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About University Of Chicago Economics Requirements
Chicago School is an economic school of thought, founded in the 1930s by Frank Hyneman Knight, that promoted the virtues of free-market principles to better society.
The Chicago School includes monetarist beliefs about the economy, contending that the money supply should be kept in equilibrium with the demand for money.
The Chicago School’s most prominent alumnus was Nobel Laureate Milton Friedman, whose theories were drastically different from Keynesian economics.
Understanding the Chicago School of Economics
Chicago School is a neoclassical economic school of thought that originated at the University of Chicago in the 1930s. The main tenets of the Chicago School are that free markets best allocate resources in an economy and that minimal, or even no, government intervention is best for economic prosperity. The Chicago School includes monetarist beliefs about the economy, contending that the money supply should be kept in equilibrium with the demand for money. Chicago School theory is also applied to other disciplines, including finance and law.
The Chicago School’s most prominent alumnus was Nobel Laureate Milton Friedman, whose theories were drastically different from Keynesian economics, the prevailing school of economic thought at the time. The theories developed there were based on intense mathematical modeling to test disparate hypotheses.
One of the bedrock assumptions of the Chicago School is the concept of rational expectations. Friedman’s quantity theory of money holds that general price levels in the economy are determined by the amount of money in circulation. By managing general price levels, economic growth can be better controlled in a world where individuals and groups rationally make economic allocation decisions.
Also beneficial to an economy, according to the Chicago School, is the reduction or elimination of regulations on business. George Stigler, another Nobel Laureate, developed theories regarding the impact of government regulation on businesses. Chicago School is libertarian and laissez-faire at its core, rejecting Keynesian notions of governments managing aggregate economic demand to promote growth.
Important Contributions
The Chicago School is also known for its contributions to finance theory. Eugene Fama won the Nobel Memorial Prize in Economic Sciences in 2013 for his work based on his well-known efficient market hypothesis (EMH). In awarding the prizes, The Royal Swedish Academy of Sciences said, “In the 1960s, Eugene Fama demonstrated that stock price movements are impossible to predict in the short-term and that new information affects prices almost immediately, which means that the market is efficient. The impact of Eugene Fama’s results has extended beyond the field of research. For example, his results influenced the development of index funds.”
Criticisms of Chicago School of Economics
The Chicago School enjoyed prestige and loyal adherents before the financial crisis and Great Recession. Former Fed Chair Alan Greenspan was thought to be a proponent of the Chicago School—a monetarist in his thoughts about the money supply, and a follower of Ayn Rand-style libertarianism. In a similar vein, the efficient market hypothesis may have colored former Fed Chair Ben Bernanke’s views when he appeared before U.S. Congress on March 28, 2007, and stated that “the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.”
If markets behave efficiently, the Chicago School theory goes, then there would unlikely be any major imbalances, let alone a crisis like the one that unfolded in the last few years of that decade. During the conflagration of the financial crisis, there were questions about why Chair Bernanke and others in top positions did not adequately regulate the banking sector. Other academics turned on the Chicago School. Paul Krugman, a Nobel Laureate himself, was critical of the basic tenets of the Chicago School. Another notable economist, Brad DeLong of the University of California, Berkeley, said that the Chicago School had suffered an “intellectual collapse.”
Robert Shimer
Department Chair and the Alvin H. Baum Professor in Economics and the College (at Chicago since 2003). Member of the American Academy of Arts and Sciences; Fellow of the Econometric Society (2006).
Executive Assistant: Robin Dolezal
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(773) 702-8260
redolezal@uchicago.edu
Robert Shimer
Ufuk Akcigit
The Arnold C. Harberger Professor in Economics and the College; Director of Graduate Studies; Director of Graduate Placement. (at Chicago since 2015); Max Planck-Humboldt Research Award, 2018; Fellow, John Simon Guggenheim Memorial Foundation, 2021.
Ufuk Akcigit
Fernando Alvarez
The Saieh Family Professor in Economics and the College (at Chicago since 1996). Member of the American Academy of Arts and Sciences; Fellow of The Econometric Society (2007).
Fernando Alvarez
Stéphane Bonhomme
The Ann L. and Lawrence B. Buttenwieser Professor in Economics and the College (at Chicago since 2013); Fellow of the Econometric Society (2017).
Stéphane Bonhomme
Benjamin Brooks
Assistant Professor in Economics and the College (at Chicago since 2016).
