The Chicago School:
How the University of Chicago Assembled the Thinkers Who Revolutionized Economics and Business
By Johan Van Overtveldt
B2/Agate, 432 pages, $35
In the introduction to the 20th anniversary edition of "Capitalism and Freedom," Milton Friedman commented on the intellectual revolution he had witnessed since his book was first published in 1962. Then, few of the nation's newspapers (including the Chicago Tribune) had deemed Friedman's treatise, soon to be a popular classic, worthy of review.
The nation's economic policymakers dismissed its arguments against minimum wages and in favor of school vouchers as impractical and bizarre, which reflected the reigning consensus that deregulating markets would not automatically help to improve people's lives. The aftershocks of the Depression still lingered, a reminder of the last time the nation had listened to people who thought that the business of America was business and that the free market worked in the best interests of all.
But by 1982, the nation had elected a president who believed that cutting tax rates and shrinking the government were the keys to economic growth. No longer did policymakers agree that the market was the problem and the state the solution. No longer did the general public view the market skeptically. In short, few ideas have enjoyed a greater change of fortune in the span of two decades, in the academic and popular realms, than those for which Friedman once had been a lonely champion.
How did this intellectual shift happen? "The Chicago School: How the University of Chicago Assembled the Thinkers Who Revolutionized Economics and Business," by Johan van Overtveldt, director of a Belgium-based think tank and a contributor to The Wall Street Journal Europe, tells the story through the lens of the University of Chicago, Friedman's scholarly home.
During the 1950s, '60s and '70s, the Gothic buildings on the Midway housed the country's most-prominent challengers to Keynesianism. The name of the school became virtually synonymous with the idea that free markets are the most fair and efficient way to distribute wealth, while any government intervention distorts the economic order. And even before the rise of the Chicago School, in the early years of the 20th Century, the University of Chicago was home to many important and influential economic thinkers. Hyde Park has nurtured record numbers of winners of the Nobel Memorial Prize in Economic Sciences -- more than twice the number at either Harvard University or the University of California at Berkeley, the runners-up.
In his history, which is based on extensive interviews with economists as well as archival and secondary research, Overtveldt seeks to understand the secrets of Chicago's success: "Was this triumphant century just an incredibly long-lasting coincidence, or is there more to it?"
For a book about economic ideas, "The Chicago School" is surprisingly concerned with institutional culture. Overtveldt suggests that the University of Chicago, like the city, has always been an upstart institution. Founded with John D. Rockefeller's money to lure professors from the Ivy League, the school was forced from its earliest days to cultivate a ferocious seriousness in order to compete with the old East Coast universities for intellectual talent and prestige.
Overtveldt makes special note of the school's "apparently inspiring isolation." Cut off from the traditional centers of culture and power -- New York City and Washington, D.C. -- and divided from the Loop by a 20-minute drive (Hyde Park lacking even decent elevated train service), the leafy Quads have protected scholars from alluring distractions while providing a haven for intellectual iconoclasts. As Deirdre McCloskey, a former U. of C. professor, notes, " 'Don't you know that the greatness of the University of Chicago has always rested on the fact that the city of Chicago is so boring that the professors have nothing else to do but to work?' "
Overtveldt argues that the Chicago tradition of dedicated work, intellectual seriousness and academic rigor has helped produce a diverse range of economic thinkers. Indeed, the first crew of University of Chicago economists, in the early years of the 20th Century, bore scant resemblance to the scholars who would later become known as the Chicago Shool.
The department chair, James Laughlin, was a true believer in the laws of supply and demand (fittingly, he was persuaded to come to Chicago by a $7,000 salary, "at a time when the senior professors at Harvard and Yale were seldom paid more than $4,000"). But the department also included renegades such as Thorstein Veblen, who argued that the calculating individuals portrayed by Adam Smith and Alfred Marshall were a pleasant fiction, and that people are instead motivated by primitive, atavistic drives to demonstrate their social status by wasting great sums of money in craven acts of "conspicuous consumption" (think Louis Vuitton bags). Even thinkers such as Henry Simons, whose writings in the 1930s influenced Friedman and Friedrich Hayek, feared private monopoly nearly as much as state power. Simons suggested that private ambition and greed, not economies of scale, accounted for the creation of " 'gigantic corporations,' " and he argued for reducing economic inequality through steep progressive taxation.
The modern Chicago School only developed after World War II, when thinkers like Friedman and George Stigler began to advance their critique of Keynesian economics. Through scholarship on a variety of different theoretical issues -- consumption, inflation, economic thought -- they reasserted the centrality of price theory and the primacy of the rational individual as the unit of analysis.
Overtveldt is at his best in his depiction of the ruthless yet stimulating internal culture of the department during these years. Workshops that might be polite but sleepy seminars at other campuses became "bloodbaths" at Chicago. Graduate classes were exercises in " 'terror.' " Rather than quench debate, Overtveldt argues that for those who could withstand the pressure, the intellectual hazing helped hone their economic analyses. As former faculty member George Neumann observes, " 'Chicago has been accused of being a school that not only believes in survival of the fittest, it practices it.' "
The school of thought that developed in this hothouse sought to stretch price theory to its logical conclusions, ultimately applying market analysis to parts of society frequently not seen as economic. For example, Gary Becker compared racial discrimination to international trade, described education as a process of building "human capital" and analyzed decisions about marriage and child-bearing in economic terms.
To critics, the willingness of the Chicagoans to analyze discrimination economically or children as an investment often seemed shocking. As economist Robert Solow of the Massachusetts Institute of Technology says, " 'There are some things that should not be analyzed as if they were subject to being bought and sold.' " But the frisson of the Chicago School was precisely its stance of being ever-willing to discard social norms and vague notions of the common wisdom for the crystalline logic of economic laws.
Yet despite the light it sheds on a fascinating corner of academic life, "The Chicago School" falls short of providing a full picture of the influence of Chicago economics on the discipline, or on American politics more broadly. Overtveldt's writing about economic ideas is at times too dense for the general reader, while for the specialist it fails to provide an effective synthesis of the common strains linking the different Chicago economists, as well as a sense of how their ideas differed from, and helped shape, the mainstream. His description of the successive influence of one generation of prize-winning thinkers on the next lacks the tension that would have come from a more substantive engagement with the intellectual controversies that the Chicago economists have provoked.
Finally, Overtveldt chooses to focus tightly on the academic work of the Chicago economists, to the exclusion of historical context. This makes it hard to get a full sense of the political significance of their ideas.
The atmosphere of the department may have been one of pristine seclusion, but the Chicago School helped inspire a generation of conservative activists who used the ideas developed there to build political momentum for cutting taxes and social-welfare programs and dismantling the New Deal state. Some of the most influential of the Chicago economists -- like Friedman -- vigorously popularized their ideas while also producing academic work; in addition to writing mass-market books, Friedman contributed to Newsweek magazine, created a TV series about free-market principles for PBS and informally advised Barry Goldwater during his 1964 presidential campaign.
Overtveldt suggests that the Chicago School of economics helped create "the Reagan and Thatcher revolutions of the 1980s" because its scholars were the best and the brightest. In the marketplace of ideas, Chicago won out. But this explanation evades the hard realities of politics and of power that shape our choices about economic policy. And ultimately, despite the strengths of Overtveldt's account, his free-market interpretation of the rise of the Chicago School obscures the many ways the fierce debates in those gargoyle-decked buildings on the South Side wound up shaping our world.
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Kim Phillips-Fein is an assistant professor teaching American history at New York University's Gallatin School. She earned a bachelor of arts degree in 1997 from the University of Chicago, where she studied history.
