Armen Alchian, The Economists’ Economist

The first time that I ever heard of Armen Alchian was when I took introductory economics at UCLA as a freshman, and his book (co-authored with his colleague William R. Allen who was probably responsible for the macro and international chapters) University Economics (the greatest economics textbook ever written) was the required text. I had only just started to get interested in economics, and was still more interested in political philosophy than in economics, but I found myself captivated by what I was reading in Alchian’s textbook, even though I didn’t find the professor teaching the course very exciting. And after 10 weeks (the University of California had switched to a quarter system) of introductory micro, I changed my major to economics. So there is no doubt that I became an economist because the textbook that I was taught from was written by Alchian.

In my four years as an undergraduate at UCLA, I took three classes from Axel Leijonhufvud, two from Ben Klein, two from Bill Allen, and one each from Robert Rooney, Nicos Devletoglou, James Buchanan, Jack Hirshleifer, George Murphy, and Jean Balbach. But Alchian, who in those days was not teaching undergrads, was a looming presence. It became obvious that Alchian was the central figure in the department, the leader and the role model that everyone else looked up to. I would see him occasionally on campus, but was too shy or too much in awe of him to introduce myself to him. One incident that I particularly recall is when, in my junior year, F. A. Hayek visited UCLA in the fall and winter quarters (in the department of philosophy!) teaching an undergraduate course in the philosophy of the social sciences and a graduate seminar on the first draft of Law, Legislation and Liberty. I took Hayek’s course on the philosophy of the social sciences, and audited his graduate seminar, and I occasionally used to visit his office to ask him some questions. I once asked his advice about which graduate programs he would suggest that I apply to. He mentioned two schools, Chicago, of course, and Princeton where his friends Fritz Machlup and Jacob Viner were still teaching, before asking, “but why would you think of going to graduate school anywhere else than UCLA? You will get the best training in economics in the world from Alchian, Hirshleifer and Leijonhufvud.” And so it was, I applied to, and was accepted at, Chicago, but stayed at UCLA.

As a first year graduate student, I took the (three-quarter) microeconomics sequence from Jack Hirshleifer (who in the scholarly hierarachy at UCLA ranked only slightly below Alchian) and the two-quarter macroeconomics sequence from Leijonhufvud. Hirshleifer taught a great course. He was totally prepared, very organized and his lectures were always clear and easy to follow. To do well, you had to sit back listen, review the lecture notes, read through the reading assignments, and do the homework problems. For me at least, with the benefit of four years of UCLA undergraduate training, it was a breeze.

Great as Hirshleifer was as a teacher, I still felt that I was missing out by not having been taught by Alchian. Perhaps Alchian felt that the students who took the microeconomics sequence from Hirshleifer should get some training from him as well, so the next year he taught a graduate seminar in topics in price theory, to give us an opportunity to learn from him how to do economics. You could also see how Alchian operated if you went to a workshop or lecture by a visiting scholar, when Alchian would start to ask questions. He would smile, put his head on his forehead, and say something like, “I just don’t understand that,” and force whoever it was to try to explain the logic by which he had arrived at some conclusion. And Alchian would just keep smiling, explain what the problem was with the answer he got, and ask more questions. Alchian didn’t shout or rant or rave, but if Alchian was questioning you, you were not in a very comfortable position.

So I was more than a bit apprehensive going into Alchian’s seminar. There were all kinds of stories told by graduate students about how tough Alchian could be on his students if they weren’t able to respond adequately when subjected to his questioning in the Socratic style. But the seminar could not have been more enjoyable. There was give and take, but I don’t remember seeing any blood spilled. Perhaps by the time I got to his seminar, Alchian, then about 57, had mellowed a bit, or, maybe, because we had all gone through the graduate microeconomics sequence, he felt that we didn’t require such an intense learning environment. At any rate, the seminar, which met twice a week for an hour and a quarter for 10 weeks, usually involved Alchian picking a story from the newspaper and asking us how to analyze the economics underlying the story. Armed with nothing but a chalkboard and piece of chalk, Alchian would lead us relatively painlessly from confusion to clarity, from obscurity to enlightenment. The key concepts with which to approach any problem were to understand the choices available to those involved, to define the relevant costs, and to understand the constraints under which choices are made, the constraints being determined largely by the delimitation of the property rights under which the resources can be used or exchanged, or, to be more precise, the property rights to use those resources can be exchanged.

