at that meeting.

Shackle (1967) provides an insightful analysis of the debates informing economics in the 1920s and 1930s. To a significant degree, the discussion was geared to effectively remove what seemed at the time to be the pernicious influence of Marshall (or at least Marshall as reconstituted by Pigou).The disillusionment with markets, intensified by the economic collapse of the 1930s, would make the gradualism championed by Marshall unappealing. While the move by the younger generation of economists, writing in the newly established Review of Economic Studies, toward precision and rigor, would largely leave Marshall’s story-telling techniques abandoned in a slough of incomprehension. Marshall’s own self-purported progeny would fail to grasp his punch line.

Exclamation points in academic discussions usually denote exasperation rather than any attempt to carefully listen to and evaluate another’s position.

This reality causes no end of confusion since the obvious target was simply dismissed. If anything, Chamberlin was an extremely conservative economist who imagined that he provided a more realistic and convincing defense of market efficiency. Robinson, in the second edition of her work, admitted that she did have a policy agenda buried in her bag of tools. Her work attacked market income distribution by showing that labor failed to receive its marginal product. By Pigou’s definition this outcome encompassed the idea of exploitation. The clearly radical Robinson attempted to justify income redistribution, while the conservative Chamberlin used the same approach to justify the market status quo. In fact he buttressed market exchange by providing what he believed to be a more realistic theoretical structure. Despite this surface smokescreen, Chicago had no difficulty in identifying Chamberlin’s approach as posing the real danger. The Chicago economists did have an uncanny ability to sniff out heresy and potential threats to orthodox price theory. The absence of any intrinsic equilibrium in Chamberlin’s work lies embedded in the very nature of his constructed markets.

In Chamberlin’s story, firms have problems of finding out where their customers are and it is actually what is called a process story: firms are trying out different product combinations, testing them. Chamberlin’s selling costs are part of the problem of finding out where the customers are and letting customers know what one now has to offer. Nowadays, one can see that Chamberlain’s monopolistic competition theory is a link between Marshall’s theory of external organisation and Coase’s theory of transactions costs. However, that of course is not the way it happened; it is a rational reconstruction. (Loasby interviewed by Foss 1997:4–5)

This heading, quite naturally, refers to Keynes’ famous remark in the preface to the General Theory.

The composition of this book has been for the author a long struggle of escape, and so must the reading of it be for most readers if the author’s assault upon them is to be successful,—a struggle of escape from habitual modes of thought and expression. The ideas which are here expressed so laboriously are extremely simple and should be obvious. The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds. (Keynes 1973:xxiii)

Whether Keynes escaped the dominating figure of Marshall is an unanswered question. However, it is certainly arguable that he still clung to many of Marshall’s exposition methods, whatever their perceived weaknesses. Keynes continued to try to describe dynamic changes using an essentially static framework as a story-telling device. However, in many ways, George Stigler was more successful in breaking away from his own initial infatuations with Frank Knight and Henry Simons.

George was a pretty self-confident person, also. At that stage he was, as many people were at the University of Chicago, quite besotted with Frank Knight. George’s thesis topic was Carl Menger, the father of the mathematician Karl Menger with a ‘K’. I remember a sentence he said. He said, ‘Carl Menger is very good, but everything good that is in him is already, (I can’t say already) in Frank Knight.’ Frank Knight’s influence on the student body was profound and not, I say in retrospect, a hundred per cent positively constructive. (Conversation with Paul Samuelson, October 1997)

In the post-war period, as Stigler developed his own academic identity, he came to throw off much of what Knight represented, including his theoretical standpoints and approaches to economics. (He largely also detached himself from the influence of Knight’s student Henry Simons.) Where Knight conceived of economics as a science in terms of a highly limited arena, Stigler saw before him unlimited vistas to be explored and conquered.

He still thought Knight’s work was important, but nowhere nearly as important as he did when he was an undergraduate and a young person. And contrariwise, his assessment of Viner went up and that’s the same for Henry Simons. If you look at parts of the Program for Laissez Faire, it doesn’t look that interesting at this stage, so he went down on that. He changed a lot of his evaluations of that type. But the big changes, I think, were his assessment of government, his application of economics to politics, things like that. And of course he became more empirical. (Conversation with Gary Becker, October 1997)

He did retain Knight’s pointed skepticism, which was the trademark of Chicago in the 1930s. But Stigler’s brand was one-sided. He would turn it on opposing theories with ease, but proved almost inherently incapable of turning that disbelieving stare inward. Unlike Knight, he saw himself as the point man in an academic crusade where self-examination or doubt signalled a potential weakness.

But the public persona was unequivocal. And it was this public persona which was very much responsible in some sense for his image. He was a real leader. Have you talked to Harold Demsetz or folks like that? Harold would tell you that. You just dreaded the warning look … that dirty look from George. That is the way he led. (Conversation with Sam Peltzman, October 1997)

Stigler did quite naturally retain a respect for Knight, the sort of sustained academic link between one-time supervisor and aspiring apprentice.

But what struck me about the lunch was that, in some ways, whenever I met George Stigler I regressed to infantilism. It’s a function of your fear of your PhD supervisor. “Got to be on my best behavior. Hope he approves of what I’m doing. Hope he feels that I’m doing okay.” He was exactly the same with Frank Knight. He truly treated Frank Knight as if he was his father. I’d never seen him do this to any other person, this total deference. (Conversation with Mark Blaug, April 1998)

Though Knight did acknowledge the continuing assistance that his former pupil, George Stigler, provided him in his later years, Knight’s evaluation of Stigler remains equivocal. There are claims, at least, by one of Knight’s former students that Knight did not rate Stigler that highly.

The sort of besotted reaction common to a number of his students was hardly due to commanding personal charms or the enthrallment provided by a great story teller.

Who could forget Frank Knight, a little dumpy figure in a workman’s cap when he first gave a guest lecture to us University of Chicago sophomores? His squeaky voice emitted a mixture of Will Rogers’ profundities and Ludwig Wittgenstein one-liners. Anyone so un-understandable you knew had to be a deep thinker. (Samuelson 2011a:925)

Yet the force of his influence, though never completely removed, seemed to inevitably fade with time.

Indeed Frank Knight was the irresistible Pied Piper. For five years—from the time I was sixteen until I was twenty-one—I was bewitched by Knight. The cream of the graduate school—a Stigler, Friedman, Wallis, Homer Jones, or Hart—downplayed the Vinerian sagacity and erudition. (Samuelson 2011b:590)

Perhaps this came from his philosophical turn of mind. Much of his most interesting work could be almost categorized as economic philosophy rather than economic theory. (He never did, nor seemed particularly impressed, by strictly empirical work.) For Knight, a career in economics was a choice somewhat akin to the second voyage described by Plato’s Socrates in the Phaedo. He arrived at Cornell with the ambition of achieving a doctorate in philosophy, only to be subsequently urged to shift his objectives. He found a home in economics where he located a comfortable roost under the care of Allyn Young.

… I learned that Knight began at the Cornell Graduate School in philosophy. But he talked too much. When the exasperated chairman gave Knight the choice of talking less or leaving the field of philosophy, legend has it that he levitated down into economics. Luckily he did not have to drop one notch further for it was Knight who used to say: Sociology is the science of talk; and there is only one law in sociology—Bad talk drives out good! (Samuelson 2011a:925)

Most people have filters which allow them to consider the impact of what they are thinking of saying before it escapes the environs of their mouth. But much like his star pupil, George Stigler, Knight would write and make verbal comments that could be unnecessarily wounding or possibly devastating to the target. Both seemed to be perennially surprised when the inevitable offence was taken. What they saw as honesty easily, though quite unintentionally, often lapsed into the unwanted territory of self-indulgence.

Being a father of a large brood, I am an expert on children’s quarrels: it is absolutely pointless to try to determine who was first at fault. Let me only say that Jacob Viner, never known for his diplomacy or sweetness, was something of a saint in getting along with Knight. (Only in his eighth decade did Viner permit himself to say privately: “I always felt we should have treated Frank as if he were on the verge of a nervous breakdown in the 1930s. His financial problems and concerns about the disintegrating world economy and society were an important part of the picture.”) (Samuelson 2011b:591)

James Buchanan arrived at Chicago in the decade following George Stigler and soon came under Frank Knight’s spell, just as Stigler had before him. Very few graduate students managed to complete a dissertation with the ever irascible Knight. (“Knight had very few PhD students. I think there were only three or so.” (Conversation with Milton Friedman August 1997).) Only the confident and the tough survived. But both Stigler and Buchanan went on to achieve Nobel prizes. For a very select few, Knight provided just the sort of tutelage required.

Buchanan entered the University of Chicago’s graduate economics program as a “libertarian socialist.” After six weeks of taking Frank Knight’s course in price theory, recalls Buchanan, he had been converted into a zealous free marketer. (Econlib 2002)

Curiously, in some ways Stigler, consciously or unconsciously, modelled himself, when acting as a dissertation advisor, on his own mentor. (Youthful habits die hard.) Again, only the most self-confident and self-motivated students could thrive under his tuition. His evaluation and treatment of Thomas Sowell could politely be labelled caustic.

You know students can build things up in their heads. What he [Stigler] was, he was aloof. He was non-directive in an era where you had very powerful people like Milton Friedman and Al Harberger who were the opposite. In the case of Friedman, this was the era of the money demand function. If you were a graduate student in money, you did a demand for money study, you did it in a way that Friedman pioneered and you came up the results. (Conversation with Sam Peltzman, November 1997)

If we roughly divide Stigler’s academic output into pre- and post-war periods, one noticeable difference is that much of his earlier work can be largely assigned to those historical dustbins labelled history of economic thought. He would later neither refer to nor build on any of that more youthful output, exactly those papers where Knight’s influence is most evident.

On the other hand, if you read his first book, History of Production. He has a lot of highly critical things to say about Marshall there. But then he says highly critical things throughout that book. I once spoke to him about that book and said something like that to him and he indicated he hadn’t read it for a long time and didn’t propose to read it in future. That was something he had done in the past. I think he questioned whether parts of it were right. (Conversation with Ronald Coase, November 1997)

Emmett (2006) presents a convincing detailing of this break by imagining just what Knight’s response to the Becker and Stigler (1977) analysis might be. It would be equally interesting to have the young George Stigler argue with his older counterpart.

Perhaps this break in methodology partially explains the very different trajectories of their careers. Knight became increasingly disillusioned, questioning the ability of economic analysis to provide even a modicum of useful insight. Stigler, however, seemed to conduct a love affair with the discipline that only gathered heat as he aged. He dreamed of a theory that would conquer all previously self-imposed boundaries, metaphorically one theory to rule them all. His support for Becker’s social science projects, then, should come as no surprise. Neither Stigler’s quest for a universal economics nor his championing of quantification would be likely to win Knight’s applause.

