The Heart Is a Lonely Hunter: Chicago’s Climb to Glory

The Dickens quotes throughout this chapter reflect the stylized perception, if not caricature, that the profession has nurtured of the Chicago School these many years. In his novels, Dickens’ romantic focus on social injustice inevitably finds the greed and callousness of the business place to be at the heart of human misery. Martin Bronfenbrenner, a contemporary of Milton Friedman and George Stigler, provides a useful depiction of how the profession viewed Chicago during those decades following World War II.

I never heard of any “Chicago School” until I left Chicago. I thought of my teachers and my older fellow students as good economists, not as members of a sect, or cult, or clique. Shortly after leaving the Midway however, I encountered the term full force. It was usually used pejoratively, especially when I was included in the membership. On the banks of Lake Mendota [University of Wisconsin, Madison], for example, “the Chicago School” meant Pangloss plus Gradgrind with touches of Peachum, Torquemada plus the Marquis de Sade thrown in as “insulter’s surplus.” (Bronfenbrenner 1962:72)

“Chicago School” throughout this article refers solely to its post-war manifestation, particularly in the period from the late 1950s to the end of the 1970s. Prior to this period, and certainly during the interwar years, it would be much more difficult to categorize such a heterogeneous group of academics by employing a single label. In fact, when it appeared that Paul Samuelson was going to move to Chicago in the late 1940s, there were those in the department who feared that the Keynesian influence would soon dominate.

The Samuelson matter was again forced to a head by Douglas—& thanks mainly to his efforts we lost badly. The dep’t has voted to make Samuelson an offer. (Letter from Milton Friedman to George Stigler November 27, 1946 in Hammond and Hammond 2006:46)

The actual formulation specifying, the “Chicago School” was more of an oral tradition that didn’t explicitly make an appearance within the profession until a controversial 1962 article by Miller was appropriately published in the Journal of Political Economy. Miller distinguished between the interwar group of Knight, Simons and Viner, and the post-war group led by Friedman and Stigler. This distinction has generally been accepted by those who have since dissected this school of thought. However, in the same issue, George Stigler (1962) provided a tart, and deliberately ingenuous, two-page reply that essentially dismissed this categorization as somewhat less than useless.

My basic objection to Miller’s statement, however, is that it does not really investigate the thesis that there is a “Chicago School.” He has not described either a unifying ethical or political philosophy or an articulate and reasonably specific policy program. Instead he has merely sketched, less than completely, the views of my friend Milton Friedman. Friedman is clearly one of the most influential economists in the United States, if we mean by influence the affecting of people’s thinking rather than merely its popular expression. He has not been ignored at Chicago, but I believe his influence on policy views has been greater elsewhere than here. If he is to be given a geographical base, a practice for which there is a good English precedent, I suggest that he be called the leader of the Berkeley-Cambridge axis, better to identify his locus of influence. (Stigler 1962:71)

Bronfenbrenner in a post-war review of contemporary economics does refer to “The so-called Chicago School of economic policy, whose intellectual parent is Frank H. Knight, but whose best-known publicist is Henry C. Simons …”(1950:487). Naturally he does not make a distinction between old and new Chicago which would be similar to the anachronism of referring to the Great War as “World War I” in the 1920s.

In his article, one of a series appearing in a precisely appropriate memorial to George Stigler (The Journal of Political Economy), Gary Becker aptly characterizes the duo. “Stigler and Friedman became Mr. Micro and Mr. Macro at Chicago during their two decades together.” (1993:762) Stigler himself saw it somewhat more acerbically according to his wont. “Unlike some people who have really specialized one way or the other, I think he’s [Friedman] covered both fields. I, on the contrary know very little macroeconomics, and I thank God for it every day, because it changes once a year, and that’s an enormous strain to put on a person.” (Stigler 1985:4)

In the 1960s and 1970s, when the Chicago counter-revolution made its greatest gains, the guiding lights, due to the force of their personalities, ideas and research were a particular gang of three (Friedman, Stigler and Director). Director, though not so obviously at the forefront in terms of maintaining a public persona, exerted his influence informally on other members of the school. To imagine another group leading a similarly successful counter-revolution at Chicago would require a significant stretch of the imagination.

I think he [George Stigler] had this belief, but yet he did have a great impact on the kind of work that people around him did. He was very influential in that way and he was very influential within the profession, particularly with respect to his insistence on testable propositions and gathering evidence to bear on those propositions. There is a lot more done on that than there used to be and largely because of George’s evangelism on this point. (Conversation with Harold Demsetz, October 1997)

There aren’t too many people who can draw a circle around them, the way he [George Stigler] did. I think it’s vanished from intellectual life. …I don’t get the impression that there are many people like that in economics today. Maybe there never were. [laughs] … Friedman had a very huge influence on his students, but he was also a very difficult person to deal with, in a much different way than George. He was a much different type of person than George was. I don’t know if Milton attracted as many people around him. He attracted his share, but not in the same way as George did. George was just a lot different … He was the smartest man I ever met, without doubt, the best working economist that there ever was. He was just the smartest, the very smartest man. (Conversation with Sherwin Rosen, October 1997)

Robert Van Horn, in a number of insightful articles (including Van Horn 2010) has shed light on Director’s sphere of influence. Certainly, apart from Becker, no one else influenced George Stigler to a greater degree. It does seem ironic then that there is a need to emphasize and acknowledge the degree of diversity at Chicago when their core doctrine of rational choice focused on the commonality of all markets whether explicit or implicit. While a Robert Solow could object to Becker’s extension of the calculus of markets into the more sociological fields of crime and marriage, at Chicago there was a general willingness to push price theory to its applicable limits.

