From Choice to Welfare: The Concept of the Consumer in the Chicago School of Economics

Olsen, Niklas

doi:10.1007/978-3-319-89584-0_4

Niklas Olsen⁴

Part of the book series: Consumption and Public Life ((CUCO))

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Abstract

This chapter provides a fresh perspective on the so-called Chicago School of Economics by exploring the function of the figure of the consumer in writings on deregulation authored by members of this school from the 1930s to the 1980s. The chapter argues that the Chicago School’s turn toward deregulation in the post-war period was made possible by the new figure of the “efficient consumer,” a figure positioned at the center of ideational structures established by later manifestations of the Chicago School in the 1970s and 1980s. This figure, so the chapter contends, was merged with the sovereign consumer, and it has been instrumental in the recent transformation of our political paradigm, which has subordinated traditional democratic values to the pursuit of narrow economic ideals.

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Notes

1.
See first of all Robert Van Horn, Phillip Mirowski , and Thomas A. Stapleford, eds., Building Chicago Economics: New Perspectives on the History of America’s Most Powerful Economics Program (Cambridge: Cambridge University Press, 2011); Ross B. Emmett, ed., The Elgar Companion to the Chicago School of Economics (Cheltenham: Edward Elgar, 2010); Johan Van Overtfeldt, The Chicago School: How the University of Chicago Assembled the Thinkers Who Revolutionized Economics and Business (Chicago: Agate 2007); Robert Leeson, The Eclipse of Keynesianism: The Political Economy of the Chicago Counter-Revolution (Basingstoke: Palgrave, 2000) and the relevant chapters in William Davies, The Limits of Neoliberalism: Authority, Sovereignty and the Logic of Competition (London: Sage, 2014); Angus Burgin, The Great Persuasion: Reinventing Free Markets since the Depression (Cambridge, MA: Harvard University Press, 2012); Christopher Payne, The Consumer, Credit and Neoliberalism: Governing the Modern Economy (New York: Routledge, 2012); Colin Crouch, The Strange Non-Death of Neoliberalism (Cambridge: Polity Press, 2011); Jamie Peck, Constructions of Neoliberal Reason (Oxford: Oxford University Press, 2010); Phillip Mirowski and Dieter Plehwe, eds., The Road from Mont Pelerin: The Making of the Neoliberal Thought Collective (Cambridge: Cambridge University Press 2009); Eduardo F. Canedo, The Rise of the Deregulation Movement in Modern America, 1957–1980 (PhD diss., Columbia University, 2008).
2.
For an early attempt to define the Chicago School with reference to some of the scholars mentioned above and their advocacy of free markets and limited government, see H. Laurence Miller, Jr., “On the ‘Chicago School of Economics’,” Journal of Political Economy 70, 1 (1962): 64–69. Since the 1970s, the terms “Chicago School of Economics,” “Chicago School of Law and Economics,” and “Chicago School” have been used interchangeably. For recent discussions of the challenges involved in defining the term, see Roger E. Backhouse, “Book Review: The Elgar Companion to the Chicago School of Economics / Building Chicago Economics: New Perspectives on the History of America’s Most Powerful Economics Program,” History of Political Economy 45, 2 (2013): 345–349 and Steven G. Medema, “Identifying a ‘Chicago School’ of Economics: On the Origins, Diffusion, and Evolving Meanings of a Famous Brand Name,” https://bfi.uchicago.edu/sites/default/files/research/Medema_Identifying_a__Chicago_School_-Sept_2015.pdf, accessed 10 December 2017.
3.
See also Edward Nik-Khah and Robert Van Horn, “The Ascendancy of Chicago Neoliberalism,” in The Routledge Handbook of Neoliberalism, eds., Simon Springer, Kean Birch, and Julie MacLeavy (New York: Routledge, 2016), 13–24.
4.
Besides Henry Simons , who died shortly before the Mont Pèlerin Society was founded, only Jacob Viner and Robert H . Bork, among the above-mentioned Chicago School Scholars, were not members.
5.
