Armen Albert Alchian was born on April 12, 1914, in Fresno, California, to Armenian-American parents. His father, Alexander H. Alchian (1884–1979),[8] was born in Erzurum, Ottoman Empire[9] and emigrated to the U.S. in 1901,[10] while his mother Lily Normart (1889–1976) was born to Armenian immigrant parents in Fresno.[11] Her parents were among the first Armenians to settle in the San Joaquin Valley and she was the first Armenian born in Fresno.[11][12] His parents married in 1909,[13] and Armen had a younger brother, Robert Haig Alchian (1917–1995).[14][15] His father worked as a musician and a jeweler and the family was of "modest means."[16] He grew up in the Armenian community, which was initially "subject to intense discrimination."[17] He himself was reportedly subject to anti-Armenian discrimination early in his life.[18] In the 1920s his family hosted General Andranik, an Armenian national hero, in their home for several months.[19] Alchian was called "the Armenian Adam Smith" by Michael Intriligator.[20][9]
Alchian attended Fresno High School, where he excelled academically and athletically.[14] He initially enrolled in Fresno State College in 1932 and transferred to Stanford University in 1934, obtaining his bachelor's degree in 1936.[14] He earned his PhD in philosophy from Stanford in 1943.[14][21] His dissertation was titled "The Effects of Changes in the General Wage Structure."[14]Anthony J. Culyer quoted Kenneth Arrow as saying that Alchian was the "brightest economics student Stanford ever had."[22]
Alchian joined the Department of Economics at University of California, Los Angeles (UCLA) in 1946.[24] He was initially assistant professor (until 1952), then associate professor (until 1958), and eventually named professor in 1958.[21][20] He retired from UCLA in 1984 and was named professor emeritus of economics.[24][21] It was not until 2007, at the age of 93, that he closed his campus office.[24]
In classroom, Alchian adopted the Socratic method and disliked the traditional lecture method.[25][26]James M. Buchanan, briefly a colleague in the late 1960s, classified Alchian as "the best blackboard economist" he had ever known.[27] 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."[28]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.[28]
Alchian was also affiliated with the RAND Corporation between 1946 and 1964 and was a consultant to business firms.[21] At RAND, he is remembered for his work on the hidden costs of regulation.[24] Alchian was the first economist to be employed at RAND and "became the conduit through which many Chicago stalwarts such as Ronald Coase, Gary Becker, and others received lucrative consultancies from RAND."[29] Alchian was also involved for around 20 years with the Law and Economics Center, initially affiliated with the University of Rochester, which provided "insight into economic theory to legal scholars and judges."[24]Timothy Muris opined that Alchian was "unexcelled in teaching economics to lawyers."[30]
Alchian, an applied economist,[7] has been described by Robert Higgs as a master of applied price theory.[26] Alchian was a neoclassical economist,[31][32] specifically of the Chicago School.[33][34] Along with Harold Demsetz, Alchian is considered to be the founder of the "UCLA tradition",[20][35] alternatively known as the Los Angeles School.[36] Read explains: "Theirs is a school which shares some similarities with Chicago’s emphasis on the free market, Harvard’s tradition of institutional studies, and the strategic thrust of both the RAND Corporation and of the Hoover Institution, to which both contributed intellectually."[36]
Alchian was also influenced by the Austrian School,[41] especially by the ideas of Ludwig von Mises and Friedrich Hayek.[42][43] He was influenced by Mises' Human Action (1949).[44] Alchian famously interviewed Hayek in 1978,[45][46] during which Alchian told him that he was particularly influenced by two of his articles: "Economics and Knowledge" (1937) and "The Use of Knowledge in Society" (1945).[47] In his turn, Alchian has influenced contemporary Austrian School economists.[48]
Alchian, along with James M. Buchanan and Ronald Coase, served as a bridge between the "Old" and "New" Chicago School.[49] 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.[49] Indeed, Alchian is widely considered one of the founders of the New Institutional Economics.[50][a] 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."[26]
A large portion of Alchian's contribution is in property rights.[52][b][54] Henderson argued that Alchian has been most impactful on the economic analysis of property rights and summarized his work on it as follows: "You tell me the rules and I'll tell you what outcomes to expect."[18] Alchian opined that "In essence, economics is the study of property rights over resources."[55]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."[56]
While working at RAND in 1954, Alchian conducted the first event study to infer what kind of fuel material was used in the development of hydrogen bombs, the construction of which were secret at the time. He successfully identified lithium as the fusion fuel through publicly available financial data, finding only the stock of Lithium Corporation of America suddenly increased around the hydrogen bomb test Castle Bravo. However, the paper was confiscated and destroyed because it was seen as a threat to national security.[57]
