Chicago school of economics

University of Chicago, view from the Midway Plaisance.

The Chicago school of economics is a neoclassical school of economic thought associated with the work of the faculty at the University of Chicago, some of whom have constructed and popularized its principles. Milton Friedman and George Stigler are considered the leading scholars of the Chicago school.

CONTENT : A - F , G - L , M - R , S - Z , See also , External links

Quotes

Quotes are arranged alphabetically by author

A - F

• A key tenet of the Chicago school is that free markets function well in most circumstances, so government intervention into the economy ought to be limited. A second theme is that economic analysis has substantial explanatory power for empirical phenomena, not only in the narrow economic realm but also—as Gary Becker (whom I discuss next) has particularly demonstrated—in a wide variety of social interactions.
  • Robert Barro, Nothing Is Sacred (2002), Ch. 1 : Thoughts on Friends and Other Noteworthy Persons.

• [ Milton Friedman was] the dominant member of the so-called Chicago school of economics [during his tenure at Chicago]... The economics department increasingly reflected his approach and interests. These included deep commitment to the truth, appreciation of markets and free enterprise, frank and blunt discussion, and enormous zeal to convince the heathen. But most important was the commitment to economic analysis as a powerful instrument for interpreting economic and social life.
  • Gary Becker (1991). "Milton Friedman." In: Edward Shils, ed. Remembering the University of Chicago: Teachers, Scientists and Scholars. Chicago: University of Chicago Press, pp. 140-6; As cited in: Grossbard (2010).

• This Chicago-style approach, sometimes known as ‘Price Theory’ because of the fundamental role that prices often play, is exemplified in the path-breaking work of Gary Becker, Ronald Coase, Milton Friedman, Sherwin Rosen, George Stigler, and many others. Price theory has shed light not only on the most fundamental topics of traditional economics (e.g. consumption, saving, taxation, regulation), but also pioneered the use of economic tools in studying a wide range of other human behavior (e.g. crime and corruption, discrimination, marriage).
  • Becker Center on Chicago Price Theory, "Mission statement prior to the inaugural conference, April 2006," as cited in: Shoshana Grossbard, "How “Chicagoan” are Gary Becker’s Economic Models of Marriage?." Journal of the History of Economic Thought 32.3 (2010): 377.

• [I]t was Chicago School economists such as George Stigler who wrote of the “capture theory of regulation” when it came to the trucking industry, the airline industry, and many others.  That is, they produced dozens of scholarly articles demonstrating how government regulatory agencies ostensibly created to regulate industry “in the public interest” are most often “captured” by the industry itself and then used not to protect the public but to enforce cartel pricing arrangements.

  This was all good, solid, applied free-market economics, but at the same time the Chicago Schoolers ignored the biggest and most important regulatory capture of all — the creation of the Fed.  The Chicago School simply ignored the obvious fact that the Fed was created as a governmental cartel enforcement mechanism for the banking industry — during an era when many other kinds of regulatory institutions were being created for the same purpose (i.e., “natural monopoly” regulation).

  • Thomas J. DiLorenzo, "The Friedmanite Corruption of Capitalism," Mises Daily (Auburn, AL: Lugwig von Mises Institute, 31 May 2013).

G - L

• The Chicago, group... owes its origins to Professor Frank H. Knight of the University of Chicago, who is Mises’s junior by a few years. Like Mises, Knight owes his original reputation to a theoretical monograph; notwithstanding an early lack of recognition, the latter’s Risk, Uncertainty and Profit (1921) eventually became, and for many years continued to be, one of the most influential textbooks on economic theory, although it had not originally been designed as such. Knight has since written a great deal on questions of economic policy and social philosophy—mostly in articles the majority of which have since been published in book form. The best-known, and perhaps also the most characteristic, volume is The Ethics of Competition and Other Essays (1935). Knight’s personal influence, through his teaching, exceeds even the influence of his writings. It is hardly an exaggeration to state that nearly all the younger American economists who really understand and advocate a competitive economic system have at one time been Knight’s students.
  • Friedrich Hayek, "The Transmission of the Ideals of Economic Freedom" (1951), reprinted in Studies in Philosophy, Politics, and Economics (1967)