Robert Van Horn, “Jacob Viner’s Critique of Chicago Neoliberalism,” in Building Chicago Economics: New Perspectives on the History of America’s Most Powerful Economics Program, eds., Robert Van Horn, Phillip Mirowski , and Thomas A. Stapleford (Cambridge: Cambridge University Press, 2011) 279–300; Robert Van Horn, “Reinventing Monopoly and the Role of Corporations: The Roots of Chicago Law and Economics,” in The Road from Mont Pelerin: The Making of the Neoliberal Thought Collective, eds., Phillip Mirowski and Dieter Plehwe (Cambridge: Cambridge University Press 2009), 204–237; Robert Van Horn and Phillip Mirowski , “The Rise of the Chicago School of Economics and the Birth of Neoliberalism,” in The Road from Mont Pelerin: The Making of the Neoliberal Thought Collective, eds., Phillip Mirowski and Dieter Plehwe (Cambridge: Cambridge University Press 2009), 139–180.
6.
In his account of how ideas of the so-called sovereign consumer emerged in economic thought in the first half of the twentieth century and manifested in British economic–political discourse in the 1960s, Payne , The Consumer cites Chicago School scholars at certain junctures but does not provide a detailed analysis of their work.
7.
See Canedo, The Rise of the Deregulation Movement, which describes how Chicago School scholars formed part of a larger American deregulation movement that mobilized from the 1950s onwards.
8.
Several contributions to the research field have tended to focus primarily on Friedman , arguing that he was the key figure for the development of the later Chicago School (and for the revival of American free market thought since the 1960s more generally). One recent example is Burgin , The Great Persuasion. For critiques of Burgin’s strong focus on Friedman , see Timothy Shenk, “The Long Shadow of Mont Pèlerin,” Dissent (Fall 2013) and Joshua Rathz, “Laissez-Faire’s Reinventions,” New Left Review 89 (2014): 137–146. In reaction, in portraying the main discursive features, the unifying patterns, and the divergent aspects of the Chicago School’s deregulation discourse, the analysis that follows takes into account a plurality of actors.
9.
Tony Freyer, Regulating Big Business: Antitrust in Great Britain and America, 1880–1990 (Cambridge: Cambridge University Press, 1992); Martin J. Sklar, The Corporate Construction of American Capitalism, 1890–1916: The Market, the Law, and Politics (Cambridge: Cambridge University Press, 1988); Thomas E. McCraw, Prophets of Regulation: Charles Francis Adams, Louis D. Brandeis, James M. Landis, and Alfred E. Kahn (Cambridge, MA: Harvard University Press, 1984).
10.
What follows is based on Lizabeth Cohen, A Consumers’ Republic: The Politics of Mass Consumption in Postwar America (New York: Random House, 2003), 17–61. Here, the term “sovereign consumer” replaces what Cohen labels “the business view of consumers,” a perspective defined mainly through attempts by business to counter the “citizen consumer” ideal.
11.
For the emerging figure of the sovereign consumer in the interwar period, see Chap. 2.
12.
Mary S. Morgan and Malcolm Rutherford, “The Character of the Transformation,” in From Interwar Pluralism to Postwar Neoclassicism, eds., Mary S. Morgan and Malcolm Rutherford (Durham, NC: Duke University Press, 1998), 1–28.
13.
For accounts of the Chicago School in the interwar period, see the references in note 1.
14.
Henry C. Simons, “A Positive Program for Laissez-faire: Some proposals for a Liberal Economic Policy [1934],” in Henry C. Simons, Economic Policy for a Free Society (Chicago: The University of Chicago Press, 1948), 40–77. For an introduction to Simons and to the essay at issue, see Sherryl D. Kasper, “Henry C. Simons,” in The Elgar Companion to the Chicago School of Economics, ed., Ross B. Emmett (Cheltenham: Edward Elgar, 2010), 331–336. Neither Knight nor Viner wrote a text, which, like “A Positive Program for Laissez-faire,” outlined political visions of how modern society and its economy should be organized. For how both these scholars sought to separate scientific analysis and political visions in their work, see Burgin, The Great Persuasion, 167.
15.
See the description of the emergence of neoliberalism in Chap. 2.
