The Regularities of Regulation

HOP 3. The Regularities of Regulation

George J Stigler

Professor George Stigler, Nobel Laureate in Economics, was the Institute's first Honorary President for the period 1985-1987. He delivered a Presidential Address on 1st May 1986 at the Conference on Financial Deregulation.

Professor Stigler took an episode in American financial history—the deregulation of the securities market—in order to challenges the view that the influence of opinion determines the growth and scope of legislation. His alternative hypothesis is that 'the propensity to use the state is like the propensity to use coal: we use coal when it is the most efficient resource with which to heat our houses and power our factories. Similarly, we use the state to build our roads or tax our consumers when the state is the most efficient way to reach those goals’. It follows that the deregulation of the securities market is better explained by the influence of changing economic circumstances on the interests of business than by some emergent ideology of deregulation.

Professor Stigler sees a role for economists as predictors of what the effect of economic policies will be and therefore indirectly as predictors of the state's role in regulation. His own prediction is that 'when the economic environment has stabilised for a time, we shall see new regulations serving to shelter the new financial markets that will develop'.