The Chicago school of economics is a neoclassical school of economic thought associated with the work of the faculty at the University of Chicago, some of whom have constructed and popularized its principles. Milton Friedman and George Stigler are considered the leading scholars of the Chicago school.

Chicago macroeconomic theory rejected Keynesianism in favor of monetarism until the mid-1970s, when it turned to new classical macroeconomics heavily based on the concept of rational expectations. The freshwater–saltwater distinction is largely antiquated today, as the two traditions have heavily incorporated ideas from each other. Specifically, new Keynesian economics was developed as a response to new classical economics, electing to incorporate the insight of rational expectations without giving up the traditional Keynesian focus on imperfect competition and sticky wages.

Chicago economists have also left their intellectual influence in other fields, notably in pioneering public choice theory and law and economics, which have led to revolutionary changes in the study of political science and law. Other economists affiliated with Chicago have made their impact in fields as diverse as social economics and economic history.

As of 2025, the University of Chicago Economics department, considered one of the world's foremost economics departments, has been awarded 15 Nobel Memorial Prizes in Economic Sciences—more than any other university—and has been awarded six John Bates Clark Medals. Not all members of the department belong to the Chicago school of economics, which is a school of thought rather than an organization.

History and terminology

The term was coined in the 1950s to refer to economists teaching in the Economics Department at the University of Chicago, and closely related academic areas at the university such as the Booth School of Business, Harris School of Public Policy and the Law School. In the context of macroeconomics, it is connected to the freshwater school of macroeconomics, in contrast to the saltwater school based in coastal universities (notably Harvard, Yale, Penn, UC Berkeley, and UCLA).

The Chicago economists met together in frequent intense discussions that helped set a group outlook on economic issues, based on price theory. The 1950s saw the height of popularity of the Keynesian school of economics, so the members of the University of Chicago were considered heterodox. Besides what is popularly known as the "Chicago school", there is also an "Old Chicago" or the first-generation Chicago school of economics, consisting of an earlier generation of economists (approximately the 1920's to 1940's) such as Frank Knight, Henry Simons, Lloyd Mints, Jacob Viner, Aaron Director and others.Shils 1991, p. 538; Emmett 2001, p. 235 This group had diverse interests and approaches, but Knight, Simons, and Director in particular advocated a focus on the role of incentives and the complexity of economic events rather than on general equilibrium. Outside of Chicago, these early leaders were important influences on the Virginia school of political economy.Emmett 2001, p. 235 Nonetheless, these scholars had an important influence on the thought of Milton Friedman and George Stigler who were the leaders of the second-generation Chicago school, most notably in the development of price theory and transaction cost economics.Emmett 2010 p. 7; Emmett 2009, p. 147 The third generation of Chicago economics is led by Gary Becker, as well as macroeconomists Robert Lucas Jr. and Eugene Fama.Shils 1991 p. 538

A further significant branching of Chicago thought was dubbed by George Stigler as "Chicago political economy". Inspired by the Coasian view that institutions evolve to maximize the Pareto efficiency, Chicago political economy came to the surprising and controversial view that politics tends towards efficiency and that policy advice is irrelevant.

Awards and honors

Nobel Memorial Prizes

As of 2022, the University of Chicago Economics Department has been awarded 15 Nobel Memorial Prize in Economic Sciences (laureates were affiliated with the department when receiving the prizes) since the prize was first awarded in 1969. In addition, as of October 2018, 32 out of the total 81 Nobel laureates in Economics have been affiliated with the university as alumni, faculty members or researchers, which has been a source of controversy. However, not all members of the department belong to the Chicago school of economics. +Nobel Prizes awarded to the UChicago's Department of EconomicsYearLaureatePrize sharePrize motivationReference2024James A. Robinson1/3"for studies of how institutions are formed and affect prosperity."2022Douglas Diamond1/3"for research on banks and financial crises."2017Richard Thaler1/1"for his contributions to behavioural economics."2013Eugene Fama1/3"for their empirical analysis of asset prices."2013Lars P. Hansen1/3"for their empirical analysis of asset prices."2007Roger Myerson1/3"for having laid the foundations of mechanism design theory."2000James Heckman1/2"for his development of theory and methods for analyzing selective samples."1995Robert Lucas Jr.1/1"for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened our understanding of economic policy."1993Robert Fogel1/2"for having renewed research in economic history by applying economic theory and quantitative methods in order to explain economic and institutional change."1992Gary Becker1/1"for having extended the domain of microeconomic analysis to a wide range of human behaviour and interaction, including nonmarket behaviour."1991Ronald Coase1/1"for his discovery and clarification of the significance of transaction costs and property rights for the institutional structure and functioning of the economy."1990Merton Miller1/3"for their pioneering work in the theory of financial economics."1982George Stigler1/1"for his seminal studies of industrial structures, functioning of markets and causes and effects of public regulation."1979Theodore Schultz1/2"for their pioneering research into economic development research with particular consideration of the problems of developing countries."1976Milton Friedman1/1"for his achievements in the fields of consumption analysis, monetary history and theory and for his demonstration of the complexity of stabilization policy."