16.
Simons, “A Positive Program,” 43.
17.
Simons, “A Positive Program,” 47.
18.
Simons, “A Positive Program,” 50.
19.
Simons, “A Positive Program,” 71.
20.
Simons, “A Positive Program,” 58 and 57.
21.
Simons, “A Positive Program,” 73.
22.
Simons, “A Positive Program,” 73.
23.
Van Horn, “Jacob Viner’s Critique”; Van Horn, “Reinventing Monopoly.”
24.
Cited from Van Horn, “Jacob Viner’s Critique,” 281 note 6.
25.
Frank H. Knight, “The Ethics of Competition,” Quarterly Journal of Economics 37, 4 (1923): 579–624, at 590. For Knight’s skeptical position on all issues related to economics and society, see Angus Burgin, “The Radical Conservatism of Frank Knight,” Modern Intellectual History 6, 3 (2009): 513–538.
26.
Aaron Director, “foreword,” in Henry C. Simons, Economic Policy for a Free Society (Chicago: The University of Chicago Press, 1948), v–vii at v.
27.
Canedo, The Rise of the Deregulation Movement, 1–2.
28.
Canedo, The Rise of the Deregulation Movement, 134–156.
29.
Daniel Horowitz, Vance Packard and American Social Criticism (Chapel Hill: The University of North Carolina Press 1994) and The Anxieties of Affluence: Critiques of American Consumer Culture, 1939–1979 (Amherst: University of Massachusetts Press, 2004).
30.
Neoclassicism is a widely contested concept, which has been assigned a plurality of meanings. See Tony Lawson, “What Is This ‘School’ Called Neoclassical Economics?,” Cambridge Journal of Economics 37, 5 (2013): 947–983. My definition of neoclassicism follows Morgan and Rutherford, “The Character of the Transformation.” See also Roger E. Backhouse, “Economics,” in The History of the Social Sciences since 1945, eds., Roger E. Backhouse and Philippe Fontaine (Cambridge: Cambridge University Press, 2010), 38–70, which likewise argues that the American economics profession underwent a change from pluralism to neoclassicism in the post-war period, but it provides a more comprehensive and detailed account that also illuminates disciplinary developments in other countries.
31.
For how this figure was born during the marginal revolution in the late nineteenth century, see Chap. 2.
32.
Friedman and Stigler acted as Presidents for the society from 1970 to 1972 and from 1976 to 1978, respectively. For accounts of the institutional roles played by Friedman and Stigler at Chicago and in the Mont Pèlerin Society, see Burgin, The Great Persuasion, 152–185, and Edward Nik-Khah, “George Stigler, the Graduate School of Business, and the Pillars of the Chicago School,” in Building Chicago Economics: New Perspectives on the History of America’s Most Powerful Economics Program, eds., Robert Van Horn, Phillip Mirowski , and Thomas A. Stapleford (Cambridge: Cambridge University Press, 2011), 116–150.
33.
Van Horn , “Reinventing Monopoly”; Van Horn, “Jacob Viner’s Critique”; Van Horn and Mirowski, “The Rise of the Chicago School.”
34.
Even if Ralph Nader later emerged as an advocate for deregulation, Chicago School scholars continued to consider him an opponent. See Canedo, The Rise of the Deregulation Movement, 134–156.
35.
Milton Friedman, Capitalism and Freedom (Chicago: The University of Chicago Press, 1962); Milton Friedman and Rose Friedman, Free to Choose: A Personal Statement (Harmondsworth: Penguin, 1980).
36.
Friedman, Capitalism and Freedom, 14–15.
37.
Friedman, Capitalism and Freedom, 91.
38.
Friedman, Capitalism and Freedom, 197.
39.
Friedman and Friedman, Free to Choose, 227.
40.
Friedman, Capitalism and Democracy, 120. See also Van Horn, “Jacob Viner’s Critique,” 295–297.
41.
Friedman and Friedman, Free to Choose, 264.
42.
Milton Friedman and Rose Friedman, Tyranny of the Status Quo (New York and London: Hartcourt Brace Jovanovich), 1970, 66.
43.
See also Burgin, The Great Persuasion, 156.
44.
For perspectives on the contemporary connections made between liberal democracy, the discourse of choice, and the Cold War, see Hunter Heyck, “Producing Reason,” in Cold War Social Science: Knowledge Production, Liberal Democracy, and Human Nature, eds., Mark Solovey and Hamilton Cravens (Basingstoke: Palgrave, 2012), 99–116, and Sonja M. Amadea, Rationalizing Capitalist Democracy: The Cold War Origins of Rational Choice Liberalism (Chicago: The University of Chicago Press, 2003).
