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The Elgar Companion to the Chicago School of Economics

The Elgar Companion to the Chicago School of Economics

Elgar original reference

Edited by Ross B. Emmett

Many know the Chicago School of Economics and its association with Milton Friedman, George Stigler, Ronald Coase and Gary Becker. But few know the School’s history and the full scope of its scholarship. In this Companion, leading scholars examine its history and key figures, as well as provide surveys of the School’s contributions to central aspects of economics, including: price theory, monetary theory, labor and economic history. The volume examines the School’s traditions of applied welfare theory and law and economics while providing a glimpse into emerging research on Chicago’s role in the development of neoliberalism.

Chapter 6: Chicago Monetary Traditions

David Laidler

Subjects: economics and finance, economic psychology, history of economic thought, methodology of economics


David Laidler Introduction In popular understanding, the University of Chicago monetary tradition is inextricably linked to the ideas of Milton Friedman, which extend well beyond that area to encompass a general belief in the efficacy of market mechanisms as regulators of economic life, and an equally general scepticism about the desirability of government intervention therein (Reder 1987). Chicago ‘monetarism’ is seen as having challenged (more or less successfully, depending on the commentator) a previously dominant ‘Keynesian’ consensus on these matters. Though Chicago monetary economics can, and should, be judged on its theoretical and empirical merits, I shall also pay some attention to its broader political connections in this chapter, because such considerations are important in locating its position in the broader history of American economic thought. The first Chicago tradition The history of Chicago monetary economics long antedates the outbreak of the monetarist controversy of the 1950s. The first chairman of the Chicago Economics Department, James Laurence Laughlin, was one of America’s most influential monetary economists between the 1880s and the foundation of the Federal Reserve System in 1913 (Friedman 1987, Dimand 2003). Along with his student Henry Parker Willis, eventually a professor at Columbia Business School, he continued to expound his ideas in the debates about monetary policy of the 1920s and 1930s, though another important student, Wesley Clair Mitchell, had by then largely broken free of his influence. Laughlin was conservative in both his politics and his economics throughout his long life, as his writings (Laughlin 1885, 1903,...

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