Columbia University Faculty

"For a rational actor, the information he uses to shape his beliefs is a variable rather than a given. Before deciding how to act, he has to make a preliminary decision concerning the quantity of resources he is prepared to invest in looking for the relevant facts. A general must not attack before he has surveyed the terrain, or a surgeon operate before he has examined the patient. However, they must not delay too long, for then they may be surprised by the enemy’s attack or flight, or by the patient’s death."

"Biases are either “hot” (that is, produced by the agent’s motivational system) or “cold” (more similar to optical illusions)."

"For action to be rational, the beliefs on which it is based must themselves be well founded. In turn, this requirement is divided into two parts. On the one hand, the beliefs must be unbiased with respect to the information the agent possesses; on the other hand, he must gather an optimal amount of information."

"Acting in conformity with reason, in the singular, and acting for good reasons, in the plural, are two different things insofar as reason is objective, whereas reasons are subjective. From an external point of view, we can evaluate a policy as being in conformity with reason or not. From an internal point of view, one can evaluate an action as being rational or not. From this difference it follows that only rationality can be used for explanatory ends. It is only insofar as the agent has made the demands of reason his own that the latter may give rise to, and possibly explain, specific behaviors. The assessment of the actor and that of the observer need not coincide."

"In a general way, we can represent the present value of a future good as a function of the time separating the present from this future. In the classical conception, an exponential future discount is stipulated, which implies that the curves corresponding to two distinct future goods, one small and immediate, the other large and more remote, never intersect. According to more recent research, however, it seems that this discount typically takes a hyperbolic form."

"In this reconstruction, the idea of reason comprises three elements: impartiality with regard to persons, temporal impartiality, and rational or well-founded beliefs. No doubt we should add goodwill, in order to exclude impartial malice."

"Characterized in this way, interest properly understood is an amalgam of objective and subjective elements. An entirely objective conception would substitute true beliefs for well-founded beliefs. But it is impossible to make political decisions dependent on the possession of truth."

"The idea that reason requires an impartial treatment of individuals corresponds to well-known principles. To resolve the questions of distributive justice, Leibniz proposes the following maxim: “Put your self in the place of everyone.” In recent theories, this amounts to saying that the choice of a just organization of society must take place behind a “veil of ignorance,” an idea that can be interpreted in several ways. For utilitarianism, each individual must count as one, and none as more than one. For John Rawls, we have to choose the form of society that favors the least advantaged, whoever they might be. Another impartial idea is that of universal rights, embodied in the two declarations of 1776 and 1789."

"Let us take first an absurd example: always preferring goods that come on Thursdays to those that come on Wednesdays, solely because of a preference for that particular day of the week. As we shall see, this is not contrary to the principles of rational choice, but it is certainly contrary to reason. The simple preference for Thursdays is a reason, but reason also demands the reason for that reason. And obviously there is none."

"Footnotes are not an occasional token of respect for an obsolete and purposeless tradition. It will come as a shock to many, I am sure, even to realize that references can be checked."

"I recall an incident involving the late George Stigler at a conference in Spain in the 1980s. Hearing that I had written a book on reason and natural law, Stigler started to ridicule reason, going so far as to say that there is as much reason in a monkey's antics as in any human act. At that point I asked him whether he was trying to tell me something about how he wrote his books; he gave me a blank stare and stormed out of the room."

"George’s most distinctive contributions to the Chicago school involved studies of the actual effects of government regulations, such as in the electric utility and financial sectors."

"In spite of assigning little influence of economists' preachings on actual public policy, I do not believe that economists' influence is negligible. The reconciliation of these views lies in the fact that economists are scientists as well as preachers. Our science seeks to understand how economic institutions and economic systems work, and no informed person can deny that we have made much progress in this work."

"We are entitled to be disappointed, but not to be surprised, by the persistence of governmental intervention in economic life. A school of thought attributes great influence to public opinion in the movements toward or away from laissez-faire. Among the many members of this school one may mention Albert Venn Dicey, John Maynard Keynes, and Milton Friedman."