Gary [Becker] is certainly able to produce “explanations” of some observed facts about marriage as consequences of his assumptions. My problem is that almost each time I can think of equally plausible or more plausible explanations in terms of other motivations and institutions. (Robert Solow, letter to George Stigler, November 13, 1972)

However, this in no way implied that all markets were absolutely identical, but that the commonality linking them was more significant that the differences distinguishing them. Similarly, it should not be necessary to state that obviously the members of the economics department at Chicago were not clones of one another. There were, though, clearly a few key ideas that were held in common and dominated much of the work done there. The objective here is not to deny that diversity, but for the purposes of this chapter to hone in on some key common themes. Other authors are free to dissect all and any differences. However, the “us versus them” aspect of Chicago during those years was sufficiently explicit that someone like Robert Solow would be instantly typecast as an interloper when confronted by a host of true believers.

There was a sixty-fifth birthday party for George that the University of Chicago put on, and my wife and I flew out there to be there and I remember that we were all put up in a University building, the Center for Continuing Education which had bedrooms. And we came in one evening and the next morning we walked into the dining room where all the other guests at this party were having breakfast and a hush fell over the whole dining room. And, finally a friend of mine, I think it was Si Rottenberg from the University of Massachusetts, came over and said, “We were all wondering ‘what are you doing here?’” (Conversation with Robert Solow, November 1997)

Both Friedman and Stigler were known for their obstinacy and reluctance to admit error or change their mind. Their natural inclination seemed to be to defend their ground with whatever tools came to hand.

And I think Milton quietly changed, he just quietly dropped that [100 % reserve ratio]. He doesn’t particularly announce changes in positions, but instead, lets them just decay away. (Conversation with Paul Samuelson, October 1997)

I never got a note from George saying “Well, this time around I’ve got to admit I was wrong. And your reading was right.” Not at any time. And a lot of people would tell me that if they wrote to him complaining about something, he would answer something like “Well, if you’re the kind of person who believes that, then you’re just the kind of person who believes that.” (Conversation with Paul Samuelson, October 1997)

In fact, Stigler was wont to portray changing one’s mind in a negative fashion and obstinacy as a virtue.

A second and related trait of scholars is that they seldom change their minds. We must remember that we are discussing scholars with good minds, and they would lose in a swap of minds. (Stigler 1988:210)

What he would not seemingly countenance is a shift from sound to unsound doctrine. This can be gathered not from reading Stigler literally, but understanding how he wrote and expressed himself. Throwaway remarks are often slyly tongue in check, reflecting a dry and very sardonic sense of humor. Statements that would seem innocuous if written by some other economists are revealed to contain a hidden barb when flowing from Stigler’s pen. In the above quote, notice the veiled implication. Those scholars who do switch their positions must almost by definition lack good minds.

He has to a considerable extent gotten away with murder. Because, I’d say, unlike Milton Friedman, you have to be really very aware when you read George Stigler of these preconceptions. You know, a lot of people that read George Stigler are quite surprised when you tell them how, of course, very pro markets he was. OK, they realise that he was at Chicago and that sort of thing. But he is wonderful in disguising himself, with his wonderful, his very funny, ironic, cynical stance. (Conversation with Mark Blaug, April 2014)

Finding instances where Stigler did change his mind is simple enough. Many can point to the subject of monopoly or his definite break from the ideas propagated by Frank Knight or Henry Simons. But his fundamental vision did not change. Rather, as his ideas and research matured he discarded theoretical elements that no longer fit with his more comprehensive and consistent view of the world.

I think he [George Stigler] went to a more satisfactory position, absolutely. The earlier view, as you say, he picked up, that was the literature, he hadn’t really thought it through. I mean, you know, he hadn’t thought through everything at that point, and he hadn’t really thought it out. As he thought through more and more, I think he came to a more satisfactory thesis on the issue. I think you’re absolutely right, he did. (Conversation with Gary Becker, October 1997)

To avoid any inevitable misunderstanding and the unfortunate tendency to shift the terms of debate, the analysis presented has no intention of evaluating the correctness of the various stances adopted by those at Chicago. Questioning consensus beliefs, which was the Chicago stock-in-trade, can only be a positive virtue when it prevents any discipline from slipping too far into a dogmatic sleep. However, iconoclasm based on unwavering a priori knowledge that remains invulnerable to all and any evidence is never desirable, no matter the ideological base from which it emanates, whether left or right.

I am going to end my association with Business Month at that time. This decision represents no dissatisfaction with you or the magazine. Rather, it results from my lack of enjoyment of a process in which there is no reaction at all: for all I would know, Business Month is published in Cantonese and sold only in China. I should indeed think this absence of reaction would raise doubts of the value of the column to the magazine. (Letter from George Stigler to Gerald Rosen, executive editor of Business Month, October 17, 1988)

As a true believer, someone confirmed in his vision, he would be unlikely to have allowed his light to be hidden beneath a bushel basket of modesty. His remarkable ability to express his ideas and debate them against all comers helped to float his goals. Evangelists don’t succeed by being soporific. Any idea, no matter how substantial, can remain largely ignored without the proper packaging.