Alchian was not prolific and did not author many books and articles.[20][7] However, his few published works are widely cited.[18][20] His writing style is characterized with lack of mathematical formality and is known for its straightforward prose.[26]Harold Demsetz noted that his works are "largely uncluttered with mathematics."[20] 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."[18] According to Susan L. Woodward he "had no use for formal models that did not teach us to look somewhere new in the known world, nor had he any patience for findings that relied on fancy econometrics."[58]
In 1964 Alchian and William R. Allen co-authored University Economics, an influential general textbook[18] that has undergone six editions under two titles.[24][12] It appeared in 1969 under the name Exchange and Production.[21] The collection of his works was first published in 1977 by Liberty Fund under the title Economic Forces at Work, which contains his main 18 papers.[21] In 2006 Liberty Fund published The Collected Works of Armen A. Alchian in two volumes.[12][51]
"Uncertainty, Evolution, and Economic Theory" (1950):[59] It is Alchian's first major paper that brought him attention.[24][18] Called one of the "most important contributions to the economic literature,"[60] 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."[7] According to Karl Brunner, Alchian "demonstrates that even in the absence of rational, profit maximizing or any purposive behavior the economic system produces a rational ordering of resource use patterns."[61]James M. Buchanan described it as a "seminal" paper, which has a "genuinely innovative quality."[27]
"Reliability of Progress Curves in Airframe Production" (1963)[62] was completed for the RAND Corporation by 1949, but was not published until 14 years later because it relied on military classified data. A pioneering work,[63]Linda Argote and Dennis Epple noted that it stimulated interest in organizational learning curve,[64] while Hubbard stated that it is "credited as the first empirical investigation of learning curves – an important feature of many industries."[65]
"Information Costs, Pricing and Resource Unemployment" (1969):[66] Alchian considered it his best paper.[67]
"Production, Information Costs, and Economic Organization" (1972)։[68] Alchian's most cited paper,[69] it 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."[24] 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."[7]Thomas N. Hubbard argues that it "may be the most influential paper in the economics of organization, catalyzing the development of the field as we know it."[65][69] In 2011 it was chosen as one of the top 20 articles published in the American Economic Review between 1911 and 2011.[70] In fact, it is the most cited of all papers published in the 100 years of existence of the American Economic Review[71] and the 12th most cited economic paper overall between 1970 and mid-2006.[72]
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.[79] Alchian believed Keynesianism "totally neglects incentives."[80] Alchian was a friend of Milton Friedman[81] and 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."[82]
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."[83]David Riesman noted that Alchian, like Friedman and Hayek, was "confident about the causal relationships that run from evolution to capitalism, from capitalism to meliorism."[84] One left-wing commentator described Alchian as an "ultra-liberal" economist who vigorously defended the idea that capitalism is characterised by the absence of any substantial power relations between individuals.[85] Alchian was apparently influenced by neo-Darwinism.[86] He, like Friedman, "invoked Darwinism to prove that the market economy is natural."[87] Alchian was critical of minimum wage laws.[88][89] During the 1970s energy crisis, Alchian argued for lifting of gas price controls.[90]
Alchian famously asserted that "95% of the material in economics journals was wrong or irrelevant".[91][92]
Alchian resided in Mar Vista, Los Angeles.[24] In 1940 he married Pauline (née Crouse, 1916–2017),[93] an elementary school teacher, who he had met at Stanford.[94][24][20] They had two children:[24] Arline Ann Hoel (b. 1943)[95] and Allen Alexander Alchian (b. 1947).[96][94]
Alchian was an "avid computer user" and an early adopter of email.[97]
William R. Allen described Alchian as "almost always soft-spoken, unaggressive, and seemingly bemused" and noted that he "eschewed ambitious self-promotion and personal empire-building."[98] Daniel Benjamin described him as "fundamentally kind, shy, compassionate, and humble."[50]William F. Sharpe wrote that Alchian was "personally gentle and traditional," but was "clearly an eccentric economic theorist."[91][99]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."[100]Tom G. Palmer wrote of Alchian as a "sober scholar, but not so charismatic."[101]Susan L. Woodward described him as a "warm and sentimental person."[58]Roger Farmer described him as "selfless" and "amazing human being" who cared "only about promoting ideas."[102]
Alchian was a lifelong golfer[94] and a regular visitor to the Rancho Park Golf Course.[12] He often played golf with fellow economist George Stigler.[50] He greatly admired the sport and 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."[79][103] He preferred to stay home and play golf than to partake in a conference called by President Gerald Ford to "Whip Inflation Now" as it would be "more productive than anything likely to be said in Washington."[98]
Alchian suffered from a neurodegenerative disease in the last six years of his life.[4] Alchian died of natural causes,[12] in his sleep,[26] at his home in Los Angeles on February 19, 2013, at the age of 98.[24]
"[Armen Alchian], more than anyone else (and I would include Ronald Coase), made property rights, contracts and business practices in general into the field of study that they have now become."
