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The Chicago School: How the University of Chicago Assembled the Thinkers Who Revolutionized Economics and Business

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The economics school of the University of Chicago has long been recognized as "both a Mecca and a Rome for economic science for its many Nobel prize winners in economics, its number of professors and graduates holding high-level economic positions in the national government, and the impact of the economic theories associated with the school. So Van Overtveldt does not have to make the case for the University's unrivaled influence in this field of economics. Instead, he gets to the reason for this influence--and he finds two bases for this, namely the Chicago Tradition and the Chicago School. The Tradition is a cluster of "characteristics" exemplified by individuals at the school of economics. Among these are a strong work ethic and the criterion of academic excellence as the sole basis for advancement along with a belief in the relevance of economics to the lives of ordinary individuals. The Chicago School factor entails key economic ideas and principles which have proven reliable both as explanations for economic behavior and as guidelines for successful economic policies. The bedrock belief is that "free markets and the price mechanism are the most effective and desirable ways for a society to organize production and economic life in general." Milton Friedman, Theodore W. Schultz, Paul Samuelson, and Frederick Hayek are economists who have been associated with the Chicago school of economics in one way or another. Van Overtveldt succinctly summarizes their ideas, precepts, work, and influence for a picture of the U.S.'s foremost educational institution in the field of economics. The author is a director of a Belgium think tank.

As a Chicago MBA graduate and interested student of the Chicago School of free market economics and empirical analysis, i had high hopes for this book. There were some genuinely interesting insights and good analysis, especially relating to Becker and Stigler, and the intellectual movements their respective bodies of research launched. There was rather less about Milton Friedman than I expected, which leads to my main criticism.

I thought this book would be more about the practical influence of Chicago economics on the world at large, and tracing the ways in which the Chicago School (as opposed to, say, the Austrian School or Keynesian School) of economics impacted policies and the world. It certainly touches on that, but at times is seemed like more of a Leviticus-inspired, who-begat-whom description of all the economists who have studied or taught at Chicago. There were a number of scholars whose influence didn't seem to warrant discussion, yet there they were. I suspect many of those who are not acquainted with the scholarship at Chicago would be likely to wonder, at the book's conclusion, what's the big deal? Though it was an interesting read for me, I suspect there is a book yet to be written that is less a description of the evolution of the school's faculty, and more a discussion of the practical impact of the work of Chicago's scholars.

At it's best, the history of economics is a daunting subject. Economics in action is more interesting, but even then it's usually only for the inspired. So what do we make of this history of the Chicago School? Certainly it's well researched. Most every economist of note at the University of Chicago is covered, as are their influences and how they fit in the broader tradition of the University. This history goes beyond the economics department to cover the subject (or "school's") include in business, law, sociology and public policy.

The key to appreciating this kind of book is you have to know what you're getting into. It's not enough to be an armchair economics afficianado - you have to care about the institution itself. This book is for people who saw "The Commanding Heights" and wanted to know more about the history of this free market school of thought. Although their are balanced arguements of this school, the subtitle should let you know where the author stands. This is economics history - a broad brush of ideas, their birth and their proponents. Not light reading, but great for armchair libertarian economists interested in ther personalities behind the economics.

Best authority on the Chicago school of economics. Also includes key but little know figures (e.g., W. Allen Wallis) and influences which acted as spores to spread the principles for development in other locations (Virginia school pioneers James Buchanan and Gordon Tullock).

As a casual (but avid) economist, Johan Van Overtveldt's book was extremely interesting and intellectually satisfying.

To the author's credit, the book attempts to organize its story around several core beliefs and attitudes of the Chicago school (suggested by Van Overtvelt) and generally topical chapters. Despite this effort, the book instead reads as a number of short stories, tracking particular economic ideas through their various participants and generations.

Summarizing my reaction to the book:

As a human interest piece, the stories of various lives and the inspirations that brought each to the Chicago School and their various economic specializations is extremely compelling. With much material extracted from personal interviews, it brings life to the "bibliography" of Chicago.

As a review of economic concepts, the book also scores very well. In a little under 400 pages, the author blends in hundreds of subjects and numerous associated citations. To anything but another economic historian, this is a satisfying review of some of the most interesting subjects in economics and offers a crious individual (who might not otherwise have been introduced to this diversity) plenty of opportunities to expand their studies.

As a unification of themes into any sort of organized whole, the book fails miserably. Chapters jump from subject (and economists) to subject (and economist) with little regard for flow or meta-organization. Each chapter may be dedicated and true to a topic, but this seems to offer merely a de facto excuse to lump threads together. When I was done, I was neither convinced that the authors major themes were proven nor satisfied that I had a better holistic understanding of the Chicago School and its history.

With that in mind, I STRONGLY SUGGEST this book to anyone who's broadly interested in economics and particularly the Chicago school. The human interest side turned a potentially dry history into an absorbing read and copious references tease the curious mind with hundreds of other opportunties to learn. But read the book for these wonderful features and not for some distillation or summarization of a unified Chicago school or the economics of its members... as you'd be disappointed.

