Bagging Chicago Economics

Building Chicago Economics

(Edited by Robert van Horn, Philip Mirowski and Thomas A. Stapleford, Cambridge University Press, 2011)

Social structures commonly seek to reinforce themselves by means of systems of honour and dishonor. Thus prizes, distinctions and accolades are afforded those who have strengthened some structure. and correspondingly,  those who have damaged it will be degraded by various disfiguring marks. The best exemplification of a  regime of dishonour is probably the criminal justice system; historically it administered disgrace as much as punishment. In modern times the most crafted exercises in disgrace are found in  the (aptly named) ‘show trials’ of unfree societies. Free societies tend to more informal methods.

Systems of honour and dishonor extend to include mythologies. Positive mythologies will commonly commend their subjects by articulating an illustrious pedigree, or by enumerating the tests their subject has endured, or by blazoning their ultimate triumph or (perhaps) martyrdom. Negative mythologies seek to degrade in a variety of ways: by alleging discreditable associations, by imputing base motives, and by highlighting anything inglorious or diminishing in their target's  story .

A given individual may be tussled over by  conflicting system  of honour and dishonor. An example is Herbert  Spencer, who after enjoying a flush of adulation during the middle part of his own lifetime, was fated to be cast in the 20^th century as the bugaboo of semi-mythical  monster called ‘social darwinism’. (See Leonard 2009). In a parallel way, Milton Friedman today  is evidently the  object of contention of contrary systems of honour and dishonour. Thus there exists a biennial Milton Friedman Prize (valued at $500,000), a Milton Friedman Institute, and there has even been a Milton Friedman Day. And yet the Nobel Laureate, at the age of  86,  suffered a pie being driven into his face. 

This contention over Friedman between the positive and negative extends to mythologisation. There have been several  accounts of his life and work lionising  him  (eg Ebenstein 2007). Now it is the turn of the negative mythology. The assumed task of the volume under review, Building Chicago Economics, is to diminish and taint Milton Friedman and his doctrinal peers.

The editors' negative mythology is composed out of several elements. The first is, predictably, ‘Chile’, which the authors hasten to mention on their first page. But ‘Chile’ is small beer in an old hat, and the editors quickly move on.

The second element, curiously enough, is Friedman's involvement in the Mont Pelerin Society (at least before he proposed its abolition!). Several  contributors to the volume under review seem quite atingle at this involvement; and some attribute a great importance to Friedman's attendance at the original Society gathering in 1947. But their insinuation that a person of Friedman's deep self-belief  would be dazzled into doctrinal deference by the gathered luminaries is ridiculous. It also ignores the fact Friedman did not attend again until 1957; and that the Society was no credal sect, but a medley of fractious individuals, several of whom Friedman fought.  

What the editors presumably find gratifying in Friedman's association with the Society is that it underlines  the ideological aspect of  his thought, and thereby diminishes a much resented claim of classical liberalism for ‘economics’. Friedman, of course, never remotely claimed economic theory for classical liberalism; to Friedman economic theory  in general was the emptiest of  empty boxes. What he claimed was that his ‘hypotheses’ - competitive markets; a rational consumer;  the quantity theory - could outpredict rival theories of pricing, consumption and nominal GDP. To Friedman’s mind, in other words, theories are many, but the usefully accurate ones are those of classical liberalism. This contention may be true, or it may be false. But there seems  little gained in stressing that those who deem it true have been classical liberals.

But the prime exhibit  of Building Chicago Economics is not a discussion club, however distinguished or ambitious. It is the funding of various Chicago School activities by business fortunes controlled by persons concerned to advocate deregulated markets. Thus in the 1930s Charles R. Walgreen established a Walgreen Foundation to encourage a greater appreciation of the "American Way" at  Chicago; and to that end it later funded not only scholarships (etc) but public lectures by Chicago School  figures. Even more stimulating to the editors is the Volker Fund, that under Harold W. Luhnow financed not only lecture tours of Chicago thinkers, but a ‘Free Market Study’, under Aaron Director, that articulated doubts about the merits of competition policy.

That authors receive the patronage of rich men who think they agree with them is no discovery. There once was an author of  very strong views who was employed for only few months in his life, and who for decades was supported by the profits of a cotton mill gifted him by its owner. That man was called Karl Marx.