Benjamin Brooks
Leonardo Bursztyn
Professor in Economics and the College (at Chicago since 2016). Co-Director of the BFI Political Economics Initiative; Alfred P. Sloan Fellow (2016). [Leave of Absence Fall 2021]
Leonardo Bursztyn
Manasi Deshpande
Assistant Professor in Economics and the College (at Chicago since 2016).
Manasi Deshpande
Michael Dinerstein
Assistant Professor in the Department of Economics and the College (at Chicago since 2015).
Michael Dinerstein
David Galenson
Professor in Economics and the College (at Chicago since 1978). Fellow, John Simon Guggenheim Memorial Foundation, 2008; Academic Director of the Center for Creativity Economics, Universidad del CEMA, 2010. [Leave of Absence Winter-Spring 2022]
David Galenson
Mikhail Golosov
The Homer J. Livingston Professor in Economics and the College (at Chicago since 2017); Fellow of The Econometric Society (2014).
Michael Greenstone
The Milton Friedman Distinguished Service Professor in Economics, the College, and the Harris School; Director of the Becker Friedman Institute; Director of the Energy Policy Institute at Chicago (EPIC) (at Chicago 2000-2003 and since 2014). Member of the American Academy of Arts and Sciences; Fellow of The Econometric Society (2015).
Michael Greenstone
Lars Peter Hansen
The David Rockefeller Distinguished Service Professor in Economics, Statistics and the Booth School of Business; Director, Macro Financial Research Initiative (at Chicago since 1982). Fellow, John Simon Guggenheim Memorial Foundation, 1996; 2013 Nobel Laureate; The Erwin Plein Nemmers Prize in Economics, 2006; Member of the American Academy of Arts and Sciences; Fellow of The Econometric Society (1984); Member of the National Academy of Sciences.
Arnold C. Harberger
The Gustavus F. and Ann M. Swift Distinguished Service Professor Emeritus in Economics (at Chicago since 1953); Fellow, John Simon Guggenheim Memorial Foundation, 1957; Member of the American Academy of Arts and Sciences; Fellow of The Econometric Society (1967); Member of the National Academy of Sciences.
Arnold C. Harberger
James J. Heckman
The Henry Schultz Distinguished Service Professor in Economics and the College; Director of the Center for the Economics of Human Development; Co-Director, Human Capital and Economic Opportunity Global Working Group, sponsored by Institute for New Economic Thinking (at Chicago since 1973); 2000 Nobel Laureate; John Bates Clark Medal Winner, 1983. Fellow, John Simon Guggenheim Memorial Foundation, 1978; Member of the American Academy of Arts and Sciences; Fellow of The Econometric Society (1980); Member of the National Academy of Sciences.
Ali Hortaçsu
The Ralph and Mary Otis Isham Professor in Economics and the College (at Chicago since 2001). Member, American Academy of Arts and Sciences, 2016; Fellow of The Econometric Society (2013).
Ali Hortaçsu
Greg Kaplan
Professor in Economics and the College (at Chicago since 2016); Fellow of The Econometric Society (2020); Editor, Journal of Political Economy.
Greg Kaplan
Anne Karing
The Neubauer Family Assistant Professor in the Department of Economics and the College (at Chicago since 2021).
Portrait of woman smiling
Michael Kremer
University Professor in Economics and the College and the Harris School of Public Policy (at Chicago since 2020); Director of the Development Innovation Lab; 2019 Nobel Laureate; Member of the American Academy of Arts and Sciences; Fellow of The Econometric Society (2008); Member of the National Academy of Sciences.
Michael Kremer
Thibaut Lamadon
Assistant Professor in Economics and the College (at Chicago since 2015). [Leave of Absence Winter 2022]
Thibaut Lamadon
Steve Levitt
The William B. Ogden Distinguished Service Professor in Economics and the College (at Chicago since 1997). John Bates Clark Medal Winner, 2004. Member, American Academy of Arts and Sciences, 2002; Fellow of the Econometric Society (2004).
Steve Levitt
John List
The Kenneth C. Griffin Distinguished Service Professor in Economics and the College (at Chicago since 2005). Member of the American Academy of Arts and Sciences; Fellow of The Econometric Society (2015); Editor, Journal of Political Economy. [Leave of Absence 2021-22]
John A. List
Robert E. Lucas, Jr.
The John Dewey Distinguished Service Professor Emeritus in Economics and the College (at Chicago since 1974); 1995 Nobel Laureate; Fellow, John Simon Guggenheim Memorial Foundation, 1981; Member of the American Academy of Arts and Sciences; Fellow of The Econometric Society (1975); Member of the National Academy of Sciences.
