Milton Friedman and the Chicago School of Economics
Ebeling, Richard M., Freeman
Milton Friedman, who passed away on November 16 at age 94, once commented that there is no such thing as different schools of economics; there is only good economics and bad economics. While he may have sincerely believed this, Friedman was nonetheless the twentieth century's most outstanding contributor to what has become known as the Chicago school of economics.
The University of Chicago's economics department was founded in 1892 with the appointment of J. Laurence Laughlin as the head professor. An uncompromising advocate of laissez faire and free trade, Laughlin may be said to have set the tone for much of the department for the next hundred years.
In the period between the two world wars the market-oriented approach of the department continued with the writings and teaching of such leading scholars as Frank H. Knight, Jacob Viner, and Henry Simons. While they cannot be said to have been as staunchly free market as Laughlin or many of the Chicago economists who followed them, they forcefully emphasized the superiority of competitive markets and the price system, and the inherent problems that arise from intrusive and discretionary governmental power.
The Chicago school blossomed into one of the most influential schools of thought after Friedman joined the economics faculty in 1946 and then was joined by his long-time friend George J. Stigler in 1958.
Friedman revolutionized macroeconomics, while Stigler helped to do the same in microeconomics. Friedman challenged the dominance of Keynesian economics in the postwar period, and Stigler's writings undermined many of the rationales for government regulation of business.
Their common method of analysis, which became a near hallmark of the Chicago school, was rigorous mathematical modeling combined with statistical research to demonstrate the empirical validity or falsity of an economic theory or policy prescription. They, their students, and a growing number of followers in the profession exposed as erroneous the Keynesian presumption that markets are inherently unstable and prone to monopoly.
Friedman and many of his Chicago colleagues shared a deep and determined allegiance to human liberty. Free markets, they explained, are the institutional guarantor of choice, opportunity, and limits on government control over people's lives. In Capitalism and Freedom (1962), for example, Friedman pointed out that when Hollywood actors, writers, and directors were blacklisted in the 1950s after being accused of communist affiliations, they were not doomed to starvation or imprisonment in the Gulag. Whether or not the blacklist was proper, those individuals could find alternative jobs in the marketplace because the government did not control or dominate the economy.
"The fundamental protection was the existence of a private-market economy in which they could earn a living," Friedman pointed out. Government denunciation did not mean literal destruction, as it did under the communism with which some of the blacklisted actually sympathized.
Friedman more generally expressed this idea in his widely acclaimed Free to Choose (1980):
Economic freedom is an essential requisite for political freedom. By enabling people to cooperate with one another without coercion or central direction, it reduces the area over which political power is exercised. In addition, by dispersing power, the free market provides an offset to whatever concentration of political power may arise. The combination of economic and political power in the same hands is a sure recipe for tyranny.
Throughout the twentieth century the Chicago school's rival in the defense of the market order and the free society has been the Austrian school, led by Ludwig von Mises and F. A. Hayek. The Austrians have also forcefully demonstrated the superiority of the free market and the hazards from all forms of socialist planning and government intervention. And they too have emphasized the uniqueness of the individual and the value of liberty. …