But the editors are not interested in the simple possibility that patronage expedites the dissemination of an ideology. Rather their concern is to suggest that the patronage at issue was responsible for the (well-known) fact that in various matters (especially competition policy) ‘the founders of postwar Chicago school (including Friedman, Stigler and Aaron Director) departed quite sharply from the classical liberals, that had animated their mentors  art the university, such as of Knight and Henry Simons’(Horn, Mirowski and Stapleford, xix).

Put simply, the Chicago School was bought. This, in its all ignominious crudity, is the editors’ thesis. 

This is not expressly stated, but rather is a matter of  ‘character assassination by innuendo’, as Bruce Caldwell puts it  in the chapter he contributes to this volume, which serves as kind of a Speech in Reply. In that chapter Caldwell  also brings out one spectacular error of the editors in making this innuendo:  that a certain conversation of Hayek dated to 1950 could not have taken place until at least 1977 . 

But the refutation of the innuendo does not require a mastery of the details of biography; it fails to fit the contours of American attitudes in general, and the Chicago School in particular. It fails to appreciate that American society at large had by the post-War period already lost interest in 'anti-trust' competition policy . Thus in 1964 it was observed by Richard Hofstadter – no neoliberal he! -  that ‘The anti-trust movement is one of the faded passions of American Reform’. Hofstadter not only underlined how public opinion had come to tolerate big business  by the early 1950s, but asked of the liberal left why was it that ‘the last thing they are interested in is the restoration of competition to correct the evils that they see’. Hofstadter had an answer. It was not that the liberal left was reading George Stigler;  it was that they were reading J. K Galbraith. To Hofstadter,  Galbraith's American Capitalism that ‘has probably done as much as any work to reconcile the contemporary liberal mind to the diminished role of competition as a force of modern society’ (Hofstadter 1965, 227)

There is a second palpable inconsistency with reality of the editors' '30 silver pieces' explanation  of  the ‘sharp departures’ of post-War Chicago from its pre-War variant: whereas Simons was almost hysterical in his hostility to trade unionism, post-war Chicago smoothly reconciled itself to it. So in 1951, near the apex of union strength in the US, Friedman sought to rebut the passionate denunciations of trade unions of Edward Chamberlin  - the Harvard apostle of imperfect competition. Unions, Friedman declared, had a ‘’negligible’ effect on wage rates; and this was because the American economy was, contrary to Chamberlin, essentially competitive. This shift  between Old and New Chicago on unionism is seen even better in the work of H. Gregg Lewis; from a partisan of Simon's crusade against unions in 1951 to theorising unions as a 'negotiation business' in 1965 (see Coleman 2010). Was Lewis bought by the AFL-CIO?

It is the duty of any reviewer to identify the value-added the work under review. To that end I would especially highlight Emmet’s chapter ‘The Workshop System and the Chicago’s School’s Success’, that tells how what was (in essence) a pedagogical innovation of Friedman had by the late 1970s spread right across the University of Chicago. Van Horn’s ‘Chicago’s Shifts on Patents’ brings out how slippery an issue is intellectual property for classical liberals.  Stapleford's ‘Friedman, Institutionalism and the Science of History’ underlines the irony that Friedman’s first paying job was at a ‘bastion of statist planning’, the Industrial section of the National Resources Committee. This is, indeed, ironic but  perhaps not mysterious. In the New Deal Friedman had sensed (in his own words) the ‘birth of a new order’, and elected to join it. But the birth was stillborn: in the post-war period the market economy ‘performed in a way we hardly dreamed of before World War 2’ (Hofstadter). It was this astonishing revival of capitalism that Friedman chose, in his own way, to join. I suggest that it is in the need that a spirited personality feels to choose sides and take to the field that  we are likely to find the germ of post-War Chicago, and not in the pursuit a trail of ancient per diems.

Coleman, William (2010), The Political Economy of Wages and Unemployment: A neoclassical exploration Edward Elgar, U.K.

Ebenstein, Larry (2007), Milton Friedman. A Biography , Palgrave Macmillan, New York.

Hofstadter, Richard (1965),The Paranoid Style in American Politics and Other Essays , A.A.Knopf, New York.

Leonard,Thomas C. (2009) ,"Origins of the Myth of Social Darwinism: The Ambiguous Legacy of Richard Hofstadter’s Social Darwinism in American Thought." Journal of Economic Behavior and Organization 71: 37–51.