Inland empire: economics imperialism as an imperative of Chicago neoliberalism

Abstract

Recent work such as Steven Levitt's Freakonomics has prompted economic methodologists to reevaluate the state of relations between economics and its neighboring disciplines. Although this emerging literature on ‘economics imperialism’ has its merits, the positions advanced within it have been remarkably divergent: some have argued that economics imperialism is a fiction; others that it is a fact attributable to the triumph of neoclassical economics; and yet others that the era of economics imperialism is over. We believe the confusion results in part from a lack of historical understanding about the nature and aims of economics imperialists. We seek to improve historical understanding by focusing on the activities of a cadre of economists at the epicenter of economics imperialism, the University of Chicago. These activities – led, in the first instance, by Aaron Director and, in the second, by George Stigler – stemmed from the effort to forge a new liberalism or a ‘neoliberalism.’ We then consider Steven Levitt's Freakonomics in light of the insights gained from our historical study. Our analysis leads us to question each of the three positions on economics imperialism held by economic methodologists.

Keywords:

• economics imperialism
• Chicago school of economics
• neoliberalism
• Freakonomics

Acknowledgements

We would like to thank the Roanoke College Faculty Scholar Program and the Center for the Humanities at the University of Rhode Island for research support. We thank Jeff Biddle, John Davis, Ross Emmett, Jean-Baptiste Fleury, Craig Freedman, Steve Medema and Philip Mirowski for their helpful suggestions. We are especially grateful to Roger Backhouse for his detailed comments on a previous draft and to Stephen Stigler for his permission to access the George J. Stigler Papers. Archival materials from the George J. Stigler Papers and the Henry Simons Papers, Special Collections Research Center, Regenstein Library, University of Chicago are quoted with permission.

Notes

 1. Reactions to these events include Davis (2012), Fine (2002), Fine and Milonakis (2009), Frey and Benz (2004), Mäki (2009), Mäki and Marchionni (2011), and Vromen (2009). While not all of these pieces are ‘in’ economic methodology (i.e., the work of Ben Fine), all have influenced the discussion in economic methodology, a case we will make presently.

 2. Vromen (2011), for example, makes the illuminating argument that Chicago economists resorting to biological concepts were not motivated by a wish to communicate with biology.

 3. GSRL Box 19, File: Economics – The Imperial Science? Reproduced with permission from the Department of Special Collections, University of Chicago.

 4. One might include Bruno Frey as a proponent of this intermediate position: ‘The relationship between economics and psychology is characterized by a phase of economic[s] imperialism and psychological inspiration’ (Frey and Benz 2004, p. 78).

 5. More precisely, Davis's position is that ‘imperialism’ has existed, but ‘economics imperialism’ has not: ‘[P]articular episodes of economics-type imperialism associated with a particular economics research program (such as the Chicago School) cannot be labeled “economics imperialism,” since “economics” could be inhabited by other research programs uninterested in and perhaps hostile to this particular economics research program's imperialism’ (Davis 2012, p. 212).

 6. We have documented in detail the rise of Chicago neoliberalism elsewhere. See Van Horn and Mirowski (2009) and Nik-Khah (2011a).

 7. For details, see Caldwell (2007, pp. 18–23).

 8. For more details about the relationship between Simons and Hayek, see Van Horn (2009).

 9. Simons, for example, referred to the Study as the ‘Hayek Project’ (SPRL, September 4, 1945, Box 8, File 9). For biographical information on Director, see Van Horn (2010).

10. For a detailed look at the intellectual and political relationship of Hayek and Director, see Van Horn (in press).

11. For the details of how this project finally came to fruition, see Van Horn and Mirowski (2009).

12. ‘Chicago University to Scan Free Market.’ 1946, The New York Times, November 2, p. 31. For additional evidence of the desire to exert political pressure, see TSPR, May 23, 1946, Box 39 (addenda), Folder: Free Market Study.

13. The effort to reconstitute liberalism at Chicago was one part of a transnational effort to reformulate liberalism in connection with the Mont Pelerin Society. See Van Horn and Mirowski (2009) and Nik-Khah (2011a).

