FRIEDMAN FRIDAY Chicago School of Economics

—-

Economics, Chicago School of

The Chicago School of Economics refers to that group of economists associated with the University of Chicago and most closely identified with the work of Milton Friedman and George Stigler. Frank Knight and his protégé, Henry Simons, are commonly credited with having established this school of thought in the 1930s and 1940s. The Chicago School’s approach to economics, as it developed under Friedman and Stigler in the 1960s and 1970s, rests squarely on the conclusions reached earlier by the English classical economists that the rational allocation of economic resources required free and unhindered markets and that capitalism alone was consistent with political and social freedom. This conclusion stood in sharp contrast to the prevailing neo-Keynesian orthodoxy at midcentury, which regarded government intervention in the economy as essential to economic stability and progress and as necessary to ensure a fair distribution of wealth.

The members of the Chicago School not only underscored the importance of free markets in achieving economic progress, but also placed great emphasis on the effect of the money supply, which they viewed as the most crucial determinant of economic stability. The most important spokesman of these monetarist views is Milton Friedman, who, following Henry Simons, has concluded that an intimate connection exists between the money supply and the business cycle and that, to avoid either inflations or depressions in the economy, it is vital for central banks to keep the money supply stable. In 1963, Friedman, together with Anna Schwartz, published the Monetary History of the United States, 1867-1960, among whose findings was that the 1929 Depression was brought about by a severe contraction in the money supply. Indeed, Friedman came to refer to the 1929 Depression as the Great Contraction. Thus, Chicago School economists differentiated themselves from economists of the Austrian School, among them Mises and Hayek, who argued that inflations and depressions are based on the misinformation provided investors by interest rates set by central banks that do not in fact reflect the true time preferences of borrowers and lenders.

Another common characteristic of the members of the Chicago School is the emphasis they place in their academic work on empirical research. Their views on the importance of empirical testing of economic propositions once again distinguish them from the economists of the Austrian School, who regard economics as a science whose propositions derive from first principles. In this regard, the Chicago School, in the minds of many economists, has much in common with the German Historical School of the last decades of the 19th century, whose proponents claimed that the only acceptable epistemological approach to economic questions was a historical one. Led by Gustav Schmoller, the Historical School took issue with the claims of Carl Menger and the other members of the Austrian School, who, although not denying the value of some historical analyses, maintained that these studies properly belonged to economic history. Nor would the Austrians have accepted the notion that historical conclusions could say anything useful regarding the logical conclusions derived from economic axioms, which was the proper subject matter of economics. Thus, although a study of the effects of rent control in New York City in the decades following the Second World War might prove of interest and value to a historian, it ultimately can add nothing to the theoretical conclusion dictated by economic science that, should a ceiling be placed on the price of housing below its market price, there will be far more seekers than suppliers.

Although since the 1960s, Friedman and Stigler were its most prominent members, there are a number of other prominent economists associated with the Chicago School, among them no less than nine Nobel laureates who served as faculty members at Chicago when they received the prize and four other economists who shared their views: Friedman (1976), Theodore W. Schultz (1979), Stigler (1982), Merton H. Miller (1990), Ronald H. Coase (1991), Gary S. Becker (1992), Robert W. Fogel (1993), Robert E. Lucas, Jr. (1995), and Roger B. Myerson (2007) at Chicago; and Herbert Simon (1978), James Buchanan (1986), Harry Markowitz (1990), and Myron Scholes (1997) at other universities. The Chicago School’s success is truly a remarkable achievement for an award that was first conferred in 1969. Some have interpreted this seeming preference for neoclassical economics as reflecting the biases of the committee awarding the prize and particularly of its chairman between 1980 and 1994, Assar Lindbeck. Lindbeck, professor of economics at the University of Stockholm, served on the Nobel Prize selection committee from its inception until 1994 and, as a result of his own research, had reached conclusions similar to those of the economists at Chicago School. However, this fact does not explain why most of the prizes were awarded by unanimous vote and that economists with sharply divergent views were equally honored. Nor does it account for the fact that two of the University of Chicago’s nine Nobel Prizes were granted after Lindbeck retired from the committee.