The tenacity with which people hold the ideas in which they have a proprietary interest is not due simply to vanity. A scholar is an evangelist seeking to convert his learned brethren to the new enlightenment he is preaching. (Stigler 1988:211)

This unwavering belief in the post-war Chicago vision ultimately paid off. When Keynesian orthodoxy was deemed inadequate, Chicago had a fully formed alternative ready to take its place. Moreover, its formulation was based on a microeconomic foundation that had managed to successfully dominate the post-war period. In fact, the disjunction between Keynesian macro theory and the standard price framework would provide a useful wedge which the Chicagoans could deftly exploit. By the 1970s, Stigler and others working along similar lines had effectively demolished each and every attempt to substitute an alternative microeconomics that might have proven more conducive to the Keynesian form of analysis.

What would seem to be two unnecessary clarifications are required here due to curiously distorted readings I have stumbled across. As noted in a previous footnote, marketing was not invented by those at Chicago nor did it exist as a unique tool that only they employed. That they were more skilful at sizing up their audience and ultimately successful at influencing the profession seems fairly unarguable. I would suggest that their very skill forced others to raise their game, perhaps making the marketing aspect of the discipline more important than it had been previously. Nor should it be necessary to state that they would not have been successful if the work they were trying to sell contained no intrinsic value. A campaign extending over more than three decades does not eventually triumph by consistently trying to pawn off shoddy wares. But the work done by Stigler and Becker (1977) demonstrates the importance of appealing to existing preferences and skilfully selling one’s offerings, whether in commodity markets or in the market for ideas. Theories do not sell themselves. The purpose of this chapter is not to award bouquets or toss brickbats at the work done in Chicago during this particular post-war period. Focusing on the marketing and ideological aspect of their work simply sidesteps those issues. That Chicago made influential and important contributions to the discipline goes without saying. Or I would hope so.

Haberler (1937) and Schumpeter (1939) both wrote books during this period which, like Keynes, attempted to place economic depressions in their appropriate analytic contexts. Both considered these books as representing definitive works, the ultimate final or conclusive word on the subject. Identically, both works shared the same fate of being swept away by a tide of excitement surrounding the General Theory (1936). As in all endeavors, timing is always crucial.

Much the same had occurred after World War I. Business/government cooperation in the conduct of economic policy (symbolized by such figures as financier Bernard Baruch) had boosted confidence in the conviction that the anarchy of the marketplace could to some degree be stabilized and channelled by the combined efforts of government administrators and business leaders. (See Weinstein (1968) for a useful description of the progressive era from which this form of corporatism developed.)

As ever, policy formation would inevitably lag behind waves of theoretical insight. The watermarked height of Keynesian influence came during the Kennedy administration when Harvard, MIT and allied departments conducted an ostensible lend-lease program with the White House in forming economic policy. This migration largely ignored the gathering success of the Chicago counter-revolutionaries, a movement commenced during the immediate post-war period and gaining increasing traction with the commencement of the 1950s. Notice, however, that economic debates were now intractably anchored to sites within the USA. The real action had shifted permanently across the Atlantic, abandoning the once dominant position enjoyed by Cambridge in the era of Marshall and Keynes.

In a narrower, more self-interested sense, the Keynesian revolution provided a unique opportunity for young, ambitious members of the profession to leapfrog ahead in their academic careers.

… it [The General Theory] neatly shelved the old and established scholars, like Pigou and Robertson, enabled the more enterprising middle-and lower-middle-aged like Hansen, Hicks, and Joan Robinson to jump on and drive the bandwagon, and permitted a whole generation of students (as Samuelson has recorded) to escape from the slow and soul-destroying process of acquiring wisdom by osmosis from their elders and the literature into an intellectual realm in which youthful iconoclasm could quickly earn its just reward (in its own eyes at least) by the demolition of the intellectual pretensions of its academic seniors and predecessors. Economics, delightfully, could be reconstructed from scratch on the basis of a little Keynesian understanding and a lofty contempt for the existing literature—and so it was. (Johnson and Johnson 1978:187–188)

Along with an optimistic (perhaps audacious) belief that economic problems of scarcity would be largely solved in a few generations, Keynes foresaw a future where economists would become useful, but mere, technicians. He perhaps imagined a corresponding macro version of Pigou’s micro corrective policies, aligned with an inevitable amelioration of class conflicts reminiscent of Alfred Marshall.

But, chiefly, do not let us overestimate the importance of the economic problem, or sacrifice to its supposed necessities other matters of greater and more permanent significance. It should be a matter for specialists-like dentistry. If economists could manage to get themselves thought of as humble, competent people, on a level with dentists, that would be splendid! (Keynes 1963:373)

Keeping this reference within the Chicago boundaries, Tarbell (1904) won fame as the author of the muckraking volume The History of the Standard Oil Company, which purported to expose the machinations of John D. Rockefeller.

