Chicago Price Theory Research Articles

Where Chicago meets London: James M. Buchanan, Virginia Political Economy, and cost theory

James M. Buchanan argued that not only the study of public choice, but also property-rights economics as well as law and economics, can be traced directly to the work of scholars associated with the Thomas Jefferson Center for Studies in Political Economy and Social Philosophy at the University of Virginia (UVA). We draw attention to that point by raising the following question: what was the common knowledge at UVA that made it uniquely suited for the development of each of those related, yet distinct subdisciplines of political economy? Fundamentally, the answer is the unique combination of Chicago price theory and London School of Economics cost theory developed at UVA, where opportunity costs were regarded not as constraints to which individuals passively respond. Rather, they are the reciprocal of the act of choice itself. That subtle distinction has significant implications not only for public policy, but, what is more important, the proper scale and of governmental responses to market failures. The unique combination of the Chicago and London schools was central to the development of a neglected branch of price theory at the University of Virginia.

Where Chicago Meets London: James Buchanan, Virginia Political Economy, and Cost Theory

James Buchanan has argued that not only the study of public choice, but also property-rights economics as well as law and economics can be directly traced to the work of scholars associated with the Thomas Jefferson Center for Studies in Political Economy and Social Philosophy (TJC) at the University of Virginia (UVA). We draw attention to this point to raise the following question: what was the common knowledge at UVA that made it uniquely suited for the development of each these related, yet distinct subdisciplines of political economy? Fundamentally, this can be explained by the unique combination of Chicago price theory and LSE cost theory developed at UVA, where opportunity costs were regarded not as constraints to which individuals passively respond. Rather, they are the reciprocal of the act of choice itself. This subtle distinction has significant implications not only for public policy, but more importantly the scope and scale of government with respect to addressing market failures. This unique combination between the Chicago School and London School was central to the development of a neglected branch of price theory at the University of Virginia.

Price theory as prophylactic against popular fallacies

AbstractThe articles collected inChicago Price Theoryillustrate elements of continuity and change in the development of the Chicago School of Economics. The editors stress a continuity in the Chicago tradition that runs from Frank Knight to Gary Becker. Our contribution in this essay is to emphasize the discontinuity in the evolution of the Chicago price theory tradition. We argue that a logical continuity runs not from the Knight/Viner/Simons generation to the Friedman/Stigler/Becker generation, but to a branch of the Chicago tradition best exemplified by the Alchian/Buchanan/Coase generation of Chicago price theory. The continuity we stress is understanding price theory as a study of market adjustment and adaptation under alternative institutional arrangements.

Price Theory as Prophylactic Against Popular Fallacies

The articles collected in the three-volume set of Chicago Price Theory illustrate elements of continuity and change in the development of the Chicago School. Its editors stress a continuity in price theory at Chicago that runs from Frank Knight to Gary Becker. Our main contribution in this review essay is to emphasize the discontinuity in the Chicago price theory tradition between the Knight/Viner/Simons generation and the post-war Friedman/Stigler/Becker generation. Moreover, we argue that a more logical continuation runs from the Knight/Viner/Simons generation to the Alchian/Buchanan/Coase generation of Chicago price theory. The element of continuity we stress is one of understanding price theory as a study of market adjustment and adaptation under alternative institutional arrangements, rather than using price theory to identify a unique solution to an allocative problem. Whereas the former understanding of price theory was underemphasized under Friedman/Stigler/Becker, the latter understanding of Chicago price theory tradition was continued by Alchian/Buchanan/Coase.

The ideologies of positive economics: technocracy, laissez-faire, and the tensions of Friedman's methodological claims

AbstractThe purpose of this paper is to address some connections between Milton Friedman's classic essay on methodology and the rise of neoliberal thinking. In order to do so, it briefly reconstructs Friedman's methodological claims and reinterprets the debate about them. Emphasis is put on the tensions between instrumentalism and realism or pragmatism, and between empiricism and the defense of Chicago price theory. Then, these tensions are related to a tension that is arguably inherent in neoliberalism, between technocracy and laissez-faire. The argument presented aims to contribute to bridging the gap between the recent literature on neoliberalism and the older one on Friedman's methodological essay.

Alchian, Buchanan, and Coase: A Neglected Branch of Chicago Price Theory

Abstract This paper suggests that there exists a neglected third branch of Chicago price theory, which includes Armen Alchian (1914–2013), James Buchanan (1919–2013), and Ronald Coase (1910–2013). While this branch shares characteristics that are common to the other branches of Chicago price theory, there are two fundamental contributions of this branch that distinguishes it from the others in the Chicago price theory tradition. The first contribution is the application of the logic of choice in discovering alternative institutional arrangements. That is, individuals will engage in exchange not only within a given institutional arrangement, but will also engage in exchange behavior to foster more preferable institutional arrangements that further the particular goals of the exchanging parties. The second contribution is the notion that the provision of markets is an entrepreneurial activity. We argue that this Alchian, Buchanan, Coase approach to price theory provides not only a bridge between the “Old” Chicago School and the “New” Chicago School but also an alternative development of the Chicago School. Our paper, while building on the joint insights of Alchian, Buchanan, and Coase, is focused on Coase’s development of this approach, and clarifying his contribution. By drawing the economist’s attention to transactions costs, Coase more than any other economist of the twentieth century brought institutional analysis to the foreground by stressing the role they play in ameliorating or exacerbating conflicts in a world of positive transactions costs.

