Milton Friedman and the Chicago School of Debating

I had planned to follow up my previous post, about Milton Friedman and the price of money, with a clarification and further explanation of my assertion that Friedman’s failure to understand that there is both a purchase price of money – roughly corresponding to the inverse of the price level – and a rental price of money – roughly corresponding, but not necessarily equal, to the rate of interest. The basic clarification and extension were prompted by a comment/question from Bob Murphy to which I responded with a comment of my own. I thought that it would be worth a separate post to elaborate on that point (and perhaps I’ll get around to writing it), but in the meantime I have been captivated by several intertwined Twitter threads – triggered by the recent scandal over the deplorable, abusive and sexist putdowns that infest so many of the interactions on the now infamous Economics Job Market Rumors website – about the historical role of the economics workshops in fostering a culture of rudeness in academic economic interactions and whether such rudeness has discouraged young women entering the economics profession.

Rather than run through the Twitter threads here I will just focus on an excellent post by Carolyn Sissoko who recognizes the value of the aggressive debating fostered by the Chicago workshops in honing the critical skills that young economists need to be make real contributions to the advancement of knowledge. The truth is that being overly kind and solicitous toward the feelings of a scientific researcher doesn’t do the researcher a favor nor does it promote the advancement of science, or, for that matter, of any intellectual discipline. The only way that knowledge really advances is by rooting out error, not an easy task, and critical skills — the skills to tease out the implications of an argument and to check its consistency with other propositions that we believe or that seem reasonable, or with the empirical facts that we already know or that might be able to discover – are essential to performing the task well.

I think Carolyn was aiming at a similar point in her blogpost. Here’s how she puts it:

Claudia Sahm writes about ” the toll that our profession’s aggressive, status-obsessed culture can take” and references specific dismissive criticism that is particularly content-free and therefore non-constructive. Matthew Kahn follows up with some ideas about improving mutual respect noting that “researchers are very tough on each other in public seminars (the “Chicago seminar” style).” This is followed up by prominent economists’ tweets about economics’ hyper-aggressiveness and rudeness.

I think it’s important to distinguish between the consequences of “status-obsession,” dismissiveness of women’s work and an “aggressive” seminar-style.

First, a properly run “Chicago-style” seminar requires senior economists who set the right tone. The most harshly criticized economists are senior colleagues and the point is that the resultant debate about the nature of economic knowledge is instructive and constructive for all. Yes, everyone is criticized, but students have been shown many techniques for responding to criticism by the time they are presenting. Crucial is the focus on advancing economic knowledge and an emphasis on argument rather than “status-obsession”.

The simple fact is that “Chicago-style” seminars when they are conducted by “status-obsessed” economists are likely to go catastrophically wrong. One cannot mix a kiss up-kick down culture with a “Chicago-style” seminar. They are like oil and water.

Carolyn is totally right to stress the importance of debate and criticism, and she is equally right to point out the need for the right kind of balance in the workshop environment so that criticism and debate are focused on ideas and concepts and evidence, and not on social advancement for oneself by trying to look good at someone else’s expense and even more so not to use an unavoidably adversarial social situation as an opportunity to make someone look bad or foolish. And the responsibility for setting the right tone is necessarily the responsibility of the leader(s) of the workshop.

In a tweet responding to Carolyn’s post, Beatrice Cherrier quoted an excerpt from a 2007 paper by Ross Emmett about the origins of the Chicago workshops which grew out of the somewhat contentious environment at Chicago where the Cowles Commission was housed in the 1940s and early 1950s before moving to Yale. The first formal workshop at Chicago – the money workshop – was introduced by Milton Friedman in the early 1950s when he took over responsibility for teaching the graduate course in monetary theory. However, Emmett, who draws on extensive interviews with former Chicago graduate students, singles out the Industrial Organization workshop presided over by George Stigler, a pricklier character than Friedman, and the Law and Economics workshop in the Law School as “the most notorious, and [having given] Chicago workshops a reputation for chewing up visitors.” But Emmett notes that “most workshop debate was intense without being insulting.”

That characterization brought to mind the encounter at the money workshop at Chicago in the early 1970s between Milton Friedman and a young assistant professor recently arrived at Chicago by the name of Fischer Black. The incident is recounted in chapter six (“The Money Wars) of Perry Mehrling’s wonderful biography of Black (Fischer Black and the Revolutionary Idea of Finance). Here is how Mehrling describes the encounter.

Friedman’s Workshop in Money and Banking was the most famous workshop at Chicago, and special rules applied. You had to have Friedman’s permission to attend, and one of the requirements for attendance was to offer work of your own for discussion by the other members of the workshop. Furthermore, in Friedman’s workshop presentation was limited to just a few minutes at the beginning. Everyone was expected to have read the paper already, and to have come prepared to discuss it. Friedman himself always led off the discussion, framing the issues that he thought most needed attention.

Into the lion’s den went Fischer, with the very paper that Friedman had dismissed as fallacious (Fisher arguing that inflationary overissue of money by banks is impossible because of the law of reflux). Jim Lorie recalls, “It was like an infidel going to St. Peter’s and announcing that all this stuff about Jesus was wrong.” Friedman led off the discussion: “Fisher Black will be presenting his paper today on money in a two-sector model. We all know that the paper is wrong. We have two hours to work out why it is wrong.” And so it began. But after two hours of defending the indefensible, Fischer emerged bloodied but unbowed. As one participant remembers, the final score was Fisher Black 10, Monetary Workshop 0.