If economic theory is interpreted as a critique of the competitive system of organization, its first and most general problem is that of determining whether the fundamental tendencies of free contractual relations under competitive control lead to the maximum production of value as measured in price terms. The problems of the validity of the price measure of “real value,” and of the distribution of the value produced, are larger but subsequent problems, and belong to ethics as much as to economics; while the detailed comparison of the theoretical tendencies of perfect competition with the facts of any actual competitive society lie in the field of applied economics rather than that of theory …Professor Pigou’s logic in regard to the roads is, as logic, quite unexceptionable. Its weakness is one frequently met with in economic theorizing, namely that the assumptions diverge in essential respects from the facts of real economic situations. (Knight 1953: 161, 163)

“George had had a year of graduate work before he came to Chicago” (Conversation with Milton Friedman August 1997). Actually Stigler completed an MBA at Northwestern (1931–1932). In the following academic year (1932–1933) he returned to the University of Washington before turning up, ready to commit to serious graduate work at Chicago. It was while at Northwestern that Stigler first considered a future as an academic. His lifelong romance with History of Thought seems to have begun there. During his year at Northwestern, he submitted two lengthy surveys to one Professor Deibler, both focused on the historical development of economic ideas. The first looked at “Theories of Value from Adam Smith to Stanley Jevons.” However, it is his second effort that signals the start of what would be an abiding interest by Stigler in matters distributional. The second, running to some 92 pages in length, is simply titled “A Theory of Distribution.” Stigler entered Chicago, then, not only with previous graduate experience, but with an interest that would quickly mature into a history of thought dissertation under the formidable and cantankerous Frank Knight. The same work would evolve into his first published book (1941). Ironically, Stigler would be instrumental, at least according to some accounts, in removing History of Thought from the graduate requirements at Chicago in 1973.

Now, I don’t know if he was a leader, but he was certainly in favor of it. I don’t know how that issue first came up. I think it came up because most young Economists had lost interest in it and it was just a big tax on everyone’s energy. No-one was working on it. It wasn’t really much of a research field. I think it’s had a slight come-back but it’s still pretty small. Even now, you see very few PhDs with that particular interest. There’s also been a general laissez- faire attitude around here about graduate degree requirements. So I think that’s how it came up for discussion. In the same way, there was an Economic History requirement which I don’t think we have anymore either. That was also dropped. So I don’t think he was in favor of putting artificial [laughs] restrictions on a degree. That was probably his motivation. But I don’t know. I don’t think any of us were too happy about that move. (Conversation with Sherwin Rosen, October 1997)

Stigler quite expectedly objects to Mill’s logic since it largely substantiates the legitimacy of government intervention. If market distribution lacks an unarguable foundation, then redistribution is at least a distinct and possible alternative. Stigler’s rejoinder to Mill in this case lacks focus. Mill is not saying that society’s ultimate decision can be automatically justified or that it is even preferable, but is offering an observation rather than a defense or justification.

Conversely, no society could survive if it set the compensation of workers in proportion to the reciprocal of their marginal productivity, so the most productive workers earned the least. (Stigler 1988c:7)

This coincides with Patinkin’s memory of Knight’s classroom stance.

Knight viewed most of labor income as returns to “human capital” and stressed the role of the family (both genetically and socially) in endowing its children with this capital. (Patinkin 1973: 794)

Accepting the accuracy of memory here, such a close reading would certainly prime Stigler for his subsequent attack at the London School of Economics.

These two memories are not necessarily contradictory. Knight certainly never shied from disembowelling theories he rejected. Ignoring such approaches would seem to be atypical of the man. However, 1934 was almost immediately after the publication of both Chamberlin’s and Robinson’s work. It is conceivable that any formal study of Chamberlin was deferred for a few years while the work gained traction. But certainly, Knight’s basic antagonism to Chamberlin’s break with tradition was bound to influence, at least to some degree, Stigler’s developing attitude to the work.

Certainly this must be a misreading by Knight of Chamberlin’s intentions. The zero-profit equilibrium referred to is not meant to reflect observation, but is instead employed more as a heuristic story-telling device.

For Robinson, her label of imperfect competition conveys the theory’s deviation from the ideal state of perfect competition, which Robinson allows to stay in place as something of an aspirational model. This construct represented a characterization that Chamberlin was incapable of swallowing.

… a much greater factor than this in the wider use of “imperfect competition” is that it involves no more than an explicit recognition that actual competition is imperfect, which anyone would always have admitted anyway. The term is purely negative. Competition and monopoly go their ways without the least overlapping, and interference with one’s categories of thought is held at a minimum. Thus “imperfect competition” has undoubtedly contributed and will contribute a great deal to perpetuating competition and monopoly as mutually exclusive categories. (Chamberlin 1937:572–573)

Chamberlin’s key point is that competition in freely competitive markets must inevitably involve firms that operate with some mixture of monopoly, while engaging in competition with their rivals. The most laissez-faire of markets would never trend to the picture presented by perfect competition.

In economic theory the identification has been with “perfect” or with “pure” competition. Yet it must be obvious that the outcome of free enterprise is most often not pure competition but monopolistic competition. Commodities do not standardize themselves, and their natural heterogeneity is vastly increased by business men under “free enterprise,” in their efforts to distinguish their commodity from others and to manipulate the demand for it through advertising. In other words, an essential part of free enterprise is the attempt of every business man to build up his own monopoly, extending it wherever possible and defending it against the attempts of others to extend theirs. There is no tendency for these monopolies to be competed out of the picture: on the contrary, they are as much a part of it as is the competition which restrains them. (Chamberlin 1937:576–577)

Stigler preferred instead to transform this into an either/or process. Whether one treated a market as competitive, or as a monopoly, simply depended on the issue in question. Unfortunately, he fails to depict the basis for choosing one framework over the other. By leaving his conclusion open-ended, Stigler fuels the cynical suspicion that the choice depended largely on the desired result.

Should monopoly or competition be used to analyse the New York housing market? The answer is: both. If we are interested in the effects of rent ceilings and inflation, the theory of competition provides informative predictions. If we are interested in why one location rents for more than another, the theory of monopoly may be an informative guide. Different theories, each with its particular assumptions, can be applied to the same phenomena to answer different questions. (Stigler 1949a:23)

This approach seems too heavily redolent of the Ptolemaic quest (in astronomy) to save appearances by concocting a convenient theory congruent with a perceived reality. Achieving the nominated quest requires only a clever generation of sufficient epicycles to explain the movement of any heavenly body. Whatever appears to be an anomaly can be deftly theorized out of existence. (Notice the affinity of this approach, with the methodology insisted upon and propagated by Friedman (1953) after a series of discussions with his close friend George Stigler.) Certainly Stigler would have been familiar with the possible direction Knight had signalled in his 1921 paper. Since the same article appears in The Ethics of Competition (1935), a collection of Knight’s papers edited by Friedman, Wallis, Jones and Stigler, he could have hardly been unaware of the ideas Knight expressed there. His clear preference however, was to salvage the structure provided by perfect competition and to extend its application in an inexorable fashion.

Reference is sometimes made to a Chicago School that thrived during the interwar years and another embodiment that defined the post-war years with clear links to the first. However, talking about the first Chicago School is probably misleading, since it conveys the impression of more uniformity than was ever actually present. By contrast, comparing this nominated first conclave with the Chicago department that dominated the 1960s and even 1970s (built around the Friedman/Stigler axis) makes the difference evident. To avoid unnecessary confusion it may be best to simply limit the label “Chicago School” to the stalwarts of the post-war years.

The University of Chicago economics department, like Gaul, was divided into parts. Knight and Viner were the theorist patriarchs and rivals. Paul Douglas was the more-than-token liberal. Henry Schultz represented the wave of the future in econometrics and mathematical economics. Henry Simons, critic of the regulated state and advocate of redistributive income taxation, was in Knight’s camp. Although Aaron Director began in the Douglas workshop, his heart was with Knight. (Samuelson 2011b: 590)

From his very start as an academic, and continuing throughout his career, Stigler deliberately eschewed macroeconomic issues. There are only a few (maybe four) of his papers that can be construed as falling into that classification and these were largely the result of outside requests rather than motivated by his own intrinsic interests.

If you look at my catalogue of the Stigler papers you will see that the number of papers on macro is four or five, practically nothing. In fact there may be only one or two if you only count the ones that George sort of spontaneously decided to work on. The two or three papers in there are usually because somebody asked him to come to a conference on interest rates, you know, something like that, or international trade. I threw together macro and international because there was practically nothing on the topic. I mean, he was really a micro economist. (Conversation with Claire Friedland, October 1997)

A more pointed view makes it clear that, quite admirably, George Stigler avoided making pronouncements in areas he considered to be outside his expertise.

I imagine when all’s said and done—I don’t remember George writing particularly on the real bills doctrine or the quantity theory—George would say “inflation is everywhere a monetary phenomenon.” This is like taking a personality loan from people whom he admires, who believe that kind of thing. More than most, I think, George kept out of things that he felt he wasn’t entitled to an opinion on. Most economists would say “How do you spell ‘gold’?” And then they’ll tell you what we should be doing about gold or anything else that you can imagine. (Conversation with Paul Samuelson, October 1997)

In an interview conducted by The Region (May 1989), the official publication of the Federal Bank of Minneapolis, http://​www.​minneapolisfed.​org/​pubs/​region/​89-05/​int895.​cfm, George Stigler clearly confirms Paul Samuelson’s claim.

Well, I’m a monetarist in the sense of believing that the control over some money supply is important (which measure of money and over what periods, for example, are decisive questions in the control over the rate of growth of the price level). I think that the rate of growth of money is a critical variable in controlling inflation and that, for example, the massive troubles we are having with the savings and loan industry are, in part, the product of the fanatical inflation we had at the end of the ’70s and the beginning of the ’80s. Those alone are indications of the kind of costs that are imposed upon a society. It wouldn’t be too bad maybe if you went completely crazy, like the South American countries, and let inflation go on and everybody indexes on some more stable currency, and so forth and so on. But we aren’t going to do that. We’re going to put all kinds of strange regulations in: we won’t let this go up, and we’ll let this price go up. They cause immense distortions in an age of inflation. That’s one of the great problems plaguing the Israeli economy.

George Stigler took up his post at Iowa State in the fall of 1936. His paper on imperfect competition was presented at the Mid-West Economic Association meeting on April 16, 1937. The paper was then published, with slight modifications, in August 1937. The article (Stigler 1937) is more important for what it reveals about the young Stigler’s thinking than for its contribution to the ongoing debate at that time.

