Libertarianism and the Chicago School of Economics

Abstract

The libertarian defense of free enterprise, free trade, and freedom from government regulations and controls is grounded in a normative commitment to individual freedom. The majority of the economics profession, including the Chicago School, are committed in the first instance to methodological individualism, which can be summarized as the assumption “that all social phenomena are caused by and caused only by the purposeful actions of rational individuals” (Waterman, 2019, 326). The paper examines three phases of the Chicago School, from the 1930s to the 2010s, in terms of the assumptions they add to methodological individualism, the outcomes of their research, and how their research may be viewed by libertarians. The three phases are: a) the Knight Circle phase, from the 1930s to the mid-1940s. b) the Friedman phase, when methodological assumptions were added which reinforced the Chicago approach to economics as an applied policy science; and the Becker phase, when the School’s research was expanded (by the methodological assumptions they made) to human activities and interactions that might not have been previously thought of as “economics”: discrimination, the family, and, through the Coase Theorem, to law. Since the time of John Stuart Mill, economists had tried to separate theoretical and normative commitments, and argued that methodological assumptions do not create a foundation for normative individualism. At Chicago, some of their work affirmed policy evaluations that libertarians could endorse. In other cases, they lead to modest government intervention, sometimes defended as promoting liberty. Intriguingly, the account provided here suggests, as well, that Chicago economics was created not by design, but by exploration, experimentation and mutual agreement upon how sound policy analysis could be conducted at the lowest cost.