Ultimately, the lesson that I learned from Alchian is that, at its best, economic theory is a tool for solving actual real problems, and the nature of the problem ought to dictate the way in which the theory (verbal, numerical, graphical, higher mathematical) is deployed, not the other way around. The goal is not to reach any particular conclusion, but to apply the tools in the best and most authentic way that they can be applied. Alchian did not wear his politics on his sleeve, though it wasn’t too hard to figure out that he was politically conservative with libertarian tendencies. But you never got the feeling that his politics dictated his economic analysis. In many respects, Alchian’s closest disciple was Earl Thompson, who studied under Alchian as an undergraduate, and then, after playing minor-league baseball for a couple of years, going to Harvard for graduate school, eventually coming back to UCLA as an assistant professor where he remained for his entire career. Earl, discarding his youthful libertarianism early on, developed many completely original, often eccentric, theories about the optimality of all kinds of government interventions – even protectionism – opposed by most economists, but Alchian took them all in stride. Mere policy disagreements never affected their close personal bond, and Alchian wrote the forward to Earl’s book with Charles Hickson, Ideology and the Evolution of Vital Economics Institutions. If Alchian was friendly with and an admirer of Milton Friedman, he just as friendly with, and just as admiring of, Paul Samuelson and Kenneth Arrow, with whom he collaborated on several projects in the 1950s when they consulted for the Rand Corporation. Alchian cared less about the policy conclusion than he did about the quality of the underlying economic analysis.

As I have pointed out on several prior occasions, it is simply scandalous that Alchian was not awarded the Noble Prize. His published output was not as voluminous as that of some other luminaries, but there is a remarkably high proportion of classics among his publications. So many important ideas came from him, especially thinking about economic competition as an evolutionary process, the distinction between the functional relationship between cost and volume of output and cost and rate of output, the effect of incomplete information on economic action, the economics of property rights, the effects of inflation on economic activity. (Two volumes of his Collected Works, a must for anyone really serious about economics, contain a number of previously unpublished or hard to find papers, and are available here.) Perhaps in the future I will discuss some of my favorites among his articles.

Although Alchian did not win the Nobel Prize, in 1990 the Nobel Prize was awarded to Harry Markowitz, Merton Miller, and William F. Sharpe for their work on financial economics. Sharp, went to UCLA, writing his Ph.D. dissertation on securities prices under Alchian, and worked at the Rand Corporation in the 1950s and 1960s with Markowitz.  Here’s what Sharpe wrote about Alchian:

Armen Alchian, a professor of economics, was my role model at UCLA. He taught his students to question everything; to always begin an analysis with first principles; to concentrate on essential elements and abstract from secondary ones; and to play devil’s advocate with one’s own ideas. In his classes we were able to watch a first-rate mind work on a host of fascinating problems. I have attempted to emulate his approach to research ever since.

And if you go to the Amazon page for University Economics and look at the comments you will see a comment from none other than Harry Markowitz:

I am about to order this book. I have just read its quite favorable reviews, and I am not a bit surprised at their being impressed by Armen Alchian’s writings. I was a colleague of Armen’s, at the Rand Corporation “think tank,” during the 1950s, and hold no economist in higher regard. When I sat down at my keyboard just now it was to find out what happened to Armen’s works. One Google response was someone saying that Armen should get a Nobel Prize. I concur. My own Nobel Prize in Economics was awarded in 1990 along with the prize for Wm. Sharpe. I see in Wikipedia that Armen “influenced” Bill, and that Armen is still alive and is 96 years old. I’ll see if I can contact him, but first I’ll buy this book.

