Chicago Economics or Economics as Bullshit

The University of Chicago was established by the founder of the oil behemoth Standard Oil, John D. Rockefeller, in 1890. Rockefeller later went on to say it was “the best investment I ever made.” Rockefeller personally picked the first president William Rainey Harper who picked the first economist to serve at the university James Laurence Laughlin (who later went on to help found  the Federal Reserve System). Just before Harper died he drove the pro-labour economist Thorstein Veblen out of the university in 1906. In 1917 Frank Knight (a man who thought the existence of competition was justification for anything; even slavery was legitimate as long as it involved competition) came to Chicago from Laughlin’s previous university of Cornell. Laughlin passed his position on to John Bates Clark. Rockefeller’s early institutional decisions helped shape the future of the form of economics to be taught at Chicago and all across America to this very day.

We have Mr. Rockefeller to thank by extension for the most well known Chicago economist Milton Friedman. Friedman’s economic and political ideas were the prime force behind the 1973 Chilean military coup.

Friedman once taking a position in an ongoing debate on the philosophy of science argued: “…theory is to be judged by the predictive power for the class of phenomena which it is intended to ‘explain'” (1968: 512). Friedman’s economic doctrine has dominated since the 1980s, so how exactly should its theoretical predictive power be judged in retrospect? Did it predict that the implementation of the Chicago doctrine in the developed world would result in a massive slow down in growth from its peak in the 50s and 60s? Did it foresee that in the countries that would adopt the Chicago doctrine we would see worsening conditions of labour, lowering returns to saving, high and rising concentrations of wealth and income, rising class divisions, social problems and a continuing fall of national statures? Did Friedman predict this would be the result of the implementation of his economic doctrine?

As Frank Knight so elegantly put it: “Truth in society is like strychnine in the individual body, medicinal in special conditions and minute doses; otherwise, and in general, a deadly poison. … ” (1947: 325, cit. Stigler, 1987: 59).

Thorstein Veblen’s experience at Chicago led him to write a critique of higher-learning in America under the title “The Higher Learning In America: A Memorandum On the Conduct of Universities By Business Men”. To make it more universal he decided to drop all references to Chicago.


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