The initial linkage of the University of Chicago with conservative business interests and the appointment of Laughlin to shape the Economics Department would, whether legitimately or not, identify these economists with a certain given position or viewpoint. Chicago in this era was never quite so unified.

In its early years, the University of Chicago was nicknamed the “Standard Oil University.” The first head of the economics department was J. Lawrence Laughlin, one of the most conservative economists in the country. Laughlin was a combination of neoclassical theorist and aggressive big business apologist—the type that seemed to confirm the suspicion of those who regarded the University of Chicago as a tool of business interests. (Djelic 2007:100)

This contentious response to Chicago, perhaps reflecting the intense marketing that had become one of the hallmarks of that School, was particularly notable in the 1960s and 1970s when the Chicago marketeers fixed their sights on the newly acknowledged orthodoxy propounded at Harvard and MIT. Those at Chicago perceived the Harvard and MIT economists as being unduly dismissive of their work, reflecting an “us versus them” mentality that if anything spurred their crusade onward.

It is utterly amazing how, in MIT for a period of years, particularly in Samuelson’s classes, but also in Solow’s classes, hardly a lecture went by without some sort of a quip aimed either at Milton, or at Chicago, or at the Midway or something like that, you know. It was something that had got under their skin. (Conversation with Arnold Harberger, October 1997)

It would be more realistic to describe Laughlin as positioning Chicago as a refuge for the profession’s outsiders, a safe haven for its refugees. Thorsten Veblen, an early member of the department, was certainly a classic example.

So I think Chicago has been much more open to these kinds of approaches. Knight talked about it and Knight was a great mentor in the department. Before Knight, apparently Veblen when he was here was attracted to a wide number of different interests as well. So this place has been very tolerant. (Conversation with Sherwin Rosen, October 1997)

This renegade position would work to Chicago’s advantage in the years leading up to and immediately after World War II. The relative tolerance exhibited during these years (as opposed, for instance, to the sharp Anti-Semitism displayed by the Harvard department) enabled Chicago to snare European refugees as well as somewhat gauche, but sharp-witted young men from the provinces (untouched by the major urban centers). Both Friedman (Jewish) and Stigler (provincial) fit this bill. Curiously, these two showed much less tolerance than Laughlin when making their own selections. For the issue of anti-Semitism in economics see Reder (2000).

Both of these luminaries had a distinct weakness for creating purpose-built traditions which they were able to fortuitously unearth whenever it suited their purposes. Friedman battled Don Patinkin for a number of years as he attempted to ground his quantity theory of money in an ersatz oral tradition, one that supposedly developed and thrived in the Chicago of the 1930s. (See Freedman (2006) for an investigation examining the roots of this creation and the reasons behind it.) Also the traditional kinked demand curve, a predictable part of any textbook examination of oligopoly in that post-war period, had much more to do with Stigler’s (1947) deliberate transformation of Sweezy’s (1937) work than it did with the original work itself. (Freedman (1995) provides a useful guide to Stigler’s strategic campaigns.)

To point out the obvious, contrariness or being a maverick is not necessarily either a positive or a particularly regretful characteristic. The term refers to a tendency to simply refuse to accept mainstream theories, at least not without first disparaging them and subjecting them to trial by ordeal. Knight was of course famous for being allergic to any received doctrine, as was his one-time protégé Aaron Director. The danger inherent in being such a self-styled iconoclast is that a commitment to truth telling can sometimes be a simple rationalization for an innate ornery personality. At its worse, this path can deteriorate into critical self-indulgence. Such an attitude may manage to provide comfort to its holder, whether rightly or wrongly, when a seriously contrarian disposition is confronted by the unnerving reality of holding a distinctly minority position, in some cases being almost a majority of one.

Whether there was anything resembling a conversion while crossing the Midway remains an unsettled question in any in-depth analysis of this rather retiring academic. See Van Horn (2010) who seems to suggest a more consistent thread to Director’s character. Given this perspective, Knight’s influence did not convert the young economist, but rather allowed his natural tendencies to blossom.

The point that should be kept in mind here is that there was no pre-existing Chicago School to be defended or continued, but a School waiting to be founded. In the words of one of the stalwarts of the Chicago counter-revolution, “There was no Chicago School of Economics when the Mt. Pelerin Society first met at the end of World War II.” (Stigler 1988:148)

Stigler was to generously use these Walgreen funds to build up a roster of key economists furthering his economic project, one that sought to change the mindset of the profession. Nik-Khah (2011) details the importance of these funds, as well as other corporate cash Stigler attracted, in creating his preferred team of economists. For instance, these funding sources enabled him to lure his top student, Sam Peltzman, back from UCLA or convince Gary Becker to leave Columbia.

And then, after a lot of hesitation, he [George Stigler] and Milton Friedman worked on me a lot, he offered me extra research money if I stayed on. This was Walgreen money and it was a large sum. So he said I could have some research money and I decided to stay. (Conversation with Gary Becker, October 1997)

Stigler’s later attempts to persuade Robert Solow to switch from MIT would seem something of an aberration. However, Solow gained Stigler’s abiding friendship by intellectually meeting him head to head and by being equally sharp-witted and well-read. These characteristics overrode matters more ideological in nature. However, Solow wasn’t tempted.

