Chicago school of economics
[5] The Chicago economists met together in frequent intense discussions that helped set a group outlook on economic issues, based on price theory.
[7] This group had diverse interests and approaches, but Knight, Simons, and Director in particular advocated a focus on the role of incentives and the complexity of economic events rather than on general equilibrium.
[8] Nonetheless, these scholars had an important influence on the thought of Milton Friedman and George Stigler who were the leaders of the second-generation Chicago school, most notably in the development of price theory and transaction cost economics.
In addition, as of October 2018, 32 out of the total 81 Nobel laureates in Economics have been affiliated with the university as alumni, faculty members or researchers, which has been a source of controversy.
Henry Calvert Simons (1899–1946) did his graduate work at the University of Chicago but did not submit his final dissertation to receive a degree.
[38] Director influenced some of the next generation of jurists, including Richard Posner, Antonin Scalia and Chief Justice William Rehnquist.
A group of agricultural economists led by Theodore Schultz (1902–1998) and D. Gale Johnson (1916–2003) moved from Iowa State to the University of Chicago in the mid-1940s.
Among the graduate students and faculty affiliated with the pair in the 1940s and 1950s were Clifford Hardin, Zvi Griliches, Marc Nerlove, and George S.
Referring to Thorstein Veblen's assertion that economics unrealistically models people as "lightning calculator[s] of pleasure and pain", Friedman wrote:[41] Criticism of this type is largely beside the point unless supplemented by evidence that a hypothesis differing in one or another of these respects from the theory being criticized yields better predictions for as wide a range of phenomena.George Stigler (1911–1991) was tutored for his thesis by Frank Knight and was awarded the Nobel Prize in Economics in 1982.
Rational individuals trade through bilateral contracts on open markets until the costs of transactions mean that using corporations to produce things is more cost-effective.
[44] Coase said that regardless of whether the judge ruled that the sweetmaker had to stop using his machinery, or that the doctor had to put up with it, they could strike a mutually beneficial bargain that reaches the same outcome of resource distribution.
[46] Coase and others like him wanted a change of approach, to put the burden of proof for positive effects on a government that was intervening in the market, by analysing the costs of action.
[49] He is considered one of the founding fathers of Chicago political economy, and one of the most influential economists and social scientists in the second half of the twentieth century.
[50][51][52][53][54] Becker was known in his work for applying economic methods of thinking to other fields, such as crime, sexual relationships, slavery and drugs, assuming that people act rationally.
[56] He has spent all of his teaching career at the University of Chicago and is the originator of the efficient-market hypothesis, first defined in his 1965 article as a market where "at any point in time, the actual price of a security will be a good estimate of its intrinsic value".
His work showing that the value premium can persist despite rational forecasts of future earnings[57] and that the performance of actively managed funds is almost entirely due to chance or exposure to risk[58] are all supportive of an efficient-markets view of the world.
Lars Peter Hansen (born 1952) is an American economist who won the Nobel Prize in Economics in 2013 with Eugene Fama and Robert Shiller for their work on asset pricing.
His book The Road to Serfdom, published in the U.S. by the University of Chicago Press in September 1944 with the help of Aaron Director, played a seminal role in transforming how Milton Friedman and others understood how society works.
[63][64] The University Press continued to publish a large number of Hayek's works in later years, such as The Fatal Conceit and The Constitution of Liberty.
[65] In 1947, Hayek, Frank Knight, Friedman and George Stigler worked together in forming the Mont Pèlerin Society, an international forum for libertarian economists.
He stated that, "...I was disconcerted to find that the economic and political conservatives had acquired almost complete dominance over my department and taught that market decisions were always right and profit values the supreme ones...
[75] Specifically, if market crashes never occurred, this would contradict the EMH since the average return of risky assets would be too large to justify the decreased risk of a large decline in prices; and if anything, the equity premium puzzle implies that market crashes do not happen enough to justify the high Sharpe ratio of US stocks and other risky assets.
Economist Brad DeLong of the University of California, Berkeley says the Chicago School has experienced an "intellectual collapse", while Nobel laureate Paul Krugman of Princeton University says that some recent comments from Chicago school economists are "the product of a Dark Age of macroeconomics in which hard-won knowledge has been forgotten", claiming that most peer-reviewed macroeconomic research since the mid-1960s has been wrong, preferring models developed in the 1930s.
[76] Chicago finance economist John Cochrane countered that these criticisms were ad hominem, displayed a "deep and highly politicized ignorance of what economics and finance is really all about", and failed to disentangle bubbles from rational risk premiums and crying wolf too many times in a row, emphasizing that even if these criticisms were true, it would make a stronger argument against regulation and control.
