# Think Tank > Austrian Economics / Economic Theory >  Austrian VS. Chicago School?

## G-Wohl

This is just something that has been on my mind recently. Whenever I hear Dr. Paul speak about economic issues, he refers to the study of Austrian Economics. However, whenever I hear Lew Rockwell speak about economics, he refers to the study of the Chicago School.

Can somebody explain the differences between these two forms of economic study? I am fully aware of, and support, the concepts held by the Austrian system, such as the business cycle and the concept of boom-bust, though I cannot figure out what much is different about the Chicago school. Is it merely rhetoric? Or is it perhaps more of a philosophy based upon supply-side economics? (I only ask this because I know Milton Friedman was supply-side-esque at times).

Any help would be greatly appreciated! Thanks in advance.

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## sailor

Chicago School are the monetarists. They are the Milton Friedmans. Rockwell is an Austrian.

Chicago School are fairly libertarian, certainly compared to the Keynesians, but they commit a few fallacies. Namely they like fiat money.

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## G-Wohl

> Chicago School are the monetarists. They are the Milton Friedmans. Rockwell is an Austrian.
> 
> Chicago School are fairly libertarian, certainly compared to the Keynesians, but they commit a few fallacies. Namely they like fiat money.


I have been reading Rockwell's latest book, however, put out by the Mises Institute, and could have sworn he praised the Chicago School's way of thinking. But perhaps I just read it wrong...

Thanks for clearing that up for me!

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## eric_cartman

> Chicago School are the monetarists. They are the Milton Friedmans. Rockwell is an Austrian.
> 
> Chicago School are fairly libertarian, certainly compared to the Keynesians, but they commit a few fallacies. Namely they like fiat money.


+1

ya... chicago school people like the federal reserve and the like the government to be involved to a bigger degree than austrians.  but not being a fan of the gold standard makes them very differnet from austrians.

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## JdotRdot

the Chicago School were mainly influenced by people like Hayek from the austrian school in its early days, which is why Rockwell probably praised them, but like was mentioned above they moved away from that & started embracing Friedman economics, which is just as bad as Keyens economics...they both wanted central banks controlling everything

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## hugolp

I agree. Monetarist (Chicago School) sound libertarian but they want a central bank (the FED) controlling the money, wich is absurd. Monetarist sound libertarian but they are statists.

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## krazy kaju

Lew Rockwell is not a supporter of the Chicago School. The Chicago School is a school of mainstream economics which supports neoclassical economics, rational expectations, and monetarism.

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## sailor

> I have been reading Rockwell's latest book, however, put out by the Mises Institute, and could have sworn he praised the Chicago School's way of thinking. But perhaps I just read it wrong...


Perhaps he praised one aspect of theirs, or a certain work of theirs. I heard it told they wrote some good stuff on a few things, esspecialy when they were criticising socialism and making pro-market arguments.

Also during the 80s Neo-Liberalism when they were perhaps at their most influential a few turns for the better (but also many for the worse) came out of it in the US, UK and perhaps most noticeably in Chile (at least where economy is concerned), compared to what there was before.

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## Joe3113

Chicago School doesn't support the FED. They support a fixed rate of monetary growth based around a few factors, like population.

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## JdotRdot

> Chicago School doesn't support the FED.


really?? then why did the Chicago Boys from Chile who studied under Friedman plant a central bank in the system

central planning is central planning no matter what name it comes under...Friedman advocated a lot of Keynes teachings, not to mention he also gave us the infamous wage withholding system in place

*Friedman was the leading proponent of the monetarist school of economic thought. He maintained that there is a close and stable link between inflation and the money supply, mainly that the phenomenon of inflation is to be regulated by controlling the amount of money poured into the national economy by the Federal Reserve Bank. He famously quipped that deflation can be fought against by "dropping money out of a helicopter".* 

sounds like central planning to me...in fact, it sounds damn identical to Fed policy

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## nate895

Chicago School economics is a branch of Keynesian economics. It takes Keynes's fundamental assertions on their face and defeats his more statist policies based on his own assertions. They aren't perfect, but if I had to vote between a Chicago system and a pure-Keynesian system, but it is still fraught with fallacies.

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## Knighted

> They support a fixed rate of monetary growth based around a few factors, like population.


This alone makes having Monetarists in power 10x more preferable than having Keynesians.  And in my mind, Austrians and Monetarists have far more in common than do Monetarists and Keynesians.  

A good real life experiment of Monetarist policies in action has been the country of Chile.  Prior to around 1975, the country's economy, like most in that region, was a mess, with 150% inflation and large food/goods shortages.  It had also taken a turn downward with a severe recession.  For 30 years prior to 1975, the country had lagged behind the rest of South America in economic growth.  

But in 1975, the government of Chile took a wild gamble by dramatically changing their economic policies under the tutelage of the Chicago School.  This included privatizing pensions, massive deregulations of banks and industries, and tax reductions, shifting much further toward a free market economy.

And miraculously the government has stuck to this policy after 30 years later.  The result?  Chile is now ranked as 8th most free economy in the world.  Chile went from previously lagging behind the rest of South America in economic growth in the 30 years prior to 1975, to leaving the rest of the region behind in economic dust with such enormous growth that has made it the wealthiest country in South America today.

http://upload.wikimedia.org/wikipedi.../Chile_GDP.jpg
Legend - Chile: dark blue, South America: orange.