14. See Van Horn (2009) for an archival based account of Director's MPS address.

15. For a detailed look at how Viner's attitude toward concentrations of power was very similar to Director's attitude at this juncture, see Van Horn (2011).

16. The remainder of paragraph is based on Stigler (1982, p. 170), and Burgin (2007).

17. VPML, letter, June 9, 1947, Viner to Hayek, Box 39, Folder: Hayek, F.

18. For a detailed look at this position shift, see Van Horn (2009) and Van Horn and Klaes (2011).

19. For more on the Antitrust Project, see Van Horn (2009) and Van Horn and Klaes (2011b).

20. See Director ([1953] 1964).

21. For example, Bork maintained that ‘[vertical mergers added] nothing to monopoly power’ (1954, p. 195), and his claim assumed that increased concentration resulting from a vertical merger was necessarily benign.

22. A tying arrangement is one form of vertical integration. Tying takes place when a seller stipulates that a buyer must purchase the ‘tied’ product in order to obtain the ‘tying’ product, the one the buyer wants. A tying arrangement is almost always imposed by the seller on the buyer. For example, if a retailer, a small business owner, runs a fishing boat business and if a manufacturer that commands monopoly in the fishing boat motor market demands that the retailer must purchase the manufacturer's motor oil in order to purchase its motors, then the manufacturer has tied its fishing motors (tying product) to its oil (tied product).

23. Hayek, as Director himself pointed out, attacked the views of a number of noneconomists in Road. In Director's words: ‘[R]eaders of The Road to Serfdom will be somewhat surprised by the selection of individual examples from among the pseudo-economists and no economists at all’ (1945, p. 175).

24. For a detailed look at the rise of Chicago law and economics, see Teles (2008).

25. For an example of this view, see Posner (1979).

26. The following two paragraphs draw from (Nik-Khah 2010).

27. Letter of Stigler to Walgreen, December 28, 1959 (GSRL Box 13, File: Walgreen Correspondence).

28. In this book, Richard Posner portrayed his own work on politics as closely related to imperialistic projects undertaken by others at Chicago: ‘With economists devoting increasing attention to the study of nonmarket activities and institutions – including the family, information and the law – the foundation is now in place for the thoroughgoing and unapologetic application of economic theory to the full range of primitive social institutions’ (p. 151).

29. Ten contributions were funded by the CSES, four through the Walgreen Foundation and three were authored or coauthored by Stigler himself.

30. All memo citations discussed in this and the following two paragraphs are taken from GSRL Box 21, File: A Research Institute in Economics.

31. ‘Professor Peltzman's study of the costs of the FDA's restriction and delay of new drugs is both pathbreaking and monumental, and I look forward confidently to the expansion of our knowledge of these costs of nonfeasance in regulation as other scholars follow his example and methods’ (Stigler 1973, pp. 14–15).

32. GSRL Box 26, File: Mont Pèlerin Society 10th Anniversary Meeting.

33. Such a justification for imperialism is proffered in (Coase 1978, p. 210). While Stigler did at times speak in the same way, he was clearly motivated by political aims.

34. Available: http://freakonomics.blogs.nytimes.com/2008/06/23/david-warsh-on-the-new-milton-friedman-institute/ (accessed 4 April 2012).

35. Available: http://www.freakonomics.com/2005/04/ode-to-gary-becker.php (accessed 19 November 2010).

36. ‘Honoring Gary Becker,’ Capital Ideas, April 2006, available: http://www.chicagobooth.edu/capideas/apr06/intro.aspx (accessed 19 November 2010).

37. The Initiative on Chicago Price Theory operates in much the same way as it did before the merger. That it would is unsurprising since the Becker Center and the Milton Friedman Institute served complementary objectives, and had interlocking directorates and overlapping memberships (Nik-Khah 2011b).

