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Chicago economics: From old to new

October 5, 2015

Conference: Living the Legacy:  Chicago Economics through the Years

Client: The Becker Friedman Institute for Research in Economics at the University of Chicago

 

The notion of a “Chicago School” of economics may have begun with a chance encounter in a Washington, DC delicatessen around 1941. The story of the term’s earliest known mention, unearthed by Steven G. Medema of University of Colorado, Denver and shared at a session of The Legacy of Chicago Economics conference, began when Herbert Stein bumped into Jacob Viner at lunchtime.

 

Stein was working in the U.S. Office of Price Administration (and would later receive his doctorate in economics from University of Chicago); Viner, who was on the University of Chicago faculty in 1916 and between 1919 and 1946, was working at the U.S. Department of the Treasury. Stein later recalled that Viner asked him what he was up to at the time, “I replied, callowly (sic): ‘I’m working at the OPA. They don’t have much use for the Chicago School there.’  To which (Viner) responded: ‘Chicago School, Chicago School! What’s that? I’m not a member of it.’”

 

From the delicatessen exchange, the term continued its contentious and winding path into everyday use. Between 1942 and 1962, it grew rapidly, garnering many mentions in the economics literature as well as in popular media, such as Fortune magazine. By 1962, “Chicago School” had what Medema called its first “big hit presence” in the economics literature. Henry Johnson, who was then editor of the Journal of Political Economy (and “no friend of the idea of a Chicago School”), published a paper by Laurence Miller of the University of California-Los Angeles. The paper was the “first expansive attempt” to define the Chicago School; Miller argued that the Chicago School was “noteworthy, first and foremost, for its advocacy of a private-enterprise economy and limited government.”

 

Two dissenting opinions came from Chicago’s own:  faculty member George Stigler, PhD’38 and Martin Bronfenbrenner, PhD’39. In comments published with the article, both objected vehemently to Miller’s proposition of a Chicago School. Stigler dismissed it altogether as a useless term; Bronfenbrenner said perhaps there was an earlier school and a later school, but mostly shared Stigler’s view.

 

In a classic academic plot twist, Medema later discovered that the first two people to ever mention the idea of a Chicago School in the economics literature were none other than George Stigler and Martin Bronfenbrenner. Both mention it in separate articles from 1949.  Stigler penned a review of A Survey of Contemporary Economics by Howard Ellis of UC-Berkeley for the Journal of Political Economy. He skewered the book because, he said, “It ignores a big slice of the literature, all the work of the institutionalists, and all the work of the Chicago School, including (Frank) Knight, (Henry) Simons, and Viner.”

 

Later that same year, Bronfenbrenner used the term four times in a review of the same book for the Journal of Economics and Sociology. He argued that the Chicago School held a basic faith in the effectiveness of the financial system and a dim view of unions, among other characteristics.

Medema’s analysis set the stage for the revelation of a document showing the University of Chicago’s faculty recruiting deliberations. David Mitch of the University of Maryland, Baltimore County, discovered a list in the department minutes of the candidates, faculty votes, and tabulations for their 1946 hiring decision to fill Jacob Viner’s empty position after he left for Princeton University —the vote that ended in an offer to Milton Friedman.

 

Pulled from among the papers of then department chair T.W. Schultz, the minutes show the final order of how faculty ranked each of five candidates to fill Jacob Viner’s empty position after he left for Princeton University: John Hicks, Albert Hart, and classmates Stigler, Friedman, and Paul Samuelson.

 

Mitch concludes that this ranking, which also included how each faculty member voted, was shaped by a “reasonably clear right versus left split between the two groups in political ideology.” Knight, Simons, Lloyd Mints, and H. Gregg Lewis, who shared a similar free market view, supported Stigler. Marschak and Tjalling Koopmans, who favored government action in fiscal and monetary policy, supported Hicks.

 

Throughout the deliberations, Friedman was under no illusions about his place in the process. In a letter to Arthur Burns, Friedman wrote, “The stand on me seems to be that there is no one in the department who opposes me, but most everyone would put someone else higher in the priority list.”

 

Hicks, Mitch concluded, lost out because his candidacy was too divisive within the department. Hart had already committed to Columbia University and was therefore out. The offer would have gone to Stigler, but it was vetoed by the university’s administration, who found him underwhelming. This left Friedman and Samuelson. The university invited Friedman for a well-regarded visit and then invited Samuelson, who was less well received and whose candidacy continued to be divisive within the department. The 1946 offer to join the University of Chicago Department of Economics went to Milton Friedman. He accepted—and the rest is history.

 

—Jennifer Roche | LINK to original article.

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