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## JdotRdot

> A good real life experiment of Monetarist policies in action has been the country of Chile.


i think there's some things to consider before calling Chille a success...it had been in a civil war for some time, they had a communist regime for a while also. & behold!! here comes the US to steal their re...i mean help them. the US funded friendly Pinochet & pressured him to change to a more friendly US economic policy. this has been done almost all over south america, the countries tout riches but it's hardly true...China is rich too, but look at how the average person lives. from what i gathered of Chile it's mostly an executive environment; industries, corporations, big business
but what of the little guy??

if Chile measures it's GDP like we do it's a farce
where i live it's pretty much the same...it's mainly a business world, this country isn't really as rich as it touts, if the US companies packed up & left right now we'd all be left eating dirt cause even our agriculture is gone...hell, look at India's current crop crisis where farmers are killing themselves thanks to monsantos kill gene

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## Knighted

> i think there's some things to consider before calling Chille a success..


It's more than just GDP.  Chile also ranks at the top of the list of countries in that region for the Human Development Index, Quality of Life Index, and a number of others.

While a lot of people look down on the US or other wealthy nations for "exploiting" the poorer countries through their cheap labor or attractive business environments, what they fail to see is that it is these same processes that have enabled many countries over history to go from being almost third world like to being modern industrialized nations.  Chile's aim toward a free economy has encouraged foreign investment and businesses, and that investment is significantly what has fueled its growth and what will allow it to eventually join the club of the industrialized nations.

While the old saying "a rising tide lifts all boats" may not be absolute true as far as the economy goes, there are many elements of truth to it.  I don't know of any example of where prosperity in a country has begun with the poorest in the country and worked its way up, rather than how it typically does: beginning with the richest and working its way down.  If you know of one, I would love to hear of it.

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## Jace

...

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## JdotRdot

> It's more than just GDP.  Chile also ranks at the top of the list of countries in that region for the Human Development Index, Quality of Life Indexit.


sure their lives are better off, but saying that Chile is better now is like saying that a cow at a livestock farm is fatter...it's in their best interest to fatten the cow, most of the real wealth in Chile is to foreign companies

& as for a country that rose from its poorest...well how bout Iceland?? fishermen millionaires, but none of them want to go back to fishing after they became investment bankers...quite the predicament

there's a reason all of south america is still considered Third World, because they don't actually have as much as they tout...it's in a slave owners bets interest to keep his slaves healthy enough to work
i forgot how the saying goes, what we want is not jobs, we want wealth...slaves have jobs, but little to show for it. equally, latin america has jobs, & little to show for it...there are very few home companies here, most come from the US, & our agriculture has been stripped through a series of political actions, we now import our sugar & rice (from the US of course) & who knows what else

i'm not against business, but you have to understand it's cut-throat out there & the poor people are losing

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## Conza88

> I have been reading Rockwell's latest book, however, put out by the Mises Institute, and could have sworn he praised the Chicago School's way of thinking. But perhaps I just read it wrong...
> 
> Thanks for clearing that up for me!


Yes, you read it wrong.

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## Conza88

Chicago School supports the 5th plank of the Communist Manifesto.

They're not libertarians. The school is built on positivism. They are a strawman for true capitalism.

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## krazy kaju

> And in my mind, Austrians and Monetarists have far more in common than do Monetarists and Keynesians.


Your mind is wrong.

Monetarists accept the positivism of Keynesians. They also accept the aggregates of Keynesians.

The major difference between monetarists and Keynesians is that monetarists believe that monetary stimulus is better than fiscal stimulus in a downturn while Keynesians believe that fiscal stimulus is more effective than a monetary stimulus.

There is nothing more free market about monetarism than there is Keynesianism. There are many relatively right wing Keynesians, like Greg Mankiw, who propose lower corporate taxes and lower capital gains taxes in order to stimulate the economy. Likewise, it's possible to be a left wing monetarist like Ben Bernanke, who proposes greater regulation and very activist monetary policy.

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## Joe3113

> really?? then why did the Chicago Boys from Chile who studied under Friedman plant a central bank in the system
> 
> central planning is central planning no matter what name it comes under...Friedman advocated a lot of Keynes teachings, not to mention he also gave us the infamous wage withholding system in place
> 
> *Friedman was the leading proponent of the monetarist school of economic thought. He maintained that there is a close and stable link between inflation and the money supply, mainly that the phenomenon of inflation is to be regulated by controlling the amount of money poured into the national economy by the Federal Reserve Bank. He famously quipped that deflation can be fought against by "dropping money out of a helicopter".* 
> 
> sounds like central planning to me...in fact, it sounds damn identical to Fed policy


I agree with you. I'm not a Chicago adherent.

BUT .... Milton Friedman, when articulating his moral absoltue, *said the Fed should not exist*. He even supported the makers of "The Money Masters" and their Monetary Reform Act.

Have a look yourself http://www.themoneymasters.com/mra.htm

"As you know, I am entirely sympathetic with the objectives of your Monetary Reform Act...You deserve a great deal of credit for carrying through so thoroughly on your own conception…I am impressed by your persistence and attention to detail in your successive revisions... Best wishes,
Milton Friedman"

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## sailor

> There is nothing more free market about monetarism than there is Keynesianism. There are many relatively right wing Keynesians, like Greg Mankiw, who propose lower corporate taxes and lower capital gains taxes in order to stimulate the economy. Likewise, it's possible to be a left wing monetarist like Ben Bernanke, who proposes greater regulation and very activist monetary policy.


Hmm, albeit I was under impression Friedman was far more pro-market than Keynes was.

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## ArrestPoliticians

I hate to say this, but besides monetary policy which obviously the Austrians do best, I would say that Art Laffer's supply-sider school might be the next most free market school. The monetarists these days are mostly liberal besides Larry Kudlow and the neo-classicals are free marketers in the micro but at the macro level they are largely Keynesians.

Personally, I make sure to call myself a "free market" economist because the Austrian school does have some methodology problems that will get you embarrassed in academia. If they would just do empirical testing they would be the premier free market school. I think some people jump on board that school so that they can avoid empirical testing.

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