Sunday 3 February 2013

Stigler, Ricardo and LTV

George J. Stigler (1911-1991, 1982 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel winner), together with his lifelong friend, Milton Friedman, is considered one of the founders of the Chicago School of Economics.

As such, Stigler has probably been endlessly accused by non-mainstream economists and critics of mainstream economics as a dogmatic, closed-minded fellow.

And, you know, he may well deserve that. As it happens, however, it seems Stigler was also interested in the history of economic thought.

In what for me was a rather pleasant surprise, in a paper, with the slightly ironic title "Ricardo and the 93% Labor Theory of Value" [1], Stigler had these generous words to say about Ricardo:
"The basic reason Ricardo's theory is often misinterpreted is that it was often misinterpreted in the past. If a theory once acquires an established meaning, each generation of economists bequeaths this meaning to the next, and it is almost impossible for a famous theory to get a fresh hearing. Perhaps one hearing is all that a theory is entitled to, but one may plead that Ricardo deserves at least a rehearsing--his theory is relatively more widely misunderstood today than it was in his lifetime. One can build a strong case that the modern economist need not be acquainted with Ricardo's work, but there is no case for his being acquainted with an imposter".
Mind you, exactly the same could be said about Marx (as I bear witness) and Stigler did not mention him. Stigler's generosity, I guess, had its limits.

Ironically, too, many critics of mainstream don't seem that much better, either.


And, it seems Stigler had a rather mischievous side, for he closes his paper with the following footnote:
"Very occasionally a theory, unlike a dog, has its second day, as when Keynes persuaded many economists of the error of the century-long tradition that Malthus' criticisms of the full employment assumption of Ricardo were invalid. The example is the more remarkable because the tradition was correct".
Unfair? Perhaps, but I actually liked that parting shot. For a change, it's nice to hear that applied to others beyond the usual suspects.

[1] George J. Stigler, "Ricardo and the 93% Labor Theory of Value". The American Economic Review, Vol. 48. No. 3 (Jun, 1958), 357-367.


  1. This is the article where Stigler gives Ricardo an "A" for his policy advice and a "B" for his analysis, right?

    Stigler shows his hand in another of his essays (I'm acquainted with a short, paperback collection of them), ridiculing the English Fabians' treatment of land rent. In this essay, he actually says that the purpose of Ricardo's theory of rent was exclusively to get the Corn Laws repealed, and once that was accomplished, there was no more use for it. Some scientist!

    1. I don't think the paper you mentioned is the one I am commenting.

      In this one Stigler's purpose was to compare (and evaluate, from his own point of view) other author's understanding of Ricardo's version of the LTV. Kind of a survey.

      Stigler says:

      "We may recapitulate this brief survey. McCulloch, Bailey and Malthus correctly understood Ricardo's theory to be a cost-of-production theory excluding rent, and De Quincy should probably be added to this group. The theory was understood as a simple labour-quantity theory by Say and Mill, and also by Torrens. It is worth repeating that Ricardo accepted Malthus' analysis and rejected Mill's. The theory was more widely understood in its correct sense in Ricardo's time than in later times".

      But what you say is interesting. Can you give me more details?

    2. Now that you say that, I realize that Stigler's comment "grading" Ricardo occurs in another essay, his glowing review of the complete works of Ricardo edited by Sraffa and published by Dodd. Both pieces were collected in the paperback volume I mentioned, I think back to back. So Stigler seems to have had a genuine appreciation of Ricardo, even if it was somewhat condescending (a quality we see again in his famous dis of J.K. Galbraith).

      The other Stigler essay I alluded to was an attack on the rhetoric of the early Fabian socialists, really an attack on George Bernard Shaw and Sydney Webb in particular. Shaw (like many others) was originally brought into the socialist camp by the American land reformer, Henry George, who defended capitalism but attacked landlords for their appropriation of land rents. George's program often functioned as an intellectual halfway house that attracted people who were not at all radical, and produced Marxists. On paper, the attack on land rent seems to come from Ricardo (though Ricardo stressed differential rent based on the quality of agricultural soil, while George stressed locational rent based on the need for domicile -- they're not really the same idea). The Fabians, who rejected Marx's analysis of surplus value, stressed this "unearned increment" concept, throwing in interest as well. Stigler mocks them for this rhetoric, presenting land rent as a trivial part of national income, and claims, as I mentioned, that Ricardo's analysis of rent was no longer relevant, since free trade had already won out. This essay is responsible for my dim view of Stigler. Unfortunately, I do not recall this essay's name, and have not found it online.

  2. Here we go: "George Bernard Shaw, Sydney Webb and the Theory of Fabian Socialism". Chapter 17 of The Essence of George Stigler.

    It's a fairly enjoyable read. Stigler was sometimes disingenuous, but he certainly had wit on his side.