Armen Albert Alchian (; April 12, 1914 – February 19, 2013) was an American economist who made major contributions to microeconomic theory and the theory of the firm. He spent almost his entire career at the University of California, Los Angeles (UCLA), and is credited with turning its economics department into one of the country's best. He is also known as one of the founders of new institutional economics, and widely acknowledged for his work on property rights.
Armen Albert Alchian was born on April 12, 1914, in Fresno, California, to Armenian-American parents. His father, Alexander H. Alchian (1884–1979), was born in Erzurum, Ottoman Empire and emigrated to the U.S. in 1901, while his mother Lily Normart (1889–1976) was born to Armenian immigrant parents in Fresno. Her parents were among the first Armenians to settle in the San Joaquin Valley and she was the first Armenian born in Fresno. His parents married in 1909, and Armen had a younger brother, Robert Haig Alchian (1917–1995). His father worked as a musician and a jeweler and the family was of "modest means." He grew up in the Armenian community, which was initially "subject to intense discrimination." He himself was reportedly subject to anti-Armenian discrimination early in his life. In the 1920s his family hosted General Andranik, an Armenian national hero, in their home for several months. Alchian was called "the Armenian Adam Smith" by Michael Intriligator.
Alchian attended Fresno High School, where he excelled academically and athletically. He initially enrolled in Fresno State College in 1932 and transferred to Stanford University in 1934, obtaining his bachelor's degree in 1936. He earned his PhD in philosophy from Stanford in 1943. His dissertation was titled "The Effects of Changes in the General Wage Structure." Anthony J. Culyer quoted Kenneth Arrow as saying that Alchian was the "brightest economics student Stanford ever had."
Alchian worked as a teaching assistant at Stanford (1937–40), and then in 1940–41 he worked at the National Bureau of Economic Research (NBER) and Harvard University and in 1942 at the University of Oregon as an instructor. He went on to serve in the Army Air Forces as a statistician between 1942 and 1946.
Alchian joined the Department of Economics at University of California, Los Angeles (UCLA) in 1946. He was initially assistant professor (until 1952), then associate professor (until 1958), and eventually named professor in 1958. He retired from UCLA in 1984 and was named professor emeritus of economics. It was not until 2007, at the age of 93, that he closed his campus office.
In classroom, Alchian adopted the Socratic method and disliked the traditional lecture method. James M. Buchanan, briefly a colleague in the late 1960s, classified Alchian as "the best blackboard economist" he had ever known. In 2006 John Riley, chair of the UCLA economics department, stated that Alchian was the "father of the modern-day economics department at UCLA, and set the future for it." William R. Allen noted that the department's "golden age" was from 1950 to 1980 because of Alchian's presence and leadership in the department.
Alchian was also affiliated with the RAND Corporation between 1946 and 1964 and was a consultant to business firms. At RAND, he is remembered for his work on the hidden costs of regulation. Alchian was the first economist to be employed at RAND and "became the conduit through which many Chicago stalwarts such as Ronald Coase, Gary Becker, and others received lucrative consultancies from RAND." Alchian was also involved for around 20 years with the Law and Economics Center, initially affiliated with the University of Rochester, which provided "insight into economic theory to legal scholars and judges." Timothy Muris opined that Alchian was "unexcelled in teaching economics to lawyers."
Alchian, an applied economist, has been described by Robert Higgs as a master of applied price theory. Alchian was a neoclassical economist, specifically of the Chicago School. Along with Harold Demsetz, Alchian is considered to be the founder of the "UCLA tradition", alternatively known as the Los Angeles School. Read explains: "Theirs is a school which shares some similarities with Chicago's emphasis on the free market, Harvard's tradition of institutional studies, and the strategic thrust of both the RAND Corporation and of the Hoover Institution, to which both contributed intellectually."
Alchian was also influenced by the Austrian School, especially by the ideas of Ludwig von Mises and Friedrich Hayek. He was influenced by Mises' Human Action (1949). Alchian famously interviewed Hayek in 1978, during which Alchian told him that he was particularly influenced by two of his articles: "Economics and Knowledge" (1937) and "The Use of Knowledge in Society" (1945). In his turn, Alchian has influenced contemporary Austrian School economists.
Alchian, along with James M. Buchanan and Ronald Coase, served as a bridge between the "Old" and "New" Chicago School. Boettke and Candela argue that these three economists founded the following branches in economics: New Institutional Economics, Law and Economics, and the economics of property rights. Indeed, Alchian is widely considered one of the founders of the New Institutional Economics. According to Robert Higgs Alchian had the greatest influence, aside from Coase, "in creating and fostering what has come to be known as the New Institutional Economics, one of the most notable improvements in mainstream economics during the past half century."
A large portion of Alchian's contribution is in property rights. Henderson argued that Alchian has been most impactful on the economic analysis of property rights and summarized his work on it as follows: "You tell me the rules and I'll tell you what outcomes to expect." Alchian opined that "In essence, economics is the study of property rights over resources." Peter Boettke noted in 2015 that Alchian is "recognized as the founder of what was called 'property rights economics' in which he had to re-introduce to the economics profession the important role that property rights play in the determination of economic performance."
While working at RAND in 1954, Alchian conducted the first event study to infer what kind of fuel material was used in the development of hydrogen bombs, the construction of which were secret at the time. He successfully identified lithium as the fusion fuel through publicly available financial data, finding only the stock of Lithium Corporation of America suddenly increased around the hydrogen bomb test Castle Bravo. However, the paper was confiscated and destroyed because it was seen as a threat to national security.
Alchian was not prolific and did not author many books and articles. However, his few published works are widely cited. His writing style is characterized with lack of mathematical formality and is known for its straightforward prose. Harold Demsetz noted that his works are "largely uncluttered with mathematics." Henderson praised his clear writing, noting that Alchian was "one of the last economists of his generation to communicate mainly in words and not equations." According to Susan L. Woodward he "had no use for formal models that did not teach us to look somewhere new in the known world, nor had he any patience for findings that relied on fancy econometrics."
In 1964 Alchian and William R. Allen co-authored University Economics, an influential general textbook that has undergone six editions under two titles. It appeared in 1969 under the name Exchange and Production, and was published a third time in 2018 as Universal Economics. Mark Blaug described it as standing out "among all of its rivals by a consistent emphasis on the actual or potential role of markets as a device for organising economic life."
The collection of his works was first published in 1977 by Liberty Fund under the title Economic Forces at Work, which contains his main 18 papers. In 2006 Liberty Fund published The Collected Works of Armen A. Alchian in two volumes.