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Chapter 6: Chicago Monetary Traditions
6 Chicago monetary traditions 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...
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