Robert E. Lucas, Jr.
Magne Mogstad
The Gary S. Becker Professor in Economics and the College (at Chicago since 2014); Head Editor, Journal of Political Economy. [Leave of Absence 2021-22]
Magne Mogstad
Simon Mongey
Assistant Professor in Economics and the College (at Chicago since 2018); NBER Faculty Research Fellow, Economic Fluctuations and Growth Group. [Leave of Absence 2021-22]
Simon Mongey
Casey Mulligan
Professor in Economics and the College (at Chicago since 1993).
Casey Mulligan
Kevin M. Murphy
The George J. Stigler Distinguished Service Professor in Economics, Booth School of Business and the Law School (at Chicago since 1984); John Bates Clark Medal Winner, 1997; Member of the American Academy of Arts and Sciences; Fellow of The Econometric Society (1993).
Kevin Murphy
Roger B. Myerson
The David L. Pearson Distinguished Service Professor in Economics and the College; Harris Graduate School of Public Policy Studies (at Chicago since 2001); 2007 Nobel Laureate; Member of the American Academy of Arts and Sciences; Fellow of The Econometric Society (1983); Member of the National Academy of Sciences.
Roger Myerson
Derek A. Neal
The William C. Norby Professor in Economics, the Committee on Education and the College; (at Chicago 1991-1998 and since 2001).
Derek A. Neal
Doron Ravid
Assistant Professor in Economics and the College (at Chicago since 2015).
Doron Ravid
Philip J. Reny
The Hugo F. Sonnenschein Distinguished Service Professor in Economics and the College (at Chicago since 1999). Member, American Academy of Arts and Sciences, 2015; Fellow of the Econometric Society (1996).
Philip J. Reny
Joseph Root
Assistant Professor in the Department of Economics and the College (at Chicago since 2021).
Man smiling
Esteban Rossi-Hansberg
The Glen A. Lloyd Distinguished Service Professor in Economics and the College (at UChicago since 2021). Fellow of the Econometric Society (2017); Editor, Journal of Political Economy.
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Thomas Sargent
Visiting Professor 2020-21, The Kenneth C. Griffin Department of Economics; 2011 Nobel Laureate; The Erwin Plein Nemmers Prize in Economics, 1996; Member of the American Academy of Arts and Sciences; Fellow of The Econometric Society (1996); Member of the National Academy of Sciences.
Professor of Economics, New York University
thomas.sargent@nyu.edu
Azeem Shaikh
Ralph and Mary Otis Isham Professor in Economics and the College and Thornber Research Fellow (at Chicago since 2007); Fellow of The Econometric Society (2018); Editor, Journal of Political Economy. [Leave of Absence Winter 2022]
Azeem Shaikh
Nancy L. Stokey
The Frederick Henry Prince Distinguished Service Professor in Economics and the College (at Chicago since 1990). Member of the American Academy of Arts and Sciences; Fellow of The Econometric Society (1987); Member of the National Academy of Sciences.
Nancy L. Stokey
Max Tabord-Meehan
Assistant Professor in Economics and the College (at Chicago since 2019).
Max Tabord-Meehan
Lester G. Telser
Professor Emeritus in Economics and the College (at Chicago since 1958); Fellow of the Econometric Society (1968).
Lester G. Telser
Felix Tintelnot
Assistant Professor in Economics and the College (at Chicago since 2014).
Felix Tintelnot
Alexander Torgovitsky
Professor in Economics and the College (at Chicago since 2017).
Harald Uhlig
The Bruce Allen and Barbara Ritzenthaler Professor in Economics and the College (at Chicago since 2007); Fellow of The Econometric Society (2003).
Harald
Instructional Professors
Ryan Yuhao Fang
Assistant Instructional Professor
Kenneth C. Griffin Department of Economics, University of Chicago (at Chicago since 2016)
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Phone: (773) 834-0887
ryfang@uchicago.edu
Ryan Yuhao Fang
Joseph Hardwick
Assistant Instructional Professor
Kenneth C. Griffin Department of Economics, University of Chicago (at Chicago since 2020)
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Phone: (773) 702-8191
hardwick@uchicago.edu
Joseph Hardwick
Kanit Kuevibulvanich
Assistant Instructional Professor
Kenneth C. Griffin Department of Economics, University of Chicago (at Chicago since 2017)
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Phone: (773) 834-3056
kanit@uchicago.edu
Min Sok Lee
Assistant Senior Instructional Professor;
Co-Director of Master’s Programs
Kenneth C. Griffin Department of Economics, University of Chicago (at Chicago since 2016)
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Phone: (773) 834-1754
mslee@uchicago.edu
Min Sok Lee
Victor O. Lima
Senior Instructional Professor in Economics and the College; Co-Director of Undergraduate Studies and Master’s Programs (at Chicago since 2001).
