George Stigler

George Joseph Stigler (January 17, 1911 – December 1, 1991) was a U.S. economist. He won the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel in 1982.

George Stigler was one of the great economists of the twentieth—or any other—century, with a gift for writing matched among modern economists only by John Maynard Keynes. Intellectual history was his first field of specialization. It remained a lasting love and provided a rich seedbed for his scientific work. A deep understanding of the ideas of the great economists of the past gave him a strong foundation on which to build an analysis of contemporary issues.

Few economists have so consistently and successfully combined economic theory with empirical analysis, or ranged so widely. Stigler regarded economic theory, in the words of Alfred Marshall, as "an engine for the discovery of concrete truth," not as a subject of interest in its own right, a branch of mathematics.

Biography

George Stigler was born January 17, 1911, in Renton, Washington, a suburb of Seattle. He was the only child of Joseph and Elizabeth Hungler Stigler, who had separately migrated to the United States at the end of the nineteenth century, his father from Bavaria, his mother from what was then Austria-Hungary.His father, a brewer by profession,tried, during the prohibition years, a variety of jobs; finally settled in the real estate market. "……My parents bought rundown places, fixed them up, and sold them. By the time I was sixteen, I had lived in sixteen different places in Seattle. But my parents had a comfortable if nomadic existence……." (Stigler, 1988, pp. 9-10).

Stigler went to the University of Washington, Seattle, receiving a B.A. in 1931. When he graduated from college, he had "...no thought of an academic career..."; it was the depression and jobs in business were scarce, so he applied for and was awarded a fellowship at Northwestern University for graduate study in After he graduated from college, he had "no thought of an academic career"; but it was the depression and jobs in business were scarce, so he applied for and was awarded a fellowship at Northwestern University business school, receiving an M.B.A in 1932 (Stigler, 1988, p. 15).

At Northwestern he developed an interest in economics and decided on an academic career and received a tuition scholarship to study economics at the University of Chicago. There he found an intense intellectual atmosphere that captivated him. At Chicago, Stigler was particularly influenced by Frank H. Knight, under whom he wrote his dissertation ( received Ph.D. in 1938 ). Milton Friedman, a friend of over 60 years, considered this to be a noteworthy feat since only three or four students ever managed to complete a dissertation under Knight in his twenty-eight years on the Chicago faculty.

Chicago became his intellectual home for the rest of his life, as a student from 1933 to 1936, a faculty member from 1958 to his death in 1991, and a leading member of and contributor to the "Chicago School" throughout.

In 1936 Stigler accepted an appointment as an assistant professor at Iowa State College (now University), and shortly thereafter was married to Margaret "Chick" Mack. ( NOTE: The family suffered a tragic loss in 1970, when Chick died unexpectedly, without any advance warning. George never remarried.)

George Stigler accepted an appointment at the University of Minnesota in 1938 and then went on leave in 1942 to work first at the National Bureau of Economic Research and later at the Statistical Research Group of Columbia University, a group directed by Allen Wallis that was engaged in war research on behalf of the armed services.

When the war ended in 1945, George returned to the University of Minnesota, but he remained only one year, leaving in 1946 to accept a professorship at Brown University.After a year at Brown, he moved to Columbia, where he remained until 1958, despite several attempts by Theodore Schultz, chairman of the Chicago Department of Economics, to bring him to Chicago.

In 1958 Allen Wallis, then dean of the University of Chicago business school, persuaded him to accept the Charles R. Walgreen professorship of American institutions. Stigler remained at Chicago for the rest of his life. At Chicago he became an editor of the Journal of Political Economy; established the Industrial Organization Workshop, which achieved recognition as the key testing ground for contributions to the field of industrial organization.

From 1971 to his death, Stigler was a fellow at the Hoover Institution at Stanford, and spent part of almost every year at Hoover.

In 1977 founded the Center for the Study of the Economy and the State, serving as its director until his death in 1991. George Stigler and “Chick” ( his wife ) had three sons: Stephen, a professor of statistics at the University of Chicago; David, a corporate lawyer; and Joseph, a businessman.

Stigler’s main work

Stigler's doctoral dissertation, published as Production and Distribution Theories (1941), was a historical survey of neoclassical theories that remains the definitive study of its subject. That book was followed by a steady flow of perceptive, thoughtful, and beautifully written articles and books interpreting the contributions of his predecessors, some of which were collected in Essays in the History of Economics (1965). This was, however, just a preamble of his main scientific thrusts. Among them we can rank:

Price theory and basics of Linear Programming

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

Because of excessive condensation it became one of the least readable things Stigler ever wrote. It was not a matter of convoluted writing or confused thought—Stigler was never guilty of either of these common academic sins—but of excessive condensation that required painstakingly slow pondering over every concentrated thought. If the book had been three times as long, it could have been read in half the time. Still, it remained something of a classic, although “….It was the kind of book that teachers of price theory courses read themselves, while they assigned some other text to the class…." (Sowell, 1993, pp. 785-86).

The linkage of fact and theory in his textbook foreshadowed his subsequent scientific work. His many contributions to economic theory were all a byproduct of seeking to understand the real world, and nearly all led to an attempt to provide some quantitative evidence to test the theory or to provide empirical counterparts to theoretical concepts.

