Henry Simons
and the Chicago School of Economics
Douglas Irwin
Dartmouth College
• “the Crown Prince of that hypothetical
kingdom, the Chicago School of Economics”
– George Stigler
Simons most famous for
Positive Program for Laissez Faire
1. Promote competitive (not free) markets
2. Monetary stability through rules
3. Tax policy to reduce inequality
4. Free trade
5. Limit advertising
Problems of the 1930s
Simons says
• Competitive markets
– Suspicious of concentrated power, want decentralization
– Aggressive antitrust policy, eliminate monopolies
– Oppose government restrictions on competition
• Monetary stability
– 100% money
– Price-level rule
• Main point: if you can ensure economic stability through sound
monetary policy, the competitive market system will work well
• Point comes from 1930s, but message resonates beyond 1930s
Friedman’s 1967 Simons lecture
Stigler’s 1958 Simons Lecture
Stigler
• Early research questions:
– Extent and Basis of Monopoly (AER, 1942)
• “the major factor in the decline of competition has been governmental
support of monopoly”
– “The Case against Big Business” Fortune (1955)
– Favored Sherman Antitrust Act and merger restrictions
– Questioned benefits of public regulation
• 1961: “I believe the increasing public hostility toward both big
business and big unions is not justified by any increases in their
power. The amount of power possessed by a big business or a big
union is usually very small, so that even with the worst will in the
world . . . do only a very modest amount of damage to the
community.”
• “I find his monetary
theory sophisticated and
modern, but his policy
recommendations
unacceptable.”
– Milton Friedman (1967)
• “I am no longer a faithful
follower, although I am
still an admirer, of Frank
Knight and Henry Simons”
– George Stigler (1985)