"Dr. Smith and all of his sensible disciples have believed that people would not strive to do anything well unless there were a reasonable measure of agreement between the success of their efforts and the rewards they would receive."

"A useful role exists for the economist is making calculations of the prospective costs and/or benefits of alternative policies. This role is precisely the one Keynes had in mind, I assume, when he expressed the hope that we would become useful after the fashion of dentists."

"I do not conceal my lack of admiration for a pain fully long list of redistributive measures undertaken by modern governments. Many serve no ethically accepted purpose such as compassion for the needy; indeed, they serve only as recognition of which groups possess or lack political influence."

"It was in the 1960s that I began the detailed study of public regulation. My interests were aroused, and my faith in the cliches of the subject destroyed, as so often with other subjects, by the discussions with my friend, Aaron Director. This wonderful man is that rarest of scholars: a clear-headed, imaginative, erudite man who enjoys the task of constructing luminous and original theories but does not even write them down!"

"In the 1950s, I proposed the survivor method of determining the efficient sizes of enterprises, and worked on delivered price systems, vertical integration, and similar topics."

"Early in my professional life, I found that many areas of economics attracted me. I started working and publishing in price theory by 1938. In 1946, I published an early work on linear programming (The Cost of Subsistence) which solved the problem only approximately; George Dantzig soon presented the exact solution. In the 1940s, I began empirical work on price theory, starting with a test of the kinked oligopoly demand curve theory of rigid prices."

"The delicate and intricate pattern of competition and cooperation in the economic behavior of the hundreds of thousands of citizens of Stockholm offers a challenge to the economist that is perhaps as complex as the challenges of the physicist and the chemist."

"Unlike the members of the physical and biological sciences, the economist is asked to explain his work in a manner that is interesting and convincing to a weary listener. Yet there is no reason to believe that the explanation of our economic and social world is inherently simpler than the explanation of our physical world."

"Two main alternative views of the regulation of industry are widely held. The first is that regulation is instituted primarily for the protection and benefit of the public at large or some large subclass of the public. In this view, the regulations which injure the public -as when the oil import quotas increase the cost of petroleum products to America by $5 billion or more a year- are costs of some social goal (here, national defense) or, occasionally, perversions of the regulatory philosophy. the second view is essentially that the political process defies rational explanation: "politics" is an imponderable, a constantly and unpredictably shifting mixture of forces of the most diverse nature, comprehending acts of great moral virtue (the emancipation of slaves) and of the most vulgar venality (the congressman feathering his own nest)."

"Regulation may be actively sought by an industry, or it may be thrust upon it. A central thesis of this paper is that, as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit. There are regulations whose net effects upon the regulated industry are undeniably onerous; a simple example is the differentially heavy taxation of the industry's product (whiskey, playing cards). These onerous regulations, however, are exceptional and can be explained by the same theory that explains beneficial (we may call it "acquired") regulation."

"The state --the machinery and power of the state-- is a potential resource or threat to every industry in the society. With its power to prohibit or compel, to take or give money, the state can and does selectively help or hurt a vast number of industries. That political juggernaut, the petroleum industry, is an immense consumer of political benefits, and simultaneously the underwriters of marine insurance have their more modest repast. The central tasks of the theory of economic regulation are to explain who will receive the benefits or burdens of regulation, what form regulation will take, and the effects of regulation upon the allocation of resources."

"Consider the Negro as a neighbor. He is frequently repelled and avoided by the white man, but is it only color prejudice? On the contrary, it is because the Negro family is, on average, a loose, morally lax group, and brings with its presence a rapid rise in crime and vandalism. No statutes, no sermons, no demonstrations, will obtain for the Negro the liking and respect that sober virtues commend. And the leaders of Negro thought: they blame the crime and immorality upon the slums and the low income—as if individual responsibility could be bought with a thousand dollars a year."

"Lacking education, lacking a tenacity of purpose, lacking a willingness to work hard, he will not be an object of employers' competition. What leader of Negro thought is fostering the ancient virtues of diligence and honesty and loyalty? It is so much easier to seek quotas for Negroes?"

