Chicago school
Topic: Schools of Economic Thought and Economic Laws · NCERT: Beyond NCERT
Meaning
The Chicago school is a group of free-market economists linked to the University of Chicago. It stands for:
- monetarism: the money supply is the main driver of inflation;
- deregulation: fewer government controls on business;
- rational choice: people act sensibly in their own interest.
Its best-known figure is Milton Friedman, who won the Nobel in 1976. He wrote A Monetary History of the United States (1963, with Anna Schwartz) and said, "Inflation is always and everywhere a monetary phenomenon." The school influenced the move away from Keynesian policy after the stagflation of the 1970s, when high inflation and high unemployment came together.
Example
Friedman proposed the k-percent rule: the money supply should grow at the same fixed rate every year, whatever the economy is doing. The fixed rule replaces the central bank's own judgement.
Don't confuse with
- Austrian school: it is also pro-market, but it rejects mathematical models and blames credit-fuelled booms for malinvestment. Chicago relies on statistics and models and focuses on money-supply rules.
Related concepts
- Monetarism
- Cantillon effect
- Adaptive expectations
- Rational expectations
- Lucas critique
- Real business cycle theory
- Tinbergen rule
- Austrian school
- Economic calculation problem
- Supply-side economics