An Empirically Based Applied Policy Science, Chicago Style
So much attention has been paid to the Chicago School’s price theoretic approach that, until recently, the school’s development of empirical tools to facilitate the application of that approach to policy questions has often been overlooked.
Here, too, members of the Chicago School followed in the footsteps of earlier Chicago economists, especially Wesley Mitchell and Henry Schultz. Both Friedman and Lewis served as research assistants for Schultz; and Lewis, who had also studied with Chicago statistician Theodore O. Yntema, was appointed to the faculty following Schultz’s death in 1938. However, it was Mitchell, one of the Chicago economics department’s first doctoral students, who perhaps had the greatest early impact on the empirical method of Chicago economists, albeit indirectly. Mitchell entered in the first class of students at Chicago in 1892 and remained as a student and then instructor until 1903. He eventually ended up at Columbia University in New York, where he founded the National Bureau of Economic Research (NBER) in the 1920s. Many Chicago economists have had connections to the NBER; none more important than Friedman, who finished his doctorate at Columbia with Arthur F. Burns, who had succeeded Mitchell as the NBER director. Friedman subsequently collaborated with Simon Kuznets on a NBER study of professional incomes (Friedman and Kuznets 1945) that introduced the notion of permanent income, which became the basis for Friedman’s own theory of consumption (Friedman 1957). Friedman then teamed up with NBER researcher Anna Jacobson Schwartz on a long-term study of Anglo-American monetary history, often viewed as the foundational empirical support for Friedman’s monetarist policy framework (Friedman and Schwartz 1963).Lewis served as a bridge between the emerging Chicago School and the older Chicago empirical tradition.
He had studied with both Schultz and Simons, became the graduate student advisor through most of the postwar period, and served on many dissertation committees. After 1950, he focused his research on unionism, a topic which had occupied earlier Chicago economists like Douglas and the departing Albert Rees. Lewis’s approach combined the Chicago price theoretic approach with careful empirical investigation into union power. His first publication on unions echoed the title of Simons positive policy program (Lewis 1951), and his most important work characterized the applied scientific work that the Chicago School’s labor economics made the standard for the sub-field (Lewis 1963).By 1950 Lewis was not alone. Friedman had joined the department in 1946, and equally importantly, the mid-1940s also saw the arrival of agricultural economist T.W. Schultz from Iowa State University. Schultz chaired the department from 1945 until the 1970s, and managed to reunite several of his Iowa State colleagues at Chicago, including Margaret Reid and his former student D. Gale Johnson. While Friedman was the star and taught the central courses that all students took in price theory and money, behind the scenes, Schultz was building a coordinated program of education and research that was unrivaled (van Horn et al. 2011). His connections with foundations, government agencies and the university administration provided resources for both graduate education and research by both faculty and students. He, Lewis, D. Gale Johnson and Friedman were responsible for the creation of the Chicago workshops, which became central to the School’s success (Emmett 2011). Schultz, Lewis and Harberger also built the program’s connections with the Catholic University of Chile in the 1950s. Latin American students entering the Chicago graduate program joined others from Israel; after the postwar period, the focus of international recruitment shifted to eastern Europe.
Schultz’s leadership, Friedman’s dynamic teaching, the applied policy focus of its studies in agricultural economics, public finance, monetary economics, Latin American economic development, and labor economics, and the presence of D. Gale Johnson, Zvi Griliches, Lewis, Al Harberger, and the group of economic historians led by Fogel and D.N. McCloskey, provided the context within which the Chicago School found empirical methods that complemented its price theoretic approach. More recently, Chicago econometric policy analysis has been carried further by Nobel laureate James Heckman, whose work has transformed labor, education and social policy evaluation.