These influences show up regularly throughout the paper and are alien to the work of the more mature Stigler. Certainly the Marshallian idea that an economist must consider a broader public when writing would have been dismissed later on as irrelevant by any self-respecting academic.

As a corollary, the newer literature of imperfect competition is so complex that it is impossible for the legislator or the layman to glean even its major conclusions. (Stigler 1937:708)

The older Stigler would tend to dismiss or simply ignore non-economic incentives and motivation as distractions or reducible to self-interest. But Knight here is still a dominant factor in Stigler’s analysis and echoes of his objections inevitably surface.

For much economic behaviour is indubitably affected by non-economic factors. Love of home and neighbourhood, racial prejudice, personality, and similar factors creep into every broad economic problem. (Stigler 1937: 713)

Stigler recognized the importance of selling one’s theory. An effective campaign left no room for self-doubts. If they existed, they would need to be publicly suppressed and never acknowledged. There was no room for equivocation when staging a theoretical counter-revolution in the economics profession. This approach reflected an almost military type of strategy. Never provide an opening for opponents; always capture and defend the high ground in any battle. This unwillingness to take even a step backwards was also a seemingly ingrained component of his personality.

The article was accepted and he would surely have been asked since I directly referred it to him as an editor. I never got a note from George saying ‘Well, this time around I’ve got to admit I was wrong. And your reading was right.’ Not at any time. And a lot of people would tell me that if they wrote to him complaining about something, he would answer something like ‘Well, if you’re the kind of person who believes that, then you’re just the kind of person who believes that’ (Conversation with Paul Samuelson, October 4 1997).

The Chicago program acted as an immersion process analogous to completing a Marine boot camp. Either you toughened up and learned to perform under pressure, met any adversity, or you washed out. Both Knight and especially Viner performed superbly as Marine drill sergeants.

When one victim alibied, “I am beyond my depth,” Viner is supposed to have said, “Sir, you drown in shallow water.” If a graduate student was refused admittance to 301, the basic course in theory, he had no choice but to drop out or to transfer to the slums of political science or sociology. (Years later when I discussed with Jack Viner the legend of his ferocity, he said that the department had given him the function of screening the candidates for higher degrees. It was not work for which he was ill-equipped.) (Samuelson 2011b:597).

The degree to which aggressiveness became a mark of Chicago is easily observed. Greater difficulty lies in determining the extent to which this was a function of self-selection or the result of surviving the pressure-cooker approach that seemingly became a distinctive characteristic of its graduate program. Other departments might cull at the entry level or later at the dissertation stage. Chicago developed a system of using its courses to accomplish any required weeding. Nonetheless, both George Stigler and his close friend Milton Friedman were exemplars of brash confidence that could be infuriating.

In a famous Cook County debate on wage-price controls, Solow declared, “What Sydney Smith said to Thomas Babington Macaulay, I say to you, Milton”: I wish, Babington, I was as sure of anything as you are of everything.” (Samuelson 2011c:617)

Certainly with Friedman there was little in the way of equivocation or any tendency to compromise his ideas.

He [Friedman] was always patient, always polite, never got short tempered like I do in an argument, never got nasty. But he was a horrible person to argue with, just a nightmare. My idea of a nightmare is to stand on a stage and debate with him in front of the public. I watched him debating at Cambridge with Joan Robinson on flexible exchange rates. Unbelievable! I mean, Joan Robinson was one of the world’s most aggressive, hostile debaters. He wiped her analytically, he wiped her rhetorically, he had the entire audience eating out of his hand after an hour, an hour and a half. An amazing, amazing guy, but a madman, a madman. One of the few people I could strangle with my bare hands. I feel I could actually do it. (Conversation with Mark Blaug, April 1998)

Some of Chamberlin’s frustration at having his approach and that of Joan Robinson muddled together becomes at least somewhat understandable if the intentions of both are clearly understood. This differentiation has in part often been lost, with Chamberlin’s insistence seeming to be merely a reflection of a rather testy personality. The contrasting names, if considered, do denote the very different objectives and purposes behind these two approaches.

The theory of value was apparently in a state of crisis, and Mrs. Robinson’s book appeared as the culmination of a painful and difficult struggle to resolve it, in which many of the keenest economic minds had publicly engaged. The urgency and difficulty of that struggle made impossible the perception of Chamberlin’s work in any other way than as a solution to the crisis. Its entirely different origins, being neither a common concern nor well-publicised, aroused no interest whatsoever. (Loasby 1971:878)

Notice the use of the label ‘fad’ as a way of branding imperfect competition as essentially frivolous, something that will fail to make any lasting contribution to the discipline. The idea that some economists do think perfect competition to be fatally flawed as a theory enters only as a footnote. “Doubtless some part is also played by the belief that perfect competition theory is valueless” (Stigler 1937:708). The strategy is to cover all bases, but at the same time to try to demote or possibly hide in plain sight unwelcome facts or thoughts.

The reference here is to Stigler (1961).

Stigler’s embrace of the economic rational man seems defensible if he is saying it has proven to be a useful heuristic, though even here some level of desired precision would be absent.

It is elementary to all scientists that certain methodological assumptions, which everyone admits are contrary to fact, are indispensable to theoretical reasoning. No one begrudges the physicist the right to ignore friction, and the mathematician is permitted perfect circles no one will ever see. The case for the economic man is just as strong, and had he not been imported into economics, today there would be no science worthy of the name. (Stigler 1937:713)

Such a statement begs the question of why large firms exist, unless that is also to be sheeted home to imperfect information. Though with a bit of imagination many apparent indivisibilities can be theoretically dissolved, in practice, such niceties may be often observed more in the breach. Moreover, if we step away from homogenous output, firms with decreasing costs can continue to compete with one another given perceived differences in that output. Apples, for instance, at the same farmer’s market don’t all sell for the same price. Such empirical observations do not necessitate any required lack of information. The result merely underlines the modest assumption that buyers have different preferences.

Clearly the influence of Simons shows through. Gone in future years will be the ever-present conjecture that formulated remedies are required to restore a competitive regime. The flavor of this assertion reflects Simons’ fascination with an aggressive employment of anti-trust policy to maintain competitive markets.

He [Stigler] begins to understand that there must be good reasons why Eastman Kodak dominates the film industry. Obviously there must be market forces involved. Why wasn’t capital flowing into an industry with high basic returns? He is asking himself the kinds of questions that just didn’t occur to Simons. A guy like Simons would just say, “Well, they’re too big. Break them up! The text books tell you, the more firms, the better.” And that’s it. Simple. End of story. Advertising screws up people’s minds, tax advertising and it’ll be fine. (Conversation with Sam Peltzman, October 1997)

Stigler is clearly attempting to define for the profession the precise identity of price theory by both writing his textbook and struggling to clear the Aegean Stables of the prolonged accumulation of faulty frameworks. That his preferred approach achieved orthodox acceptance reflects his multitude of skills. Though some of his former students, such as Mark Perlman, who suffered Stigler as a member of his dissertation committee at Columbia University, were left largely unimpressed by these abilities.

I think that I agree with your points on our Boy George, but I wish you were not so intense on the topic. Stigler’s attacks are now mainline economics; and I think that the way to counter the mainline is simply to laugh at it. “Surely one cannot take Professor Stigler, the Nobel Laureate, really seriously—he is clever, even amusing, but to those of us to whom the good Lord has never revealed The Light, Stigler’s approach is on the scale of sophistication (1–10) debatably 6.9 although on days when I feel stimulated by callow youth, I’ve even been known to give him a 7.1. My trouble, which invariably I later regret, is that I am always overgenerous to glibness.” (e-mail from Mark Perlman, October 16 1995)

The idea of producing a considered review of a textbook these days would indicate a very idiosyncratic expenditure of limited academic time. It is doubtful that anyone, even a professor who may prescribe a given text for a course, even reads the volume from cover to cover. In an attempt to meet all possible demands of instructors, textbooks have ballooned until some exceed a thousand large-sized pages composed of text, brilliant colors, photos and some random graphs. Stigler’s 1946 effort ran to some 340 rather petite pages and cost the princely sum of $3.75. Today the internet provides an outlet for both the trivial and profound, but an economist would still see textbook reviewing as the equivalent of expecting an English professor to spend time in thoughtful consideration of the latest Harlequin romance. Instead, solicited blurbs from the author’s academic colleagues, allies and friends find their way on to the marketing material.

Stigler in his 1937 paper essentially convicts Chamberlin of self-contradiction. He claims that in essence Chamberlin failed to understand the consequences of his own assumptions. Chamberlin was unlikely to forget such pointed criticism.

Chamberlin, for instance, postulates the existence of perfect knowledge on the part of the consumer, when he treats with differentiation of commodities. Yet it should be almost obvious that in an economy where consumers possessed perfect knowledge, branded articles would be of interest only to historians. (Stigler 1937:710)

Chamberlin found Stigler’s understanding of monopolistic competition wanting in the extreme and spent much of his five-page review convicting Stigler of those trespasses. But those attacks alone did not mollify Chamberlin’s wrath. He also felt compelled to nit-pick about the organizational structure of the textbook, condemning it as unnecessarily clumsy, repetitive and ill-conceived. Not satisfied with a blanket condemnation, Chamberlin was willing to stoop to a certain degree of coy cattiness.

These latter pages are at the beginning of the Costs chapter, where some of the worst effects of Professor Stigler’s random methods of assembly and (shall we say?) carelessness are strikingly illustrated. (Chamberlin 1947:415)

Chamberlin even twits Stigler about the use of the German term Weltanschauung, reducing it to a matter of intuition or perhaps even gut feeling. There is an undertone here that Stigler is being pretentious or in some way showing off. The sarcastic tinge to his tone can only represent a simple attempt by Chamberlin to steer the way in which readers perceive Stigler and thus his textbook.

They are given in the opening chapter of the new material … offered specifically as “a detailed statement of the author’s Weltanschauung which underlies the selection of content in subsequent chapters.” (Chamberlin 1947:417)

The unabridged version found in Stigler’s textbook seems a bit more innocuous.

This material can be viewed as either a detached statement of the author’s Weltanschauung which underlies the selection of content in subsequent chapters or a survey of the major factors underlying the important departures from perfect competition. (Stigler quoted in Kamerschen and Sridhar 2009:186)

In this case Stigler is directly trying to influence a new set of graduate students, but indirectly those who teach such classes by having them acquiesce to his own understanding of economics. Certainly Stigler’s text focuses on perfect competition as the single theory underlying all economic analysis. This stance would only be extended over the years as he attempted to transform it into a universal theory.

