Recently, I visited the subterranean area of Library West where the good old fashioned economics texts are located. Fellow UES luminaries accompanied me. I checked out several books that will make for interesting summer reading. Among them was The Theory of Price, 4th Ed. (1987) by the late George Stigler, a renowned Nobel prize-winning University of Chicago economist.
The book appears to be a textbook of sorts, and I have worked my way through about 100 pages of it so far, amounting to an effective review of Intermediate Microeconomics. I was unpleasantly reacquainted with the substitution and income effects for example. I have jotted down some interesting lines from the book that I will copy here, beginning with his discussion on “Tastes” excerpted from pages 22 - 33 of the book:
Since the purchases of a commodity depend upon other factors as well as its price, we must specify these factors, and we must hold them constant when the price of the commodity changes if the effect due only to the price change is to be isolated. […]
- The prices of other commodities.
- The money income of the buyer.
- The tastes or preferences of the buyer. [Emphasis mine][…]
If the tastes of consumers were volatile and capricious, we would not be able to explain much of their observed behavior because large and frequent taste changes would overwhelm the effects of prices and incomes. Indeed, the main reason for believing that consumers’ tastes are reasonably stable is that there are stable relationships between consumer purchases (and workers’ labor-market behavior) and prices and incomes. […]
Tastes are not arbitrary “givens”: they evolve in a crucible of continual competitive testing. In a nation of island dwellers, it is unlikely that we will find many persons who dislike fish. Nor are we likely to find many vegetarians in lands well suited to grazing animals. Tastes so expensive as these are simply not likely to survive. The environment places limits on the variability of tastes among the residents of that environment. In one sense, the aim of civilization (including the growth of income) is to widen the tolerances of the environment. [Emphasis mine]
Although the statement is hedged, it certainly could be suggestive of a lot of things and I expect that a lot of people would disagree. We are not taught to think of civilization and its many shapes and sizes in this way. But coming at it from an angle of economics, I wonder if it isn’t spot on. What do you think?
I too checked out a copy of this text. I have been trying to find a used copy for sale online, but to no avail. (Eventually the UF library is going to want all of their books back….)
This text is indeed an undergraduate level economics text last published in 1987, first published in 1947. The text is intermediate level, although written for those without any economics background. I can’t be sure of the precise history, but my guess is that in those pre-1990 years, the curriculum was slightly more compact.
Friedman wrote a graduate level text, Price Theory, which has just been reprinted by Transaction publishers. In the preface he states that Stigler’s text is a sufficient prerequisite. There is a sort of natural progression in these Chicago school textbooks.
I am reading an even older “intro” economics textbook, The Economic Organization, by Frank Knight. Knight was Stigler’s PhD advisor and I read that Stigler used Knight’s text as a starting point for his Theory of Price. I’ll make some posts about this later.
On a side note, I just indulged and bought the rare second volume of the Variorum edition of Marshall’s Principles of Economics. I already had the first volume, which consists of the main text. The second volume consists entirely of footnotes, editor’s notes, and commentary. This edition was published in 1961, and I believe this is the last time Marshall’s work was published unabridged.
Anyway, I have only read the first chapter of Stigler’s text at this point. I enjoyed his brief methodological discussions. For comparison, I also opened up my copy of Pindyck and Rubinstein (5th ed), which I used for Intermediate Micro. As suspected, the P&R text lacks the full methodological discussion that Stigler gives. Instead they devote only about a paragraph to methodology.
If there is one part of economic study that is under-appreciated, it must be methodology.
Here is my summary of Stigler’s methodology discussion (apologies for errors, I do not have the text with me at the moment):
Theories must provide testable implications; statements like MR=MC are simply tautologies—not theories. [MM: Although the statement “firms set quantities such that MR=MC” is a theoretical prediction, not a tautology.] Theories should be judged based on their predictive power. A good theory is both general and true, a difficult task to achieve. By definition, general theories must ignore some aspects of the world and consequently cannot be fully realistic.
Those were the main points. I have yet to read any more though. Regarding the quotes given by Admiral: That is definitely an interpretation I haven’t heard before. Stigler essentially says that environmental constraints and evolution combine to define the tastes of most consumers. Economic growth allows us to overcome these environmental constraints and thus allows humanity access to a wider range of tastes. Very interesting.
I guess this kind of analysis would lead into work examining the “universe of preference relations” and the subset available to consumers, and how economic growth affects that subset. I’m not sure exactly what kind of implications that has, except that this is possibly another rarely discussed benefit of economic growth.
As I alluded to before, I think there may be several interesting implications, some along the lines you mentioned. Checking the SiteMeter, it is evident that in the past day the only people coming to this blog are you, me, and Bob, heheh. That’s fine, I suppose.
Does the sitemeter catch RSS subscribers though?
In response to your Theory of Price comments: I actually felt that section of the book could have been better. While I appreciated him mentioning it, I felt the discussion suffered for not discussing the real strengths of theory. I feel, as I read the book, that the author retreats too many times from the solid terrain that theory affords, as in the last full paragraph of p. 83, which contains some very GOOD statements but ends with disappointment for me.
Is this paper by Jensen and Oster a piece of evidence for the taste theory? (h/t Cafe Salemba)
I read similar article also named y of Price Notes, Part I: Tastes at Awkward Utopia, and it was completely different. Personally, I agree with you more, because this article makes a little bit more sense for me