Alchian, Buchanan, & Coase: A Neglected Branch of Chicago Price Theory

This paper suggests that there exists a neglected third branch of Chicago price theory, which includes Armen Alchian (1914-2013), James Buchanan (1919-2013), and Ronald Coase (1910-2013). While this branch shares characteristics that are common to the other branches of Chicago price theory, there are two fundamental contributions of this branch that distinguishes it from the others in the Chicago price theory tradition. The first contribution is the application of the logic of choice in discovering alternative institutional arrangements. That is, individuals will engage in exchange not only within a given institutional arrangement, but will also engage in exchange behavior to foster more preferable institutional arrangements that further the particular goals of the exchanging parties. The second contribution is the notion that the provision of markets is an entrepreneurial activity. We argue that this Alchian, Buchanan, Coase approach to price theory provides not a bridge between the Old Chicago School and the New Chicago School, but an alternative development of the Chicago School. Our paper while building on the joint insights of Alchian, Buchanan and Coase, is focused on Coase’s development of this approach, and clarifying his contribution. By drawing the economist’s attention to transactions costs, Coase more than any other economist of the 20th century brought institutional analysis to the foreground by stressing the role they play in ameliorating or exacerbating conflicts in a world of positive transactions costs.

Roll over George Stigler: Berle and Means meet Chicago price theory

Abstract:Recent writings by Richard Posner in this Journal and elsewhere appear to mark a departure from the Chicago price theory tradition with which Posner long has been associated. This paper picks up on one facet of this: the similarity of Posner's views of the corporation, and of executive compensation in particular, to the perspective laid out by Adolf Berle and Gardiner Means in The Modern Corporation and Private Property – a perspective that has for decades been harshly rejected by the Chicago school.

Making Chicago Price Theory: Friedman–Stigler Correspondence 1945–1957 – J. Daniel Hammond, and Claire H. Hammond

The American Journal of Economics and SociologyVolume 67, Issue 2 p. 389-393 Making Chicago Price Theory: Friedman–Stigler Correspondence 1945–1957 – J. Daniel Hammond, and Claire H. Hammond Béatrice Cherrier, Béatrice CherrierSearch for more papers by this author Béatrice Cherrier, Béatrice CherrierSearch for more papers by this author First published: 23 May 2008 https://doi.org/10.1111/j.1536-7150.2008.00577.xRead the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat Volume67, Issue2April 2008Pages 389-393 RelatedInformation

The Literature of Economics: The Case of Berle and Means

THERE are not many books fifty years old whose central argument is identified for modern economists simply by naming the work, but Berle and Means's The Modern Corporation and Private Property is surely one. Every schoolboy, as Macaulay would say, knows that they discovered or asserted or proved or were otherwise joined to the proposition that ownership and control have been separated in the large corporation. Moreover this separation had large, but not easily recalled, effects on the conduct of corporate enterprise. This essay will examine the reception of this book, particularly by the economics profession, in its first decade. Our interest will be not so much in the novelty or validity of the book's message as in how it was understood and received. The process by which a proposition of great potential scientific and political significance gets established in a discipline is fascinatingly mysterious. Our investigation will support the view that doctrines and theories congenial to an intellectual milieu are accepted quickly and widely, although not necessarily as uncritically as the work of Berle and Means was accepted.

Why Should Manufacturers Want Fair Trade?

A LONG-STANDING puzzle to economists is that some manufacturers prefer that their products are sold at not less than "fair trade" retail prices.' Before the courts upset the legal status of resale price maintenance, some of these manufacturers spent millions to prevent distributors from selling their products below the list price. The manufacturers' interests seem to be best served when distributors resell their products under such competitive conditions as may exist at the level of distribution and at the lowest prices resulting from that competition. If manufacturers set a floor to the resale price then they also set a ceiling to their sales and thus apparently support a policy that runs counter to their own self-interest. Let the manufacturers fix a price at the factory gate at which all distributors may buy the product. Would not the manufacturers' sales and profits be greater the lower is the price at which distributors resell their products to consumers? If so, then what explains the strong desire of some manufacturers to prevent distributors from

The Economies of Scale

THE theory of the economies of scale is the theory of the relationship between the scale of use of a properly chosen combination of all productive services and the rate of output of the enterprise. In its broadest formulation this theory is a crucial element of the economic theory of social organization, for it underlies every question of market organization and the role (and locus) of governmental control over economic life. Let one ask himself how an economy would be organized if every economic activity were prohibitively inefficient upon alternately a small scale and a large scale, and the answer will convince him that here lies a basic element of the theory of economic organization. The theory has limped along for a century, collecting large pieces of good reasoning and small chunks of empirical evidence but never achieving scientific prosperity. A large cause of its poverty is that the central concept of the theory-the firm of optimum size-has eluded confident measurement. We have been dangerously close to denying Lincoln, for all economists have been ignorant of the optimum size of firm in almost every industry all of the time, and this ignorance has been an insurmountable barrier between us and the understanding of the forces which govern optimum size. It is almost as if one were trying to measure the nutritive values of goods without knowing whether the consumers who ate them continued to live.