In a 2011 survey of around 300 economics professors in the U.S., Alchian ranked 17th among favorite living economists older than 60. He received the same points as Robert Fogel and Gordon Tullock.[105][d] In 1984 Friedrich Hayek named Alchian and George Stigler his favorite economists "among the not really young ones."[107]William R. Allen described him as "one of the superb economic analysts and teachers of the second half of the twentieth century."[98]Walter E. Williams and Donald J. Boudreaux describe him as one of the top economists of the twentieth century and probably the greatest microeconomic theorist.[e]
Alchian never received a Nobel Prize, but numerous economists, such as Hayek,[18]Harry Markowitz,[f]Michael Intriligator,[g] William R. Allen,[98]David R. Henderson,[112] Donald J. Boudreaux,[113] believe he deserved one.[h] Hayek told Henderson in 1975: "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."[18][i] Allen nominated Alchian for the Nobel Prize in 1986 and characterized him as "a giant who, because of his lack of pretension, is easily overlooked by laymen and even by some supposed professionals—who has greatly honored his profession and uniquely contributed to its usefulness."[98] The Swedish economist Axel Leijonhufvud, who was a student and colleague of Alchian for thirty years,[115] suggested in 1996 that "his lack of self-promotion and his abstentiousness from it I think is what more than anything else has kept him from the Nobel prize so far. I can find no other explanation of the behavior of my countrymen."[78]
A number of economists have been influenced by Alchian, including several Nobel laurates. Kenneth Arrow was "personally and intellectually closely linked" with Alchian and the latter's influence played a crucial role on Arrow's introduction of the concept of "learning curve" into an economic growth model.[116]James M. Buchanan was inspired by Alchian's work on free tuition.[117]William F. Sharpe, who took a graduate course taught by Alchian in 1956, named him one of his three mentors, whose approach to research he had attempted to emulate.[118][24] Sharpe called him a "brilliant mind grappling (usually very successfully) with the most difficult concepts in economics in thoroughly creative and innovative ways."[91]Elinor Ostrom, an undergraduate student of Alchian, noted that as an institutional theorist, she "really appreciate[s] Alchian’s approach" in the 1950 article "Uncertainty, Evolution, and Economic Theory".[119]Walter E. Williams called him one of his "tenacious mentors."[108]William R. Allen named Alchian one of the two individuals who had had the greatest influence on his life, calling him "an older brother."[120]John Lott stated that University Economics was responsible for him becoming an academic and going to UCLA.[121]
^"Alchian not only remained a giant at the University of California Los Angeles. He was also viewed as a pioneer and co-founder of the New Institutional Economics revival, of which UCLA was at the center."[51]
^"He devoted much of his career to studying property rights."[53]
^Alchian ranked fourth, behind Gordon Tullock, George 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?"[106]
^Williams: "Professor Alchian is among the top 20th-century contributors to economic knowledge."[108] "Professor Alchian was probably the greatest microeconomic theorist of the 20th century..."[109]
Boudreaux: "The world has lost two of the past century’s greatest economists in as many months: Armen Alchian died this morning. [...] More later on this great economist – a scholar who, I believe, probably is history’s greatest pure microeconomic theorist."[110]
^"...One Google response was someone saying that Armen should get a Nobel Prize. I concur."[111]
^Intriligator, who has known Alchian since 1962, said his colleague “would be a very good candidate for the Nobel Prize in economics.”[20]
^"Many of Alchian’s students and friends believed that he well deserved a Nobel Prize in economics, but this recognition never came to him."[26]
"At the end of the day, was the denial of Nobel status to Armen Alchian unjust? Yes, to many of us at least."[114]
^"Two people more than any have shaped my thinking in economics. One was Armen Alchian and the other Alan Williams."[22]
^"Alchian interviewed me for a possible appointment at UCLA. This was the beginning of a long friendship and a very productive intellectual exchange. This exchange shaped my thinking over the decades."[61]
^"Like others who have had the privilege of being Armen’s students and colleagues, I have learned a great deal from his ideas."[115]
^Henderson, David R.; Hooper, Charles L. (2006). Making Great Decisions in Business and Life. Chicago: Park Press. p. 16. ISBN978-0976854104. I (DRH) ... learned this as a Ph.D. student of noted UCLA economist Armen Alchian.
