Regular readers of Cafe Hayek know of my unalloyed esteem for the economics of Armen Alchian (1914-2013). No one has ever done price theory better than Alchian – that is, no one has ever excelled Alchian’s ability to explain the reason, role, and nuances of prices, of competition, and of property rights. And only a precious few – I can count them on my fingers – have a claim for being considered to have done price theory as well as he did it.
Here’s a fine example of Alchian’s genius for seeing connections that we mortals would never see without the economic lenses that he crafted. It’s from page 499 of a March 23, 1978, speech that he gave in College Station, Texas. The speech is entitled “Abbott and Costello in Washington” (as this speech is reprinted in Volume 1 of The Collected Works of Armen A. Alchian [Daniel K. Benjamin, ed., 2006]); here Alchian is speaking of the then-nationally-mandated maximum speed limit on U.S. roads and highways of 55 mile per hour,* and note that in 1978 the legislated minimum wage in the United States was $2.65 per hour:
Consider, if I drive 55 instead of 65, I save about 4 gallons per hour of driving time, and thereby earn the equivalent of about $2.50 an hour; that means that I am working and earning less than the minimum legal wage. With a passenger, we’re earning only half the legal rate. Now what shall I do? Break the speed limit or the minimum wage law – it’s one or the other. Since I dislike both laws I wish I could break both – but I can’t; it’s one or the other – and it’s the speed limit that I choose to break because my time is valuable.
In this speech Alchian brilliantly explains why government mandated “energy efficiency” standards inevitably make energy use less efficient than it would be under the market prices that would establish themselves absent government meddling in markets.…..
* The nationwide maximum speed limit of 55MPH was imposed not to enhance highway safety but to save fuel.
The above originally appeared at Cafe Hayek.