George Joseph Stigler: His relationship to the Virginia school of political economy

George Joseph Stigler (1911-1991) was born in Seattle, Washington and educated at the University of Washington (B.B.A. 1931), Northwestern University (M.B.A. 1932), and University of Chicago (Ph.D. 1938).  In 1933, he enrolled in the University of Chicago to study economics and began the associations that would have a long lasting effect on the direction of his career, the Chicago school of economics, the Virginia school of political economy, and ultimately the award of the Nobel Prize in Economic Science in 1982.

Stigler’s enrollment at Chicago in 1933 brought him to the select circle of future Nobel laureates Milton Friedman and Paul Samuelson (later transferred).  He wrote his dissertation under Frank Knight and thereby shared the intellectual lineage of James M. Buchanan, founder of the Virginia school of political economy, Stigler was known for his work on the minimum wage, regulatory capture, and applications of price theory. 

During the 1950s and early 1960s, the Chicago school became widely known for the work of Milton Friedman in monetary economics and Stigler in industrial organization and regulation.  James M. Buchanan and G. Warren Nutter were students at Chicago and later founders of the Virginia school knew these men, they were not directly influenced by them as students. 

Although the principal members of the Chicago school had similar leanings toward key elements of economic theory and policy, their personal approaches differed greatly and these differences affected the development and dissemination of their ideas, and hence the development of the Chicago school.  The Chicago tradition of Viner, Knight, Simons, and Director was a crucial element in the various strains of the Virginia school constructed by Buchanan, Nutter, Tullock, Vining and Coase. 

This paper focuses on Stigler's credentials to the Chicago School of economics and his relationship to the Virginia school of political economy.  It points out the similarities but also contrasts between Stigler and the Virginia School, e.g., his break with Knight in ways that Buchanan certainly did not. 

This paper examines Stigler’s applied price theory using two perspectives.  First, in novel ways that opened new areas of research.  Second, his price theory focused on externalities in two ways:

• Externalities of Coase who joined the University of Chicago faculty in 1962.  From Coase, Stigler incorporated the concept of Coasean transaction cost.
• Externalities from the point of view of Buchanan and Tullock. These approaches considered external costs as minimally relevant.