Our Legacy

A Legacy of Ideas and Impact

For decades, UChicago economists have questioned conventional wisdom, examined evidence, and produced bold, even revolutionary ideas. Rooted in theory and tested with data, these ideas gathered force and fundamentally changed economic thinking around the world.

The Becker Friedman Institute for Economics builds on this tradition, supporting innovative research and activities designed to inspire a future of powerful new ideas, and delivering those ideas to decision-makers and thought leaders around the globe.

Gary Becker (left) and Milton Friedman

Established in June 2011, the Institute combined the three-year-old Friedman Institute and the Becker Center on Chicago Price Theory. It is named in honor of Milton Friedman and his student and colleague, Gary Becker, two iconoclasts who became icons of economics. The Institute sustains the rigorous style of scholarship that made their work—and that of many scholars who came before and after them—so enduring and influential. A reflection on the history of BFI, by inaugural director Lars Peter Hansen, documents the evolution of the Institute.

Contrary to popular belief, the unifying thread of economics at UChicago is not ideological but methodological. It lies in the shared conviction that economics is an incomparably powerful tool for analyzing and understanding society. Milton Friedman himself stated the case well: “In discussions of economic science, Chicago stands for an approach that takes seriously the use of economic theory as a tool for analyzing a startling wide range of concrete problems… that insists on the empirical testing of theoretical generalizations, and that rejects alike facts without theory and theory without facts.”

“In discussions of economic science, Chicago stands for an approach that takes seriously the use of economic theory as a tool for analyzing a startling wide range of concrete problems … that insists on the empirical testing of theoretical generalizations, and that rejects alike facts without theory and theory without facts.”

Milton Friedman

The Power of Ideas

With that approach, the “Chicago School” of economics produced many path-breaking ideas that shaped the field and, in important ways, changed our world. Chicago economists have been well rewarded with medals and honors, including 29 Nobel laureates that have been associated with Chicago at some point in their career. But it is the power of the ideas that truly resonates.

The history of ideas stretches back more than a century, to the University’s earliest days. Thorstein Veblen published The Theory of the Leisure Class in 1899, and introduced the term “conspicuous consumption” to describe the public display of wealth through the purchase of luxury goods and services by the rich. The term has become part of the common lexicon, but, in an interesting twist, more contemporary UChicago economists argue that conspicuous consumption is also common to lower social classes and economic groups.

The role of risk and uncertainty is central to understanding every aspect of real-world economic behavior. Debate still rages over the philosophical foundations of decision-making under uncertainty—a debate that traces back to Frank Knight’s 1921 Risk, Uncertainty and Profit. Knight is credited with introducing the concept of “Knightian uncertainty,” ambiguity or uncertainty that cannot be reduced to (subjective) numerical probabilities. (Some maintain that the concept should be credited to John Maynard Keynes in his 1921 Treatise on Probability.)

Ronald Coase contributed two important sets of ideas, first around the theory of the firm (from his 1937 paper “The Nature of the Firm”) and the second on property rights and bargaining in resolving problems of externalities (commonly referred to as the “Coase theorem,” from his 1960 paper, “The Problem of Social Costs”).

Milton Friedman is one of the most widely-known and influential Chicago economists. Friedman is perhaps best known for the public policy positions he advocated in the latter half of his long career, but those positions were influential precisely because they were built on the twin pillars of sound economic theory and careful empirical analysis. As Friedman himself said, the function of economists is to provide a “stockpile of ideas” that offer available solutions when a crisis arises. And Friedman has provided an abundance of ideas.

Friedman’s “Methodology of Positive Economics” (1953) lays out his philosophical foundations for applying economic theory to empirical problems. And it remains relevant today for thinking about how economists can (and should) ply their trade. The Theory of the Consumption Function (1957) developed the concept of permanent (versus transitory) income for explaining a fundamental puzzle between macro and micro evidence on household and individual consumption as a proportion of income. Friedman’s concept of the natural rate of unemployment (developed with Edmund Phelps) and critique of the Phillips curve may be more relevant today (with the Federal Reserve’s quantitative easing policies) than when it was introduced in the 1960s. And these three only begin to introduce the scope of Friedman’s contributions.

Gary Becker, the other institute namesake, is maybe best known for the development of human capital theory, which views an individual’s accumulated skills, and the output produced with those skills, with the same functions used to assess firms’ capital and production. The insight is simple but the implications are broad. The concept is so well-known and accepted today that it is often hard to recognize the novelty that accompanied its development by Becker and fellow UChicago economists Jacob Mincer and T.W. Schultz in the late 1950s and early 1960s.

Becker won his Nobel Prize in 1992 for applying economic analysis to areas often considered outside the purview of economists. As a result, his ideas have shaped academic fields ranging from law to psychology, and shape our understanding of discrimination, crime and punishment, addiction, and education.

Robert Fogel made major (and controversial) contributions to the study of economic history regarding railroads and slavery.

A full discussion of the ideas flowing from Chicago would include many contributions to economic theory, methodology, and empirics. Robert Lucas articulated a critique of macroeconomic policymaking that is based on relationships observed in historical data, a critique that has had a profound influence on the conduct of macroeconomic research. Eugene Fama, Merton Miller, Myron Scholes, and others in the business school have contributed hugely to quantitative finance, with the efficient market hypothesis, the Modigliani-Miller theorem on capital structure, arbitrage-free options pricing, and other seminal concepts. Richard Thaler received a Nobel Prize in 2017 for his groundbreaking work in behavioral economics.

The Legacy Continues

This unparalleled legacy of Nobel-prize winning ideas grew out of UChicago’s rich and fertile intellectual environment. Bringing the best minds to a place that refines ideas through discussion and debate and draws inspiration across fields and disciplines produces great insights.

Far from resting on those laurels, the Becker Friedman Institute works to enrich that environment, attract and nurture scholars, and inspire ideas and answers to our most challenging economic questions, while ensuring that those ideas draw the attention of people around the world.

Chicago Economics Virtual Museum

Over the years, generous supporters have invested in documenting the history and legacy of the study of economics at the University of Chicago. This virtual collection is a representation of the Chicago Economics Experience located in Saieh Hall for Economics, highlighting contributions of UChicago economists to the field and to the world at large.

View the museum