45.
George Stigler, The Citizen and the State: Essays on Regulation (Chicago: The University of Chicago Press, 1975). For a detailed account of Stigler’s views on deregulation, see Canedo, The Rise of the Deregulation Movement, 98–133.
46.
See the video footage “Can Regulatory Agencies Protect the Consumer?,” http://sechistorical.org/museum/film-radio-television/videoplayer.php?vid=1400835813001&title=%22Can%20Regulatory%20Agencies%20Protect%20the%20Consumer?%22 (1971, accessed 10 December 2017).
47.
George Stigler, “Can Regulatory Agencies Protect the Consumer?,” George Stigler, The Citizen and the State: Essays on Regulation (Chicago: The University of Chicago Press, 1975), 178–188, at 181.
48.
Steven G. Medema, “Chicago Price Theory and Chicago Law and Economics: A Tale of Two Transitions,” in Building Chicago Economics: New Perspectives on the History of America’s Most Powerful Economics Program, eds., Robert Van Horn, Phillip Mirowski , and Thomas A. Stapleford (Cambridge: Cambridge University Press, 2011), 151–179.
49.
George Stigler, “The Theory of Economic Regulation,” in George Stigler, The Citizen and the State: Essays on Regulation (Chicago: The University of Chicago Press, 1975), 114–141.
50.
Nik-Khah, “George Stigler.”
51.
This also applies to Friedman’s more scientific work, which was not grounded in any underlying theory of human behavior. See Medema, “Chicago Price Theory.”
52.
Cited from Burgin, The Great Persuasion, 193, on which my account of Friedman’s attitude to consumers draws.
53.
George Stigler, “Public Regulation of the Securities Market,” in George Stigler, The Citizen and the State: Essays on Regulation (Chicago: The University of Chicago Press, 1975), 78–102, at 88.
54.
Lionel Robbins, An Essay on the Nature and Significance of Economic Science (London: Macmillan, 1933). For an account of the reception of Robbins’ essay in the discipline, see Roger E. Backhouse and Steven G. Medema, “Defying Economics: The Long Road to Acceptance of the Robbins Definition,” Economica 76, 1 (2009): 805–820. For an account of the disciplinary discussions of welfare economics taking place in the wake of Robbins’ essay, see Amadae, Rationalizing Capitalist Democracy, 88–102.
55.
We will elaborate on these contexts in the following chapter.
56.
George Stigler, The Theory of Price (New York: Macmillan, 1942). See also Backhouse and Medema, “Defying Economics,” 811.
57.
Nik-Khah, “George Stigler,” 140–141, and Canedo, The Rise of the Deregulation Movement, 110–111.
58.
Edward Nik-Khah, “What Is ‘Freedom’ in the Marketplace of Ideas?,” in Neoliberalism and the Crisis of Public Institutions. Working Papers in the Human Rights and Public Life Program, Whitlam Institute within Western Sydney University, ed., Anna Yeatman, 2 (2015), 56–69.
59.
Stigler also outlined an approach that portrayed advertising (which Simons had criticized for manipulating consumer wants) as an “extremely efficient method” of conveying information to the consumer. This approach was linked to the argument that consumers do not organize politically because the costs compared to the benefits of doing so are high. Nik-Khah, “George Stigler,” 127 and Canedo, The Rise of the Deregulation Movement, 105–106.
60.
Edmund W. Kitch, “The Fire of Truth: A Remembrance of Law and Economics at Chicago, 1932–1970,” Journal of Law and Economics 66, 1 (1983): 163–234, at 178.
61.
Burgin, The Great Persuasion, 152–213; Nik-Khah and Van Horn, “The Ascendancy of Chicago Neoliberalism.”
62.
Canedo, The Rise of the Deregulation Movement; Matthew Hilton, Prosperity for All: Consumer Activism in an Era of Globalization (Ithaca: Cornell University Press, 2009), 152–184; Lawrence Glickman, Buying Power: A History of Consumer Activism in Post-War America (Chicago: The University of Chicago Press, 2009), 275–302.
63.
Cohen, A Consumers’ Republic, 397.
64.
Noel Thompson, Social Opulence and Private Restraint: The Consumer in British Socialist Thought since 1800 (Oxford: Oxford University Press, 2015) and Daniel Horowitz, Consuming Pleasures: Intellectuals and Popular Culture in the Postwar World (Philadelphia: University of Pennsylvania Press, 2012).