Oh, I don’t think it would have much effect … I’m a very counter-suggestible person. It might have changed me methodologically a little, but I don’t think I would have been happy because being involved intellectually in controversy with one’s colleagues all the time is never a formula for relaxation. I also think probably I might have been more productive at the University of Chicago, more productive in terms of volume although I’m not so sure in terms of quality. It’s the ethic here. It has always been a little more laid back, a little more relaxed. So, I don’t think it would have turned me into a conservative, or a monetarist or any of those sorts of things. Or a, you know, a gung-ho free marketer. (Conversation with Robert Solow, November 1997)

It would be naturally incorrect to look for a direct link between the initial Mont Pelerin proposals and subsequent research by Stigler and Friedman. That particular agenda did not constitute anything resembling a research program. However, the Mont Pelerin meeting helped sharpen their political and ideological outlook, which in turn would come to influence their subsequent research. Certainly their output after this first meeting became much more focused and directed than had been the case prior to this time.

More prosaically, The Road to Serfdom either in its original version or in the Reader’s Digest condensation became a best seller. The work brought Hayek to the notice of H.W. Luhnow of the Volker Fund. It was this fund which would bankroll many of Hayek’s projects, including sponsoring the initial meeting of the Mont Pelerin Society to the extent of underwriting the travel undertaken by Knight, Director, Friedman and Stigler to attend that first gathering. (Other sponsors included the Foundation for Economic Education and especially the international bank Credit Suisse, which would become the major source of funding bankrolling that meeting.)

Caldwell (2011) very deftly sums up what he refers to as the Robert Van Horn–Phillip Mirowski story linking Simons, Director and Hayek. He finds this account, based on extensive documentation, convincing though he is much less accepting of the meat of their analysis.

Van Horn and Mirowski are to be commended for providing this new and, in its broad outline, compelling account of the origins of the Chicago School. Given the facts of the case, as summarized previously, it is clear that both Henry Simons and Friedrich Hayek played important parts in the construction of the Chicago School: As VHM put it, Hayek might be viewed as “the prime external contractor” and Simons as “the prime architect.” At the end of the day, however, I think that Simons played the most important part—to change metaphors, he was the leading man. (Caldwell 2011:304–305)

Director was a classic backstage manager. He preferred to discuss and influence selected individuals face to face. The sort of marketing and the more scattershot approach that distinguished publishing never seemed to appeal.

You would write—you would want to write just to first make sure that you yourself understood well, and secondly to show other people … Well, you want to do it even if you didn’t want to explain it to anybody else. Even if you wanted to explain it to yourself … And maybe just a few students. (Conversation with Aaron Director, August 1997)

The close relationship between Milton Friedman and George Stigler is largely taken for granted. However, fewer realize the larger influence that Aaron Director had on Stigler’s thinking.

Milton Friedman: Added to that, well a lot of George’s attitude came from Aaron. I think you had a lot of influence on what he said.

Aaron Director: I don’t think so.

Milton Friedman: Between you and me, you were more influential. But of course, you know, people get into patterns of what they say and it doesn’t always correspond to what they do. (Conversation with Milton Friedman, Rose Friedman and Aaron Director, August 1997)

By the last part of his life, whether in the last half or the last third, it was my impression that George was of the opinion that laissez-faire itself pretty much approximated to tolerably effective competition. And I think Aaron Director was the prime source of this view (Conversation with Paul Samuelson, November 1997).

Others were more skeptical of Director’s contributions.

Aaron Director was extremely conservative. Why, I don’t know. By the time I knew him he was already like that. And he was an iconoclast. But he didn’t develop new data with respect to industrial organization. He didn’t develop and articulate new theories. He just said that the conventional belief wasn’t so. (Conversation with Paul Samuelson, November 1997)

Stigler and Friedman would fiercely defend academic freedom from the excesses of the left in the 1960s/1970s. More tolerance seemed to be extended during the McCarthy period when the threat to free expression on campus had to be taken more seriously. (The threat carried the imprimatur of governmental authority.) Simply put, an ample correspondence exists demonstrating their repugnance for the student movement of the 1960s. No such objections were raised during the McCarthy period, either in private or public. Paul Samuelson, who knew them both from the 1930s onward, notes conversations with Friedman that indicate he had no qualms about the crackdown in universities during the 1950s aimed at academics on the left.

I once did a little informal investigation of whether people who were economic libertarians and tended to favour low taxation and low regulation and laissez-faire, were also people interested in civil liberties and freedom of expression, and that sort of thing. So I would ask innocent questions. ‘Now what do you think of this group?’ Of course, I had a placebo question control group. ‘What do you think of the fact that this professor at the University of New Hampshire, the one who invited Paul Sweezy in the McCarthy era to give a lecture, is losing his job because neither he nor Paul Sweezy will testify as to what was the content of the lecture?’ And Milton [Friedman] said, ‘Gee, it’s a simple case. It’s a free speech society. If a man will not do what he should, this professor should be fired. Society has a right to know.’ I said, ‘You don’t understand. They’ve got the notes on the lecture, verbatim. It’s not a question of information.’ (Conversation with Paul Samuelson, October 1997)