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Phone: (773) 702-4213
vlima@uchicago.edu
Victor O. Lima
Pablo Pena
Assistant Instructional Professor
Kenneth C. Griffin Department of Economics, University of Chicago (at Chicago since 2019)
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Phone: (773) 702-3410
pablo@uchicago.edu
Pablo Pena
Gina Pieters
Assistant Instructional Professor
Kenneth C. Griffin Department of Economics, University of Chicago (at Chicago since 2018)
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Phone: (773) 834-5446
gcpieters@uchicago.edu
Gina Pieters
Christopher Roark
Assistant Instructional Professor
Department of Economics, University of Chicago (at Chicago since 2017)
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Phone: (773) 834-5783
croark25@uchicago.edu
Allen R. Sanderson
Senior Instructional Professor in Economics and the College (at Chicago since 1984).
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Phone: (773) 702-9459
arsx@uchicago.edu
Allen R. Sanderson
Srinivasan Vasudevan
Assistant Instructional Professor
Kenneth C. Griffin Department of Economics, University of Chicago (at Chicago since 2019)
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Phone: (773) 795-1439
svasudevan2@uchicago.edu
Srinivasan Vasudevan
Kotaro Yoshida
Associate Senior Instructional Professor in Economics and the College; Co-Director of Undergraduate Studies (at Chicago since 2012).
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Phone: (773) 834-7839
yoshidak@uchicago.edu
Kotaro Yoshida
Research Assistant Professors
Neele Balke
Research Assistant Professor
Kenneth C. Griffin Department of Economics
University of Chicago
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Phone: (773) 795-2983
nbalke@uchicago.edu
Alessandra González
Research Assistant Professor
Kenneth C. Griffin Department of Economics
University of Chicago
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Phone: (773) 795-1451
alg2@uchicago.edu
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Research Associate Professors
Juanna Schrøter Joensen
Research Associate Professor
Kenneth C. Griffin Department of Economics
University of Chicago
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(773) 702-9014
jjoensen@uchicago.edu
Juanna Schrøter Joensen
Susanne Neckermann
Research Associate Professor
Kenneth C. Griffin Department of Economics
University of Chicago
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Phone: (773) 795-2748
sneckermann@uchicago.edu
Research Associates
Julie Pernaudet
Research Associate
Kenneth C. Griffin Department of Economics
University of Chicago
jpernaudet@uchicago.edu
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The Chicago School of Economics. It all started here at the University of Chicago.
Fields of specialization in the Economics PhD Program include price theory, market structure, industrial organization, labor economics, financial economics, business cycles, economic growth, and international economics. Doctoral students can take advantage of a wide range of course offerings in the Kenneth C. Griffin Department of Economics at the University of Chicago and at Chicago Booth.
Our Distinguished Economics Faculty
Chicago Booth faculty have been responsible for many of the pioneering economic concepts that inform today’s global businesses and policymaking. And they’ll be your teachers, mentors, and research collaborators. Below you’ll find our microeconomics faculty. For our macroeconomics faculty, visit the Booth faculty directory and select “Macro/International Business” under “Academic Area.”
No institution of higher learning has shaped modern economic theory more than the University of Chicago.
As an economics MBA student at Chicago Booth, you’ll study concepts that were pioneered at UChicago, including the economics of markets, human capital, information, incentives, invention, and innovation; the behavior of the aggregate economy over the business cycle; the functioning of monetary and fiscal policy; general equilibrium models of foreign trade; and the monetary approach to international finance.
You’ll study with prize-winning faculty who continue to shape the field of economics and graduate with a deep understanding of the principles and fundamentals that govern business, well prepared to apply that knowledge to any job in any industry—throughout your career.
Choose Your Courses
To complete an MBA economics concentration, you’ll choose four economics courses to match your interests. Here are just a few of the options.
