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Chapter 2: Chicago Economics and Institutionalism
Malcolm Rutherford* Introduction For most economists the terms ‘Chicago economics’ and ‘institutionalism’ denote clearly antithetical approaches to the discipline. Members of the modern ‘Chicago School’ such as George Stigler and Ronald Coase have often made highly dismissive remarks concerning American institutionalism. Coase has commented that American institutionalists were anti-theoretical, and that ‘without a theory they had nothing to pass on except a mass of descriptive material waiting for a theory, or a fire’ (Coase 1984, p. 230). Stigler devoted himself to fierce attacks on the work of Gardiner Means, John Kenneth Galbraith, Richard Lester, and of anyone else who ventured to question either the virtues of the free market or the empirical superiority of competitive price theory. Some of these attitudes have their roots in the interwar period, most obviously in Frank Knight’s views on the centrality of price theory to any properly ‘scientific’ economics (Knight 1924 ), and in his bitingly critical attacks on the policy positions of institutionalist and other advocates of regulatory intervention and of the ‘social control’ of business (Knight 1932 ). Nevertheless, what this chapter seeks to reveal is a much more complex interrelation between institutional and Chicago economics. To fully understand this relationship it is necessary to begin with the early years of the Chicago Department of Economics. Chicago economics and institutionalism, 1892–1919 The Chicago Department of Political Economy was begun in 1892 with Laurence Laughlin as its head. While Laughlin was conservative in his economic and political views, and at odds with...
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