And the next week, Fischer was back again, now forcing others to defend themselves against his own criticisms. If it was a theoretical paper, he would point out the profit opportunity implied for anyone who understood the model. If it was an empirical paper, he would point out how the correlations were consistent with his own theory as well as the quantity theory. “But, Fischer, there is a ton of evidence that money causes prices!” Friedman would insist. “Name one piece,” Fischer would respond. The fact that the measured money supply moves in tandem with  nominal income and the price level could mean that an increase in money causes prices to rise, as Friedman insisted, but it could also mean that  an increase in prices causes the quantity of money to rise, as Fischer thought more reasonable. Empirical evidence could not decide the issue. (pp. 159-60)

So here was a case in which Friedman, the senior economist responsible for the seminar engaged in some blatant intimidation tactics against a junior colleague with whom he happened to disagree on a fundamental theoretical point. Against most junior colleagues, and almost all graduate students, such tactics would likely have succeeded in cowing the insubordinate upstart. But Fischer Black, who relished the maverick role, was not one to be intimidated. The question is what lesson did graduate students take away from the Friedman/Black encounter. That you could survive a battle with Friedman, or that, if you dissented from orthodoxy, Friedman would try to crush you?

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5 Responses to “Milton Friedman and the Chicago School of Debating”


  1. 1 JKH September 12, 2017 at 6:07 am

    “It could also mean that an increase in prices causes the quantity of money to rise, as Fischer thought more reasonable”

    Very interesting how frequently the theme question of backwards thinking arises in economics – I wonder what that means in totality? I’d like to think that Black would have called out Friedman on the money multiplier as well – sounds like he had the common sense to do so.

  2. 2 Spencer Hall September 14, 2017 at 11:27 am

    “Friedman’s failure to understand that there is both a purchase price of money – roughly corresponding to the inverse of the price level – and a rental price of money – roughly corresponding, but not necessarily equal, to the rate of interest”

    Friedman was “dimensionally confused” (in stock vs. flow). Interest is the price of loan-funds, the price of interest is the reciprocal of the price level. I.e., money flowing to the non-banks increases the supply of loan-funds, but not the supply of money. The remuneration of IBDDs reverses the savings-investment process. I.e., Bankrupt u Bernanke was solely responsible for the GFC.

    From Carol A. Ledenham’s Hoover Institution archives, Milton Friedman pontificated that: “I would (a) eliminate all restrictions on interest payments on deposits, (b) make reserve requirements the same for time and demand deposits”. Dec. 16, 1959.

  3. 3 Spencer Hall September 17, 2017 at 6:45 am

    Chicago had a tradition: As Chicago Professor Jacob Viner said: “you don’t belong in this class”.

  4. 4 Egmont Kakarot-Handtke September 22, 2017 at 7:00 am

    Forget Friedman, forget the Quantity Theory
    Comment on David Glasner on ‘Milton Friedman and the Chicago School of Debating’

    In economics, there are two starting points, microfoundations and macrofoundations. Both are provably false. Orthodoxy went micro: “… most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point” (Krugman). Keynes went macro: “Income = value of output = consumption + investment. Saving = income – consumption. Therefore saving = investment.” (GT, p. 63)

    Because both the axiomatic foundations of Walrasianism and Keynesianism are provably false their analytical superstructures are also false. This means, inter alia, that profit theory, price theory, employment theory, and money theory are false. Friedman never realized the necessity of a paradigm shift but remained faithful to a paradigm that had, strictly speaking, already been dead in the cradle 100+ years ago. As spokesperson for Monetarism he incarnated the central tenet “that money causes prices”.

    Because economics is a failed science it has to undergo a paradigm shift. Economic analysis has to be based on entirely new macrofoundations and the fundamental questions have to be put again at the top of the agenda.

    Economics has to be reconstructed from scratch. As new analytical starting point, the pure consumption economy is defined with this set of macro axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

    Under the conditions of market clearing X=O and budget balancing C=Yw in each period the price is given by P=W/R, i.e. the market clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand. For the graphical representation see Figure 1.#1

    The price is determined by the wage rate, which takes the role of the nominal numéraire, and the productivity. The quantity of money is NOT among the price determinants. This puts Friedman’s Quantity Theory to rest.

    Monetary profit for the economy as a whole is defined as Qm≡C-Yw and monetary saving as Sm≡Yw-C. It always holds Qm+Sm=0, in other words, the business sector’s deficit=loss (surplus=profit) equals the household sector’s surplus=saving (deficit=dissaving). This is the most elementary form of the Profit Law. Under the condition of budget balancing total monetary profit is zero.

    What is needed for a start is two things (i) a central bank which creates money on its balance sheet in the form of deposits, and (ii), a legal system which declares the central bank’s deposits as legal tender.

    See part 2

  5. 5 David Glasner October 25, 2017 at 11:13 am

    JKH, I can’t give you a citation, but I have no doubt that Black did criticize the money multiplier.

    Spencer, Viner seems to have been exceptionally hard on his students, but that was his teaching style. My impression is that Friedman was generally fairly pleasant to his students (Black was a junior colleague not a student) but he would quiz them relentlessly which made it difficult for students with differing opinions to maintain their positions without risking humiliation.


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About Me

David Glasner
Washington, DC

I am an economist in the Washington DC area. My research and writing has been mostly on monetary economics and policy and the history of economics. In my book Free Banking and Monetary Reform, I argued for a non-Monetarist non-Keynesian approach to monetary policy, based on a theory of a competitive supply of money. Over the years, I have become increasingly impressed by the similarities between my approach and that of R. G. Hawtrey and hope to bring Hawtrey's unduly neglected contributions to the attention of a wider audience.

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