George Stigler, Nobel laureate
George Stigler was awarded the Nobel Memorial Prize in Economic Sciences on October 20th, 1982. He was one of the hugely influential Chicago School, and was himself influenced by Frank Knight, his supervisor. He also became a lifetime friend of Milton Friedman. Stigler made a modest contribution to the Manhattan Project in World War II, doing mathematical and statistical research for them from his base at Columbia University.
He is principally known for his work on regulatory capture, as it came to be known. Most analysts had previously assumed that regulators acted in the public good to constrain the actions of businesses, but Stigler showed that, in fact, interest groups and political players will use regulation to their advantage, employing legislative power to ensure that the laws are shaped to benefit them. They will lobby to make sure that regulations give advantage to incumbents by making entry more difficult for would-be newcomers. Large established firms have the resources and personnel to handle regulation, whereas small start-up firms usually do not. The theory of regulatory capture forms an important part of Public Choice Theory.
Stigler's landmark article, "The Economics of Information," created a new field of study, the acquisition and use of information. He observed that In most situations information is scarce and costly to obtain, and therefore it can be thought of as an economic good. Acquiring information entails costs and yields benefits, just as does obtaining all other economic goods. People therefore optimize their search for it, but knowledge is asymmetrical. An employer might want an employee ready to learn, for example, but does not know which of the applicants fall into that category. They know, of course, and some of them might acquire a college degree of other qualification that signals their ability to learn to prospective employers.
Stigler's work was in microeconomics, as is the tradition of the Chicago School, and indeed also the Austrian School. He once remarked that he was glad he knew very little macroeconomics, "because it changes once a year." The comment illustrates the wry sense of humour he was noted for. He published spoof articles poking gentle fun at his own profession. His book, "The Intellectual and the Marketplace," proposes "Stigler's Law of Demand and Supply Elasticities," which purports to show that all demand curves are inelastic, as are supply curves.
I often met him through the Mont Pelerin Society. He was one of its founding members, and regularly attended and contributed to its meetings. He served as its president from 1976 to 1978, and was one of the band of scholars that opposed the socialist ideas so prevalent following World War II.
Five years after his Nobel Prize, in 1987, he was awarded the National Medal of Science, an honor bestowed by the President of the United States to individuals who have made important contributions to the advancement of knowledge in scientific fields. He had the satisfaction of living long enough to witness the collapse of the socialist system, one built on false and fanciful ideas that he had spent his academic life opposing and exposing.