Organizations and Markets

| Peter Klein |

Historians of economic thought, social-science methodologists, and Chicago School junkies may enjoy J. Daniel Hammond and Claire H. Hammond’s edited volume Making Chicago Price Theory: Friedman-Stigler Correspondence, 1945-1957 (Routledge, 2006). (Friedman, of course, is respected, though not universally admired, here at O&M.) Reviewer Craig Freedman says the Friedman-Stigler correspondence

reflects the way in which the two attempted to transform economics. In particular, we can discern their attempts to reshape economic methodology, as well as their changing views on such issues as equality and income distribution. As we read these letters, the outline of what would form the bedrock of the Chicago School, a distinctive take on price theory, becomes progressively clearer.

Freedman also notes that while Friedman’s influence on monetary theory and policy and economic methodology is well known, Stigler’s defense of Marshallian partial-equilibrium analysis over Walrasian general-equilibrium theory is not as widely appreciated.

NB: Murray Rothbard excoriates Stigler for his nasty and unfair treatment of says Böhm-Bawerk in Stigler’s Production and Distribution Theories(1946). Stigler dismisses Böhm-Bawerk for his “failure to understand some of the most essential elements of modern economic theory, the concepts of mutual determination and equilibrium (developed by the use of the theory of simultaneous equations).” Böhm-Bawerk spurned mutual determination “for the older concept of cause and effect.” Stigler then adds: ”Böhm-Bawerk was not trained in mathematics.” Actually Böhm-Bawerk knew mathematics quite well. As Rothbard remarked, the idea that someone could be trained in mathematics and still prefer causal-realistic analysis over mutual determination as the appropriate approach for social-science research never occurred to Stigler.