Stigler was a professional stirrer. It was important to him that what he said and wrote got a reaction, whether positive or negative. He most appreciated those who could give as good as they got.

In the same way that, at Columbia, I was the only student that George Stigler ever had. This is an important thing to say. Basically the reason was that he mellowed as he got older. But even when he was older, he was extremely bitchy. And he slaughtered his students. Right at the beginning of our conversation together, I realized (I don’t know whether I grasped this consciously) that you always had to give back as good as he gave. He’d say, “Oooh, I think, you’d better watch out for this chapter, you know you didn’t take this into account.”I’d say, “Yes I did.” I think I argued with him. And the moment I did that, our relationship was brilliant. No problem dealing with those students who stood up for themselves. But if a student was crushable, he crushed him. Couldn’t resist doing it. And he was a bully, you know. You had to stand up to him. (Conversation with Mark Blaug, April 1998)

This implies that even a deathbed confession by Stigler would have to be dismissed as largely irrelevant. For Stigler, it was what you did and not what you said that was relevant. In which case, discovery of telegrams from John D. Rockefeller threatening and planning a bout of predatory pricing would serve only as an amusing historical note. He could thus dismiss a case reported by J.B. Clark as either anecdotal hearsay or worse.

Candor forces me to state my belief that the distinguished Columbia professor invented this dialogue, but even if he had a recording of it, it is no evidence for an economist. Modern scholarship, I may observe, has raised strong doubts about the frequency of use of predatory competition, and has by no means resolved the theory of its operations. (Stigler 1982c:47)

Unfortunately the evidence Stigler tended to cite was often purely logical. In other words theory said that it could in no way happen and therefore it became impossible no matter what the appearances might be. Certainly Stigler insisted on empirical evidence, as he should, but we are left wondering exactly what evidence would convince him that there was anything resembling an inherent flaw in market operations or that the theory of perfect competition should be jettisoned.

This aspiration to transform economics into a discipline and a profession that reflected scientific principles was not only a product of Stigler’s mature years. Such a mindset appeared even as he busily attempted to establish his reputation. He saw in the theory of perfect competition a sturdy vehicle which could be pushed further to yield a wide-ranging, general theory. Moreover, it was a theory consistent with what he perceived to be core liberal principles, those which buttressed individual choice and freedom.

…indeed we have Stigler’s Law: The gorgeousness of a theory varies with the range of phenomena it embraces and inversely with the number of its constants.

The great scientific discoveries have been syntheses of diverse phenomena that previously had defied generalization:

Newton: joined astronomy, mechanics, optics, hydraulics

Einstein: joined Newton and curvature of light

Marshall: joined short and long run theories of price. (Letter from George Stigler to Milton Friedman, December 10, 1947 in Hammond and Hammond 2006:75)

Notice the insistence that monopolistic competition is an unnecessarily complex theory that yields no more than perfect competition. This is a refrain that will be used throughout his long and fruitful career.

The perfect competition model also neatly removes problems arising from perceived market inefficiencies. In a sense, markets are self-healing in that they inherently contain incentives that encourage economic agents to fix and improve any existing circumstance. A simplified explanation would conclude that everything observed is efficient, or as it should be, since if it were not, there would then exist a potential gain from correcting that status quo. This is sometimes known as the “no fifty dollar bill left on the sidewalk” hypothesis.

Okay, I imagine that he [George Stigler] got this from Milton Friedman. This happened around 1952, at the Paris Colloquium or Conference on Risk, put on by The Econometric Society. Milton Friedman gave a paper which said in effect, life is a constant procession of events that impinge on us with a considerable amount of uncertainty out there. (This is my broad gloss on what he said.) At every stage on the road there are forks in the road, and we are making choices. And, in effect, we end up in the beds that we have made for ourselves. This would have grown, in Milton’s mind, out of the Friedman/Savage article of 1948 on gambling. You postulate an epicycle in the form of a convex stretch, a non-concave stretch of the utility function so that the people falling in that become inveterate gamblers. And so the inequality is the result of their own ex ante decisions. Now, it’s undoubtedly true that if everybody started out exactly alike in genetic composition and environment—for this they would have to be clones, identical clones—and if for some reason, even though they are clones, they differ in their risk aversion, then, what you will find is that those with the greatest risk tolerance will end up bi-polarly at the extremes more than the people with less risk tolerance. And so what is, is right. (Conversation with Paul Samuelson, October 1997)

Perfect competition provides the comforting result for economists that markets ensure all will be well. This outcome, theoretical alone or reflecting observed results, remains something of a religious equivalent of being rocked in the bosom of Abraham. Such a description is a deliberate exaggeration, but not entirely misleading. The key to elevating the self-correcting nature of markets to an almost ineffable level requires an unshakeable belief in the self-correcting nature of those markets. This faith arises from recognizing perfect competition as a comprehensive theoretical tool with widespread and remarkable explanatory properties.

George was focused on the way the market marches in to eliminate the externalities, to work around them to make them a market problem instead of a non-market problem. I think I’ve quoted him in my memoir as saying something like, “externalities are what the market has not yet eliminated.” That’s not an exact quote but in my memoirs I do have the exact quote. You see he saw the market as the force. He was looking at the other side of the market, at how the market may provide an appropriate solution. (Conversation with Claire Friedland, October 1997)

One glaring issue with monopolistic competition as devised by Chamberlin is that it lacked a unique equilibrium, whether we concede the contention of multiple equilibria posited by Demsetz (1959) or push pass that contention to claim the operational side of the theory as essentially non-equilibrium.

The long quote reflects a type of argument Stigler was not loath to provide. Such a response sounds decisive. He also skilfully tries to dispel any negative reaction by resorting to jokes at the end. But if considered carefully, the quote doesn’t really sustain itself to any serious degree. Knight did not provide empirical evidence (of which there was little, if any, then available) but instead appealed to common experience. Stigler, though, failed to provide any counter-evidence, nor did he show himself willing to acknowledge that evidence might exist which would support Knight’s contentions. Moreover, Knight in his article was not examining the characteristic of a perfect standard. Instead he remained focused on whether an actual competitive market system would yield a morally acceptable result. What might happen in a perfect world then becomes as irrelevant as an estimation of what heavenly markets might provide. Knight perhaps assumed that there was no need to explain what ethical systems of conduct might contain. Stigler condemned Knight’s omission but also declined to enter those philosophic realms. Lastly, Stigler indulgently allowed himself to be witty at Knight’s expense. But if I take Stigler’s joking remark seriously for the moment, I am at a loss to understand what such a statement might mean. Certainly, a good claret is no more ethically desirable than an average one. But in criticizing his former teacher Stigler ironically seems to be co-opting the very techniques for which he took Knight to task.

Stigler clearly believed that a rigorous course in price theory inevitably produced politically conservative individuals. He had seen this for himself at Chicago.

But I learned very fast, as everybody who comes to Chicago does. I mean, nobody comes here a socialist and leaves here a socialist unless he has been living in a very private world. … However, by the time they had spent a year at Chicago, they had changed. (Conversation with Claire Friedland, November 1997)

He even went so far as to deliberately provoke a Harvard audience (the opposition personified) by delivering a speech (1959) which claimed that economics produced politically conservative practitioners.

Undoubtedly the post-war atmosphere, given the gathering Cold War forces and the turmoil within the economics profession, succeeded in sharpening the academic direction of Stigler’s research. He was gaining his spurs as a lethal defender of marginalism as providing an irrevocable basis of price theory (1946c, 1947a). Mont Pelerin did not represent an implantation of new or alien thought, but a nurturing of seeds that had been planted and subsequently had rooted successfully for more than a decade.

Director indirectly assisted that financing since he was instrumental in getting the University of Chicago Press to publish Hayek’s (1944) opus. It was this volume which would bring Hayek to the attention of politically conservative donors, specifically Harold W. Luhnow, who through the Volker fund would support the Mont Pelerin Society as well Von Mises at the NYU Business School, Hayek at the Committee on Social Thought and Director at the Chicago Law School.

What happened was that Hayek … met a person called Luhnow, who was then responsible for a lot of money in the Volker Fund. He persuaded Luhnow to give a certain sum of money to establish a center that would promote private enterprise. It was earlier decided that Chicago was the only place that was likely to accept such a project, and it was also decided that the law school was the only part of the University of Chicago that would accept such a project. (Director quoted in Kitch 1983:180–181)

The resulting Mont Pelerin Society would be identified with the idea of liberalism in its traditional European form. It is not accidental that Hayek initially proposed that the organization be named the Acton/Toqueville society after those two notable conservative thinkers. The use of the term liberal to connote left-leaning politics derives from the post-war period in the USA and seems largely limited to that specific country.

Stigler shares a trait seemingly common to many conservative thinkers of claiming that they were somewhat to the left of the political spectrum in their halcyon youth. Perhaps introducing a small element of that Road to Damascus conversion adds a certain piquancy to their story. But although it may not be uncommon for people to become more conservative with age, surely some, if not many, of these conservatives started out being fairly conservative with no notable dalliance whatsoever with leftish political positions.

Before I went to the University of Chicago I suppose I had vaguely liberal political inclinations, but no strong convictions. (Stigler 1988a:138)

It is interesting that by the early 1970s, Milton Friedman thought the society had served its purpose and should disband. Clearly the majority of members thought otherwise. Both Friedman (1970–1972) and Stigler (1976–1978) would serve as president during that decade.

I follow Darwin in accepting survivability as the test of an institution, so at least part of modern society wished a repeated gathering of old-fashioned liberals. I confess that none of the later meetings I attended equalled for me the interest of the first session. (Stigler 1988a: 145)

Notice how the opposition is derided as being blinded by ideological concerns, while the self-selected liberals pursue their goals and foil the ideologues by the adept use of sweet reason alone. Ideologues of all stripes seem remarkably skilled at sniffing out the intransigent set of beliefs held by their unyielding opponents, while limiting themselves to using only their own intellectual resources.

The impact of Friedman, Stigler and Director in shaping the Chicago program cannot be underestimated. They were in some sense the high acolytes of price theory, refining its underlying theology through constant discussion, though probably minimal fasting or self-abasement.

Now, here is George in the midst of Chicago, where all his contacts are such sharp people that if George made a mistake he’d know about it right away. Besides, he sent everything he wrote to Milton Friedman and Aaron Director. I’m exaggerating, but he sure sent a lot of it to Milton and Aaron. (Conversation with Claire Friedland, November 1997)

Aaron Director was a classic one-sided skeptic finding faults with arguments for government regulation, but less skeptical regarding market operations. He is rightfully credited with founding law and economics as a legitimate and rigorous field in economics. His influence while at the University of Chicago Law School reached almost legendary status.