^"Universal Economics". libertyfund.org. Liberty Fund. Archived from the original on 11 January 2020. Jerry L. Jordan wrote his doctoral dissertation under the direction of Armen Alchian.
^ abcdefghiBeaud, Michel[in French]; Dostaler, Gilles[in French] (1995). "ALCHIAN Armen Albert (born 1914)". Economic Thought Since Keynes: A History and Dictionary of Major Economists. London and New York: Routledge. pp. 152–153. ISBN0415164540.
^Nik-Khah, Edward (2011). "George Stigler, the Graduate School of Business, and the Pillars of the Chicago School". In Van Horn, Robert; Mirowski, Philip; Stapleford, Thomas A. (eds.). Building Chicago Economics: New Perspectives on the History of America's Most Powerful Economics Program. Cambridge University Press. p. 247. ISBN978-1139004077.
^DiQuattro, Arthur (May 1980). "The Market and Liberal Values". Political Theory. 8 (2): 188. doi:10.1177/009059178000800204. JSTOR190794. S2CID148206353. Consider what two important neoclassicists tell students in their introductory text, Exchange and Production: Theory in Use. Alchian and Allen write...
^Tieben, Bert (2009). The Concept of Equilibrium in Different Economic Traditions: A Historical Investigation. Rozenberg Publishers. p. 486. ISBN978-9036101097. In the 1950s, this conclusion provoked a response from the defenders of the neoclassical theory of the firm like Alchian (1950) and Friedman (1953)...
^Mayhew, Anne (2008). Narrating the Rise of Big Business in the USA: How Economists Explain Standard Oil and Wal-Mart. Routledge. p. 79. ISBN9781135973445. ...Armen Alchian, a widely respected economic theorist associated with the Chicago School...
^Boettke, Peter J.; Zywicki, Todd J. (2017). "Law and economics: the contributions of the Austrian School of Economics". In Zywicki, Todd J.; Boettke, Peter J. (eds.). Research Handbook on Austrian Law and Economics. Cheltenham, UK: Edward Elgar Publishing. p. 23. ISBN978-1849801133. The Austrian school of economics in its historical and contemporary embodiment, as well as the various thinkers that it influenced along the way, such as Alchian...
^Bitetti, Rosamaria (2019). "Principles of the Austrian Tradition in the Policy Cycle". In Horwitz, Steven (ed.). Austrian Economics: The Next Generation. Emerald Publishing. p. 147. ISBN978-1787565784. ...thinkers and authors who are not officially Austrian economists, but rather fellow travelers from Austrian-friendly schools. Just to name a few [...] Alchian and Demsetz and property rights economics...
^Hunt, E.K.; Lautzenheiser, Mark (2011). History of Economic Thought (3rd ed.). Armonk, New York: M. E. Sharpe. p. 478. In a widely used textbook [University Economics] written from the Austrian and Chicago perspective, Armen Alchian and William Allen...
^Ebeling, Richard (1991). Austrian Economics: Perspectives on the Past and Prospects for the Future. Hillsdale College Press. p. 53. ISBN978-0916308834. Indeed, the "property rights revolution" in economic theory, associated with, among others, Harold Demsetz and Arman Alchian, reveals a (sometimes) unconscious debt to Austrian insights.
^Manne, Henry (January 18, 2011). "Alchian's connections with Austrian economics". coordinationproblem.org. Coordination Problem. Archived from the original on 14 September 2021. Armen Alchian's connections with Austrian economics, I also have some trivia. I first met Armen at a small conference in 1958 at which he presented a first draft of what became the seminal "Some Economics of Property Rights." He began his lecture with a lengthy quote from Mises' Human Action.
^"Tape: Alchian (November 11, 1978)". Nobel-Prize Winning Economist Interviews. Oral History Program, University of California, Los Angeles. 1983. pp. 362–429.
^Ardalan, Kavous (2018). Case Method and Pluralist Economics: Philosophy, Methodology and Practice. Springer. p. 189. ISBN978-3319720708. Contemporary Austrian school economists reflect a more diverse mix of intellectual traditions in economic science as they have been influenced by modern figures in economics, such as Armen Alchian...
^Alchian, Armen A. "Property Rights". Library of Economics and Liberty. Liberty Fund. Archived from the original on 14 November 2019. About the Author: Most of his major scientific contributions are in the economics of property rights.
^Foss, Nicolai J. (1997). "Economics, Institutions and Ludwig Von Mises". Cultural Dynamics. 9 (1): 83. doi:10.1177/092137409700900105. S2CID143218062. Menger and Bohm-Bawerk are among the few economists to discuss property rights before Coase, Alchian and Demsetz in the 1960s laid the foundation for the property rights approach.
