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Stoller’s Hatchet Job on Aaron Director

Summary:
Aaron Director was one of the founders of law and economics: the application of economic reasoning to understand the effects of law and, in some cases, to recommend particular laws. He wrote very little but his influence was immense. Director was best friends with George Stigler, brother of Rose Director Friedman, and brother-in-law of Milton Friedman. I interviewed him in the late 1990s and Milton Friedman showed some of that interview at Aaron’s memorial service at the Hoover Institution. If I were asked to characterize Director’s views, I would say that he was someone who cared a lot about freedom and thought that freedom for everyone would particularly benefit taxpayers and consumers. That doesn’t mean he was right, although I think he was. But I think that’s

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Stoller’s Hatchet Job on Aaron Director

Aaron Director was one of the founders of law and economics: the application of economic reasoning to understand the effects of law and, in some cases, to recommend particular laws. He wrote very little but his influence was immense.

Director was best friends with George Stigler, brother of Rose Director Friedman, and brother-in-law of Milton Friedman.

I interviewed him in the late 1990s and Milton Friedman showed some of that interview at Aaron’s memorial service at the Hoover Institution.

If I were asked to characterize Director’s views, I would say that he was someone who cared a lot about freedom and thought that freedom for everyone would particularly benefit taxpayers and consumers. That doesn’t mean he was right, although I think he was. But I think that’s what animated him.

But that’s not what Matt Stoller thinks. On the blog of the Stigler Center last week, the center named after Aaron Director’s best friend, Matt Stoller writes what can be reasonably be described as a hatchet job on Director, not just going after his ideas but also going after Director’s motivations. The post is titled “How Powerful Ideas Can Shape Society: Aaron Director and the Triumph of Nihilism.” Here are some quotes from Stoller about Director and about economics with my comments afterward.

Director’s life was dedicated to setting free the power of concentrated capital, eliminating the power of labor, and undoing the New Deal. His success is so profound it is hard to describe, so embedded are we today in the world and rhetoric Director shaped.

Actually, Director was a strong believer in competition, which, Stoller might not know, tends to undercut the power of concentrated capital. It is true, I think, that Director wanted to eliminate “the power of labor” to the extent that that was monopoly power granted to labor unions by federal law. One example: when workers in a workplace organize into a union, all of the workers (not management), whether they’re members or not, are part of the collective bargaining agreement; they can’t bargain for themselves.

Banks were strictly controlled, with the largest banks in New York City prohibited from even opening branches outside of the five boroughs.

In context, Stoller is saying this is good because he thinks big corporations are bad. He probably would be surprised to know that the restrictions on branch banking were part of the reason that the Great Depression was “great.” That fact is familiar to economic historians who study the Great Depression, but not, apparently, to Stoller.

Director made his final turn in 1950. Simons and Hayek both saw corporate monopolies as dangerous, perhaps even more dangerous than big government or labor unions. And Director was a great admirer of Simons, whose Positive Program for Laissez Faire was as antimonopoly as it was anti-big government. But Simons killed himself in 1946. And the extreme right-wing funder of the project, Harold Luhnow of the Volker Fund (who later dallied with fascists in the 1960s), essentially threatened to fire Director if he didn’t jettison his allegiance to Simons’s anti-corporatist ideas.

Director suddenly decided that conservative ideas were compatible with corporatism after all. Monopolies, apparently, were always created by government. At this moment, Director broke with the conservative tradition and birthed neoliberalism, the anti-government, pro-monopoly philosophy that now dominates policymaking globally. Director convinced George Stigler and Milton Friedman of the new creed. Both had opposed corporate monopolies, but flipped to support Director’s new movement. The Chicago School was born.

Get it? Director didn’t come to his free-market views because he thought they made sense. Oh, no. He “suddenly” came to them because, hints Stoller Harold Luhnow threatened to fire Director if he didn’t. Oh, and those two friends, George Stigler and Milton Friedman? They “flipped.” And apparently their “flipping” had little to do with looking at arguments and evidence.

And “the anti-government, pro-monopoly philosophy” dominates policymaking globally. Trump’s tariffs, to take a recent example, are admittedly pro-monopoly, but they’re hardly anti-government. A lot of pro-monopoly policies are pro-government. Think of the almost total government monopoly of K-12 schooling, for example.

Throughout this ideological journey, Director remained a Mencken-ite above all, a man who believed that some were fit to rule, and others to be ruled. He didn’t characterize it this way, instead using the term ‘economist’ to mean those fit to speak the language of power. But that was his framework, and in many ways, it is still the framework by which antitrust insiders think about who gets to have opinions in dialogue about political economy.

The idea that some were fit to rule and others to be ruled fits Franklin D. Roosevelt more than it fits Director. Director was not a full-fledged libertarian but he did believe in a fair amount of freedom for everyone. The ultimate in freedom is that no one is ruled.

To his credit, Stoller does raise some concerns about one of Director’s most important accomplishments: getting the young John S. McGee to go through the transcripts of the famous Standard Oil case to see if it was indeed true that Rockefeller engaged in predatory pricing. McGee found that it wasn’t, but Stoller cites a long law review article by Chris Leslie that raises some doubts about this.

Here are Stoller’s last two paragraphs:

Director’s impact is undeniable. I started out researching Director’s role in the rise of law and economics with a belief that there was a good faith attempt to wrestle with flaws in what perhaps was an overwrought New Deal structure. But what I realized, after seeing how he constructed a brilliant and intellectually dishonest political movement to attack the ability of democratic institutions to touch economic questions, is that Director modeled himself after Mencken. He was a nihilist and an elitist, and so was his movement.

Today’s America, where lifespans are declining, where giants like Google and Amazon stride across the land unchallenged, where big banks crush the economy and bring forth men like Donald Trump to lead, is Director’s legacy. It is a legacy of nihilism and hopelessness. I admire his stunning ability to build political power and transform society. But truthfully, I could never really understand why he sought to use them towards such wretched ends.

I don’t know that it’s true that Stoller “could never understand” why Director used his ability the way he did. I bet he could understand. But what’s clear is that he doesn’t. To understand, Stoller would have to understand better what Director’s ends were. They were not wretched.

David Henderson
David Henderson is a British economist. He was the Head of the Economics and Statistics Department at the OECD in 1984–1992. Before that he worked as an academic economist in Britain, first at Oxford (Fellow of Lincoln College) and later at University College London (Professor of Economics, 1975–1983); as a British civil servant (first as an Economic Advisor in HM Treasury, and later as Chief Economist in the Ministry of Aviation); and as a staff member of the World Bank (1969–1975). In 1985 he gave the BBC Reith Lectures, which were published in the book Innocence and Design: The Influence of Economic Ideas on Policy (Blackwell, 1986).

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