The book's title sounds impressive and anyone who is a fan of "Commanding Heights" knows that "The Cold War is over. The University of Chicago won it." I expected the same kind of inspiration and prose from this book. The book, unfortunately is quite dry - it is a professor by professor account of various research undertaken at the school. As a graduate of the school, I feel that I can get a more inspired account from a long term faculty than from this book.

From the early pages, the book refers to Milton Friedman's ability to explain complicated technical economic theories to non-economists, however the book itself fails to do so. Sometimes the book refers to economic theories highlighting parts that do not always make sense in absence of other parts, and to non-economists such descriptions may not always make sense.

This can serve as a good reference book if you need to trace the history of economic research at the University, but it can hardly give you a good insight into its hallmarks such as free markets, price theory and the school's overall passion for economics.

For the next edition:
The Chicago School: How the University of Chicago Assembled the Thinkers Who Revolutionized Economics and Business AND BROUGHT THE WORLD TO THE BRINK OF RUIN.

Any college-level library dedicated to economic studies and business history will find THE CHICAGO SCHOOL: HOW THE UNIVERSITY OF CHICAGO ASSEMBLED THE THINKERS WHO REVOLUTIONIZED ECONOMICS AND BUSINESS a fine pick, offering a detailed story of how a new university far from academic and cultural centers developed a group of thinkers whose works changed global economics and politics over the past thirty years. This focus on Chicago School thinkers and movers highlights both the school's importance and its strategies in developing leaders within the economic and business worlds, making it a special pick both for Chicago and business libraries at the college level.

Van Overtveldt(VO)demonstrates how the "later" Chicago School of Friedman,Stigler,Lucas,and Becker overthrew and destroyed the earlier Chicago School of Frank Knight and Henry Simons by eliminating any analysis of uncertainty(either of Knight or Keynes) or ambiguity(Ellsberg)from consideration in economic theory and substituting the normal distribution's standard deviation as a measure of risk.Friedman ,a true believer in the Subjectivist Bayesian theory of probability created by Ramsey,De Finetti,and Savage,which argued that all probabilities must be unique,precise,additive single number answers derived from linear preferences,substituted this approach for the approach of Knight and Simons.Friedman, et. al, then started analyzing all markets under the assumption that all markets(commodity,labor,money ,bond,output,stocks,currencies,etc.)were either normally distributed or could be analyzed " as if" they were normally distributed.It is interesting that not a single Chicago School economist in the 20TH century(or so far in the 21st century) ever presented any type or kind(there are about 10 different such tests available currently) of goodness of fit test demonstrating that the time series data that they claimed they were analyzing fit the normal distribution.
Friedman's Chicago School approach is based on a foundation that is very similar to the geocentric astronomy school founded by Ptolemy in 130 A.D.Ptolemy's " normal distribution like " assumption was that all of the planets and stars rotated on epicycles, which rotated on deferents or eccentrics(a slighly off center deferent).This gave rise to cycloid paths that generated the retrograde motion of the planets that could theoretically be observed from an equant point(this was Ptolemy's invention).All this was constructed in order to satisfy the a priori belief that the Universe had to reflect perfect uniform motion(which was exemplified by the circle).This approach fell apart after Galileo improved on the construction of the telescope and started observing what was actually going on in the solar system.The empirical evidence demonstrated that Ptolemy's theoretical constructions were completely artificial models that had NO empirical support.


Benoit Mandelbrot,like Galileo,has demonstrated that the normal distributions that lie at the heart of the Chicago School do not exist.They are,like the epicycles,purely artificially constructed ,empirically empty models that explain/predict nothing.Mandelbrot has,starting in the late 1950's, provided overwhelming empirical and statistical evidence that the distributions are either Cauchy or Power law.The normal distribution turns out to be a very special case of the Cauchy.

Unfortunately,Friedman's approach was spread by E.Fama to financial economics.This leads to the same conclusion-artificially constructed stochastic models based on the assumption of normality that have no more empirical support than the existence of a equant point does.The later Chicago School founded by Friedman is basically anti scientific.It replaced the scientific school founded by Knight and Simon by claiming that they were not using mathematical and statistical analysis.Like Ptolemy,Friedman hid the fact that none of the data fitted his normal distribution model by using a lot of stochastic modeling theory that " looked " scientific.It should come as no surprise that Friedman's record of making accurate and reliable predictions/forecasts was abysmal-worse even than the Ptolemaic model that got some predictions right.

Lucas and Friedman desperately need to impose a distribution that does not fit the data because of their a priori claim that all false trading at disequilibrium prices cancels out ,in the long run(Friedman)or the short run(Lucas),around the mean price(equilibrium)of a set of prices which is assumed to be normally distributed around the equilibrium or market clearing price.Friedman and Lucas apply the same model macroscopically using the additivity property of normal distributions.The business cycle is just the plus and minus deviations that occur around the macroscopic mean.

The Chicago School can only deal analytically with the business cycle when no uncertainty is present and risk is represented by the standard deviation of a normal distribution.It can not deal with uncertainty or the wild risk of the Cauchy.It can only deal with the mild risk of the normal(bivariate,multivariate,or log normal).

This book puts in perspective U of C's greatness; a greatness that goes beyond economic thought.