I might comment as a student in the economics department during this period [early to mid-fifties]. I and Lester [Telser] and others got to know Aaron, and some of us attended the antitrust course he taught with Edward Levi. The economists there began to feel inferior. The law school students could talk so well, in complete sentences … But I felt at the time that what I got out of there was the feeling that business practices shouldn’t be explained away as irrational. They have a purpose. What they are is often difficult to assess, but there is a way to understand them if one is perceptive enough. It is an influence that has stayed with me and I know with a number of other students. (Becker quoted in Kitch 1981: 185)

However others have been not quite as enthusiastic about Director’s influence.

I believe this is evident in that short breezy autobiography that he [George Stigler] was persuaded to write by the Sloan Foundation Committee on Scientific Autobiography. He was reluctant of course to do it, but he then did it in a remarkably short time once he made up his mind. The key character in this change was probably Aaron Director. Which is surprising as Aaron Director was a scratch tenure appointment at the University of Chicago. He published almost nothing and never took his PhD degree … Aaron Director was extremely conservative. Why, I don’t know. By the time I knew him he was already like that. And he was an iconoclast. But he didn’t develop new data with respect to industrial organisation. He didn’t develop and articulate new theories. He just said that the conventional belief wasn’t so. (Conversation with Paul Samuelson, November 1997)

If Stigler’s subsequent correspondence with Friedman is read carefully, it is possible to catch a whiff of regret at the tone adopted in his letter to Chamberlin. Not because of any possible wounds he inflicted, but rather that he revealed his own sensitivity to Chamberlin’s venomous attack. To the John Wayne generation, a man never deliberately allowed a chink in his armour to be placed on display.

There are some noted ironies to be found in his note to Chamberlin. Stigler complained in tones tinged with bitterness about the way Chamberlin had presented his text. In essence Stigler lodged his complaint and then turned around some months later to use similar tactics against Chamberlin, reminiscent of the way an abused child will often morph into an abusive parent.

But I am disappointed that certain charges were made on a misreading or at least a very unsympathetic reading, of the text. (Letter from George Stigler to Edward Chamberlin quoted in Hammond and Hammond 2006:62)

A clear example came in his long-running battle with Gardiner Means. Just as Means had no doubt that prices were administered and thus rigid, Stigler knew in his heart that prices were flexible, reflecting market shifts in demand and supply. He started his major investigation into pricing regimes (1970) without the slight doubt as to its outcome.

You tell me. He was absolutely convinced that prices were flexible from Day 1. That was clearly his a priori intention. It was more than an intention. It was his belief, in the true believer sense. He really believed that. (Conversation with Jim Kindahl, October 1997)

The book was essentially a revision of the dissertation Triffen had written under Chamberlin while at Harvard University. Rejecting the idea of analysing Marshallian-type industries, or the workability of adapting Marshallian partial equilibrium, Triffen explored the possibility of examining individual and distinct firms in a general equilibrium framework. Triffen chose not to take this approach further, shifting his focus throughout the rest of his career to monetary issues. In 1960 before a Congressional committee he pointed out the inherent instability of the Bretton Woods system that was then providing the underpinning of the international monetary system.

It’s not entirely clear that a focus on producers is the same as a focus on consumers. Friedman’s insistence in his short review seems to be that a demand curve should arise from adding up the demand for each individual firm’s output in a given industry. This of course can’t be achieved if each output is distinct. Yet if we focus on the consumer side of the equation might there be a demand for ice-cream based on individual consumer preferences as well as sub-demands for different flavors or types? This is a somewhat different question from looking at the discernibly distinct demand for vanilla ice-cream sold by different firms. These alternative vanillas might be differentiated by flavor, packaging and advertising. The problem is that neither Friedman nor Stigler bothered to be precise when they chose to talk about demand. Whether the muddle was deliberate, or accidental, remains to be seen.

There is little doubt that having learned economics from reading (and rereading) Marshall, both Friedman and Stigler saw themselves as operating within that tradition. In his 1941 review, Friedman points out that Marshall was “concerned with the kind of competition that prevails in the real world” (Friedman 1941:390). But less certain is either’s grasp of how Marshall employed his theoretical apparatus to analyse that real competition.

Sure he was against it [monopolistic competition], but Jesus, nobody at Harvard was. Or for that matter in England, where the conventional kind of Marshallian price theory went to hell. I mean Marshall invented a lot of that stuff. [laughs] Yet it was gone by World War 2. You couldn’t learn it there. You had to come to the US to learn about it. That was shocking.

Stigler certainly saw himself in the Marshallian tradition.

Yeah. Friedman too. All those Micro-Economists, and I guess I’m a student of theirs, feel that way. I think younger people don’t feel themselves so attached to that tradition. They are more concerned with the strategic aspects of theory. They’re attracted to political economy, game theory and so on. They’ve become fairly divorced from that Marshallian tradition. (Conversation with Sherwin Rosen, October 1997)

I think, the emphasis in Chicago—this is a very difficult question because I was about to say, it was really the fact that Chicago followed what I’ve always called a Marshallian approach as opposed to a Walrasian approach—where the individual and the enterprise, where self-interest is dominant. (Conversation with Milton Friedman, August 1997)

The purpose of this section is not to redeem or justify the work of Edward Chamberlin. Others may happily enter that fray. I am interested instead in mapping out the way in which George Stigler dealt with a work he clearly found lacking.

I think that was mainly a question of what he thought was a poorly devised model, from which it was very difficult to draw empirical implications that you could test. The model purported to be something different from neo-classical economics. It was treated as being different from neoclassical economics, but it wasn’t coherent.(Conversation with Harold Demsetz, October 1997)

Many of the points made in this section are certainly consistent with those made by Jan Keppler (1998). I prefer to see my efforts here as complementary to, rather than as a substitute for, his own insightful work. Keppler accurately picks up a technique that served Stigler well when launching one of his scorched-earth attacks directed at what he deemed to be a dangerous piece of economic heresy. Reading his opponents’ work with an intent to destroy usually involved setting up a straw-man version of the offending doctrine and then demolishing every last trace of it. He would either ferret out the weakest point of the targeted theory or unconsciously manufacture one if necessary. Once established, he would leverage this vulnerability by characterizing that flaw as representing the revealed inconsistency of the theory in general. However, Stigler often cloaked his narrower objectives by donning an air of ostensible objectivity.

This text [“Monopolistic Competition in Retrospect”] is interesting not only for historians of economic thought, but also for those researchers interested in rhetoric, as Stigler consistently sustains the attempt to deny monopolistic competition theory any legitimacy as an economic paradigm, while keeping the tone of an even-handed evaluation. (Keppler 1998:267)

George Stigler throughout his career retained a wonderful knack for knowing just how to reach and convince an audience, whether face to face or through his writing. He, and his close friend Milton Friedman, essentially had an intuitive sense of how best to market their ideas. Stigler employed a unique pattern of sticking together striking colorful pieces of content drawn from his own wealth of resources.

I think he was one of the most difficult people to explain because there is no one like him. I’ve described how in an argument he jumps around. He puts in a bit of theory, a bit of statistics, a reference to the earlier economists. It’s like no one else’s form of argument that you can recall. (Conversation with Ronald Coase, November 1997)

Stigler may have pulled back a touch from his original draft, which supported the Marshallian idea of making better men. In a letter, his close friend Milton Friedman indicates the Orwellian tone of this objective.

Re your solution: “the improvement of the individual” is about as ambiguous a touchstone as “equality.” I don’t know how to define either. You cite Marshall. In him “the improvement of man” equals the remaking of other peoples into the image of the Englishman, which is warning enough that this slogan has danger of leading to the narrowest kind of presumptuous provincialism. (Letter from Milton Friedman to George Stigler, February 7, 1948 in Hammond and Hammond, 2006:78)

Collectivism arrived through the agency of government intervention which inevitably equated to some form of income redistribution, whether through regulation, taxes or through some other less obvious form. All such interventions weakened individual responsibility. Failure to provide rewards proportional to individual production distorted incentives. More important to Stigler than the idea of protection via some form of social safety net was individual freedom reflected through economic choice. Stigler at his 65th birthday celebration in fact quotes his close friend and ally, Milton Friedman, to this effect. Notice how by doing so he reconfirms his unshakeable belief in his ideas.

True, the number of citizens who regard compulsory old age insurance as a deprivation of freedom may be few, but the believer in freedom has never counted noses. (Stigler 1976b:1)

Notice that Stigler has quickly trivialized an attempt to reconstruct economic theory by defining it as a typical 1930s fad, not much different than the zoot suit or dance marathons. Stigler never misses an opportunity to deliver a “zinger” or as Rose Friedman put it (conversation, August 1997), “a smart remark.” Thus being previously twitted by Chamberlin for his use of the semi-pretentious term Weltanschauung, Stigler feels little compunction in referring to ‘Professor Chamberlin’s Weltanschauung’ (1949a:13) when dismembering Chamberlin’s work. He then quickly turns around to give his designated opponent a double tap by equating Chamberlin’s theory with the despised Institutionalists. This ragtag group, in Stigler’s opinion, could also be dismissed as safely buried, with the ground sufficiently salted to protect against any viable resurrection.

This picture of economic life was not fundamentally new, but Professor Chamberlin’s reaction was. Customarily the picture had led to some sort of “institutional” economics, that strange mixture of magnificent methodological pronouncements and skinny, ad hoc analyses. Chamberlin, however, persevered to construct an analytical system of recognizable type to deal with the picture: the co-ordinates of his diagrams would be price and quantity, not Church and State. (Stigler 1949a:14)

George Stigler could never forget or even pragmatically disregard economic flavors that at some period must have stuck badly in his craw. Some 35 years later, he couldn’t resist giving what he conceived as the institutionalist approach a targeted boot in its most vulnerable aspect.

I would say the institutional school failed in America for a very simple reason. It had nothing in it except a stance of hostility to the standard theoretical tradition. There was no positive agenda of research, there was no set of problems or new methods they wanted to invoke. (Stigler quoted in Kitch, 1983:170)

With his nose ever alert and capable of detecting the slightest hint of heresy, Stigler had no difficulty in parsing the clear difference between these contending theories. Thus before his audience could even settle in, Joan Robinson is summarily dismissed. She is sent packing, though not without relegating both Robinson’s and Chamberlin’s efforts to some distant, and now best forgotten past, rather than recognizing both as theories still very much alive at the time. Quite typical is Stigler’s implied insistence that he would never waste time on anything other than the most dangerous threats facing what he saw as the canonical approach to price theory.