An early example of the latter is an article on "The Cost of Subsistence" ( Stigler, 1945), which starts, "……Elaborate investigations have been made of the adequacy of diets at various income levels, and a considerable number of 'low-cost,' 'moderate,' and 'expensive' diets have been recommended to consumers. Yet, so far as I know, no one has determined the minimum cost of obtaining the amounts of calories, proteins, minerals, and vitamins which these studies accept as adequate or optimum…….."( Stigler, 1945, pp. 303- 304).

Stigler then set himself to determine the minimum cost diet, in the process producing one of the earliest formulations of a linear programming problem in economics, for which he found an approximate solution, explaining that "…..there does not appear to be any direct method of finding the minimum of a linear function subject to linear constraints……." ( ibid. ). Two years later George Dantzig provided such a direct method, the simplex method, now widely used in many economic and industrial applications.

Theory of economic regulation

As early as the 1940s, Stigler studied the effects of some features of regulatory legislation in the USA, particularly rent controls and minimum-wage legislation. He indicated that far-reaching, unintended side-effects could arise alongside the primary desired effects. A later study showed that regulation of electricity rates completely lacked observable effects.

As a conceivable explanation, Stigler saw that regulation can be based on erroneous perception of real conditions and thus, in practice, be difficult to implement, and on the fact that the intended effects can be neutralized by external pressures. This work on the consequences of regulatory legislation have set a pattern for numerous similar studies.

Eventually, he developed the “theory of economic regulation.” He asked: “….If regulation does not generally achieve its stated objectives, why have so many agencies been established and kept in existence?...." (Schmalensee, 1987, p. 499).

"The Theory of Economic Regulation" (Stigler, 1971) presents Stigler's answer to that question. The "..central thesis of the article,...." Stigler wrote, "....is that, as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit..."( ibid. )

He notes that "....two alternative views of the regulation of industry are widely held. …….…..The first is that regulation is instituted primarily for the protection and benefit of the public at large or some large subdivision of the public . . . The second view is essentially that the political process defies rational explanation……."( Stigler, 1971 ).

He then gives example after example to support his own thesis, which by now has become the orthodox view in the profession, concluding, "…..The idealistic view of public regulation is deeply imbedded in professional economic thought . . . The fundamental vice of such a [view] is that it misdirects attention……to preaching to the regulators rather than changing their incentives. …..”( ibid. )

But Stigler's results do show that legislation can also be an outflow of market participants' optimizing behaviour. To the extent that this is so, legislation is no longer an "exogenous" force which affects the economy from outside, but an "endogenous part of the economic system itself. This approach constitutes a further step towards extending the sphere of application for the basic assumption of economic theory.

To conclude : Stigler's analysis fed the emerging field that has since come to be called "public choice" economics: the shift from viewing the political market as not susceptible to economic analysis, as one in which disinterested politicians and bureaucrats pursue the "public interest," to viewing it as one in which the participants are seeking, as in the economic market, to pursue their own interest, and hence subject to analysis with the usual tools of economics.

Economics of information

Stigler's impact was, however, greatest and most lasting in the three fields that were singled out in the Nobel citation, those he labeled the economics of information, the theory of economic regulation, and the organization of industry.

But it is important to note that Stigler’s emphasis on statistical documentation, in all three fields, has been no less than revolutionary. Previously, regulatory agencies were frequently judged by their original intentions or their self-proclaimed successes—indeed, by almost any standard but the verifiable results of their actions. Much of the credit for the growing interest in the empirical verification of economic theory must be given to Stigler.

"The Economics of Information" is the title of a seminal article (Stigler, 1961) that gave birth to an essentially new area of study for economists. In his intellectual autobiography, George Stigler termed it, "…..My most important contribution to economic theory…." (Stigler, 1988, pp. 79-80).

The article begins, "…..One should hardly have to tell academicians that information is a valuable resource: knowledge is power. And yet it occupies a slum dwelling in the town of economics. Mostly it is ignored…...."(Stigler, 1961, pp. 213-25). Stigler then proceeded to illustrate the importance of subjecting information to economic analysis with two examples: the dispersion of prices and the role of advertising.

His underlying ambition has been to seek explanations for the distinctive features and peculiarities of markets and structural developments within the framework of basic theoretical assumptions about firms' and households' optimizing behavior and the interplay between supply and demand.

This is exemplified in Stigler's studies of the role of information in market processes. According to traditional theory, the result of optimization and market processes should be that every commodity, except for transport costs, is sold for one and the same price everywhere. But, in practice, price variation is observed on most markets. Stigler has shown that this can be explained if the costs of searching for, and diffusing information about, goods and prices are incorporated in the model along with production and transport costs.

The basic properties of traditional theory do not have to be challenged. It has merely been too schematic by assuming "perfect information," in the same way that fundamental theories in physics simplistically assume the existence of a vacuum.