The methodology and research interests of the Chicago School have left an indelible imprint not only on economics, but on a number of different areas in the social sciences.

The application of economic reasoning to a whole range of problems in law, sociology, history, and political science has had a far-reaching impact on the way social problems are currently investigated and has given rise to the Law and Economics movement and to Public Choice Theory. This procedure is best summarized by one of its most important practitioners, Gary Becker, who maintained: “The combined assumptions of maximizing behavior, market equilibrium, and stable preferences, used relentlessly and unflinchingly, form the heart of the economic approach as I see it.” That almost any social problem is amenable to economic analysis (i.e., that is allows one to reach original and valid conclusions) does not, of course, preclude approaching these same problems in more traditional ways,  as some critics of what has been called the Chicago School’s “economic imperialism” have contended. It simply allows new and different insights into a particular set of social questions and permits conceiving of problems in terms of people attempting to maximize certain values. The economic approach of which Becker writes seeks not to dislodge the more traditional modes of analysis, but to supplement them. This approach, possibly more than anything else, is the defining characteristic of the modern Chicago School: its emphasis on price theory and its unrelenting application to problems of public policy. For all practical purposes, this approach was initiated by Friedman and extended and refined by Becker.

Libertarians are indebted to the proponents of the Chicago School for bringing to bear their analysis of economic phenomena on misguided political policies and for energizing political forces around the world in support of the free market.

Further Readings

Becker, Gary S. The Economic Approach to Human Behavior. Chicago: University of Chicago Press, 1976.

Ebenstein, Lanny. Milton Friedman: A Biography. New York: Palgrave Macmillan, 2007.

History of Economic Thought Website. Available at http://cepa.newschool.edu/het/schools/chicago.htm.

Miller, H. Laurence, Jr. “On the ‘Chicago School of Economics.’” The Journal of Political Economy 70 no. 1 (February 1962): 64–69.

Overtveldt, Johan van. The Chicago School: How the University of Chicago Assembled the Thinkers Who Revolutionized Economics and Business. Chicago: Agate, 2007.by Ronald Hamowy

Originally published August 15, 2008. See alsoBecker, Gary S. (1930-2014)Buchanan, James M. (1919-2013)Classical EconomicsCoase, Ronald H. (1910-2013)Economics, Austrian School ofFriedman, Milton (1912-2006).

Milton Friedman

Related posts:

“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 7 of 7)

March 16, 2012 – 12:25 am

  Michael Harrington:  If you don’t have the expertise, the knowledge technology today, you’re out of the debate. And I think that we have to democratize information and government as well as the economy and society. FRIEDMAN: I am sorry to say Michael Harrington’s solution is not a solution to it. He wants minority rule, I […] By Everette Hatcher III | Posted in Current Events, Milton Friedman | Edit | Comments (0)

“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 6 of 7)

March 9, 2012 – 12:29 am

PETERSON: Well, let me ask you how you would cope with this problem, Dr. Friedman. The people decided that they wanted cool air, and there was tremendous need, and so we built a huge industry, the air conditioning industry, hundreds of thousands of jobs, tremendous earnings opportunities and nearly all of us now have air […] By Everette Hatcher III | Posted in Current Events, Milton Friedman | Edit | Comments (0)

“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 5 of 7)

March 2, 2012 – 12:26 am

Part 5 Milton Friedman: I do not believe it’s proper to put the situation in terms of industrialist versus government. On the contrary, one of the reasons why I am in favor of less government is because when you have more government industrialists take it over, and the two together form a coalition against the ordinary […] By Everette Hatcher III | Posted in Current Events, Milton Friedman | Edit | Comments (0)

“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 4 of 7)

February 24, 2012 – 12:21 am

The fundamental principal of the free society is voluntary cooperation. The economic market, buying and selling, is one example. But it’s only one example. Voluntary cooperation is far broader than that. To take an example that at first sight seems about as far away as you can get __ the language we speak; the words […] By Everette Hatcher III | Posted in Current Events, Milton Friedman | Edit | Comments (0)