Of Mrs. Robinson’s work I need say little. It is amply clear, on a re-reading at this distant date, that her message was in no sense revolutionary, although at times her language was rebellious. (Stigler 1949a:12)

The only concrete way in which a firm competes with itself is in persuading consumers to update their products. This has long been a core strategy of car companies, but is also a feature of other consumer durables including software programs.

There is a strange parallel with the romantic young Holden Caulfield (Salinger 1951), who yearned to protect the innocence of children by catching them before they tumbled into the iniquities of their adult years. Doubtless, George Stigler himself would have found such a parallel patently absurd. (I am deliberately employing a more polite term here.)

A good example is that surrounding the Coase theorem which was basically George Stigler’s creation. You might say it was based on a story by Ronald Coase, but as Coase himself made clear at the famous dinner held at Aaron Director’s house, he thought that only Arnold Harberger had actually grasped the point he was trying to make (conversation with Ronald Coase, October 1997).

But Stigler and Friedman jumped on to Ronald Coase and felt that the Coase doctrines about transaction costs and property rights—just get the property rights right then laissez-faire could be relied upon—was the lifeline that they sought. Now, all that I know about this part of the story is what’s called the Coase Theorem. And that’s a coinage of Stigler’s. I don’t think Coase knew what his theorem was. There’s great argumentation as to whether there is a theorem. (Conversation with Paul Samuelson, October 1997)

It is highly questionable whether Marshall would classify himself as a Marshallian. The gulf between a formulator and self-proclaimed acolytes is reminiscent of the pointed remark attributed to Marx: “Ce qu’il y a de certain c’est que moi, je ne suis pas Marxiste” (“what is certain is that I myself am not a Marxist”) (quoted by Engels in a letter to Eduard Bernstein, Marx and Engels 1985: 388).

The more recent advent of such services as Airbnb further complicates the task. But still, those wishing for short-term accommodation seem to have little difficulty in concretely conceptualizing the appropriate market and identifying those who are competing for their selection.

Quality and the level of services provided at a given establishment is often offered, at least roughly, by a designated star system.

Stigler takes great delight in tormenting his chosen victim with tiny barbed comments. Chamberlin made it clear in his 1938 article (569n) that he had previously used the number 100 merely for illustrative purposes. In his original volume (1933:49), Chamberlin tried to distinguish interaction between firms when there are only a few players and when there are many. With a few players, any change in price by a single seller would have a major impact on the others in that market. Conversely, with numerous sellers on hand, a similar price change would have only a negligible impact on the rest of the firms. This is the assumption that Chamberlin at least wanted to make. He used the number 100 as shorthand to refer to a large number. Stigler takes up the identical number merely as another means to nail its author. This is not to say that Chamberlin’s assumption yields a useful apparatus. But once again, Stigler is not entitled, based on his own constructed standards, to simply dismiss, ridicule or laugh off these assumptions by making a priori assertions or by appealing to his own economic vision. Stigler is trying too hard, seemingly driven by a desire not simply to show the problems facing this theory, but rather to eradicate its presence and even its memory.

So we have 100 products of various sorts (blinking the inconsistency) or of one sort, but with negatively sloping demand curves (dropping the assumption of perfect knowledge). Our vision tells us that we are unlikely to find symmetry, continuity, or any sort of smoothness in the relationships among these products. (Stigler 1949a:17)

There is no doubt that Stigler could be and was often amusing. He was without question one of the wittiest economists on record. Not that historically he faced much competition. The economics profession has never been categorized as a discipline largely composed of distinctively fun-loving members who are given to making sly rejoinders. Alfred Marshall never left his colleagues rolling in the aisles. Whether he could even make Mary smile is open to question. But by any imaginable benchmark, George Stigler had a rare cutting wit. He enjoyed battles against or conversations with those who could come close to matching him blow for blow. His close friendship with Robert Solow, the economics version of The Odd Couple, seemed based on two people with equally quick minds who were both willing to take as good as they gave. However, his lack of a filtering device, no matter what the social interaction, meant that he was often witty at another’s expense.

I didn’t bear the brunt of it because he liked me, so people said. But he gave it to people. He had such a quick wit about him. And very few people had his wit. He could always come up with something. Often it was at people’s expense. As they got to know him, they knew he didn’t mean anything by it and it was just that he had this wit about him. But people who didn’t know him, they could be very hurt by it. (Conversation with Gary Becker, October 1997)

If anything, comparative statics, strictly defined, is even more modest. The extent of its claims is that under a given set of circumstances there is an equilibrium set of prices that would clear all markets. (In the case of partial equilibrium, only one market would be under examination at a time. The conditions underlying all other markets would remain constant.) If that environment changed, then the equilibrium set of prices would necessarily shift as well. Consequently, an analyst would be able to compare one set of equilibrium prices with another. However, in this limited scenario, movement from one equilibrium to the next is outside the scope of the constructed framework.

Chamberlin himself was not advocating anything resembling an activist political agenda. Stigler’s concern was not with Chamberlin’s intentions, but rather the implicit implications his theory held. In a sense, the potential problem lay in placing this tool of mass theoretical destruction (insofar as perfect competition was concerned) in the hands of academic bomb throwers and assorted collectivists.

What may be overlooked is that while Robinson’s (1932) work was focused on the production side, a response to Sraffa’s (1926) issue of increasing returns to scale, Chamberlin was largely concerned with the demand side of the equation.

The matter might be expressed in another way by saying that “increasing returns” are neither necessary nor sufficient for monopolistic competition. They are not necessary because it is possible for the demand curve to lie above the cost curve in such a way that marginal revenue and marginal cost intersect above and to the right of the point of minimum average cost. They are not sufficient because a horizontal demand curve makes equilibrium within the “increasing returns” phase of the cost curve impossible. (Chamberlin 1937: 561n.3)

Stigler’s patience with a theory seemed unreasonably limited. Gestation can take time. An immediate “put up or shut up” might do in courtroom struggles where gaining the upper hand rather than achieving insight or even justice prevails. But it becomes counter-productive when nurtured into a ruling academic passion.

If you look at the larger “what do we know as a result of this approach?”, of course these approaches have a certain amount of application, there are a few things we’ve learned about the firm, but I’m talking relative to the time spent. I mean there are serious folks now, his students, who understand that there is a problem and are trying to fix it. But you know what George would have said. “Twenty years! … Or whatever it is … Thirty years! They’ve been working on this stuff. That’s getting to the end of the short run.” Quote, unquote, he would say that. (Conversation with Sam Peltzman, October 1997)

Prior to his methodological uppercut, Stigler dismisses the advantages of Chamberlin’s reality as merely illusory.

Chamberlin’s picture of reality has finally led, when consistently followed, to the familiar reaction: ad hoc empiricism. (Stigler 1949a:22)

This imperative partly explains the meeting of minds between Gary Becker and George Stigler. Unlike Knight, who saw the useful boundaries of economics steadily constricting as he grew older, his two students preferred to push those boundaries, to turn the theory of markets into something resembling the theory of human activity.

Clearly, he was anxious to do that. That’s partly … are you going to talk to Becker? I was George’s student, in some sense I’m viewed as his protégé, something like that. Personally, Gary and George were much closer than George and I. Much closer and in many ways, I think, they were much more on the same wavelength, especially in this area, how far you could push rational choice, that kind of stuff. George was absolutely enthusiastic about everything Gary was doing, with the family, with marriage, with this, with that, with everything. But the outside world apparently wasn’t. And apropos to the outside world, the graduate students at the end of the year would put on a party where they would perform a play: The Economics of Mud by Gary Becker. The economics of “fill in the gap,” by Gary Becker, you know what I mean. It was a standing joke. It has become a standing joke. But George loved that kind of thing. (Conversation with Sam Peltzman, October 1997)

Ironically, Stigler confidently predicts that demand curves for individual firms will tend toward the highly elastic. He then turns around and scolds supporters of monopolistic competition for not basing their claims on empirical evidence. The same responsibility would seem to fall on the doubters as well.

I personally think that the predictions of this standard model of monopolistic competition differ only in unimportant respects from those of the theory of competition because the underlying conditions will usually be accompanied by very high demand elasticities for the individual firms. But this is a question of fact, and it must be resolved by empirical test of the implication of the two theories (a task the supporters of the theory of monopolistic competition have not yet undertaken). (Stigler 1949a:24)

Occam’s razor can become a simple and strategic way to discard unwanted alternatives. Claim that a new theory either offers nothing new or that it is completely wrong (in Stigler’s case the preferred strategy is to indict a theory on both counts) and into the ashcan it conveniently slips. The tactical appeal this had for Stigler should be obvious.

Since I am splattering my name about, I’ll add Stigler’s Razor: In dealing with economic theory, always use the most advance branch of mathematics you can apply. (Letter from George Stigler to Milton Friedman, December 10, 1947 in Hammond and Hammond 2006:75)

Ice-cream eliminates any of the contortions needed to avoid divisibility problems in output. It is just more comforting to imagine scoops of various sizes then selling fractions of a hot dog or imagining ten extremely friendly, but different, customers sharing a single dog. Besides, ice-cream is just more beach-like and summery. The sellers can either have fixed stands or roam up and down the strip carrying freezer bags on their shoulders.

Of course each stand has to cover variable operating costs. This limits the relevant portion of the marginal cost curve.

Once there are discernible differences, even in the same flavor, there is no reason to suppose that they all need to be purchased from the same manufacturer. Different companies may aim to occupy different market niches. Some will aim for a richer product, others the low-fat end of the spectrum.

Stigler either couldn’t see or simply dismissed Chamberlin’s idea of focusing on, and indeed starting with, the demand side of the equation as the basis for building the groundwork of an analytical method.

The concepts of monopolistic competition harmonise readily with the emphasis in marketing theory on the profit opportunities in offering distinctive consumer satisfactions, as evaluated by the consumer. To the marketer, as once to the economist, the customer buys, not a product, but the expectation of benefits: the variety of ways to consumer satisfaction, and the importance of consumer satisfaction, both submerged by the tendency of imperfect competition theory to regard every means by which a firm may aim to give added value as a wasteful device for bamboozling the ignorant customer, are fundamental assumptions of monopolistic competition. In the current management jargon, imperfect competition is producer-oriented, monopolistic competition is consumer-oriented. (Loasby 1971:876)

Perhaps labelling Stigler’s admissions “crumbs” is being overly generous. They equate to a back-handed compliment, which shrinks monopolistic competition down to a trifling addition to standard price theory. In effect, it is now a theory which is too trivial to consider or discuss. The overriding attitude seems to be one of “tough luck, but no cigar.”