Macroeconomics
Advanced Microeconomic Analysis
Money and Banking
International Financial Policy
The Firm and the Non-Market Environment
Business in Historical Perspective
Managing the Workplace
Competitive Strategy
Chicago school of economics, an economic school of thought, originally developed by members of the department of economics at the University of Chicago, that emphasizes free-market principles. The Chicago school of economics was founded in the 1930s, mainly by Frank Hyneman Knight, and subsequently produced multiple Nobel Prize winners. In addition to Knight, some of the leading and best-known members of the school were Gary S. Becker, Ronald Coase, Aaron Director, Milton Friedman, Merton H. Miller, Richard Posner, and George J. Stigler. The Chicago school is also associated with the law-and-economics approach to jurisprudence, which was developed at the University of Chicago Law School.
At the heart of the Chicago school’s approach is the belief in the value of free markets (see also laissez-faire). Simply stated, the Chicago school asserts that markets without government interference will produce the best outcomes for society (i.e., the most-efficient outcomes). A primary assumption of the school is the rational-actor (self-interest-maximizing) model of human behaviour, according to which people generally act to maximize their self-interest and will, therefore, respond to appropriately designed price incentives. At the level of society, free markets populated by rational actors will cause resources to be distributed on the basis of their most-valuable uses (allocative efficiency).
The Chicago school’s approach to antitrust law in the area of regulatory policy provides an excellent demonstration of its general principles. The traditional approach to antitrust regulatory policy is to limit concentrations of market power, such as by breaking up a firm that has become a monopoly. The Chicago school, on the other hand, argues that consumers are best protected by competition, even if it is only between a few large firms in an industry. Such large firms may have gained their dominant market positions through efficiency advantages that provide greater benefits to consumers than a market forced by the law to include many smaller firms. Even if a firm gains monopoly power, the Chicago school prefers to allow the market to correct the problem rather than to rely on government intervention, which may cause greater harm to efficiency.
The Chicago school’s principles have been applied to a wide variety of areas, including both market- and nonmarket-based activities. For example, Becker applied the assumption that people make rational self-interested economic choices to help explain aspects of human behaviour not traditionally studied by economics, including crime, racial discrimination, marriage, and family life. In the realm of law and economics, the Chicago school argued that legal rules and court decisions should be aimed at promoting efficiency. The role of the law is simply to alter the incentives of individuals and organizations to achieve that end. For example, in the area of tort law, the goal should be not simply to minimize the cost of accidents but also to minimize the cost of preventing accidents. If liability rules require individuals to take precautions against accidents that are more costly than the accidents themselves, then the outcome is allocatively inefficient.
The Chicago school has been criticized from many points of view. For example, behavioral economics scholars challenge the assumption that humans are rational self-interest maximizers. Instead, they argue that certain decision heuristics and biases prevent people from being the ideal decision makers the Chicago school assumes them to be. Others argue that the Chicago school’s goal of efficiency can be achieved only at the cost of justice and equality in society.
The “Chicago School” is perhaps one of the better known American “schools” of economics. In its strictest sense, the “Chicago School” refers to the approach of the members of the Department of Economics at the University of Chicago over the past century. In a looser sense, the term “Chicago School” is associated with a particular brand of economics which adheres strictly to Neoclassical price theory in its economic analysis, “free market” libertarianism in much of its policy work and a methodology which is relatively averse to too much mathematical formalism and willing to forego careful general equilibrium reasoning in favor of more results-oriented partial equilibrium analysis. In recent years, the “Chicago School” has been associated with “economic imperialism”, i.e. the application of economic reasoning to areas traditionally considered the prerogative of other fields such as political science, legal theory, history and sociology.
The “Chicago School” has had various phases with quite different characteristics. Nonetheless, the main consistent factor seems to be that it has always held a unique,distinct and influential place in the realm of economics at any time. In the modern day, under the “Chicago School” umbrella, we can count various further schools of thought which are discussed in more detail elsewhere: e.g. Monetarism in the 1960s, New Classical/Real Business Cycle macroeconomics from the 1970s until today, and more recently, the New Institutionalism, New Economic History and Law-and-Economics movements.
Laughlin era
The University of Chicago was founded in 1892, funded primarily by the oil magnate John D. Rockefeller. It was the brainchild of the energetic young William Rainey Harper, then a professor of Hebrew and Biblical Study at Yale, who persuaded Rockefeller and the Baptist community in the Midwest to revive an older Baptist theological seminary in Chicago, which had gone defunct in 1886. But Harper had in mind the modern “German-style” research university model (as pioneered at Johns Hopkins). The University of Chicago was chartered in 1890, and its doors opened in October 1892. Armed with Rockefeller money and a charter which gave him near-monarchical authority, President Harper plundered other universities for faculty – nine university presidents were lured away to take up positions at Chicago, the Chicago science faculty was virtually transplanted wholesale from Clark University.