Steven Medema (2011) constructs an interesting case for the existence of different approaches to price theory at Chicago, or perhaps more accurately, variations grounded in somewhat different concerns. All, however, emphasized the competitive nature of the marketplace. Competition when left to operate optimally must almost by definition undermine the significance of private economic power. Certainly, as the Chicago program developed, the importance of monopoly, for instance, was minimized (Stigler 1965). In the absence of private economic power, the need for government intervention would seem to fade away, or at least do so to a significant extent. Certainly no Chicago economist claimed that this insight remained unprecedented. Both Friedman and Stigler did identify their particular approach to economic analysis as being largely grounded, if not firmly rooted, in the efforts made by Alfred Marshall, as did for that matter the Cambridge economist, A.C. Pigou, some years earlier. Such statements of fidelity would seem to be meaningless since each would-be acolyte was able to take from their designated source of inspiration whatever they might find most convenient. Whether any of these three economists faithfully carried on Marshall’s tradition is open to question.

This question of the role market power plays is dealt with in Freedman (2005). Clearly, if the issue was presented in a more complex fashion and the choice displayed was a less salubrious one than between public and private power, repackaging that option as a battle to defend the individual and preserve liberty would have been quite difficult. Eliminating economic power by presenting a carefully structured view of market processes delivered a much more palatable result.

In fact, Stigler would later decisively break with Knight in terms of economic thinking as would Knight’s close friend and protégé, Aaron Director.

Milton Friedman: Well, Frank Knight had a particular influence on the people who came close to him, including Aaron. Aaron was a disciple of Knight’s as well, much more so, in a way. Would you say you were more or less so Aaron than George was?

Aaron Director: Maybe for a while, but not for long.

Milton Friedman: For a while I would say you were more so, I would think. Aaron and Knight once jointly owned a farm in Indiana. But Knight had a very peculiar, a very real influence on those who became his disciples, which George broke from in the main. (Conversation with Milton Friedman, Rose Friedman and Aaron Director, August 1997)

There might be a more innocent reading of that quote, but again that would only be possible by ignoring the personality and style of the author. As an anonymous referee pointed out, Hansen’s previous scientific position is contrasted with his later embracing of Keynesian doctrine (science versus ideology). Such backhanders are quite common in his writing. For instance, Stigler had a tendency to refer to John Maynard Keynes as “Lord Keynes,” and not due to some hidden reverence for the English nobility. When attacking the work of Berle and Means (1932), his prime target, Gardiner Means, is reduced to “Dr. Means” (Stigler 1988:5), “a most inventive economist” (Stigler 1988:53). In contrast, Adolph Berle is allowed to be a “brilliant law professor (Stigler 1988:53). Stigler would find neither legitimate justification nor excuse for Hansen to abandon sound scientific theory for what he regarded as a simply wrong doctrine. At least academics with “good minds” would never stoop so low. Hansen’s backflip then can only be viewed, at least from Stigler’s perspective, as an embarrassment, the equivalent of being forced to watch a friend’s midlife crisis. Both Stigler and Friedman retained little, if any, respect for Keynes himself or his doctrines.

re 4th edition of Theory of Price—I congratulate you on restraining yourself from including a picture of Keynes and even more on not even mentioning him in your index. (Letter from Milton Friedman to George Stigler, December 16, 1986)

Keynes declined, saying that “with Professor Knight two main conclusions, namely, that my book caused him intense irritation, and that he had great difficulty in understanding it, I am in agreement. So perhaps you will excuse me if I leave the article alone.” (Patinkin 2003:384)

As indicated above, Knight displayed his continued fierce opposition to Keynes when opposing the granting of an honorary doctorate:

After crediting Keynes with “a very unusual intelligence, in the sense of ingenuity and dialectical skill,” he went on to complain: “I have come to consider such capacities, directed to false and subversive ends, as one of the most serious dangers in the whole project of education … I regard Mr. Keynes’s [views] with respect to money and monetary theory in particular … as, figuratively speaking, passing the keys of the citadel out of the window to the Philistines hammering as the gates.” (Bernstein 1999: 222)

For Stigler, any distinction between well-conducted applications of price theory and the field defined by the proper investigation of applied industrial organization was non-existent.

Let us start this volume on a higher plane of candor than it will always maintain: there is no such subject as industrial organization. The courses taught under this heading have for their purpose the understanding of the structure and behaviour of the industries … of an economy. These courses deal with the size, structure, the effects of concentration on competition, the effects of competition upon prices, investment, innovation, and so on. But this is precisely the content of economic theory—price or resource allocation theory, now often given the infelicitous name of microeconomics. (Stigler 1968:1)

Stigler dismissed the Harvard approach with a careless wave of his hand:

There is also a less honourable reason for the separate field of industrial organization: much of its literature has been so nontheoretical, or even antitheoretical, that few economic theorists were attracted to it. (Stigler 1968:1)

Harold Demsetz, a close colleague of Stigler’s, noted his disdain for such ramshackle economics:

Stigler never undertook such a study, at least not in its traditional form. The traditional industry study involved in-depth empirical description linked only loosely to neoclassical price theory … Stigler did not treat the traditional industry study as an effective source of theory or even as having policy generalizing power, and this type of study never achieved great importance at Chicago. (Demsetz 1993:796)

His attack came during a series of five lectures presented at the London School of Economics in 1948. “Monopolistic Competition in Retrospect,” simply carpet bombs Chamberlin’s thinking, motivated in some small part by Chamberlin’s earlier critical review of Stigler’s own textbook. As was his wont, Stigler regarded this effort as encapsulating a mission accomplished. Stigler’s lectures (1949) are succinct, raising key issues, but motivated by clear objectives.

