Armen Alchian

For the economic effect of pricing proposed by Armen Alchian, see the Alchian-Allen effect

Armen Albert Alchian (/ˈɑːltʃiən/; April 12, 1914 – February 19, 2013) was an American economist. He spent almost his entire career at the University of California, Los Angeles (UCLA). A major microeconomic theorist, he is known as one of the founders of New Institutional Economics and widely acknowledged for his work on property rights.

Armen Albert Alchian was born on April 12, 1914 in Fresno, California to Armenian American parents. His father, Alexander Alchian, was born in 1886 in Erzurum, Ottoman Empire and migrated to Fresno in 1901, while his mother Lily H. Normart (1889–1976) was born to Armenian immigrant parents in Fresno. Her parents were among the first Armenians to settle in San Joaquin Valley and she was reportedly the first Armenian born in Fresno. Alchian's family was of "modest means." He grew up in the Armenian community, which was initially "subject to intense discrimination." He himself was reportedly subject to anti-Armenian discrimination early in his life.

He attended Fresno High School and enrolled in Fresno State College in 1932. He transferred to Stanford University in 1934, obtaining his bachelor's degree in 1936. He earned his PhD in Philosophy from Stanford in 1943. His PhD dissertation was titled "The Effects of Changes in the General Wage Structure."

Alchian worked as a teaching assistant at Stanford (1937–40), and then in 1940–41 he worked at the National Bureau of Economic Research and Harvard University and in 1942 at the University of Oregon as an instructor. He went on to serve in the Army Air Forces as a statistician between 1942 and 1946.

Alchian joined the Department of Economics at University of California, Los Angeles in 1946. He was initially assistant professor (until 1952), then associate professor (until 1958), and eventually named professor in 1958. He retired from UCLA in 1984 and was named professor emeritus of economics. It was not until 2007 that he closed his campus office. In classroom, Alchian adopted the Socratic method and disliked thetraditional lecture method.

In 2006 John Riley, chair of the UCLA economics department stated that Alchian was the "father of the modern-day economics department at UCLA, and set the future for it." William R. Allen noted that the department's "golden age" was from 1950 to 1980 because of Alchian's presence and leadership in the department.

Alchian was also affiliated with the RAND Corporation between 1946 and 1964 and was a consultant to business firms. He is best remembered for his work on the hidden costs of regulation at RAND. Alchian was also involved for around 20 years with the Law and Economics Center, a center providing "insight into economic theory to legal scholars and judges" initially affiliated with the University of Rochester.

Alchian was an applied economist. Robert Higgs described him as a master of "applied price theory." Alchian was a neoclassical and Chicago School economist. He is considered to be a founder of the "UCLA tradition" within the Chicago School. Alchian, along with James M. Buchanan and Ronald Coase, served as a bridge between the "Old" and "New" Chicago School. Boettke and Candela argue that these three economists founded the following branches in economics: New Institutional Economics, Law and Economics, and the economics of property rights. Indeed, Alchian is widely considered one of the founders of the New Institutional Economics. According to Robert Higgs Alchian had the greatest influence, aside from Coase, "in creating and fostering what has come to be known as the New Institutional Economics, one of the most notable improvements in mainstream economics during the past half century.

His views have been described by others as libertarian and classical liberal. He was a member of the libertarian Mont Pelerin Society. He advocated laissez-faire economics and free market individualism. Alchian listed "self-reliance, independence, responsibility, integrity and trust" as the principles and rules of capitalism and argued that these are antithetical to socialism/communism. Alchian was described by a left-wing commentator as an "ultra-liberal" economist who vigorously defends the idea that capitalism is characterised by the absence of any substantial power relations between individuals.

A large portion of Alchian's contribution is in property rights. He wrote: "In essence, economics is the study of property rights over resources." Peter Boettke noted in 2015 that Alchian is "recognized as the founder of what was called 'property rights economics' in which he had to re-introduce to the economics profession the important role that property rights play in the determination of economic performance." In the 1960s, Alchian told Eastern Bloc economists that they had to "introduce more private property rights to make markets work the way you think they should work" or else the market allocation will seem to be "perverse or deficient."

Main publications

Alchian was not prolific and did not author many books and articles. However, his few published works are widely cited. His writing style is characterized with lack of mathematical formality and is known for its straightforward prose. Harold Demsetz noted that his works are "largely uncluttered with mathematics." Henderson praised his clear writing, noting that Alchian was "one of the last economists of his generation to communicate mainly in words and not equations."

In 1964 Alchian and William R. Allen co-authored University Economics, an influential general textbook that has undergone six editions under two titles. It appeared in 1969 under the name Exchange and Production. The collection of his works was first published in 1977 (Economic Forces at Work, Liberty Fund) and 2006 (The Collected Works of Armen A. Alchian, Liberty Fund, two volumes). Economic Forces at Work contains his main 18 papers.

