Posts Tagged ‘UCLA in decline’

Armen Alchian and UCLA economics: triumph and tragedy

February 21, 2013

Armen Alchian founded the UCLA tradition in economics, a tradition that sadly no longer permeates the corridors of that once great Department of Economics. The tradition emphasizes, through the medium of verbal analysis, supplemented by ‘unsophisticated’ empirical testing, that individual behavior is self-seeking and rational and that such behavior has many unanticipated consequences. It recognizes that rationality is the outcome of evolution and learning, and focuses attention on frictions such as uncertainty that serve as brakes on the ability of individuals to make decisions and to coordinate, the one with the other.

Armen Alchian was a brilliant builder of teams, successfully bringing together a group of market economists, any one of whom would have secured a Nobel Prize in Economic Sciences had that prize been awarded by a non-socialist economics academy. The scholars who graced Armen’s academy during the Glory Years of Alchian’s reign included, Robert Clower, Harold Demsetz, Jack Hirshleifer, Alex Leijonhufvud and Earl Thompson. Only Chicago during its own glory years could out-match that superb free-market combination.

In 1974, while visiting the Center For Study of Public Choice in Blacksburg, I was privileged to present a paper before those UCLA giants. Harold Demsetz invited me eager to hear about my manuscript on classical liberalism that I was penning in the basement of the President’s House on the VPI campus. All the above-mentioned scholars were present and the chapter that I presented benefited greatly from their piercing commentary.

For those who may be curious, the chapter is question is entitled ‘Justice’ and it is published as Chapter 7 in Charles K. Rowley and Alan T. Peacock, Welfare Economics: A Liberal Restatement. Basil Blackwell 1975. The chapter comprises what I like to think of as a devastating critique of John Rawls’ Theory of Justice.

Although I was hard-pressed in that UCLA seminar, I do remember with lingering delight the roar of laughter that embraced the room when I was able to reprimand Harold Demsetz for falling into the fallacy of the free lunch and the fallacy that the grass is always greener on the other side! Harold himself, generous scholar that he is, led the laughter, acknowledging that he had momentarily ignored two of the caveats for which he is personally famous for enunciating.

I returned to Blacksburg glowing with the knowledge that the United States was graced with at least three economics programs that would not easily allow the United States to go down the road to serfdom: Chicago, UCLA and Virginia Tech.

Some two decades later, at a meeting of the Western Economic Association in Vancouver, Canada, I learned that the glory of UCLA was shutting down. Ironically, the occasion was a lunch in honor of Armen Alchian. I was blessed to be seated at the UCLA table, in the company of Armen Alchian, Harold Demsetz, Jack Hirshleifer and Axel Leijonhufvud. Two then-young Turks in the Department – David Levine and John Riley – were singing Alchian’s praises. While they did so, one of the greats whispered an entirely different story into my saddened ears.

Riley and Levine are both mathematicians, with little time for verbal economics. Somehow a Department chairman had allowed them to assume control of the UCLA graduate program. There was little place for verbal economics under the new regime. Alchian, Demsetz, Hirshleifer and Leijonhufvud had all been removed from the graduate program as technically unqualified. Had the world gone completely crazy, I wondered, when two nobodies could eject the stars of their universe without a whisper of rebellion!

Well, the world had not gone crazy, as my public choice intuitions quickly advised me. UCLA is a state university and in the non-profit world, adverse consequences are not irrational. Alchian himself, no doubt, completely understood what was happening, as ambitious individuals carved lucrative positions for themselves under the guise of second rate mathematics.

Alchian no doubt predicted what would follow: Demsetz, Hirshleifer and Leihonhufvud were all encouraged to take early retirement, or move on, in order to open up opportunities for more second-rate mathematicians to downgrade the UCLA graduate program to the mediocrity of its saltwater competition.

Armen Alchian still has the last laugh. His theory of unintended consequences satisfies the empirical test on his own campus. Levine and Riley may now understand that the grass is not always greener on the other side. But the laugh, ultimately, is hollow, as I am sure all lovers of free markets will understand.


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