Chicago School/Chicago Boys

The Chicago School was a group of highly influential economists affiliated with the University of Chicago in the last century. The heyday of this group was in the 1950s when economists teaching in the economics department joined forces with professors in other academic areas in the graduate school of business and the law school to set up a group outlook on economic issues based on monetary theory. More than two-thirds [Page 261]of the members of the faculty agreed on the ideas of the Chicago school of thought. These ideas rest on two pillars: (1) enhancing the Marshallian price theory tradition and (2) developing and applying empirical methods for more rigorous testing of theoretically derived hypotheses.

In the public perception, the Chicago School is frequently associated with antitrust economics, but Edward Chamberlain, among others, made an earlier reference to the “Chicago School of Anti-Monopolistic Competition.” Two of the leading researchers of this group were awarded the Nobel Prize in Economics: George J. Stigler (1982) and Milton Friedman (1976). Indeed, the track record of winners of the Nobel Prize in Economics affiliated with the University of Chicago is impressive: in addition to Stigler and Friedman, and up to 2008, the list comprises Paul A. Samuelson (1970), Kenneth J. Arrow (1972), Friedrich A. von Hayek (1974), Tjalling Koopmans (1975), Herbert A. Simon (1978), Theodore W. Schultz (1979), Lawrence Klein (1980), Gérard Debreu (1983), James M. Buchanan, Jr. (1986), Trygve Haavelmo (1989), Harry M. Markowitz (1990), Merton H. Miller (1990), Ronald Coase (1991), Gary S. Becker (1992), Robert W. Fogel (1993), Robert E. Lucas, Jr. (1995), Myron S. Scholes (1997), Robert A. Mundell (1999), Daniel L. McFadden (2000), James J. Heckman (2000), Edward C. Prescott (2004), and most recently, Roger B. Myer-son (2007).

Principles

Most of the latter economists contributed to fields other than the antitrust issue. Interestingly, Friedrich A. von Hayek was affiliated with the University of Chicago from 1950 to 1962, but he is acclaimed as one of the most prominent members of the Austrian School. Besides his doctrines, he rejected the empirical evaluation of hypotheses and is, therefore, in conflict with the Chicago School's most important principles, namely

• taking a polar position among economist opinions to advocate an individualistic market economy,
• emphasizing the relevance and usefulness of the neoclassical theory,
• describing both an ideal market and the real markets by expressing the features mathematically,
• seeing and applying economic principles to various aspects of human life, and
• insisting on rigorous empirical testing of all hypotheses.

Particularly the latter principle was not commonly accepted among economists at that time, but was emphasized as a frequently neglected element of Positive Economics by Milton Friedman. This empirical testing, in combination with a sophisticated use of mathematics for describing the markets as well as the (aggregated) behavior of agents within these markets, provided members of the Chicago School with a clear advantage in the competition of scientists. By avoiding economic value judgments and establishing operationally meaningful theorems, Positive Economics advanced the dominating research paradigm, although Normative Economics had prominent supporters, notably the Keynesian School. Thus, the Chicago School's credos that competitive markets are the best way to organize economic activities, that most types of governmental regulations are harmful to economic development, and that the monetary system, particularly the amplitude of money supply, has a substantial impact on a nation's economic conditions, are not an opinion that is integrated into economic analysis, but rather the result of applying formal and empirical methods to issues of interest.

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