A market participant's lack of knowledge about goods and prices can, of course, be alleviated by collecting and furnishing information. The amount of information a firm or household acquires is guided by the same comparisons between costs and benefits as the production of any commodity. That is, information is gathered until the expected utility of further search no longer outweighs additional search costs. The information a subject acquires is consciously chosen. Conversely - and more provocatively - even a lack of market information is rationally and deliberately chosen.

The proposal to study the economics of information was promptly and widely accepted. Within a decade and a half, the literature had become so extensive and the theorists working in the field so prominent, that the subject was given a separate classification in the Index of Economic Articles, and more than a hundred articles a year are now devoted to the subject.

“…….The absence of controversy was certainly no tribute to the definitiveness of my exposition. . . . The absence of controversy was due instead to the fact that no established scientific theory was being challenged by this work; in fact, all I was challenging was the neglect of a promising subject…..” (Stigler, 1983, p. 539).

Stigler’s legacy

These are final word on Stigler from his colleague and fellow recipient of the Nobel Memorial Prize in Economic Science, Ronald Coase:

“…….He is equally at home in the history of ideas, economic theory, and the study of politics. Even more remarkable is the variety of ways in which he handles a problem; he moves from the marshaling of high theory to aphorism to detailed statistical analysis, a mingling of treatments. . . . It is by a magic of his own that Stigler arrives at conclusions which are both unexpected and important. Even those who have reservations about his conclusions will find that a study of his argument has enlarged their understanding of the problem being discussed and that aspects are revealed which were previously hidden. Stigler never deals with a subject which he does not illuminate. And he expresses his views in a style uniquely Stiglerian, penetrating, lively, and spiced with wit… his writings are easy to admire, a joy to read, and impossible to imitate….” (Coase, 1991, p. 472).

And yet, we still have his very important role he played in the American economics hardly mentioned anywhere. It is Stigler’s role as editor and reviewer. "…..For 19 years Stigler was a very successful editor of the Journal of Political Economy. Under his leadership this journal solidified its high reputation among economists……" (Becker, 1993, p. 765).

His complete bibliography lists 73 reviews in 24 publications ranging from strictly professional, like the Journal of Political Economy (22) and the American Economic Review (10), to the popular, like the Wall Street Journal (5), and the New York Times (3), and dating from 1939 to 1989.

Although it was Stigler’s tangible work on the causes and consequences of economics and political institutions that was recognized by the Nobel committee, his intangible contributions to economics may be just as important. He has raised the standards of industrial economics far beyond those found in the work of earlier scholars. Moreover, Stigler has made sterling contributions to the history and sociology of economic thought. His recognition by the Nobel committee is a testament to his rigorous, clear-thinking style,

Bibliography and References

Becker, G. S., “George Joseph Stigler,” J. Polit. Econ. vol. 101, 1993, pp. 761-767

Coase, R., George J. Stigler: In Remembering the University of Chicago, (ed. E. Shils), University of Chicago Press, Chicago, 1991, pp. 469-78

Diamond, Arthur M., Jr. , "Measurement, Incentives, and Constraints in Stigler's Economics of Science," in: The European Journal of the History of Economic Thought, vol. 12, no. 4, 2005, pp. 637-663

Friedman, Milton "George Stigler: A Personal Reminiscence"; in: Journal of Political Economy vol.101, No. 5, Oct. 1993, pp. 768-773

Schmalensee, R., The New Palgrave: A Dictionary of Economics, vol. 4, ( eds. J. Eatwell, M. Milgate, and P. Newman ), Stockton Press, New York, 1987, pp. 499-500

Sowell, T., "A student's eye view of George Stigler ," J. Polit. Econ. 101:1993.784-92

Stigler, George J., Production and Distribution Theories: 1870-1895, Macmillan, New York, 1941

Stigler, George J., “The cost of subsistence,” J. Farm Econ.,vol 27, 1945, pp. 303-14

Stigler, George J., The Theory of Price, Macmillan, New York, 1946

Stigler, George J., “The Economics of Information,”; in: Journal of Political Economy, June, 1961

Stigler, George J., "The Intellectual and the Marketplace"; in: Selected Papers, no. 3. University of Chicago Graduate School of Business, Chicago, 1962

Stigler, George J., (With Paul Samuelson) "A Dialogue on the Proper Economic Role of the State." Selected Papers, no.7., University of Chicago Graduate School of Business, Chicago, 1963a

Stigler, George J., Capital and Rates of Return in Manufacturing Industries, National Bureau of Economic Research, Princeton University Press, Princeton, N.J. 1963b

Stigler, George J., Essays in the History of Economics, University of Chicago Press, Chicago, 1965

Stigler, George J. and J.K. Kindahl, "The Behavior of Industrial Prices," National Bureau of Economic Research, Columbia University Press, New York, 1970

Stigler, George J., “ The theory of economic regulation,” Bell J. Econ. Man. Sci. , vol. 2., 1971, pp. 3-21

Stigler, George J., “Nobel lecture: The process and progress of economics,” J. Polit. Econ., vol. 91, 1983, pp. 529-545.

Stigler, George J., The Theory of Price, Fourth Edition. Macmillan, New York, 1987

Stigler, George j., Memoirs of an Unregulated Economist, Basic Books, New York, 1988

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