38. Available: http://research.chicagobooth.edu/pricetheory/ (accessed 4 April 2012).

39. ‘The idea for the Scholars Program grew out of Jesse Shapiro's visit to the University of Chicago in the fall of 2002, during which he participated in the Becker-Murphy price theory class. His exposure to the Chicago environment, and to price theory class in particular, gave Jesse a new perspective on economics that he took back with him to Harvard, where he finished his degree.’ See the description of the Price Theory Scholars program, available: http://research.chicagobooth.edu/pricetheory/programs/ptscholars/index.aspx (accessed 4 April 2012).

40. Levitt, quoted in Michael Fitzgerald, ‘Chicago Schooled,’ University of Chicago Magazine, Sep-Oct 2009, available: http://magazine.uchicago.edu/0910/features/chicago_schooled.shtml (accessed 19 November 2010).

41. Available: http://freakonomics.blogs.nytimes.com/2007/05/08/economists-speak-out-on-prediction-markets/ (accessed 17 May 2010).

42. Available: http://freakonomics.blogs.nytimes.com/2007/03/03/lets-just-get-rid-of-tenure/ (accessed 17 May 2010).

43. Available: http://freakonomics.blogs.nytimes.com/2010/04/05/the-recent-health-care-bill/ (accessed 7 May 2010).

44. When challenged to account for his definition of incentives, Levitt retorted: ‘for me (and I think this is the thing that makes me an economist ultimately) I just can't get away from the idea that people are active decision makers trying to get what they want in a reasonably sophisticated fashion.’ ‘Response of Steven Levitt,’ available: http://crookedtimber.org/2005/05/23/response/#more-3340 (accessed 7 May 2010).

45. Furthermore, when viewed in light of his position on experts, Levitt's discussion of incentives offers a window into how Levitt views other disciplines such as criminology and education studies. Levitt presents himself as a ‘third person … eager to explore the objective merits of interesting cases’ (Levitt and Dubner 2006, p. 13), offering an ‘honest assessment of data’ (p. 11). It is difficult to avoid the impression that Levitt believes experts in other areas to be subjective and dishonest.

46. The Greatest Good describes itself as a ‘unique firm formed with the goal of applying rigorous, cutting-edge data analysis and economic methods to the most salient problems in business and philanthropy.’ Available: http://www.greatestgood.com/ (accessed 26 November 2010).

47. Creative brief for Freakonomics consulting Group, available: http://www.crowdspring.com/project/1268769_logo-and-stationery-needed-for-new-freakonomics-project/details/ (accessed 26 November 2010).

48. In commercializing an economic expertise that is inaccessible to the public, Levitt has followed a trail blazed by game theorists in the wake of the FCC spectrum auctions (Nik-Khah 2008), but has given it a Chicago twist by stressing Chicago price theory and ‘natural experiments’ over Bayes-Nash game theory.

49. The closest Levitt comes to a general statement about his approach to incentives is, ‘People respond to incentives, although not necessarily in ways that are predictable or manifest’ (Levitt and Dubner 2009, p. xiv), a statement that seems less to provide the reader with the key to solving our problems (say, a general policy science based on understanding incentives) than to persuade the reader that the only way to solve them is to consult with an certain kind of expert.

50. We believe this message is an underappreciated reason for why some find Levitt ‘fun’: while Freakonomics and Superfreakonomics do address serious matters (education, terrorism, global warming), he then assures us that we needn't worry about them. Because it issues no call for the public to do anything at all, Freakonomics sets a different tone than previous efforts to popularize Chicago Economics, such as Capitalism and Freedom, which neither the most enthusiastic admirer nor the staunchest critic would ever think of calling ‘cute’ or ‘fun.’

51. A forthcoming paper by one of the authors (Mirowski and Nik-Khah 2012) argues that wavering between the ‘trusting markets’ and ‘trusting economists’ positions is an attribute of the contemporary economics profession.

52. ‘Imperialisms of style and standing challenge the deeper values, social status, traditions, conventions, resources and life styles of researchers whose domains or disciplines are entered by the imperialists’ (Mäki and Marchionni 2011, p. 648).