I am writing mainly to swell your head—though God knows it must be big enough already. Hayek reports that your lectures were brilliant & successful.” Indeed, he said yours were by all odds the most successful series of lectures they had ever had. (Letter from Milton Friedman to George Stigler, April 7, 1948 in Hammond and Hammond 2006:80)

I cannot emphasize sufficiently, especially for those readers who might jump automatically to a defensive stance or not bother to read with care, that such distortions were never deliberate. I have found no evidence for such claims and would in fact be surprised if any relevant evidence came to light. That such unfounded interpretations were always created in good faith made them, if anything, more dangerous. For both of these Chicago mainstays, there seemed an overwhelming desire to beat back faulty theoretical positions. Those interested in the foundations of such claims are referred to a number of my own writings (Freedman 1995, 1998a, 1998b, 2002, 2006). Although I am reluctant to self-cite,there is always the possibility of being accused of making yet another assertion without providing proper evidence.

Though he always dismissed his rejection with a joke, George Stigler refused to return to the mother ship of Chicago until 1958 when tempted by an offer that in fact made him one of the highest-paid academics in the USA (an offer engineered by his old classmate Allen Wallis).

In the spring of 1946 I received the offer of a professorship from the University of Chicago, and of course was delighted at the prospect. The offer was contingent upon approval by the central administration after a personal interview. I went to Chicago, met with the President, Ernest Colwell, because Chancellor Robert Hutchins was ill that day, and I was vetoed! I was too empirical, Colwell said, and no doubt that day I was. So the professorship was offered to Milton Friedman, and President Colwell and I had launched the new Chicago School. We both deserve credit for that appointment, although for a long time I was not inclined to share it with Colwell. (Stigler 1988:40)

This is in a letter from George Stigler to Milton Friedman dated Tuesday June 1951. NB refers to the National Bureau of Economic Research which contained both Arthur F. Burns and Frederick C. Mills to whom Stigler refers.

See Freedman (2007) for Stigler’s ambiguous relation to the History of Economic Thought and his entanglement with academic marketing.

Stigler and Friedman, along with their younger colleague Gary Becker, were known for pushing what they saw as the truth to its furthest edge, not allowing for any equivocation.

Bill Buckley: Yes, some public regulation can be necessary. Suppose the democratic legislature made prostitution legal. Surely then requiring prostitutes to pass a monthly test for venereal disease is a worthy idea.

Milton Friedman: Not at all. If a woman on the street, professing to be disease free does infect a customer that will hurt her reputation. If, nevertheless she does infect you, then that is a tort that you can sue her for in court. (Samuelson 2011a: 864)

Only the very brave ventured to stand up before the baleful eye of George Stigler and those attending this particular workshop.

He had this workshop. People had their knives out. I participated in some of them. I think people were using George’s example. No prisoners were taken in other words. [laughs] And everybody just jumped in. It was just chaos those workshops. [laughter]

Was a paper actually ever given?

No. A paper was never given. It was just discussed. It was taken apart. And it was breathtaking. [laughs] It was totally breathtaking (Conversation with Sherwin Rosen, October 1997)

Sociologists as the butt of jokes have a long, honorable tradition at Chicago. Frank Knight engaged in a noted public debate with Talcott Parsons, one of the founders of sociology at Harvard in the 1930s. Knight ended a frustrating exchange with a final, damning remark. “Sociology is the science of talk, and there is only one law in sociology. Bad talk drives out good.” (Knight quoted in Swedberg 1990:15)

In a sense, Gardiner Means was George Stigler’s doppelganger. Both were almost implacable when pursuing the vindication of their a priori beliefs. Perhaps that is why each managed to so provoke the other. Both were skilled marketers, which proved a key to their career successes. They were at opposite ends of the political spectrum, though Stigler was far more skilled and clearly the better economist.

Both of them, both of these men had taken strong positions on this … Maybe – I almost come close to saying that they had taken these positions before I was born. That’s not true, but it certainly was before I was born as an economist. I could have predicted George Stigler’s predictions before I signed up from what I’d learned in graduate school [University of Chicago Graduate Business School] of his writings. And I could have predicted, to a great extent, Gardiner Means’ predictions and you could guess what I learned at graduate school about Gardiner Means. (Conversation with James Kindahl, October 1997)

Samuelson is referring to his 1988 article on Ricardo that substantially refuted Stigler’s 1958 consideration of Ricardo’s labor theory of value.

There may be a tendency to dismiss Samuelson’s evaluations given that he was on the opposing end of so many economic and political debates with Friedman and Stigler. But he knew them for nearly 60 years and certainly respected them as economists no matter what their differences.

