Chicago School of Thought

 

CHICAGO SCHOOL OF THOUGHT  

The basic tenets are that: 1. Ma Marke rkets ts alloc allocate ate reso resourc urces es more more eff effici icient ently ly than than any any gover governm nment ent 2. Moneta tarrist beliefs - contending that the money supply should be kept in equilibrium with the demand for money. 3. shouldfocus on maintaining a minimun intervention by steady Governments shouldfocus and low rate of growth of money supply   

 

Economic agents make raonal decisions decisions in which they they take advantage o off all the avail available able informaon to make the best choice possible.

  They They su supp ppor ortt monetary policies when required by the economic environment, as they assume these to be more reliable and eecve than fiscal policies.  

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The State not only cannot contribute contribute to improving all all the problems of individuals, but it can also contribute to generang problems for individuals. The role role of governments should should be focused on promong the long-term growth of the economy, for which it would be posive to reduce the role of the State in the economy.  

Chicago school economists are convinced that the market economy is inherently stable and that shocks (such as depressions or economic crises) result from inadequate state intervenon.   In eect, Milton Friedman, one of its main representaves, maintained that what triggered the great depression of the 1930s was not a lack of investment, as Keynes claimed, but a contracon in the money supply.  

The Chicago school considered considered that state intervenon generated ineciency growth. Given the above, they proposed a series of measures in favor of the free market, highlighng the following:     Deregulaon: Eliminate or reduce the regulaons regulaons / restricons imp imposed osed on the economi economicc acvity of private agents.   Privazaon: Transfer or sell state state property to private private pares. The la laer er would be more prepared to carry out an ecient administraon of resources.   Concessions: Carry out out concession contracts for for private agents to administer state assets or structures.   Eliminaon of subsidies subsidies and other ai aid: d: because because these may in interfere terfere with the free compeon of companies.   Reduce bureaucracy: and make more ecient the state apparatus. 

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  Applicaon of theories of the Chicago School

 

  Theories of the Chicago school became dicult to apply in democrac environments where workers and employers strongly opposed that the aid (subsidies, benets, minimum protecon, etc.) given to them be reduced or eliminated.   Given the above, many of the policies were applied in countries with dictatorships, as was the case of Chile with the government of Augusto Pinochet.   However the theories of the Chicago School are behind many of the policies of the World Bank and the Internaonal Monetary Fund; instuons characterized by their support for the so-called Washington Consensus. Apart of internaonal instuons, many countries also began to take this economic posion into account beginning in the 1980s, the 1990s being the period of greatest boom in his theories in much of the world.  

the relaonship between the quanty of money and inaon, that is to say, that the price system uctuates in relaon to the shortage of money, this means that the more money there is available the individuals have the greater purchasing power and, therefore, the prices tend to go up (inaon)