Monday, January 09, 2006

Armen Alchian on Evolution, Information and Cost

Three themes unify Armen Alchian's work on economics. Together, they outline both a coherent methodology for doing economics, and a view of the world that celebrates the importance of individual liberty.

Theme no.1: For Alchian, the unit of analysis is always the individual; hence, the theory must be consistent with each person acting as an individual utility or wealth maximizer.

Theme no.2: Economic theory must be as general as possible. It must apply to both sides of the market, to markets for all types of goods and services, and to the decisions of all economic agents.

Theme no. 3: Finally, both theory and theorist are constrained, indeed governed, by the facts. Rather than the other way around, theory must always confront and conform to the facts. The theory must yield refutable implications.

This is from a paper by Clemson University's Daniel Benjamin, read it here.

For those of us who are familiar with Professor Steven N.S. Cheung's work, we will not fail to notice the close affinities between the two professors' views on economics. Afterall, Professor Cheung wrote his path-breaking doctoral thesis, The Theory of Share Tenancy, under Professor Alchain!

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