"The great disservice of the leaders of Negro opinion was to direct the discontent at the white population. It was proper to demand political rights that only a majority could confer. It was proper to ask the white population to assist in the rise of the Negro—a small enough restitution for the unreversible mistakes of the past. But it was a terrible disservice to identify the white man as the main obstacle to the rise of the Negro."

"Price dispersion is a manifestation — and, indeed, it is the measure — of ignorance in the market. Dispersion is a biased measure of ignorance because there is never absolute homogeneity in the commodity if we include the terms of sale within the concept of the commodity. Thus, some automobile dealers might perform more service, or carry a larger range of varieties in stock, and a portion of the observed dispersion is presumably attributable to such differences. But it would be metaphysical, and fruitless, to assert that all dispersion is due to heterogeneity."

"Some important aspects of important aspects of economic organization take on a new meaning when they are considered from the viewpoint of the search of information."

"One should hardly have to tell academicians that information is a valuable resource: knowledge is power. And yet this occupies a slum dwelling in the town of economics. Mostly it is ignored."

"Unexpected changes, on the contrary, lead to windfall gains or losses for those who are in the right or wrong places at a given time."

"For consumers, the price message is clear: economize on goods that are in short supply relative to demand, and splurge on those in ample supply: eat raspberries in summer, and ski in winter. But the accommodating is not done just by consumers: resorts in the Caribbean are much cheaper in July than in January, precisely because people are not so eager to vacation in hot, humid places."

"So the price system gives innumerable messages on the state of supply and demand for each commodity or service at each place where it is bought or produced. If a city is in short supply for windows (following a hailstorm) or has an excess supply of workers, the movements of prices and wages communicate the facts to other communities. Some messages are swift and others slow."

"Prices instruct us on what people desire, but prices do not tell us why those things are desired. Our desires are accepted as a datum by economists: desires are some amalgam of biological needs, the cultural values of the society in which we grow up, and our own experiments."

"A modern economic system is of extraordinary complexity. Imagine a three-dimensional jigsaw puzzle, consisting of roughly 100 million parts. Some parts touch against, let us say, 1,000 other parts. (That is, each family deals at one time or another with that many employers, banks, retail stores, domestic servants, and so on.) Other parts touch—let us be conservative—50,000 other parts (firms that sell to retailers and buy from other firms and hire laborers and so on). It would be enough of a task to fit these 100 million pieces together, but the real difficulties have yet to be mentioned. The pieces change shape quite often—a family has twins; a firm does the next best thing and invents a new product. The economist has the interesting task of predicting (in the aggregate) each of these movements. Meanwhile a busy set of people—congressmen, members of regulatory bodies, central bankers, and the like—are changing the rules on who or what the jigsaw pieces will be and how they are shaped. And of course there are other jigsaw puzzles (foreign economies) of comparable complexity, and these other puzzles are connected at literally a million points with our puzzle."

"The essence of scientific progress is to edge up this ladder from ignorance to knowledge, and it is complicated by the fact that the ladder keeps getting longer!"

"Economic theories are infinitely diverse in their predictive power. Entirely too many have zero predictive power-they are statements of tautologies. Thus the statement that to maximize profits one should operate a firm where marginal revenue equals marginal cost is a mere mathematical statement of the condition for a maximum. The example we gave of search theory is not a tautology because we can identify the factors that influence costs and returns.· Some theories have negative power: they predict the opposite of what happens (and then become useful in the hands of a sophisticated user)."

"The user of a theory has a simpler task: his not to reason why, his but to sigh and try. If the right element in the diverse situations has been isolated, the theory will work: it will yield predictions better than those which can be reached with any alternative theory."

"And anyway, although a fancy theory is not so good as a simple one (more things can go wrong with the fancy one), a fancy theory is better than none. Let the reader try to contrive an alternative explanation of the fact that prices of washing machines vary relatively more than prices of automobiles. He may come up with a rule such as the more expensive the commodity, the less its price varies, which seems to fit our facts-in fact, it makes the same prediction. But quite aside from the fact that it has no logical basis, this alternative explanation will often be wrong: the price of sugar varies much less than that of tea, although sugar costs less per pound. This is not a contradiction of our theory, which in a fuller version says that the aggregate amount spent on a commodity governs the amount of search."

