The Chicago School's long descent
By Michael Hudson
As a graduate of the University of Chicago (1959) and also of its Laboratory
School (1955-56), I think my experience there confirms the picture portrayed by
Henry Liu in his wonderful essay last week on Milton Friedman and the "Money
Matters Controversy". (See
Friedman's misplaced monument, Sep 5.)
My introduction to the University of Chicago (UC) was via the Manhattan Project
around 1948. I lived in Chicago neighborhood of Kenwood, just north of Hyde
Park. We rented the top floor of our house to a physicist, Shuki Hayashi, who
worked on the project at Stagg Field, under whose bleachers the project's
atomic pile still continued. To bring me to the Lab School, he would put me on
his bike (a Raleigh DL-1 28-incher) and drive me up to the field. Only much
later in my life was I left to wonder what has been
more dangerous to humanity: the A-bomb or Chicago School monetarism?
My father was a labor leader and we often had UC professors over to the house
for discussions in the early 1950s. In contrast to today, the Chicago faculty
from the 1930s through early 1960s included such men as Maynard Krueger (a vice
presidential candidate on the Socialist Party ticket behind Norman Thomas), and
Rexford Tugwell, a Roosevelt brain truster and former governor of Puerto Rico
(and protege of Simon Patten). The post-Keynesian economist Hyman Minsky told
me that it was Krueger who converted him to socialism. Minsky later became the
godfather of the present post-Keynesian faculty providing an alternative to
Chicago-style monetarism at the University of Missouri - Kansas City, where I
now teach.
Today, the Chicago School is known for its censorial intolerance. The first
thing the "Chicago Boys" did in Chile after 1974, for example, was to close
down every economics and social science department in the country, except at
the Catholic University where they had a foothold with "the brick", ie
Friedmanite doctrine.
All this was foreshadowed at the Lab School in the 1950s. Its social science
teacher Curtis Edgett posted a long banner up in his room saying "Give 'em all
what the Rosenbergs got". I thought he meant communists, but on talking
privately with him, some of my classmates and I discovered that he meant Jews.
In class, he regularly called me a "commie". (One of our texts was Mein Kampf.)
There was a real Stalinist in the class. We always argued, and he called me a
fascist. It was in fact at the Lab School that I recruited a number of leaders
of the Young Peoples' Socialist League (Shachtmanites). It was the only time in
my life where I was the voice of reason in the middle.
The Lab School at the time stopped at 10th grade, and students went directly to
the college. However, I wasn't accepted in 1954 to the university on graduating
from 10th grade. I was told that Mr Edgett had turned in the names of myself
and a number of my friends to the Federal Bureau of Investigation (FBI(as
"commies" and sent copies to the college.
There was a ruckus, and the Lab School added on an extra grade to help resolve
matters, and I was accepted to UC the following year, and took the
"comprehensives" to skip the first two years, so no time really was lost. But
one of my schoolmates chose to enroll in Shimer, a secondary college that UC
set up. About a decade ago, when he managed to get his FBI file, it turned out
that Shimer's dean continued to file regular FBI reports on him, his friends
and classmates.
My own field changed from chemistry to history and German literature, and I
never took an economics class there. I believe that professors Tugwell and
Krueger were in the political science department, not the business school.
Although I never went near the Business School in my four years at UC, although
I subsequently took a PhD in economics elsewhere, I do remember that the
business school students I met were about the only students who regularly wore
suits and neckties on campus. They had the reputation for being somewhat dense.
One encounter in particular is memorable. There was a party, and one of
business school students was coming on to an attractive woman.
The next day or so, I asked him how things went. "She was so dumb," the guy
said. "She even gave me the wrong phone number. It turned out to be the Fire
Department."
"What was her name?" I asked.
"Martha Washington, she said," he replied.
To me, this was one of my first examples of GIGO (garbage in, garbage out): the
unthinking acceptance of anything as a fact.
After graduation, my only contact with the UC Business School occurred
indirectly, after I became the balance-of-payments economist for Chase
Manhattan in the mid-1960s. My boss, John Deaver, was a protege of Milton
Friedman, who had recommended him to David Rockefeller. On one fateful Friday,
I was having lunch with John Exter of Citibank, who told me that earlier in the
day his bank had sold sterling short when Harold Wilson had said there was no
way he would devalue. Deaver had advised Chase that Wilson had staked his
reputation on preserving sterling's exchange rate. It turned out that Chase had
bought the sterling that Citibank had sold, in effect.
In the aftermath, I was told that Rockefeller finally told Deaver over a golf
meeting that he had a good future as an economics professor. Instead, Deaver
went to work for GM, which quickly (in about three months, I think) fired him
and put his assistant in charge; then, Deaver went to Philips Endhoven, where
his tenure also was short.
Chase decided to merge the Economic Research department (where I worked) into
"Public Relations and Publications" under John Wilson. As it adopted Chicago
School economics, it was used only for rhetoric, not for actual internal bank
decisions. The same thing happened at Citibank. Wall Street came to use Chicago
monetarism only as lobbying rhetoric, not as real analysis.
One friend of mine who became a sociology instructor at Chicago told me that he
began one class trying to explain whether there was such a thing as an ideology
of the vested interests might be. "That's what we're here to learn," a student
replied.
The upshot may help promote public relations and turn economic analysis into
euphemism. But it is not much help in understanding how the real world works.
Milton Friedman has said famously - perhaps infamously - that "There is no such
thing as a free lunch." But the economy today is all about how to get a free
lunch. That is what Fannie Mae and Freddie Mac were all about, and what
government bailouts of the financial sector tend to be about.
The most important reason why it is against business' true long-term interest
to support a Friedman Center that supports economic euphemism is that it
degrades economic thought into ideological rhetoric, not real analysis.
So I was glad to sign the petition that Professor Lincoln is circulating
deploring the Friedman Center. And glad to read Henry Liu's article explaining
how destructive a role it may play.
Michael Hudson is professor of economics at University of Missouri -
Kansas City. His professional work has largely been involved in applying
flow-of-funds and balance-of-payments statistics to forecast interest rates,
capital and real estate markets. Academically, his focus has been on financial
history and a history of debt from Sumerian times. He is president of the
Institute for the Study of Long Term Economic Trends. His numerous publications
include Debt and Economic Renewal in the Ancient Near East (ed with Marc
Van De Mieroop), CDL Press, Baltimore, 2001.
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