The Chicago School by Edward S. Herman

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The conservative Chicago School of Economics[1], with offshoots at UCLA and the University of Rochester, and outcroppings elsewhere in academia and business, steadily increased in influence up to very recent years. Its monetarist theories partially displaced Keynesian economics in macro analysis and policymaking in Western Europe and the United States. Furthermore, the Chicago School is concerned not only with macroeconomics, but deals also with labor and income distribution, trade, competition and monopoly, and regulatory issues. It is therefore of great importance that the Chicago School has been without a peer in the corrupting influence of ideology and the abuse of traditional scientific method.

The Chicago School intellectual tradition traces back to University of Chicago professors Frank Knight and Henry Simon, who flourished in the 1920s and 1930s. These men were conservative, but principled and iconoclastic. Simon's 1934 pamphlet, "A Positive Program for Laissez Faire," actually called for nationalization of monopolies that were based on incontrovertible economies of scale, on the grounds of the evil of private monopoly and the inefficiency and corruptibility of regulation of monopoly.

The post-World War II Chicago School, led by Milton Friedman and George Stigler, has been more political, right-wing, and intellectually opportunistic. On the monopoly issue, for example, in contrast with Simon's 1932 position, the post-World War II School's preoccupation was to dispute the importance and damaging effects of monopoly and to blame its existence on government policy. The postwar school is also linked to U.S. and IMF policies toward the Third World, in its pioneering service, through the "Chicago boys," as advisers to the Pinochet regime of Chile from 1973 onward. This alliance points up the School's notion of "freedom," which has little or nothing to do with political or economic democracy, but is confined to a special kind of market freedom. As it accepts inequality of initial economic position, and the privilege and political influence built into corrupt states like Pinochet's (or Reagan's), its economic freedom is narrow and class-biased. The Chicago boys have always claimed that economic freedom is a necessary condition of political freedom, but their tolerance of political non-freedom and state terror in the interest of "economic freedom" makes their own priorities all too clear. The Chicago School's attitude toward labor was displayed in the Chicago boys' complacence over Pinochet's use of state terror to crush the Chilean labor movement. The School's general tolerance of monopoly on the producers' side has never been paralleled by softness toward labor organization and "labor monopoly." Henry Simon himself developed a pathological fear of labor power in his later years, as evidenced in a famous diatribe "Reflections on Syndicalism," which may have contributed to his committing suicide in 1944. Subsequently, the labor specialists of the postwar Chicago School, most notably Albert Rees and H. Gregg Lewis, dedicated lifetimes to showing that wages were determined by marginal productivity and that labor unions' pursuit of higher wages was futile. (Rees, however, did acknowledge the non-economic benefits of labor organization in his class lectures.) Chicago School analyses stressed the wage-employment tradeoff and the employment costs of wage increases based on bargaining power (as opposed to those negotiated individually and reflecting marginal productivity). They linked collective bargaining to inflation, viewing "excessive" wage increases as the pernicious engine of inflationary spirals. Milton Friedman's concept of a "natural rate of unemployment" was a valuable tool in the arsenal of corporate and political warfare against trade unions-a mystical concept, unprovable, but putting the ultimate onus of price level increases on the exercise of labor bargaining power.

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  1. This page is an excerpt from The Politicized "Science"' in Edward S. Herman Triumph of the Market: Essays on Economics, Politics and the Media, Boston: South End Press, 1995, p. 34-37. Reproduced by permission of the author.