[Pen-l] The Chicago School's long descent

["Charles Brown" <charlesb@xxxxxxxxxxxxxxxxxxxxx>]

The Chicago School's long descent
By Michael Hudson 


http://atimes.com/atimes/Global_Economy/JI12Dj01.html

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.  
   
 
 

 
 
  

Friedman's misplaced monument
(Sep 5,'08)


 
 

1. Seven years on, three big 9/11 lies

2. Secrets of the Taliban's success

3. US's 'good' war hits Pakistan hard

4. A comedy of areas

5. India throws open a $100bn nuclear bazaar

6. Civilians caught in Sri Lanka's 'clean war'

7. US warned over raids in Pakistan

8. Paulson placates China, Russia for now

(24 hours to 11:59pm ET, Sep 10, 2008)
 
 
 

  
 
 
 
 
 
 
 
 
 
 
  
    
 
 
 
 



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