Economics formed a separate “Department of Political Economy” from the start – the first separate economics department in an American university. Harper had originally hoped to lure Richard T. Ely (then unhappy at Hopkins), but Ely’s salary demands were too high, so Harper turned instead to raiding Cornell. Harper placed economics under Ely’s ideological opposite, the American apologist, J. Laurence Laughlin, then at Cornell, who brought along a coterie of younger Cornell men with him to Chicago – junior associate Adolph C. Miller, students Thorstein Veblen and Robert Hoxie, and philosopher William Caldwell (who also lectured in economics). Harvard graduate William Hill was brought in as instructor in 1893, and went on to launch Chicago’s program in agricultural economics. Sociologist Albion W. Small and philosopher John Dewey were two other notable figures in the early Chicago years.
Over Laughlin’s objections, Harper also brought on board Ely’s student, Edward W. Bemis as professor of economics in the extension division. Nonetheless, a strident socialist, Bemis was shown the door in 1895, notionally for incompetence, but also for Bemis’s public criticism of railway owners (many of whom were university trustees and donors) in the aftermath of the Pullman strike. Pennsylvania heavyweight Edmund J. James was brought in 1896 as professor public administration and to take over the Chicago extension program.
Bemis’s allegations of mistreatment did not seem to apply to Thorstein Veblen, who was arguably even more radical. Veblen was saddled from the start with editing the house journal, the Journal of Political Economy, launched in late 1892. Veblen went on to write some of his most important works while at Chicago. Despite his radicalism, his notorious distaste for teaching and his scandalous romantic dalliances – “women liked him, and he did not object” – Veblen was valued by Laughlin, Dewey and other faculty members. Nonetheless, it was Veblen’s extra-curricular activities that eventually led Harper, over Laughlin’s objections, to demand Veblen’s resignation in 1906. Among notable early Chicago students who came under Veblen’s spell was labor economist Richard F. Hoxie (who stayed on until his suicide in 1916), Wesley Clair Mitchell (graduating in 1899, he stayed on as instructor until 1903) and Herbert J. Davenport (graduating in 1898, Davenport joined the Chicago faculty in 1900, but disappointed after Veblen’s departure, himself left in 1908). Alvin S. Johnson arrived in 1910, but was lured shortly after to Stanford..
By the example of the pre-existing Divinity School, president Harper dreamed of setting up professional schools to complement arts and sciences. Consonant with this objective, Laughlin led the way in the creation of the “College for Commerce and Politics” in 1898. Initially, it was merely a set of interdisciplinary courses designed for the final two years of undergraduate students intending to take a career in business. It would eventually evolve into the Chicago Graduate School of Business. This was followed up by the establishment of the University College of Teachers in 1898 (with E.J. James as dean, until his departure in 1902), the Law School in 1902 and, later on, the School of Social Service Administration in 1919 .
Harper died in 1907, and was succeeded as president of the University of Chicago by the political scientist Harry Pratt Judson. Laughlin remained in charge of Chicago economics, bringing in economic historian Chester W. Wright in 1907 and Leon C. Marshall in 1909 (who took up the deanship of the Business School). Despite his personal affection for early Institutionalists like Veblen and Hoxie, Laughlin himself had been dogmatically (Neo)classical (relying strictly on J.S. Mill and A. Marshall), and maintained something of a feud with Institutionalist bastions like Columbia and Wisconsin. In this respect, the Chicago School’s ferocious attachment to Neoclassicism could be said to start with Laughlin – if Laughlin himself had fully committed to marginalist revolution, rather than continued flirting with Ricardianism. Nonetheless, an attachment to economic theory was instilled in students like Davenport (who would go on to mentor Knight at Cornell). But Chicago’s eclecticism in the Laughlin years pointed in no specific direction.