"Economists are neither distinctively good nor bad, no more or less virtuous or brave or generous or faithful than the sum of mankind, and certainly no more modest."

"Whether one is a conservative or a radical, a protectionist or a free trader, a cosmopolitan or a nationalist, a churchman or a heathen, it is useful to know the causes and consequences of economic phenomena."

"A rational man must be guided by the incentive system within which he operates. No matter what his own personal desires, he must be discouraged from certain activities if they carry penalties and attracted toward others if they carry large rewards. The carrot and the stick guide scientists and politicians as well as donkeys."

"The different strands of radical thought seek to lift a veil from our eyes in order to emancipate us from domination, cowardice, or repression. They unmask in order to liberate."

"The notion that human interaction could spontaneously and autonomously achieve a stable, orderly, self-sustaining form of equilibrium in the absence of government intervention—what François Quesnay and the first school of économistes dubbed un ordre naturel in the late 1750s—has facilitated a conception of the market as a self-regulating system that could only prosper by purging itself of the prejudicial meddling of governments and politics. In the face of this new conception of an orderly market, governance would be relegated outside that autonomous space, charged with the responsibility of policing and punishing those who deviate—those who do not see the natural laws or, in more technical jargon, who bypass the market."

"The doctrine of laissez-faire in the mid-nineteenth century essentially allowed three functions for the government: first, maintaining the external defense of the country; second, providing for the internal order and security of persons; and third, possibly, providing for minimal public amenities. ... Criminalization and punishment became, undisputedly, the most legitimate and competent task of the government. There, for sure, government intervention was proper, necessary, legitimate, and competent. There, natural orderliness had to be replaced by governmental ordering."

"By an odd amalgam of liberal economic theory and Beccaria on punishment, nineteenth-century thinkers would replicate this exceptional relationship between markets and punishment: natural orderliness in the economic sphere, but government intervention in the penal realm. This is most evident in Jeremy Bentham’s work. The contrast between Bentham’s presumption of quietism in economic matters and his arch-interventionism in the penal domain effectively reproduced and reiterated the Physiocratic duality of economy and police. On the public economy side, Bentham tended toward Adam Smith’s liberalism. His Manual of Political Economy, written in the mid-1790s, rehearsed a presumption of governmental quietism based on his stringent belief in the superiority of individuals’ information and self-interest. But on the punishment side, Bentham embraced Beccaria’s philosophy whole cloth—especially Beccaria’s notion that policing is a sphere of human activity that must be shot through with government intervention. In fact, the criminal code, for Bentham, was precisely a “grand catalogue of prices” by means of which the government set the value of deviance. The penal code was a menu of fixed prices—the polar opposite of laissez-faire."

"The idea of natural order, in effect, masks the state’s role. ... Robert Hale ... demonstrated the extent to which the distribution of income and wealth is the product of legal rules we choose to impose. Hale trained our attention on the foundational rules of property and contract law, showing how free, voluntary, compensated exchange is in fact a product of the legal coercion that the government establishes through its role in defining property rights."

"Faith in natural order and market efficiency forecloses a full normative assessment of market outcomes. ... It effectively depoliticizes the market itself and its outcomes. It is only when the illusion of natural order is lifted that a real problem arises: that of the justice of the organizational rules and their distributional consequences."

"At what price have so many of us come to believe that the economy is the realm of natural order and that the legitimate and competent sphere of policing—of administration and government—lies elsewhere? What flows from that sharp dichotomy between orderliness in the market and ordering in the penal sphere? At what price do we embrace these categories? And here, the answer is equally clear: at the price, first, of naturalizing the market and thereby effectively shielding from normative assessment the regulatory mechanisms in our contemporary markets and the wealth distributions that occur daily; and at the price, second, of easing, facilitating, and enabling the massive expansion of our penal sphere, or, to be more provocative, of making possible mass incarceration today."