Justin Fox has written a thoughtful post on the Chicago School.

I did consider discussing the pre-1950s Chicago economics tradition personified by Knight and Viner, but finally decided that I’d gone on long enough already. If I had written more I would have said that the Chicago economics department was distinguished by a free-market bent and a distrust of theories that were fashionable elsewhere long before Milton Friedman returned to campus in 1946 (he’d been a graduate student at Chicago in the early 1930s, although he completed his doctorate at Columbia). But it wasn’t a school (or, really, a movement) in the way it became at some point in the 1950s. It had been home to Knight and Viner, but also to critic-of-capitalism Thorstein Veblen and liberal U.S. Senator Paul Douglas. It produced Friedman and George Stigler and Aaron Director, but it also produced Paul Samuelson and Wesley Mitchell. It was, as I described today’s Chicago econ department in my previous post, “just another (excellent) economics department,” not a major political force.

My short post on the same subject was more of a raised eyebrow than anything else, and Fox’s response is very welcome. I tend to think that economics-watchers overemphasize ideological distinctions at the expense of methodological distinctions. Some of my favorite thinkers, like Edmund Phelps, Amar Bhidé, and John Kay, are distinguished not so much by their politics as by their framework for understanding uncertainty. Knight is often seen as an archconservative, yet his conception of uncertainty (“Knightian uncertainty,” appropriately enough) has more resonances with Keynes than with, say, Milton Friedman. Yet Bhidé, who considers himself a partisan of the Knight-Keynes view, has been badly mischaracterized as a reflexive right-winger because he’s raised objections to the “Keynesian” approach to economic stimulus. Someone who is looking for ideological deviationism — Fox doesn’t seem to be one of these bloggers — will tend to overlook these “subtleties,” which are in fact central to understanding what the heck is going on.

Fox’s narrative allows for this, of course. Chicago was a home for heterodox thinking, it coalesced or congealed into a school or movement, and those days are now over. That strikes me as a fair characterization. I’d also argue, however, that the school or movement always involved minor and major disagreements over the methodological questions, albeit more muted than in the Knight-Viner era.

As for Cochrane, I will happily agree to disagree. My sense is that EMH has taken on a totemic significance that it doesn’t really deserve. It is a device designed to clarify our understanding of the world, like the model of a frictionless universe. One can point out that friction exists, but this doesn’t really “prove” that EMH is “wrong.” As a friend noted, the Cassidy article sets up this universe in which some people cling to an false framework and others, like a celebrated federal judge and intellectual celebrity, understand that the framework is false. But every other testable theory has also been falsified. If everyone is “wrong,” clearly we need another yardstick, like who is giving us the most useful model of the universe? And there you can have a real debate. It’s not clear to me that we’ve seen any really robust alternatives to EMH or RET.