65.
On the convergence in the societal–political thinking on the left and right wing in this period, see Daniel T. Rodgers, The Age of Fracture (Cambridge, MA: Harvard University Press, 2011).
66.
Canedo, The Deregulation Movement, 98–132.
67.
Rodgers, The Age of Fracture, 41–66; Backhouse, “Economics.”
68.
Edward Nik-Khah and Robert Van Horn, “Inland Empire: Economics Imperialism as an Imperative of Chicago Neoliberalism,” Journal of Economic Methodology 19, 3 (2012): 251–274.
69.
Gary Becker, it should be added, acted as President of the Mont Pèlerin Society from 1990 to 1992.
70.
Robert T. Michael and Gary Becker, “On the New Theory of Consumer Behavior,” The Swedish Journal of Economics 75, 4 (1973), 378–96.
71.
For an account of Director’s life and work, see Robert Van Horn, “Aaron Director,” in The Elgar Companion to the Chicago School of Economics, ed., Ross B. Emmett (Cheltenham: Edward Elgar, 2010), 265–269.
72.
See also Kitch, “The Fire of Truth.”
73.
Steven G. Medema, “Chicago Law and Economics,” in The Elgar Companion to the Chicago School of Economics, ed., Ross B. Emmett (Cheltenham: Edward Elgar, 2010), 160–164. For an account of the American law and economics movement that arose from the 1960s onwards, see Steven Teles, The Rise of the Conservative Law and Economics Movement: The Battle for Control of the Law (Princeton, NJ: Princeton University Press, 2008).
74.
Van Horn, “Reinventing Monopoly” and Van Horn, “Jacob Viner’s Critique.” In common with Friedman and Stigler , Director was critical of monopolies until the early 1950s.
75.
For how Director prioritized the efficiency of the competitive order over what he regarded as inherently irrational and disputatious democratic action, see Robert Van Horn and Ross B. Emmett, “Two Trajectories of Democratic Capitalism in the Postwar Chicago School: Frank Knight Versus Aaron Director,” Cambridge Journal of Economics 39, 5 (2015): 1443–1455.
76.
Kitch, “The Fire of Truth,” 83.
77.
Posner had served as judge of the Court from 1981 to 1993.
78.
The literature (authored by legal scholars) on Bork’s writings on consumer welfare is extensive. For some appraisals, ranging from high praise to fierce criticism, see Kenneth Heyer, “Consumer Welfare and the Legacy of Robert Bork,” Journal of Law and Economics 57, 3 (2014): 19–32; Herbert J. Hovenkamp, Federal Antitrust Policy: The Law of Competition and Its Practice, 4th ed. (West: St. Paul, 2011); Barak Y. Orbach, “The Antitrust Consumer Welfare Paradox,” Journal of Competition Law & Economics 7, 1 (2010): 133–164; and George L. Priest, “The Abiding Influence of The Antitrust Paradox: An Essay in the Honor of Robert H. Bork,” Faculty Scholarship Series. Yale Law School 643 (2008): 455–463. See also Davies, The Limits of Neoliberalism and Crouch, The Strange Non-Death.
79.
Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself (New York: Basic Books, 1978), 7.
80.
Bork, The Antitrust Paradox, 90.
81.
Bork, The Antitrust Paradox, 90.
82.
Bork, The Antitrust Paradox, 91 and 90.
83.
See also Crouch, The Strange Non-Death, 55–57.
84.
See also the discussion of the normative implications of The Antitrust Paradox in Davies, The Limits of Neoliberalism, 70–107.
85.
Bork, The Antitrust Paradox, 116.
86.
Bork, The Antitrust Paradox, ix.
87.
Bork, The Antitrust Paradox, 69.
88.
See the references in note 77.
89.
See the excellent analysis in Payne , The Consumer, to which we will return in Chap. 7.

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SAXO-Institute, University of Copenhagen, Copenhagen, Denmark
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Olsen, N. (2019). From Choice to Welfare: The Concept of the Consumer in the Chicago School of Economics. In: The Sovereign Consumer. Consumption and Public Life. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-89584-0_4

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DOI: https://doi.org/10.1007/978-3-319-89584-0_4
Published: 26 August 2018
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