For Stigler was like an older brother to me back on the Chicago Midway … George Stigler will be long remembered by all economists. To me he had a special significance. He was my first mentor back in the Chicago Midway of 1932–1935 … Stigler left our subject permanently altered and that is the only immortality a scholar can have, or want to have. (Samuelson 2011b: 949)

As a stark example, the seminal paper by Stigler and Friedland (1962) that raised doubts about the effectiveness of government regulation turned out to contain a fundamental error due to a simple data entry mistake. Upon being apprised of this slip, Stigler refrained from making any revised results public.

It was a decimal point error. That’s why it was such a terrible error. Our coefficient was wrong by a factor of ten. But our standard error was off by a factor of ten as well. So our t-statistic was OK. But our remarks about the size of the effect were wrong. This was all entirely my fault because I’d never seen a computer before and I had made a mistake in configuring the data … But in any case, I told George about it. I asked him what to do about it. This was some twenty years later. George’s answer was that there was no point in making a big fuss about this mistake because it was twenty years ago and nobody cared anymore. (Conversation with Claire Friedland, October 1997)

Stigler makes this clear in his autobiography.

Another aspect of this salesmanship is the heavy use of repetition, perhaps the most powerful of arguments. I once served on a committee with John D. Black, the famous Harvard agricultural economist, and a master of the technique. He would state a position and I would offer one or two conclusive (to me) objections to it. His response would ignore my points and merely restate his position. I might then present one or two lesser objections to his position, chiefly to avoid boredom, only to founder again on his invincible obstinacy. (1988:211)

Becker and Stigler clearly took the lead in championing the rational choice model. Friedman admired and supported Becker, though not taking as strong an approach in his own work. However, aspects of employing this strong form of rational choice underlie Friedman‘s policy positions on switching to a volunteer army, legalizing drugs or implementing a negative income approach to relieve poverty. Remember also that Becker wrote his dissertation on discrimination under Friedman. See Medema (2011) for an examination of the possible differences between these three pillars of the Chicago School.

“Tastes” refers to the much-cited paper by Becker and Stigler (1977) “De Gustibus, Non Est Disputandum.”

This thesis was perhaps most recently and dramatically stated by Francis Fukuyama (1992) in the aftermath of the Soviet collapse. His inevitable triumph of the liberal democratic state has a more than passing resemblance to the end of history idea articulated so succinctly in the work of G.W.F. Hegel. History, undeterred by these man-made conduits, seems to be determined to proceed according to its own inclinations, rather than fulfilling the hopes nurtured by flocks of analysts.

Lucas (1988) does this by employing a very pointed and entertaining manner in a surprisingly lively speech. “I’m not sure whether you will take this as a confession or a boast, but we are basically story-tellers, creators of make-believe economic systems.” (Lucas 1988:1)

Demsetz takes note of Stigler’s abiding defence of neoclassical theory: “Evidence of Stigler’s attachment to neoclassical price theory is also given by that part of his work mainly critical of the work of others. Price rigidity, administered price inflation, the theory of monopolistic competition, and X-efficiency were prominent targets, and each of them denied the efficacy of the neoclassical analytical framework.” (1993:800) Friedland also identifies the surreptitious Quixote motivating Stigler in his campaigns: “Much of his work centered around saving the damsel in distress, neoclassicism, from her attackers” (1993:780).

That is perhaps a fundamental problem lying at the heart of Stigler’s “brave new world” presidential address at the AEA meeting in 1964 (Stigler 1965). Evidence is vital and the move toward using statistical methods proved to be essential in improving the profession. But the very nature of the available data creates an irresistible trap for those with strong a priori convictions.

Leaving George Stigler aside, this is a problem for all economists, as to what the alternative to the controlled experiment is as a way of deciding between models, between different theories when the results are so similar. And we like to say that the econometric estimate is the alternative. And to a certain extent, it is, but I think that life shows that when you are using casual data, and by casual data I mean data that were not collected with this issue precisely in mind, when you are using casual data, it is very difficult to refute, fundamentally to refute a thesis. (Conversation with Robert Solow, November 1997)

Stigler takes up this issue in, among other places, “The Economist as Preacher” (1982). As Stigler insists, such academics have performed an insufficient amount of preaching. This assertion may be true as far as the explicit version of an economist’s output is measured, but implicitly we may be faced with a different story.

Economists of course are humans (at least to a certain degree) with their own sets of beliefs and accordingly are entitled to act passionately in urging causes close to their hearts. But when they do so, they are not acting as economists, no more than a doctor is when urging nuclear disarmament. In this, Stigler (1988) had the correct view in his deprecating characterization of the economist as an expert witness, though he himself proved less than immune in resisting the perfumed temptations of performing that role.

I conclude—and perhaps I am alone in concluding—that when the economist goes to Washington, he deserves no more credence, and no less, than any other political appointment, and it is mildly deceptive to address him as Doctor or Professor. (Stigler 1988:136)

Keynes’ reply to a criticism during the Great Depression of having changed his position on monetary policy, as quoted in Lost Prophets: An Insider’s History of the Modern Economists (1994) by Alfred L. Malabre, p. 220. Keynes was also perhaps closer to the mark in choosing generosity over confrontation.

This means, on the one hand, that an economic writer requires from his reader much goodwill and intelligence and a large measure of co-operation; and, on the other hand, that there are a thousand futile, yet verbally legitimate, objections which an objector can raise … (Keynes 1973:469–470)