Aaron Director and the default answer to why hard to understand business practices exist is ‘monopoly’ and the default policy response is ‘call the cops’

There are the myriad of ways in which real world business practices behave differently from the caricaturing in textbooks. Those differences sometimes arouses suspicious responses from economists.

Visions of market power and deadweight loss triangles dance their heads, and some of the suspect practices have been constrained by anti-trust policy. Director rejected this kind of intellectual laziness, and he sought, sometimes successfully, to inoculate those around him against it.

Director approached all business practices with the methodology that entailed asking very basic questions and answering them in a rigorous logic that it appealed ultimately to facts.

The style was verbal – some combination of Socratic dialogue and Adam Smith. This style had the disadvantage of producing few closed-form solutions. But it had the advantage of permitting analysis of the kind of problems that eluded simple solutions.

Indeed I believe that one reason for Director’s lasting influence he was able to show that simple judgements about business practices often cannot withstand rigorous scrutiny.

Sam Peltzman


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