The Chicago Counter-Revolution and the Sociology of Economic Knowledge

This chapter is concerned with the internal phenomenon. One model that can be invoked to explain this internal phenomenon is the classical process whereby evidence is patiently accumulated until the weight of the argument favours one side or another. Alternatively, Stigler\u27s \u27model\u27 of the sociology of economic knowledge construction and destruction can be used to examine the internal opinion-changing process in the transition from the overwhelming defeat of Barry Goldwater in 1964 to the overwhelming victory of Ronald Reagan in 1980 - two men with essentially the same programme and the same message (Friedman and Friedman 1982, viii). ISBN: 033373045

The Initial Controversy - Introduction

During the middle third of the twentieth century, the ideas of John Maynard Keynes and those who described themselves as “Keynesians” acquired a profound influence over both the economics profession and the macroeconomic policy process. After the publication of Milton Friedman’s (1956) Studies in the Quantity Theory of Money, Keynesians were obliged to compete with “monetarists” for policy and intellectual influence. These two volumes examine aspects of this counter-revolution by focusing on Friedman’s claim that he was merely formalising the macroeconomic ideas of the first generation Chicago School, at whose “feet” he “sat” in 1932-3 and 1934-5 (Friedman chapter 7 [1972/1974], 163). ISBN: 185196767

From Keynes to Friedman via Mints: Resolving the Dispute over the Quantity Theory Oral Tradition

The Keynes Before Keynes Milton Friedman (chapter 2 [1956], 3-4) asserted that “Chicago was one of the few academic centres at which the quantity theory continued to be a central and vigorous part of the oral tradition throughout the 1930’s and 1940’s”. Friedman sought to “nurture” the revival of the quantity theory by linking it to this Chicago “oral tradition”. According to Friedman the “flavor” of this oral tradition was captured in a model in which the quantity theory was “in the first instance a theory of the demand for money”. Friedman added that to “the best of my knowledge no systematic statement of this theory as developed at Chicago exists, though much of it can be read between the lines of [Henry] Simons’ and [Lloyd] Mints’s writings”. He also enlisted the names of Frank Knight and Jacob Viner in support of his assertion. ISBN: 185196767

How Unique Was The Chicago Tradition? - Introduction

The first part of this chapter describes and elaborates upon the contributions made to this expanding literature by Tom Cate, J. Ronnie Davis, David Laidler, Joseph Aschheim and George Tavlas regarding the claim that inter-war Chicago exhibited unique quantity theory characteristics. The second part examines the so-called “‘Chicago Plan’ of Banking Reform”, described by Albert Hart (1935), a Chicago graduate student of the 1930s. The Chicago Plan was a response to the Great Depression which required all banks to hold 100% reserves against their deposits, thus eliminating the instability caused by fractional reserves. ISBN: 185196767

Fisher and Phillips

Just before the start of the Monetarist decade, the Journal of Political Economy (1973, 496-502) republished Irving Fisher\u27s 1926 article on A Statistical Relation Between Unemployment and Price Changes , under the title I Discovered the Phillips Curve . Immediately, Milton Friedman (1976 [1974], 215, 232) used this archaeological discovery to assault his somewhat dazed Keynesian opponents: The discussion of the Phillips curve started with truth in 1926, proceeded through error some thirty years later, and by now has returned back to 1926 and to the original truth. That is about fifty years for a complete circuit. You can see how technological development has speeded up the process of both producing and dissipating ignorance ... there is essentially no economist any longer who believes in the naive Phillips curve of the kind originally proposed

Towards A Resolution Of The Dispute - Introduction

The chapters in Part Four fall into four sections. The first three chapters represent Patinkin’s ongoing scholarly interest in explaining the evolution of Keynes’ economics and his relationship to the Chicago economists. In his Sir Dennis Robertson lecture, Patinkin (chapter 44 [1974], 4, 27, 12) explained that he was using the term “Keynesian monetary theory” in contrast to “the quantity theory” to describe “the General Theory and the literature to which it gave rise – though I should note that the aspect of the theory that is my primary concern here (namely, the treatment of money from the viewpoint of the choice of an optimum portfolio) is in some respects more precisely developed in Keynes’ Treatise on Money … There is no doubt that Keynes of the General Theory is at one with Keynes of the Tract (1923, pp.78-9) in taking as his point of departure the individual’s demand for money holdings”. ISBN: 185196767

The Anti-Keynesian Tradition: Introduction

The first volume of this trilogy examined the Keynesian Tradition; this second volume examines aspects of the Anti Keynesian Tradition. All the chapters are designed, in part, to justify the assertion that economists neglect at their peril the subterranean world in which our subject is constructed. Archival evidence provides numerous unique insights but can also resolve disputes that may otherwise meander along, endlessly. Equally, archival evidence can expose as hollow some of the creation myths that pervade the account of intellectual revolutions. ISBN: 978140394959

The Rise of the Natural-Rate of Unemployment Model

With respect to political mythology, the Northern spring of 1968 is chiefly remembered (like its forerunner of 1848) as a \u27springtime\u27 of youthful and hirsute left-revolutionary fervour. This revolutionary wave could plausibly include a US President amongst its victims, broken by the weight of office. In contrast to all this tragedy and melodrama, with respect to influence over economic policy and all that flows from that, the most revolutionary call to arms of that time, was Milton Friedman\u27s American Economic Association (AEA) Presidential Address. Neither youthful nor hirsute, he was an advocate of floating exchange rates, monetary targeting, low if not zero inflation, the abandonment of fine tuning, lower taxes and less regulated markets. ISBN: 033373045

The Keynesian Tradition: Introduction

These chapters highlight an important but neglected point: economics often provides profound insights into social interaction, but economists rarely delve into the subterranean world in which their culture, tools and prejudices are forged. Market forces produce results that surprise and confound social moralists; the hands by which economists correspond and argue have, hitherto, remained largely invisible. These chapters use published and archival evidence to illuminate the internal dynamics of the knowledge production (and destruction) processes of the economics industry. ISBN: 978140394960

Language and Inflation

Macroeconomic controversy is largely a tale of three cities - Chicago and the two Cambridges - or more accurately a tale of the cultures and policy prescriptions associated with those cities. In the four decades between the General Theory and the monetarist counter-revolution, economists were \u27normally\u27 distributed around orthodoxy (the Keynesian Neoclassical Synthesis, the ISLM model etc.) with the Chicago version of the Quantity Theory two standard deviations from the mean in the right tail, and the \u27true believers\u27 in Cambridge England an equal distance from the mean in the left tail. The preferred method of orthodox research involved \u27formalist\u27 tools (a label that can be stretched to include econometrics and Walrasian equations). Penetrating the veil of macroeconomics reveals some successful language revolutions at work. ISBN: 033373045