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Home > Economics > Chicago

The "Chicago School" is perhaps one of the better known American "schools" of economics. In its strictest sense, the "Chicago School" refers to the approach of the members of the Department of Economics at the University of Chicago over the past century. In a looser sense, the term "Chicago School" is associated with a particular brand of economics which adheres strictly to Neoclassical price theory in its economic analysis, "free market" libertarianism in much of its policy work and a methodology which is relatively averse to too much mathematical formalism and willing to forego careful general equilibrium reasoning in favor of more results-oriented partial equilibrium analysis. In recent years, the "Chicago School" has been associated with "economic imperialism", i.e. the application of economic reasoning to areas traditionally considered the prerogative of other fields such as political science, legal theory, history and sociology.

The "Chicago School" has had various phases with quite different characteristics. Nonetheless, the main consistent factor seems to be that it has always held a unique, distinct and influential place in the realm of economics at any time. In the modern day, under the "Chicago School" umbrella, we can count various further schools of thought: e.g. Monetarism in the 1960s, New Classical/Real Business Cycle macroeconomics from the 1970s until today, and more recently, the New Institutionalism, New Economic History and Law-and-Economics movements.

The University of Chicago was founded in 1892 by oil magnate John D. Rockefeller. Its initial economics department, counted radical American Institutionalists such as Thorstein Bunde Veblen (1899 "The Theory of the Leisure Class") among its faculty.

In the 1960s, the department began to congeal into a new shape, led by George J. Stigler and Milton Friedman. This is what became the "Second" Chicago School, which is perhaps the most famous and polemical one.
Political science and institutional theory were brought into Neoclassical economics by Chicago School economists such as G.J. Stigler, R.H. Coase, James Buchanan (Public Choice). Perhaps most famously, sociological issues like addiction, family and even marriage were given a thoroughly economic interpretation in the hands of Gary S. Becker.
Friedrich A. von Hayek, was at Chicago during the 1950s. One of the most influential modern economic theorists, Robert E. Lucas is the leader of the New Classical school - the "modern" version of the Chicago School. His introduction of the concept of "rational expectations" in the 1970s. He is also renowned for the "Lucas Critique" (1976) of the use of econometric models for policy purposes. A professor at Chicago, Lucas won the Nobel prize in 1995.
Despite, or perhaps as a result of, its mischievous but always unique perspective, the University of Chicago has taken in a lion's share of Nobel Prizes in economics: Milton Friedman, T.W. Schultz, G.J.Stigler, R.H. Coase (see institute), G.S. Becker, M.H. Miller, R.W. Fogel and R.E.Lucas were all on the Chicago faculty when they received their awards. If we were to add Chicago-trained economists, the list of Nobelists would expand to include Hebert Simon, James Buchanan, Harry Markowitz and Myron Scholes.

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