I will always remember Alchian’s air of amused, philosophical detachment, occasionally bemused (though, perhaps only apparently so, as he tried to guide his students and colleagues with question to figure out a point that he already grasped), always curious, always eager for the intellectual challenge of discovery and problem solving. Has there ever been a greater teacher of economics than Alchian? Perhaps, but I don’t know who. I close with one more quotation, this one from Axel Leijonhufvud written about Alchian 25 years ago.  It still rings true.

[Alchian’s] unique brand of price theory is what gave UCLA Economics its own intellectual profile and achieved for us international recognition as an independent school of some importance—as a group of scholars who did not always take their leads from MIT, Chicago or wherever. When I came here (in 1964) the Department had Armen’s intellectual stamp on it (and he remained the obvious leader until just a couple of years ago ….). Even people outside Armen’s fields, like myself, learned to do Armen’s brand of economic analysis and a strong esprit de corps among both faculty and graduate students sprang from the consciousness that this ‘New Institutional Economics’ was one of the waves of the future and that we, at UCLA, were surfing it way ahead of the rest. But Armen’s true importance to the UCLA school did not stem just from the new ideas he taught or the outwardly recognized “brandname” that he created for us. For many of his young colleagues he embodied qualities of mind and character that seemed the more important to seek to emulate the more closely you got to know him.

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19 Responses to “Armen Alchian, The Economists’ Economist”


  1. 1 motomoniker February 25, 2013 at 10:05 pm

    Quite enjoyable. Thank you for sharing your recollections.

  2. 2 Marcus Nunes February 26, 2013 at 3:38 am

    David, of all (quite a few) ‘reminiscences ‘ of Alchian I´ve read in the past several days, this was the most moving, the only one that allows you to picture the man without ever having been in his presence. I read large swaths of UE many decades ago, but you have awaken a desire to read it again. Thanks

  3. 3 amv February 26, 2013 at 5:17 am

    I completely concur with Mr. Nunes. I just ordered Alchian’s collected works, inspired by your post. Thanks.

  4. 4 LarryK February 26, 2013 at 5:27 am

    Nice post – but did you mean to say Rachel, and not Jean, Balbach was your teacher at UCLA? I know Rachel taught there around that time; I worked with her in the mid-80s at a bank in St. Louis.

  5. 5 Luis February 26, 2013 at 10:44 am

    Wonderful. David, you have had a very plentfully intelectual life…

  6. 6 Tas von Gleichen February 26, 2013 at 12:40 pm

    Great review, but I don’t think I have the time to read the book.

  7. 7 David R. Henderson February 26, 2013 at 2:01 pm

    Beautiful, David.

  8. 8 Blue Aurora February 26, 2013 at 10:47 pm

    Thank you for sharing your experience at the UCLA Economics Department and the impact that your mentor had on you, David Glasner.

    A minor technical issue, though…

    Were you aware that you could have also linked to Harry Markowitz’s Amazon.com review of Armen Alchian’s University Economics? I mean, there’s nothing wrong with directly quoting, but still.

    http://www.amazon.com/review/R3CH9E5B3QGZ0C/

  9. 9 William J. Luther February 27, 2013 at 4:24 am

    Your undergraduate experience—with classes from Axel Leijonhufvud, Ben Klein, Bill Allen, James Buchanan, Jack Hirshleifer, F.A. Hayek—is perhaps the best I’ve ever heard!

  10. 10 Benjamin Cole February 27, 2013 at 5:09 am

    Oddly enough, Markowitz’ daughter married my father. About 12 years ago I said to Markowitz that if guys at compeer screens to could leverage to the hilt (this was around the time of the LTCM debacle) that presented a threat to the system. He agreed.