“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 3 of 7)

February 17, 2012 – 12:12 am

  _________________________   Pt3  Nowadays there’s a considerable amount of traffic at this border. People cross a little more freely than they use to. Many people from Hong Kong trade in China and the market has helped bring the two countries closer together, but the barriers between them are still very real. On this side […] By Everette Hatcher III | Posted in Current Events, Milton Friedman | Edit | Comments (0)

“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 2 of 7)

February 10, 2012 – 12:09 am

  Aside from its harbor, the only other important resource of Hong Kong is people __ over 4_ million of them. Like America a century ago, Hong Kong in the past few decades has been a haven for people who sought the freedom to make the most of their own abilities. Many of them are […] By Everette Hatcher III | Posted in Current Events, Milton Friedman | Edit | Comments (0)

“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 1of 7)

February 3, 2012 – 12:07 am

“FREE TO CHOOSE” 1: The Power of the Market (Milton Friedman) Free to Choose ^ | 1980 | Milton Friedman Posted on Monday, July 17, 2006 4:20:46 PM by Choose Ye This Day FREE TO CHOOSE: The Power of the Market Friedman: Once all of this was a swamp, covered with forest. The Canarce Indians […]

Milton Friedman The Power of the Market 1-5

Debate on Milton Friedman’s cure for inflation

September 29, 2011 – 7:24 am

If you would like to see the first three episodes on inflation in Milton Friedman’s film series “Free to Choose” then go to a previous post I did. Ep. 9 – How to Cure Inflation [4/7]. Milton Friedman’s Free to Choose (1980) Uploaded by investbligurucom on Jun 16, 2010 While many people have a fairly […]

By Everette Hatcher III | Also posted in Current Events | Tagged dr friedman, expansion history, income tax brackets, political courage, www youtube | Edit | Comments (0)

“Friedman Friday” Milton Friedman believed in liberty (Interview by Charlie Rose of Milton Friedman part 1)

April 19, 2013 – 1:14 am

Charlie Rose interview of Milton Friedman My favorite economist: Milton Friedman : A Great Champion of Liberty  by V. Sundaram   Milton Friedman, the Nobel Prize-winning economist who advocated an unfettered free market and had the ear of three US Presidents – Nixon, Ford and Reagan – died last Thursday (16 November, 2006 ) in San Francisco […] By Everette Hatcher III | Posted in Milton Friedman | Edit | Comments (0)

What were the main proposals of Milton Friedman?

February 21, 2013 – 1:01 am

Stearns Speaks on House Floor in Support of Balanced Budget Amendment Uploaded by RepCliffStearns on Nov 18, 2011 Speaking on House floor in support of Balanced Budget Resolution, 11/18/2011 ___________ Below are some of the main proposals of Milton Friedman. I highly respected his work. David J. Theroux said this about Milton Friedman’s view concerning […] By Everette Hatcher III | Posted in Milton Friedman | Edit | Comments (0)

“Friedman Friday,” EPISODE “The Failure of Socialism” of Free to Choose in 1990 by Milton Friedman (Part 1)

December 7, 2012 – 5:55 am

Milton Friedman: Free To Choose – The Failure Of Socialism With Ronald Reagan (Full) Published on Mar 19, 2012 by NoNationalityNeeded Milton Friedman’s writings affected me greatly when I first discovered them and I wanted to share with you. We must not head down the path of socialism like Greece has done. Abstract: Ronald Reagan […] By Everette Hatcher III | Posted in Milton FriedmanPresident Obama | Edit | Comments (1)

Defending Milton Friedman

July 31, 2012 – 6:45 am

What a great defense of Milton Friedman!!!!   Defaming Milton Friedman by Johan Norberg This article appeared in Reason Online on September 26, 2008  PRINT PAGE  CITE THIS      Sans Serif      Serif Share with your friends: ShareThis In the future, if you tell a student or a journalist that you favor free markets and limited government, there is […]

Post a comment or leave a trackback: Trackback URL.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: