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What is the methodology of the Chicago School and what makes it unique among economic schools of thought?

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    $\begingroup$ This runs the danger of generating "opinion-based" answers, although it is clear that you ask about the methodology and not about the "media image" of the Chicago School. Let's just wait and see what will happen below. $\endgroup$ – Alecos Papadopoulos Nov 22 '14 at 22:00
  • $\begingroup$ For instance, this famous article. $\endgroup$ – Steve S Nov 22 '14 at 22:03
  • $\begingroup$ I've taken my answer down because without the stuff on positive economics it's subsumed by some of the other answers. It might be useful in answers to make a distinction between the Chicago school as we know it now and the school that existed when Friedman wrote this, because I think that might eliminate some of the heterogeneity. $\endgroup$ – jayk Nov 23 '14 at 7:11
  • $\begingroup$ @j-kahn: That Milton Friedman quotation was really helpful--that first part (where he mentions the "strong emphasis on empirical work" and the "empirical worth of a theory") is, I think, really related to the original question. It's this emphasis on the empirical results (while largely disregarding (or at least downplaying) the validity of the initial assumptions), which--I believe--is at the heart of the Chicago Methodology. $\endgroup$ – Steve S Nov 23 '14 at 7:21
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I would submit that the premise is flawed. There is no methodological criteria that unified the Chicago school and separates it from the rest of economics. I think this is true even for Friedman, whose methodological paper you refer to. If you look at his macroeconomic work such as his Monetary History of the United States, Theory of the Consumption Function or his famous presidential address to the AEA,there is nothing in it which is different from the methodology of mainstream economics. I think the same can be said about Stigler's work on industrial organization.

The Chicago School was united by its institutional links and its faith in capitalism and not by a distinctive method.

And it would be wrong to think of the School as a homogenous entity. See for example this article by Patinkin on the diversity of views on the quantity theory of money:

http://stevereads.com/papers_to_read/the_chicago_tradition_the_quantity_theory_and_friedman.pdf

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  • $\begingroup$ +1 Because although I think that Steve S is asking about positive economics instead of the Chicago School this is an extremely good point that gets missed out on a lot. $\endgroup$ – jayk Nov 23 '14 at 4:04
  • $\begingroup$ This is not an answer--this is you guessing. At the very least, just read the Introduction to The Elgar Companion to the Chicago School of Economics--you can read it on Google Books. $\endgroup$ – Steve S Nov 23 '14 at 12:38
  • $\begingroup$ @SteveS It seems you already have a firm opinion about what the answer must be. Then why ask the question? And having asked the question I think it is best that you post here the answer that you think is right so that other users can vote among the alternatives. $\endgroup$ – Jyotirmoy Bhattacharya Nov 23 '14 at 13:56
  • $\begingroup$ Some people wait for experts and others pretend to be experts. $\endgroup$ – Steve S Nov 23 '14 at 16:41
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The best way to understand Friedman's and 1950s Chicago methodology is to consider it more an operation research outfit than an economics department. The group consolidated in the war-time SRG, an OR group studying the mathematics and statistics of weapon ordnance (check out Machine Dreams for a good history of it).

As with all OR groups, the Chicago group put the priority on usefulness. What matters in economics to Friedman is that the models predict well. Even if the premise of the model sounds wrong, it's fine to act "as if" it was true as long as it predicts data well.

This went against most of past (and future) economics. The predominant philosophy of science in economics hasn't changed since John Stuart Mill. In short the idea is that data and experience is misleading, that the job of the economist is to isolate causal mechanisms whose effect may be masked by countervailing forces when we look at data alone.
This results in a science that spends more time thinking about first principles (assuming everyone is rational...) than data itself.
Maki makes a good case for it. There is a nice blog-post about it on "a fine theorem".

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The underlying belief among most "Chicago" economists is that "markets work," and most of public policy should mostly be directed toward improving their efficiency, e.g., by a "steady" monetary policy. Examples of economists include Milton Friedman (Capitalism and Freedom), and Ronald Coase (who postulated that most legal results are dictated by economics).

The opposite, "saltwater" school of thought (on the east and west coasts) recognize that markets often fail, and therefore focus on using government solutions to compensate for such failures (e.g. using fiscal policy to get the world out of the Great Depression).

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  • $\begingroup$ No, no--I'm referring specifically to their methodology. For an example, see the article I posted in the comments. $\endgroup$ – Steve S Nov 23 '14 at 2:35

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