  11. 11 Lawrence H. White February 27, 2013 at 7:19 am

    David, you’ve captured the Alchian I remember very well. When I took the UCLA Ph.D. micro sequence in 1977-78, Alchian taught the first quarter, Finis Welch the second, and Hirshleifer the third. (Macro was Michael Darby then Leijonhufvud.) I knew it wasn’t the first time Alchian had taught it, because a few second-year students came to sit in the back of our room to hear him again — and to watch the first-year students squirm under the questioning. I didn’t realize that Alchian had not taught the first quarter in your first year. My timing was even luckier than I realized!

    Alchian didn’t assign University Economics to the Ph.D. class. But he did say with a smile that everything we needed to know to pass the micro prelim was in the book. Only we would need to understand it very thoroughly.

  12. 12 David Glasner February 27, 2013 at 8:55 pm

    motomoniker, You’re welcome, glad you enjoyed it.

    Marcus, You’re welcome, writing about Alchian reminded me that there’s still a lot of stuff that he wrote that I haven’t read and even what I have read once or twice can still be reread with profit and enjoyment.

    amv, Good decision on your part.

    LarryK, Yes, I actually was guessing when I wrote Jean, though I think that Jean Balbach is a name that I have encountered, but I can’t remember where or when.

    Luis, Thanks, and I indeed have been blessed many great teachers. I took calculus from Basil Gordon at UCLA. That was the best class of my entire undergraduate and graduate career.

    Tas, Take my advice: make time.

    David, Coming from you, that’s a wonderful compliment.

    Blue Aurora, You’re welcome. And thank you for the technical instruction.

    William, Yes that’s quite an impressive list come to think of it. My daughter once asked me if I am smarter than Paul Krugman. I replied that I didn’t think so. She then asked me if I always agree with him. I said, no. Then she asked me why I would disagree with him if he’s smarter than I am. I told her that I had better teachers than he did.

    Benjamin, Thanks for the anecdote. You really are well-connected, aren’t you.

    Larry, Thanks for your comment. We also studied for our theory prelims by reading University Economics and trying to answer the questions at the end of each chapter.

  13. 13 Blue Aurora March 7, 2013 at 12:08 am

    Don’t mention it, David Glasner.

    Also, while it’s a bit late now, I do have a few questions regarding your late mentor at UCLA…

    1.) What was Armen Alchian’s attitude toward – to invoke Leijonhufvud’s book – the economics of John Maynard Keynes (and I would define this to be the chronological development of Keynes’s economic thinking, specifically focusing on the interwar trilogy: A Tract on Monetary Reform [1923], A Treatise on Money [1930], and The General Theory of Employment, Interest and Money [1936] – though of course, this doesn’t mean that we can’t find insights in Keynes’s work prior to 1923) and Keynesian economics?

    2.) Were there any “Keynesians” in your time at the UCLA Department of Economics?

    3.) If there were any graduate students there inclined toward the economics of Keynes and/or Keynesian economics during your time there, how did Armen Alchian treat the Keynesian economists in the classroom?

  14. 14 Jim Rose July 10, 2014 at 3:28 am

    Reblogged this on Utopia – you are standing in it! and commented:
    Armen Alchian was one of the finest economists of the 20th century.


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About Me

David Glasner
Washington, DC

I am an economist at the Federal Trade Commission. Nothing that you read on this blog necessarily reflects the views of the FTC or the individual commissioners. Although I work at the FTC as an antitrust economist, most of my research and writing has been on monetary economics and policy and the history of monetary theory. In my book Free Banking and Monetary Reform, I argued for a non-Monetarist non-Keynesian approach to monetary policy, based on a theory of a competitive supply of money. Over the years, I have become increasingly impressed by the similarities between my approach and that of R. G. Hawtrey and hope to bring Hawtrey's unduly neglected contributions to the attention of a wider audience.

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