John Bates Clark Medals

As of 2019, the University of Chicago Economics Department has been awarded six John Bates Clark Medals (medalists were affiliated with the department when receiving the medals) since the medal was first awarded in 1947. However, some medalists may not belong to the Chicago school of economics. YearMedalistReference2014Matthew Gentzkow2003Steven Levitt1997Kevin M. Murphy1983James Heckman1967Gary Becker1951Milton Friedman

Notable scholars

Early members

Frank Knight

Frank Knight (1885–1972) was an early member of the University of Chicago department. He joined the department in 1929, coming from the University of Iowa. His most influential work was Risk, Uncertainty and Profit (1921) from which the term Knightian uncertainty was derived. Knight's perspective was iconoclastic, and markedly different from later Chicago school thinkers. He believed that while the free market could be inefficient, government programs were even less efficient. He drew from other economic schools of thought such as institutional economics to form his own nuanced perspective.

Henry Simons

Henry Calvert Simons (1899–1946) did his graduate work at the University of Chicago but did not submit his final dissertation to receive a degree. In fact, he was initially influenced by Frank Knight while he was an assistant professor at the University of Iowa from 1925 to 1927, and in summer 1927 Simons decided to join the Department of Economics at the University of Chicago (earlier than Knight did). He was a long-term member in the Chicago economics department, most notable for his antitrust and monetarist models.

Jacob Viner

Jacob Viner (1892–1970) was in the faculty of Chicago's economics department for 30 years (1916–1946). He inspired a generation of economists at Chicago, including Milton Friedman.

Aaron Director

Aaron Director (1901–2004) had been a professor at Chicago's Law School since 1946. He is regarded as a founder of the field Law and economics and established The Journal of Law & Economics in 1958. Director influenced some of the next generation of jurists, including Richard Posner, Antonin Scalia and Chief Justice William Rehnquist.

Theodore Schultz

A group of agricultural economists led by Theodore Schultz (1902–1998) and D. Gale Johnson (1916–2003) moved from Iowa State to the University of Chicago in the mid-1940s. Schultz served as the chair of economics from 1946 to 1961. He became president of the American Economic Association in 1960, retired in 1967, though he remained active at the University of Chicago until his death in 1998. Johnson served as department chair from 1971 to 1975 and 1980–1984 and was president of the American Economics Association in 1999. Their research in farm and agricultural economics was widely influential and attracted funding from the Rockefeller Foundation to the agricultural economics program at the university. Among the graduate students and faculty affiliated with the pair in the 1940s and 1950s were Clifford Hardin, Zvi Griliches, Marc Nerlove, and George S. Tolley.Sumner, Daniel A. "Agricultural Economics at Chicago", in David Gale Johnson, John M. Antle. The Economics of Agriculture: Papers in honor of D. Gale Johnson. University of Chicago Press, 1996 pp. 14–29 In 1979, Schultz was awarded the Nobel Prize in Economics for his work in human capital theory and economic development.

Second generation

Milton Friedman

Milton Friedman (1912–2006) stands as one of the most influential economists of the late twentieth century. A student of Frank Knight, he was awarded the Nobel Prize in Economics in 1976 for, among other things, A Monetary History of the United States (1963). Friedman argued that the Great Depression had been caused by the Federal Reserve's policies through the 1920s and worsened in the 1930s. Friedman argued that laissez-faire government policy is more desirable than government intervention in the economy:

Governments should aim for a neutral monetary policy oriented toward long-run economic growth, by gradual expansion of the money supply. He advocated the quantity theory of money, that general prices are determined by money. Therefore, active monetary (e.g. easy credit) or fiscal (e.g. tax and spend) policy can have unintended negative effects. In Capitalism and Freedom (1962) Friedman wrote:Friedman (1962) p.

The slogan that "money matters" has come to be associated with Friedman, but Friedman had also leveled harsh criticism of his ideological opponents. Referring to Thorstein Veblen's assertion that economics unrealistically models people as "lightning calculator[s] of pleasure and pain", Friedman wrote:Friedman (1953) I, V, 30

George Stigler