His most significant articles are:

• "Uncertainty, Evolution, and Economic Theory" (1950): It is Alchian's first major paper that brought him attention. Called one of the "most important contributions to the economic literature," the article "pioneered the idea that the price system is a Darwinian mechanism in which efficient behaviors survive, regardless of the motives of economic agents."
• "Information Costs, Pricing and Resource Unemployment" (1969): Alchian considered it his best paper.
• "Production, Information Costs, and Economic Organization" (1972)։ The article is "credited with introducing the modern theory of the firm, the article looked at how problems associated with team production, such as shirking while leaving others to do the work, affect the organizational arrangements used by firms." It "has become the basis for much of current organization theory, which now concentrates on the issues of team production and incentives that they emphasized." In 2011 it was chosen as one of the top 20 articles published in the American Economic Review between 1911 and 2011. In fact, it is the most cited of all papers published in the 100 years of existence of the American Economic Review and the 12th most cited economic paper between 1970 and mid-2006.

Alchian, called "the Armenian Adam Smith" by Michael Intriligator, was the only prominent economist of Armenian descent during his career.

Alchian was a resident of Mar Vista, Los Angeles. He was married (since 1940) to Pauline, an elementary school teacher, who he had met at Stanford. They had two children: Arline Hoel and Allen Alchian.

According to David K. Levine, he was an "avid computer user" and an early adopter of email.

Personality

Daniel Benjamin described Alchian as "fundamentally kind, shy, compassionate, and humble. He was a relentless debunker and intellectual inquisitor, and a passionate champion of individual liberty." William F. Sharpe wrote that Alchian was "personally gentle and traditional," but described him as "clearly an eccentric economic theorist." Deirdre McCloskey described Alchian as "the soul of courtesy." She wrote that "talking about economics with Armen Alchian is like talking about painting with Pablo Picasso" and that his economics "comes from experience of life." Tom G. Palmer wrote of Alchian as a "sober scholar, but not so charismatic."

Alchian was a friend of Milton Friedman. Friedman often quoted him: "The one thing you can be most sure of in this life is that everyone will spend someone else’s money more liberally than they will spend their own." Alchian famously interviewed Friedrich A. Hayek in 1978.

Golf

Alchian was a lifelong golfer and a regular visitor to the Rancho Park Golf Course. He often played golf with fellow economist George Stigler. He greatly admired the sport and even wrote an opinion piece for The Wall Street Journal in 1977, in which he argued that golf is "not merely a sport. It is an activity, a lifestyle, a behavior, a manifestation of the essential human spirit. Golf's ethic, principles, rules and procedures of play are totally capitalistic. They are antithetical to socialism. Golf requires self-reliance, independence, responsibility, integrity and trust."

Last years and death

According to Steven N. S. Cheung Alchian suffered from a neurodegenerative disease in the last six years of his life. Alchian died of natural causes in his sleep at his home in Los Angeles on February 19, 2013 at the age of 98.

Alchian was among the major economists of the 20th century. Donald J. Boudreaux opined that Alchian was "probably history’s greatest pure microeconomic theorist." Walter E. Williams called him "probably the greatest microeconomic theorist of the 20th century." Friedrich Hayek named Alchian and George Stigler as his favorite active economists in a 1984 interview. In a 2011 survey of around 300 economics professors in the U.S. Alchian ranked 17th in the list of "Favorite Living economists, Age 60 or Older". He received the same points as Robert Fogel and Gordon Tullock. Alchian ranked fourth, behind Tullock, Stigler, and Ludwig von Mises in a 2011 survey asking economists the following question: "One might think of a character-type of economist that is well represented by the following five economists: Adam Smith, Friedrich Hayek, Milton Friedman, Ronald Coase, and James Buchanan. For that character type, which five additional economists would you include in a top-ten list of representatives of that character type?"

A number of economists have cited Alchian as an influence: William F. Sharpe, Elinor Ostrom, Harold Demsetz, Steve Hanke, Walter E. Williams, Henry Manne, William R. Allen, Yoram Barzel, David Prychitko, Anthony J. Culyer, and others.

Nobel Prize candidate

Alchian never received a Nobel Prize, however, several of his colleagues—such as Michael Intriligator, William R. Allen, Donald J. Boudreaux— thought he deserved one. Hayek reportedly told David R. Henderson in 1975 that "There are two economists who deserve the Nobel prize because their work is important but won't get it because they didn't do a lot of work: Ronald Coase and Armen Alchian."

Honors

• Member of the Mont Pelerin Society (1957)
• President of the Western Economic Association International (1975)
• Fellow of the American Academy of Arts and Sciences (1978)
• Distinguished Fellow of the American Economic Association (1996)
• Adam Smith Award by the Association of Private Enterprise Education (2000)
• Honorary Fellow of the Institute of Economic Affairs

Honorary doctorates

• University of Rochester (1983)
• Universidad Francisco Marroquín (2010)

Tributes

• The Armen A. Alchian Chair in Economic Theory at UCLA was established in July 1997.
• The Armenian Economic Association presents the Armen Alchian Award since 2014.