Markets, Productivity, and Happiness in a Historical Perspective

Robert Lucas and the unravelling of ‘Chicago Economics’

de Vroey Michel, Université catholique de Louvain

Chicago Economics or the Chicago School of Economics is a topic on which an impressive literature exists. It comprises three dimensions, an ideological dimension (the defense of the free-market ideology), a theoretical one (with M. Friedman, G. Stigler and G. Backer as its stewards) and an original teaching practice (centered on ‘Price theory rather than on microeconomics, and the workshop institution).On each score, the label is supposed to make a difference, indicating that the ‘Chicago’ standpoint is substantially different from the one held in other universities. My paper focuses on the theoretical dimension of Chicago economics. It originates in two observations. The first is that writers contributing to this literature scarcely envisage the possibility that Chicago Economics’ may be a thing of the past. The second is that the name of an as eminent Chicago scholar as R. Lucas hardly appears in discussion about Chicago economics. Piecing together these two observations, I claim that Lucas’s return to Chicago after his stay at Carnegie-Mellon marked the beginning of the end of Chicago economics. Until then, Chicago was a place where A. Marshall’s Principles was regarded as the alpha and omega of economic theory whilst castigating Walras for placing mathematical elegance over real-world relevance. By contrast, the transformation of macroeconomics initiated by Lucas amounted to putting the field under the neo-Walrasian banner. This could not but be a source of clash. However, Lucas did not breach fully from’ Chicago’ à la Friedman because, somewhat surprisingly, he kept adhering to the quantity theory of money. Therefore, as far as macroeconomics was concerned, a further step was needed, the pausing of the baton from Lucas to Kydland and Prescott. More generally, what was at stake after Friedman’s retirement was a dilemma between sticking to old Marshallianism and keeping abreast of the new theoretical developments which resulted in Marshall’s Principles becoming antiquated. The second viewpoint prevailed and in present days economics are researched and teaching in Chicago are no longer different from what they are in top departments.

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Keywords: Lucas, Friedman, History of macroeconomics, Chicago Economics