Chicago School of Economics

What they saw

This department of the school looked at economics as a practical matter rather than as an exercise in theory or branch of mathematics

Major ideological defender of conservative economics and capitalism it has been one of the most influential bodies of economic thought in recent times

• Friedman and Stigler were the faces of this school for the longest time

Professors

• Always searching for best educated staff
• Meant hiring outside the Keynesian mainstream

Micro vs. Macro

http://www.cleanvideosearch.com/media/action/yt/watch?videoId=DJG-liA19eY

Names

Monetary Policy

Derives its name from the earliest proponents of this economic way of thinking who were all professionally associated with or academically trained at the University of Chicago in the 1930s. This group includes Frank Knight, Jacob Viner, Aaron Director, Milton Friedman, Rose Director Friedman, Henry Simons, George Stigler, and Allen Wallis. Their legacy is carried on today

Legacy

Monetary policy is maintained through actions such as increasing the interest rate, or changing the amount of money banks need to keep in the vault (bank reserves).

• Fiscal policy is use of government revenue collection to influence the economy

http://www.cleanvideosearch.com/media/action/yt/watch?videoId=TvzsjOmWgKI

The Chicago belief in free markets & absence of government regulation influenced world bodies such as the World bank & IMF. Their free market stance has often been criticized.

Basics

• University of Chicago's department of Economics was founded in 1892.
• J.Laurence Laughlin serving as the first chairs man.
• Neoclassical school of economic thought associated with right-wing politics
• Workers of this school have constructed and popularized its principles

The Chicago School v. the Austrian

Milton Friedman

Main difference in Chicago school & Austrian school is their differing theories on drawing conclusions to economics

• The Austrian school sits squarely outside of the mainstream, & is considered heterodox due to its methodology. Austrian economists, following the teachings of Ludwig von Mises, believe that empirical reasoning cannot be used to analyze the largely unpredictable course of human action
• The Chicago school, which sits squarely in the mainstream, advocates empiricism as applies to economics, acknowledging the merits of positivism and mathematical reasoning.

• He believed there is either good economics, or bad.
• The twentieth century’s most outstanding contributor to what has become known as the Chicago school of economics
• The Chicago school blossomed into one of the most influential schools of thought after Friedman joined the economics faculty in 1946
• Recognized macroeconomics (study of aggregate economy)
• His long time friend George J. Stigler joined with him and studied microeconomics

Great Depression

Chicago school felt that the depression was unnecessary & it was the mistakes of governing. They believed they had ways to stop or reverse the course of depression, their way of preventing it was the 'monetary policy'.

• Jacob Viner, Frank Knight, Henry Simmons, & Aaron Director took shape of the school throughout these times.
• All very much engaged by the Great Depression

Two Components

• First is scientific: Economics is not an abstract subject, not merely a branch of mathematics
• The empirical worth of a theory, and not its mathematical elegance was the main factor. It's an "engine for analysis" for affecting & improving the real world. Chicago has always had a strong emphasis on empirical work
• Second is policy: This aspect has changed over the years as different people brought their own work and agendas to Chicago.
• There has always been a clear emphasis on free markets, however. Chicago economists have always strongly opposed government intervention

Chicago School of Economics