The general contribution of the theory of monopolistic competition, on the other hand, seems to me indisputable: it has led to reorientation and refinement of our thinking on monopoly. We are now more careful to pay attention to the logical niceties of definitions of industries and commodities. We are now more careful to apply monopoly theory where it is appropriate … These and other improvements may seem disappointing to the hopeful proposers of a proud new theory, but they should not be. This is the way sciences grow. One of the prominent lessons of the history of human thought is that new ideas do not lead to the abandonment of the previous heritage; the new ideas are swallowed up by the existing corpus, which is thereafter a little different. And sometimes a little better. (Stigler 1949a:24)

Employing much the same strategy, George Stigler’s close friend, Milton Friedman (2003)[1956], attempted to dismiss Keynes to the position of a minor quantity of money theorist.

Stigler’s concern with distributive issues remains unvoiced in this attack, although it appears explicitly in his first LSE lecture where he (1949c) plights his troth to the cause of liberalism. However, even if one accepts the simplified schematic that allows for an equilibrium solution within the realm of monopolistic competition, factors of production must fail to receive the value of their marginal product, but rather only their marginal revenue product. Thus the rhetorical case equating market distribution with equity and efficiency frays discernibly.

The leading proposition that a sloping demand curve for the individual firm reduces the remuneration of a factor below the value of its marginal product has now received some measure of general acceptance. In view of the fact that it is so readily demonstrable and that it has not to my knowledge, been contested by anyone, it seems fair to say that its acceptance is general among those who have turned their attention to the problems of monopolistic and imperfect competition in recent years. (Chamberlin 1950: 154)

Stigler didn’t restrict himself solely to monopolistic competition when it came to pushing back a growing flood of heresies. He reacted severely against the anti-marginalism reflected in Richard Lester’s work (Stigler 1946c) as well as Hitch and Hall’s mark-ups or Paul Sweezy’s kinked demand curve (Stigler 1947a).

Friedman’s insistence on tying his reconceptualization of the quantity theory of money to some Chicago oral tradition essentially germinated a debate that dragged on for decades. Those incapable of stilling their interest might look at Freedman (2008) for a lengthy analysis of this seemingly endless debate.

Gardiner Means provides a distinct deviation from this pattern. Means to some degree served as Stigler’s doppelganger. Both had fixed views from which they proved incapable of deviating.

Both of them, both of these men had taken strong positions on this … Maybe – I almost come close to saying, that they had taken these positions before I was born. That’s not true, but it certainly was before I was born as an economist. I could have predicted George Stigler’s predictions before I signed up from what I’d learned in graduate school of his writings. And I could have predicted, to a great extent, Gardiner Means’ predictions and you could guess what I learned at graduate school about Gardiner Means. (Conversation with Jim Kindahl, October 1997)

Neither man could seemingly let the issue of flexible versus administered prices alone. Each was willing to reply and counter-reply long after extensive discussion of the issue had dampened any remaining interest.

Borts [editor of the AER] unilaterally declared that enough is enough, though I don’t think he said it that way. I’d forgotten who had the last word in this controversy, whether it was Means or Stigler. As everyone knows it was Stigler, I remember now. Anyway, Borts declared that this is enough. That was it. George wrote to me. He sent me that letter from Borts with a little note that said (I was already here at the University of Massachusetts by that time). The note said something to the effect, “Let us hope for more attacks on our work. How else can a professor advertise?” (Conversation with Jim Kindahl, October 1997)

This issue essentially forms the basis of his final published article (1992), a post-mortem voice pointing out the key questions and issues even after he had been properly interred.

He was not an Austrian and he was not a libertarian. But what exactly would he allow as a proper realm for government? Then he got into this—I remembered his name for it after talking to you—“paradox of legitimacy” he called it, or sometimes he called it the “problem of legitimacy.” (Conversation with Claire Friedland, November 1997)

Perhaps in this case, George Stigler demonstrates that sometimes it is not folly to tilt at windmills, since in doing so you can sometimes bring down giants. Thus the practical sense of the Sancho Panzas of the world must occasionally be ignored.

“Pray, look better, sir,” quoth Sancho; “those things yonder are no giants, but wind-mills, and the arms you fancy, are their sails, which, being whirled about by the wind, make the mill go.” (Cervantes 1993: 43)

In this 1952 edition, he takes great pains to emphasize that theories must be tested by evidence, not just logic, thus incorporating the methodology championed in his LSE lecture. In other words he introduces a methodology that eliminates methodological concerns.

That Stigler was not much of a fan of quantitative jugglery or economic jargon is evident from his apologetic introduction to the chapter on basic concepts, where he says, “In economics … there is a language to be learned. And as elsewhere, the language is probably carried to excess: it is possible to have one’s ideas snubbed merely because they violate the grammar of the profession” … In fact, in this book the chapter on methodology is dropped. In its stead, “A few mathematical notes are placed at the end, where they are easier to ignore”. (Kamerschen and Sridhar 2009:187)

Methodological quibbles had vanished to Stigler’s own satisfaction, but even those who were his natural allies were not necessarily convinced.

Testable predictions are not all that matters. And realism in our assumptions is needed if our theories are ever to help us understand why the system works in the way it does. Realism in assumptions forces us to analyse the world that exists, not some imaginary world that does not. (Coase 1994:18)

Stigler started off any analysis with the assumption of market efficiency (or perhaps simply in control of that innate knowledge). Not that Chamberlin, unlike others of that period, was seriously questioning issues pertaining to efficiency. But George Stigler focused his quite powerful intellect on demonstrating that what might appear to naïve analysts to be a market flaw or failure could be rightly understood as an efficient solution to an underlying problem. If anything, as he grew older he came to conclude more and more that price-adjusted models could be extended to analyse more and more phenomena, even those lying outside the traditional boundaries of economics.

Oh, George was a puzzle solver. George was definitely that. As far as George was concerned, I would think that the system building had already been completed by Adam Smith and there was not a hell of a lot of room for him or for anybody else to do that. He was interested, I would say primarily, in a particular sort of puzzle and it’s a typical Chicago puzzle. And I don’t mean that in any bad way, it’s the sort of puzzle that the Chicago School’s presuppositions require. Show me an apparent anomaly, something that does not seem to be explicable using the Smithian apparatus and the Marshallian apparatus and I will show you that it can be explained that way. That was exactly the sort of thing that George went looking for. And that’s not a bad thing. I’d have to say that it can actually be very good. (Conversation with Robert Solow, October 1997)

Milton Friedman broke with Knight over this issue of uncertainty. For him, the concept of subjective probability permanently laid to rest any idea of uninsurable risk. It is difficult to imagine George Stigler breaking with his close friend on this point. In some sense the approach assumes that no conceivable risk is uninsurable. A market almost by definition must exist, no matter what the configuration of such risk might be. This is similar to the assumption that in any given market both buyers and sellers will simultaneously exist since it will always be mutually beneficial to so do.

See I’m a great admirer of Knight. But I think his distinction between risk and uncertainty is untenable. In the aspect of, I believe that it uses a false theory of probability. I believe that the only theory of probability that can hold water is personal probability, the kind of thing that Jimmy Savage help develop. If you take that approach, you can’t distinguish uncertainty from risk. There’s no break point. But also, you see, it means that Knight implicitly was working on a definition of probability as a relative frequency. And that misleads people into thinking that there are objective probabilities that you can know. Therefore it leads to a distinction between risk and uncertainty in terms of costs. Knight assumes you know some probabilities and that there’s no way you can know others. In a personal probability sense, nobody really knows any probability. There are no objective probabilities. If I can experiment with your willingness to bet, I can determine your probabilities. There’s going to be a war next year. Knight would say that’s uncertainty. But in principle, if I can experiment with you, I can find out at what odds you are willing to take a bet that there will be a war next year. And thus I can extract your subjective probability of there being a war and in that sense there’s no distinction between risk and uncertainty. At any moment of time, you will in principle have subjective probabilities of any strategic event. And I think George was influenced by that approach to probability as well. (Conversation with Milton Friedman, August 1997)

The link between the two papers is made sufficiently clear by Stigler in his autobiography. Though hardly emphasized in a work that is a somewhat breezy account of his intellectual life, the idea that oligopolies could be treated much as any other competitive market can be reasonably deduced.

The article I wrote on this problem, “A Theory of Oligopoly,” dealt with the detection of cheating and concluded that often cheating could not be reliably detected. That makes conspiracies harder to form and weaker if they are formed. This line of argument was an extension of my work on the economics of information. (Stigler 1988a:103)

His belief in the importance of monopoly (and the need for anti-trust law to counter-balance it) steadily weakened in the years following his LSE lectures. In fact the final lecture in that 1948 series raised questions about the prevalence of monopoly pricing (Stigler 1949b).

Aaron Director takes economics seriously. In each of the various practices he has analysed (tie-in sales, patents, resale price maintenance, etc.) he has sought the profit-seeking reason that led businessmen to adopt the practice. Sometimes the reason was the exercise of monopoly power, but other times an important efficiency was achieved by the industrial practice. Monopoly receded from its near-monopoly position in explaining business behaviour. The researches of Sam Peltzman, Harold Demsetz, Lester Telser, and others reinforced the decline in the role assigned to monopoly. (Stigler 1988a: 103)

Even what would seem to be the unassailable position enjoyed by natural monopolies crumbled under the relentless onslaught of competitive price theory. By equating competition within a market as though it was effectively mimicked by competition for the market, Harold Demsetz manages to decisively banish such structural difficulties from receiving any serious consideration (Demsetz 1968).

Harold Demsetz made an important contribution to this argument by analysing the so-called natural monopolies: public utilities such as water companies, which are given exclusive rights to supply a city. He pointed out that here the force of competition would be felt at the stage of granting the franchise; There would be many bidders for the right to supply the water and their competition could be directed to the consumers’ benefit. (Stigler 1988a: 164)

We are attempting to draw a rather fine line here. Although seldom returning to a debate following a competent demolition of a chosen opponent, Stigler could never resist getting in a few gratuitous kicks at, or even a body blow, to an old opponent whether living or dead. In his autobiography, Stigler slyly depicts Chamberlin as an obsessive, one-trick pony, someone who simply lived off his early fame.

Chamberlin devoted his entire life to the support, defense and modest elaboration of his book (which was based upon his doctor’s thesis). Legend has it that when he taught economic theory, he made a determined effort to cover the broad field of price theory, but always ended up concentrating upon monopolistic competition. (Stigler 1988:96)

Chamberlin’s 1957 volume was to some degree a detailed response to the previously levelled criticisms. Stigler turned a very deaf ear to these efforts. However, his article that same year on perfect competition (Stigler 1957) serves almost as a companion piece, with Stigler trying to strengthen the case for his favored approach by examining its historical roots.