The departure of Veblen, Davenport, Johnson and Hoxie’s death hit Laughlin hard – like an embittered King Arthur who couldn’t hold on to his young knights, Laughlin retired in 1916, leaving the department in the hands of Leon Marshall. The young Jacob Viner was brought in 1916, and while many mark this as the passing of the torch, Viner did not stay – instead, Viner followed his old Harvard master Taussig to Washington in 1917. Viner would return to Chicago in 1919, but by this time the luminary figure at Chicago was John Maurice Clark. Clark had arrived in 1915, and taken over the theory courses after Laughlin’s retirement. Under Clark’s influence, Chicago took a more conventional Institutionalist turn, like many other departments in the United States. After nearly a decade, John Maurice Clark left Chicago in 1926, returning to Columbia. The appointments of public finance specialist Simeon E. Leland in 1927 and economic historian John U. Nef in 1928 seemed to reinforce the Institutionalist direction Clark had started. But Clark’s successor, Frank H. Knight was to change everything.
First Chicago School
The “Chicago School” really began in the 1920s with the diumvirate of Frank H. Knight (appointed in 1926) and Jacob Viner (appointed permanently in 1919) taking the helm after Clark’s departure. They were, for the most part, theoreticians (Knight more in the Jevonian-Austrian tradition, Viner leaning towards the Marshallian). In an age when empiricism ruled most of American economics, Knight and Viner set up the economics department at Chicago as a bastion of counter-institutionalism and, as such, the department soon acquired something of a “siege” mentality. Also at Chicago during this time were the “Mathematical Trio” — Oskar Lange, Henry Schultz and Paul H. Douglas — economists with a particular bent for the theoretical approach of the Lausanne School. Younger faculty included monetary theorists Henry C. Simons and Lloyd Mints.
The characteristics of the early Chicago School of 1920-1950 differ considerably from the later Chicago School. They were highly suspicious of “positivistic” economic methodology and denounced economic imperialism, arguing for a confined role for economic analysis (esp. Knight). They were suspicious of the efficiency claims of laissez-faire economics, arguing for it only on a “non-consequential” basis. They welcomed active government policies to cure recessions (esp. Viner’s recommendations on “reinflating” the economy, and Simons’s “Chicago Plan” for counter-cyclical monetary policy), and counted a fully-fledged socialist in their ranks (Lange). Furthermore, most of the faculty was not averse to rigorous, theoretical general equilibrium reasoning, but were leading practitioners of the art (Lange, Schultz, Douglas).
However, like the later Chicago School, the early Chicago School was hostile to “alternative” economic paradigms. For the most part, they did not welcome the Keynesian Revolution in macroeconomics and denounced the Monopolistic Competition approach in microeconomic theory. To a good extent, the issues these “alternative” paradigms purported to solve, they felt could be handled reasonably well within the confines of Neoclassical theory.
The economics department underwent an upheaval during the 1940s. Schultz died with tragic suddenness, Viner left for Princeton, Lange left for political life in Poland and Douglas became a U.S. Senator. Knight, whose interests were moving away from economic theory, went into semi-retirement, handing the reigns of the department over to Simons, Mints and Director.
There was a new injection of blood during this period as the department tried to regain its bearings. The first lurch was towards Walrasian economics. Several students associated with the departed Lange and Schultz remained — such as Yntema and Mosak — and Chicago went on to welcome Jacob Marschak, Tjalling Koopmans and the the Cowles Commission right next door. The Walrasian period lasted until 1955, when it moved (was hounded off?) to Yale.
The 1940s also saw the appointment of development theorists H. Gregg Lewis and Bert F. Hoselitz. These appointments were accompanied by a group of agricultural economists, Theodore W. Schultz, D. Gale Johnson and Walter Nicholls, who had left Iowa State in protest over one of the most famous violations of academic freedom. Apparently, the powers-that-be of Iowa, home of the American dairy industry, had pressured the university to force a young economist to recant a study in which he had concluded that margarine was no less nutritious than butter.
Second Chicago School
In the 1960s, the department began to congeal into a new shape, led by Milton Friedman (who joined in 1946) and George J. Stigler (a graduate, who returned to Chicago in 1957) This is the core of what became the “Second” Chicago School, which is perhaps the most famous and polemical one. Stigler and Friedman were avowed Marshallians, and eschewed the methodology of the now-departed Walrasians of the Cowles Commission. As the contemporary ditty went:
“I read my Marshall completely through
From beginning to end and backward too
I read my Marshall so carefully
That now I am Professor at U of C”.
The Stigler-Friedman period was characterized by faithful adherence to Neoclassical economics and maintained itself dead against the concept of market failures, reinforcing the Chicago School stance against imperfect competition and Keynesian economics. Through their influential journals — notably, the Journal of Political Economy and the Journal of Law and Economics — the research programme of the Chicago School was advanced and diffused. It was the Second Chicago School that is often accused of being the modern version of Manchester School liberalism (or, as some maintain, the more conservative tradition of American apologism).
