Schools of Thought in Economics
Edited by Gilbert Faccarello and Heinz D. Kurz
Chapter 25: Chicago School
The Chicago School was a group of postwar economists, primarily located at the University of Chicago, who shared a common theoretical and methodological approach to economics as an applied policy science. The school’s commitment to economics as an applied policy science, and their common scientific approach, distinguished them from the mainstream of the economics discipline in the postwar era. The success of their approach, both within the economics discipline and in economic policy around the world, led Andrei Shleifer (2009) to name the last quarter of the twentieth century after the school’s most famous member: “The age of Milton Friedman.” At the core of the Chicago approach were two themes which guided their work: (1) the relevance of Marshallian price theory to policy analysis; and (2) the necessity of empirically testing that relevance against the outcomes of policy initiatives. So armed, the Chicago School not only launched assaults on Keynesian macroeconomics and traditional structure–conduct–performance theories of industrial organization, but also led in the development of modern financial economics, labor economics, economic history, public finance, applied econometrics, and social economics. Members of the School advised governments around the world, and University of Chicago graduates have been policy leaders in government ministries, central banks, the International Monetary Fund, and other national and international organizations. The School’s influence in the Reagan and Thatcher administrations, as well as the role of the Chicago Boys in Chile, brought global attention to the School’s policy framework. Their leadership, both in the economics discipline and in economic policy, has been recognized by the awarding of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to ten economists directly associated with the Chicago School: Milton Friedman, T.W. Schultz, George Stigler, Merton Miller, Ronald Coase, Gary Becker, Robert Fogel, Robert Lucas, Myron Scholes, and James Heckman. Numerous other laureates spent time in Chicago as either graduate students or post-doctoral researchers associated with the School or the Cowles Commission.