The analytical appeal of a definition of competition does not depend upon its economy of assumptions, although gratuitously wide assumptions are objectionable. We wish the definition to specify with tolerable clarity—with such clarity as the state of the science affords—a model which can be used by practitioners in a great variety of theoretical researches, so that the foundations of the science need not be debated in every extension or application of theory. We wish the definition to capture the essential general content of important markets, so the predictions drawn from the theory will have wide empirical reliability. And we wish a concept with normative properties that will allow us to judge the efficiency of policies. That the concept of perfect competition has served these varied needs as well as it has is providential. (Stigler 1986:280)

For Stigler, the theory had passed the almost Darwinian test of time, namely it had survived. Unfortunately, this simply testifies to the fact that perfect competition has fit the prevailing preferences of economists over time. Such a ‘providential’ match is axiomatically neither a guarantee of the theory’s truthfulness nor of its accuracy.

But a man that intelligent, given the nature of economic conservation, would almost always find what he’s looking for. Is that bad? That’s I think a really tough thing about economics. I don’t think he was aware of the problem day to day. But if I said that to him, or it might not only just be I, if Paul or someone said that to him, he would agree. And then I think he would have said, “It’s the better part of wisdom when you come to these really narrow decisions and the data speaks ambiguously, to accept the long-standing, the long view we’ve come to accept as knowledge and it’s unwise, on the basis of that kind of evidence, to say I should throw over something that has stood us in good stead since 1776.” (Conversation with Robert Solow, October 1997)

My fundamental thesis, in fact, is that hardly any important improvement in general economic theory can fail to affect the concept of competition. But it has proved to be a tough and resilient concept, and it will stay with us in recognizable form for a long time to come. (Stigler 1986:284)

To avoid any confusion, at the time of his LSE lectures, George Stigler was a member of the Columbia University faculty. He was not to shift to Chicago and be reunited with his comrade-in-arms, Milton Friedman, until 1958. However, spiritually it can be argued that Stigler, in fact, never left the Midway environment.

Here once again we are faced with a slight discrepancy between the oral tradition and the actual printed word. Twain replied in an edition of The New York Journal 2 June 1897 that “The report of my death was an exaggeration.” There is always a temptation to edit comments into a more pleasing or useful form. Nonetheless, despite George Stigler’s attempt to inter monopolistic theory from his 1948 lecture through to his 1988 autobiography, he was perhaps too eager in writing its obituary.

Because in fact in his autobiography George Stigler refers to monopolistic competition as dead and buried.

A bit premature.

Never pronounce a death sentence on anything.

No, no that’s right. (Conversation with Harold Demsetz, October 1997)

Stigler was an inherent stirrer. His personality seemed to form a sympathetic match with the characteristic of the natural marketer. To be simply ignored was for him the worst sort of ignominy. Better to be reviled than anonymous. In a much less dramatic form Stigler’s stance is not unlike Milton’s Satan who found it “better to reign in Hell than to serve in Heaven” (Milton 1667: line 263). To what degree this desire was motivated by the persistent insecurity that some of his colleagues noticed is a question best avoided as placing us awkwardly in unwanted psychological waters.

It is an achievement when others think that one’s arguments are important enough to be denounced and demolished. Even to be demolished is better for one’s self-esteem and reputation than to be ignored: It requires some ability to excite and especially to outrage one‘s fellow professionals (Stigler 1982:213).He liked upsetting people. I told you he wrote that column for Business Month. After a year went by, nobody had criticized it. They didn’t get any letters to the editor. And you know, he had said so many outrageous things: that insider trading is really okay, that sort of thing. He said things meant to upset people. Well, he gave it up. He wasn‘t having any fun. He wanted people to criticize his ideas and then he wanted to come back with his rejoinders. You know, he wanted to have a little controversy. (Conversation with Claire Friedland, November 1997)

An unwavering belief in the efficiency of contracting and an inherent faith in the lack of any significant economic power within the marketplace seems the basis for such an absence of skepticism. This apparent assumption that all economic agents contract from positions of equal bargaining power seems to drive much of Armen Alchian’s work. An inventive economist who remained an unyielding believer in the efficiency of markets, he has been described by Paul Samuelson as, “Armen Alchian, who is more Catholic than the Pope, never went to University of Chicago but is a real Chicagoan” (conversation with Paul Samuelson, November 1997). This assumption of equal bargaining power between contractual agents is easily noticeable in his classic work with Harold Demsetz (1972). In essence, this approach can be summed up by saying “what is, is efficient”—applying the survivor principle to all economic outcomes. The implicit associated lemma is that what is efficient also turns out to be fair. This surprising conclusion pops up in the 1972 paper as well as in Stigler’s Tanner Lectures (1982a). If anything, Alchian was even more of a true believer than Stigler, occasionally pointing out his minor transgressions in forgetting that a market is a market and none should be privileged.

I also admit to no privileged position for the university … Like a shoe producer, a butcher or an advertising agency, the university has a product to sell. I care not if some of these universities propose to suppress certain ideas of their employees (who can go elsewhere) nor if the university has an ax to grind. I care not so long as the university is not a monolithic monopoly of the state—as it threatens to be. The access to the market for education, truth, falsity, shoes, wax, and what you will is what gives truth a chance to survive. Nor is it necessary—not even desirable possibly?—that the truth be the goal of the agents that get it revealed. Your position strikes me as perilously close to advice to a paternalistic agency. On the same grounds I see no reason to expect newspapers to have a responsibility to be honest. Let them lie as they will. I rely on access of others to expose the lie and to cater to the public’s desire for truth—or to whatever extent the public and individuals wish it. (Letter from Armen Alchian to George Stigler, March 25, 1967)

Evolution and competition doesn’t necessarily yield any sort of perfection in the biological sphere as well, since the process must use the materials at hand with the selection process being time and place specific. Certainly individual acts of creation by some all-powerful incarnate spirit might be preferred, at least in theory. People suffering from chronic back problems might well agree with such a hypothesis.

The need for his approaches to be consistent and universal perhaps acted as a compelling factor forcing what seemed at times to be an extreme black-and-white view of the world, one without nuance. This aspect of his pronouncements seems more closely to image a marketing necessity than perhaps what Stigler would consider to be the case, under more reflective conditions.

Like when he was confronted with some fact about regulation, he would say “Ah, you’re going to find some Congressman was bought off. [laughter] You are actually going to find that. That’s what you’re going to find. Are you sure that you didn’t find that this Congressman wasn’t on the take?” You know, that kind of writing, that kind of a very strong view … I know he would often criticize people for trying to explain every observation and not accepting the fact that there was a certain degree of error. But when in the middle of a lunch time conversation, if you confronted him with something like that, with some anomaly, he could have just said, “Look, that’s the error. Let’s just go on and talk about the substance.” But he would in fact say, “No. You’re going to find that some interest was in there on the political front. You’ll find it if you look hard enough.” You wouldn’t find it. (Conversation with Sam Peltzman, October 1997)

Sherwin Rosen, who had seen the profession evolve over his years as an economist, had to confess that marketing played an increasingly significant role in the field. Certainly you couldn’t succeed by marketing any random concepts; it had to somehow connect with deep-seated preferences of your target audience. But it remains a question as to whether it is now possible to achieve anything resembling a reputation within the discipline without some ability to adeptly spin one’s ideas.

Marketing is part of that business. There’s no doubt that some people are able to market their work better than others. Or perhaps, it somehow catches on for reasons that are hard to say. I hope it catches on when it has something to it. I don’t think marketing is all there is to acceptance. If you happen to have a product that is no good you might market it well but it’s going to fail. So I do think marketing is very important when undertaking an intellectual activity. It’s probably more important now than it was before. The market is much bigger [laughs] for one thing. You have people making serious money out of marketing ideas and getting reputations from successfully doing that. But it’s not only the money. It’s the associated prestige and all kinds of other things as well. It seems to me that there’s a lot more score keeping these days. Unlike in previous days, Economists are now reckoned to be in a pretty interesting discipline. So to succeed, you’ve got to be able to sell your ideas somehow. How do you do that? I don’t really know. Maybe you do attack other people. That’s been done over the years, but it doesn’t always work. It doesn’t work if there’s nothing behind your attack. (Conversation with Sherwin Rosen, October 1997)

Given Stigler’s personality, stance and intellectual standpoint it is hardly surprising that Smith’s Moral Sentiments continued to puzzle him. Building a grand abstract and generalized system using self-interest as a cornerstone left the detail, psychology and the methods of application in this work at odds with the direction in which he saw Smith’s Wealth of Nations moving. He failed to see how Smith constructed these works so that they formed pieces of the same puzzle explaining humans as economic agents.

I don’t think he thought that much of the Moral Sentiments. He thought Wealth of Nations was the greatest book ever written in economics. There was no question about Smith as the greatest economist. I can’t recall exactly what he said, I mean about Smith, except he would sometime speak about the literature on the so-called Smithian problem. How could somebody who wrote the Wealth of Nations write a Theory of Moral Sentiments? He felt that markets were best understood, George as well as Smith, in terms of self-interested behaviour. And Moral Sentiments doesn’t deal much with that issue. So he thought in terms of understanding markets, economists deal with markets. What was in the Moral Sentiments wasn’t much relevant. You know it would be George’s view basically. I don’t know if he’d say it wasn’t a good book. He didn’t think it was as good a book as Ronald Coase thought it was, or I thought it was. That I know. I wouldn’t say he thought it was a bad book, but in terms of understanding markets, what you got out of the Wealth of Nations was a hundred times more useful than what you got out of the Moral Sentiments. (Conversation with Gary Becker November 1997)

In his Adam Smith lecture given to the National Association of Business Economists (October 1987) George Stigler estimated that Keynes’ own ambitions were not quite so benign. However Keynes did see the dentistry track as only lying in the future, with any luck arriving in the time of his generation’s grandchildren. But clearly, the necessity for Keynes in the present was to refashion economics by helping the discipline escape from its pernicious past.

He [Stigler] concluded that Keynes sought to be, not a dentist, but “a brain surgeon who operated on ideologies.” (Leeson 1997:6)

Deirdre McCloskey recalls Stigler reducing a presenter to tears at his Industrial Organization workshop (personal communication, June 2003). But perhaps Claire Friedland, who was George Stigler’s constant and faithful research assistant during his many decades at Chicago, summed up his rare ability to be simultaneously amusing and devastating when taking aim at another academic. It is doubtful that his targets were able to properly distinguish whether the objective was personal annihilation or simply aimed at questionable theory.

As for George’s caustic wit, he never let go one of his barbs for the sake of mere one-upmanship. They were always aimed at the target’s ideas, not the target himself: even when a workshop speaker asked whether he should deliver his paper standing or seated and George responded, “With a paper like this, under the table would not be inappropriate.” (Friedland 1993:781)