In celebration of Armen Alchian's 80th birthday: living and breathing economics

Economic Inquiry, July, 1996 by Armen A. Alchian, James M. Buchanan, Harold Demsetz, Axel Leijonhufvud, John R. Lott, Jr., Williams F. Sharpe, Robert H. Topel

Right now, we are going to hear the thoughts of five prominent individuals as they speak about Armen's influence as a teacher, researcher, coauthor and colleague. Two of the people here are Nobel prize winners; Bill Sharpe had Armen as his dissertation advisor, and incidentally he also had Harold Demsetz on his committee, so this is kind of old home week for him; Jim Buchanan, another Nobel prize winner, had Armen as a colleague; Axel Leijonhufvud has been in the same economics department as Armen for thirty years. Others have had him as a teacher, like Bob Topel, and as both a colleague and as a coauthor, like Harold Demsetz.

I thought I would take advantage of my position as moderator and organizer to reflect personally on what Armen has meant to me. He may not want to own up to the responsibility for the blame or credit that I attribute to him. When I was in high school, the summer after my sophomore year, an economics professor moved in next door to me, M. Bruce Johnson (who teaches now at the University of California at Santa Barbara). I went over and asked Bruce what types of economics textbooks I should look at, and he gave me seven of them. I think the first three that I looked through seemed okay, but they were nothing particularly exciting. Then I got to Armen's textbook with Bill Allen, University Economics, and I think that book was responsible for me not only becoming an academic but also deciding to go to UCLA. It is hard to explain now, though I guess some of you can relate to how exciting reading the questions in the back of the chapter were. Whether it be things like "Why Rose Bowl ticket prices are set low so that they have more people demanding them than the supply of tickets available?" Or the shipping of good apples out; or why rent control results in students not obtaining apartments, but elderly old ladies who are less likely to damage the apartment buildings.

The amazing thing was that such clear and simple insights could provide such powerful implications, and it seemed amazing to me that people could actually go and earn income thinking about such fun and interesting problems. I suppose that was responsible for me wanting to become an academic.

To give you an idea of the youthful enthusiasm that I had, I decided at that point I was going to UCLA. My mom, who was living in Miami, felt that California was a dangerous place all the way across the continent, and she was unwilling to let me go there. So I went to school in the south for a year and then for my sophomore year I said, "Well, it's still a plane trip away, it's still going to be a plane trip away in California, it can't be much worse." So, I ended up at UCLA. Less than a week after I had moved there, I went over and knocked on Armen's door because I wanted to go in and offer my services and see if he would be willing to hire me for a research assistant. He was not in his office, and so I went over to Bill Allen's office and I knocked on the door, and he was in. So I told him how anxious I was for him to hire me as an RA, and he said, "How about $4.50 an hour?" And I said, "Oh that's great!" I didn't notice at that time that Clay LaForce had walked in behind me, and his response was, "Bill, I think you're paying too much."

The other thing I wanted to relate briefly was the third lecture that Armen gave in his graduate Price Theory class. I'm not sure how many of you can relate back to one lecture in one class that so completely transformed your views about economics and served as the guiding light for your research in the rest of your career, but I think I can relate back to one lecture in my own case. That was when Armen defined the notion of efficiency. He defined efficiency as "Whatever is, is efficient." If it wasn't efficient it would have been something different. Of course, if you try to change anything that is there, that is efficient too.

I suppose the best way to relate this to you is to point out something like the question of optimal taxes. Armen would ask the question, "If something is so optimal, why don't we see it then?" The notion was essentially that there must be other costs that you left out of your model; either costs involved in the political system, in organizing support, or in changes for this other solution which might seem to be such a low-cost option. And the basic point of his argument was, why are we weighing only some costs and not others? Why are these costs (involved in minimizing that particular dead-weight losses that would be involved in setting a particular tax) less important than other types of costs (those involved in informing people of what the options are or of organizing them to go and try to adopt the alternative option)?

I think it's important to understand that type of lecture in order to realize the effect it had on so many graduate students there and the divergent effect it had on so many people. People would come in, like Walter Williams, who in my understanding was kind of a leftist or even a Marxist when he first went to UCLA, and anybody who listens to the Rush Limbaugh show from time to time and hears Walter filling in for Rush can notice that there has been some change that has occurred over time. There are testimonials from many other UCLA Ph.D.s. Ted Frech, who I was talking to a few months ago, told me he was a rabid libertarian when he went to UCLA and now he is kind of confused, or at least less certain of his libertarian ways than he used to be, and that is basically because of the type of lecture I was just talking about. You can say, "This is the way the world should be." But then the question comes up, "If that is so obvious, why isn't the world like that?"