^Torgler, Benno; Piatti, Marco (2013). "Top Institutions, Top Papers and Leading Economists Publishing in AER". A Century of American Economic Review: Insights on Critical Factors in Journal Publishing. Palgrave Macmillan. p. 23. doi:10.1057/9781137333056_2. ISBN978-1349462049.
^Hall, Joshua C.; Lawson, Robert A. (January 2014). "Economic Freedom Of The World: An Accounting Of The Literature". Contemporary Economic Policy. 32 (1): 2. doi:10.1111/coep.12010. S2CID154941466. ...classical-liberal scholars including Armen Alchian, Peter Bauer, Gary Becker...
Ashford, Nigel; Davies, Stephen, eds. (2012). "Conservatives and classical liberals cited in the text". A Dictionary of Conservative and Libertarian Thought. Routledge. p. 280. ISBN978-1136708336.
^Hodgson, Geoffrey M. (1999). Evolution and Institutions: On Evolutionary Economics and the Evolution of Economics. Edward Elgar Publishing. p. 162. ...the kind of Panglossian and laissez-faire conclusions that Alchian and Friedman had proposed.
Poole, Robert (May 1976). "Spotlight: Henry G. Manne". Reason. Archived from the original on 6 September 2021. Bringing in such distinguished free-market economists as UCLA's Armen Alchian...
^Individual and Business Tax Reduction Proposals. Hearing Before the Subcommittee on Taxation and Debt Management Generally of the Committee on Finance. United States Senate. Ninety-Fifth Congress, Second Session. July 14, 1978. U.S. Government Printing Office, Washington, 1978. p. 83
^Schroeder, Gertrude E. (Summer 1988). "Property rights issues in economic reforms in socialist countries". Studies in Comparative Communism. 21 (2): 175–188. doi:10.1016/0039-3592(88)90012-9.
^"California Birth Index, 1905–1995," database, FamilySearch (https://familysearch.org/ark:/61903/1:1:V2WF-ZDW : 27 November 2014), Arline Ann Alchian, 26 Apr 1943; citing Fresno, California, United States, Department of Health Services, Vital Statistics Department, Sacramento.
^"California Birth Index, 1905–1995," database, FamilySearch (https://familysearch.org/ark:/61903/1:1:V27G-N4Q : 27 November 2014), Allen Alexander Alchian, 27 Mar 1947; citing Los Angeles, California, United States, Department of Health Services, Vital Statistics Department, Sacramento.
^Blanchard III, James U. (1984). "Exclusive Interview with F.A. Hayek". Cato Policy Report. VI (5). Cato Institute: 10–12. Archived from the original on July 30, 2015., archived PDF "Q: Who's your favorite economist, besides F. A. Hayek? Hayek: Well, among the not really young ones are Armen Alchian and George Stigler. Until recently, my dear friend Lionel Robbins, who has had a stroke and is now out of action."
^McChesney, Fred S. (2014). "Magnus Magister: An Affectionate Appreciation of Armen Alchian". Journal of Law, Economics & Policy. 10 (3): 597. S2CID185331687.
^Lott Jr., John R. (1997). "In celebration of Armen Alchian's eightieth birthday.". In Lott Jr., John R. (ed.). Uncertainty and Economic Evolution: Essays in Honour of Armen Alchian. Routledge. p. 187.
^Lueck, Dean (2019). "Yoram Barzel and the Economics of Institutions". Man and the Economy. 5 (2). doi:10.1515/me-2018-0011. S2CID158284820. SSRN744224. More generally Barzel has been heavily influenced by Armen Alchian and a great admirer of him.
^Prychitko, David L. (November 21, 2010). "That's Interesting, But Does It Pass The Alchian Test?". coordinationproblem.org. Archived from the original on 14 September 2015. I was raised on Alchian & Allen, having learned most of my economics from two of Alchian's students from the 1960s, Phil May and Howard Swaine. Alchian ranks, with Mises and Hayek, among my favorite and, I believe, most insightful, economists.
^Klein, Peter G. (19 February 2013). "Doug Allen on Alchian". organizationsandmarkets.com. Organizations and Markets. Archived from the original on 30 August 2021. I only met Armen once, but his influence on me was profound.
^"Commencement"(PDF). Rochester Review. University of Rochester: 20. Summer 1983. Archived from the original(PDF) on 2020-01-09. When the 1983 Commencement finally ended, four weeks after it began, some 2,100 new degrees had been awarded, including three more honorary doctorates: to the distinguished economist Armen A. Alchian of the University of California at Los Angeles (at the GSM exercises)...