• Henry C. Simons... his pamphlet, A Positive Program for Laissez Faire, offered a new and common basis for the aspirations of America’s young liberals. Hopes for a systematic and comprehensive work from Simons were disappointed; instead, he left a collection of essays which appeared in 1948 under the title Economic Policy for a Free Society. This book became very influential owing to its wealth of ideas and to the courage with which Simons discussed such delicate problems as trade unionism. Today, the nucleus of a group of like-minded economists—no longer confined to Chicago—is formed by Simons’ closest friend, Aaron Director, and two of the best-known younger American theoreticians, George Stigler and Milton Friedman. Director has edited Simons’ papers and carried on his work.
  • Friedrich Hayek, "The Transmission of the Ideals of Economic Freedom" (1951), reprinted in Studies in Philosophy, Politics, and Economics (1967)

S - Z

• If you'd asked me five years after I went to Harvard, in 1940 when I left Harvard for MIT and after being a Junior Fellow of three years, I would have said, "Thank God I left Chicago. Because the three biggest things in economics have been the Keynesian revolution, the monopolistic competition revolution, and the mathematicization of economics", and Chicago was against all of these things during that period of time.
  • Paul Samuelson, in interview (in August 1986), David C. Colander and Christian A. Johnson, The Coming of Keynesianism to America: Conversations with the Founders of Keynesian Economics (1996)

• In the 1930s economics appeared to be a little different at the University of Chicago than elsewhere, but the same statement could be made about most major universities.
  Frank Knight was skeptical of the moral and intellectual content of political behavior and particularly hostile to central economic planning, but he was also severely critical of the ethical basis of a competitive economy. No doctrinaire defender of private enterprise would find him a source of strength.
  Henry Simons had preached a form of laissez-faire in his famous 1934 pamphlet A Positive Program for Laissez Faire, but what a form! He proposed nationalization of basic industries … [and] urged an extremely egalitarian policy in the taxation of income and detailed regulation of business practices … Much of his program was almost as harmonious with socialism as with private-enterprise capitalism.…
  Jacob Viner, the other major figure, had nineteenth-century liberal tastes, but rebelled against simplified or “extreme” positions. The rest of the faculty were highly varied in their policy preferences: Paul Douglas favored a large economic role for the state; Simeon Leland was a traditionalist in taxation; Henry Millis was an old-fashioned labor economist; Lloyd Mints wrote only on central bank policy; Henry Schultz stuck to his mathematical and statistical knitting; and Oskar Lange was a socialist.
  • George Stigler, Memoirs of an Unregulated Economist (1988), pp. 148-149.

• One of the worst aspects of these economic fluctuations is the high levels of unemployment associated with the downturns. The actuality runs counter to a major hypothesis of Chicago-style economics and its particular models, that demand equals supply—for everything.
  But if demand for labor equals supply of labor, what does that say about unemployment? According to that mode of thinking, there's no such thing as unemployment. What does demand = supply mean when 9.8 percent of Americans are unemployed, as is the case now? How does the Chicago school interpret that stubborn figure? They say that the unemployed are really just enjoying leisure. They're getting a little bit of an early vacation. But when most people go on vacation, they are happy. If you look at most of the people who can't get a job, they're not enjoying a vacation. The Chicago school would say this is not a problem for economists; it's a problem for psychiatrists. The unemployed should all go see a psychiatrist and try to understand why they aren't enjoying their leisure. But my own view is this is really quite an absurd view of economics and what's going on today.
  • Joseph E. Stiglitz, Trinity's Nobel Economists Lecture, September 2009, published in Lives of the Laureates: Twenty-three Nobel Economists (2014) edited by Roger W. Spencer, David A. Macpherson

See also

• Austrian School
• Institutional economics
• New institutional economics
• New Keynesian economics
• Post-Keynesian economics