In microeconomics, led by George Stigler, the guiding maxim in the Chicago approach was to preserve the Neoclassical paradigm whenever possible, never to doubt it. When there is no obvious solution to a particular problem, the recommended course was to extend the Neoclassical paradigm by incorporating new concepts into it that would make the subject matter amenable to economic analysis. Examples of extensions to the Neoclassical paradigm conceived by Chicago economists are search theory (due to George Stigler), human capital theory (due to Gary Becker and T.W. Schultz) and property rights/transaction cost theory (due to Ronald H. Coase).
The Chicago School’s impulse for extension of Neoclassical price theory is largely responsible for the “imperialist” character of which it is often accused. Business and finance, previously the prerogative of practitioners and business schools, were brought into the economic spotlight by Chicago economists such as A.W. Wallis, Harry Markowitz, Merton H. Miller and Eugene F. Fama. Further afield, political science and institutional theory were brought into Neoclassical economics by Chicago School economists such as G.J. Stigler, R.H. Coase, James Buchanan, Armen Alchian and Harold Demsetz. Economic history were given a Neoclassical reading by Robert W. Fogel and Douglas C. North, while the Chicago Law School (esp. Richard Posner and William M. Landes) used economics to rethink swathes of legal theory. Perhaps most famously, sociological issues like addiction, family and even marriage were given a thoroughly economic interpretation in the hands of Gary S. Becker and Jacob Mincer.
[Naturally, not all the “Chicago School” economists are at the University of Chicago, e.g. Alchian, Mincer, North, etc., but it is not unreasonable to argue that they are part of that school of thought.]
[George P. Shultz, better known as the Secretary of Labor and subsequently of the Treasury under Richard Nixon and later Secretary of State under Ronald Reagan, Shultz was also professor of industrial relations and later dean of the Business School at Chicago during the 1960s.]
[It is revealing that the adamantly anti-imperialist Friedrich A. von Hayek, who was at Chicago during the 1950s, was confined to an appointment on an interdisciplinary “Committee on Social Thought”, rather than the economics department proper. Walrasian theory, which has tended to be of more limited scope, has also had very little presence at Chicago over the past half-century: the only theorist to have successfully infiltrated the Chicago citadel was Hugo Sonnenschein, but then he came as president of the university. With the exception of the work of Lester Telser, the “alternative” paradigm of game theory has also been conspicuously absent until recently.]
In macroeconomics, the most renowned phase of the Chicago School has been that of “Monetarism” under the leadership of Milton Friedman, its best-known advocate. For the longest time, Chicago was the only school in America not swept by the Keynesian Revolution (the presence of Lloyd A. Metzler on the faculty was exceptional – Metzler being brought in by T.W. Schultz as the “house Keynesian” to balance Friedman). This does not mean that the old Chicago School was opposed to government intervention – indeed, Viner’s policy conclusions are at times hard to distinguish from Keynes’s. But in Friedman’s Monetarism, it found a theoretical and empirical means by which to begin rolling back the Keynesian revolution. Although prominent in the 1960s, Friedman has always claimed that the main tenets of Monetarism can be found in the work of early Chicago School economists such as Henry Simons. (see our survey of Monetarism).
Monetarism has since given way to the more mathematically rigorous “New Classical” economics of Robert E. Lucas in the 1970s and 1980s. The quantitatively-oriented “Walrasian” flavor of New Classicism meant that the appointments of Robert Lucas, Thomas Sargent, Michael Woodford and Robert Townsend at Chicago met with quite some opposition from the older hands. Nonetheless, in its policy conclusions and rigorous adherence to Neoclassical theory, the New Classical school remains by most accounts the natural inheritor of the Chicago School mantle in modern macroeconomics.
Despite, or perhaps as a result of, its mischievous but always unique perspective, the University of Chicago has taken in a lion’s share of Nobel Prizes in economics: Milton Friedman, T.W. Schultz, G.J.Stigler, R.H. Coase, G.S. Becker, M.H. Miller, R.W. Fogel and R.E.Lucas were all on the Chicago faculty when they received their awards. If we were to add Chicago-trained economists, the list of Nobelists would expand to include Hebert Simon, James Buchanan, Harry Markowitz and Myron Scholes.
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