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My Big Six (or Eight)

Here’s a letter to a new correspondent of mine:

Mr. Sean Horvath

Mr. Horvath:

Thanks for your e-mail – in response to this earlier post – and for your challenge for me to list my own “Big 6 modern ideas in economics” that deserve more of economists’ attention today.  You don’t specify what you mean by modern, so I’ll interpret you to mean ‘within the past 75 years.’  Here’s my list, in increasing order of importance.  (I cheat by having two related ideas tied for #6 and two related ideas tied for #2.)

6. (i) Milton Friedman’s and Anna Schwartz’s demonstration that the Federal Reserve’s incompetence led to a much greater than necessary contraction of the economy in the early 1930s.  (See pages 299-419 of their 1963 book, A Monetary History of the United States: 1867-1960.)  (ii) Robert Higgs’s theory of regime uncertainty.  (See Higgs’s 1997 article “Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed After the War.”)

5. Armen Alchian’s proposed reformulation of production and cost theory – a reformulation that would be far more explanatory and much less misleading than are the conventional cost curves still taught today.  (See his 1959 article “Costs and Outputs.”)

4. James Buchanan’s, Gordon Tullock’s, Mancur Olson’s, Anthony Downs’s (and others’) public-choice analysis.  Despite Jim winning the 1986 Nobel Prize, to this day it is, bizarrely, considered to be scientifically acceptable for economists to treat government officials as not responding to incentives in the same way that individuals in the private sector are known to respond to incentives.  (See Buchanan’s and Tullock’s 1962 book, The Calculus of Consent; Olson’s 1965 book, The Logic of Collective Action; and Downs’s 1957 book, An Economic Theory of Democracy.)

3. Ronald Coase’s explanation that externalities necessarily are caused by the actions both of the parties who are identified as ‘causing’ the harms and of the parties who suffer the harms.  (See his 1960 article “The Problem of Social Cost.”)

2. (i) Julian Simon’s demonstration that human creativity is the ultimate resource.  (See his 1996 book, The Ultimate Resource 2.)  (ii) Deirdre McCloskey’s explanation that modern prosperity is largely the result of market-tested innovation unleashed by greater dignity accorded to bourgeois pursuits.  (See especially her 2010 volume, Bourgeois Dignity and her 2016 volume, Bourgeois Equality.)

1. F. A. Hayek’s 1945 explanation that market prices convey the information necessary for each of multitudes of economic actors to coordinate his or her choices with the actions and choices of others. (See his 1945 article “The Use of Knowledge in Society.”)

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

Picking six – or even eight – isn’t easy.  Names that don’t, but arguably should, appear on this list include Harold Demsetz, Aaron Director, Israel Kirzner, Henry Manne, Elinor Ostrom, and Vernon Smith.


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