The Cowles Commission and the Emerging Chicago School: Conflicting Empirical Methodologies at the University of Chicago in the Late 1940s and Early 1950s

Under the directorship of Jacob Marschak (1943-48) and Tjalling Koopmans (1948-55), the Cowles Commission at the University of Chicago sponsored pioneering work on general equilibrium, social choice, activity analysis, and simultaneous-equations econometric models by Kenneth Arrow, Gerard Debreu, Trygve Haavelmo, Leonid Hurwicz, Lawrence Klein, Harry Markowitz, and Herbert Simon, all, like Koopmans, future Nobel laureates. The Cowles Commission’s methodology was contested by the emerging Chicago school of economics, led by future Nobel laureates Milton Friedman and Theodore Schultz (department chair 1946-61) who upheld partial equilibrium price theory, the quantity theory and rational choice against the Cowles emphasis on general equilibrium and Keynesian macroeconomics and against Simon’s bounded rationality, and who were suspicious of Cowles projects on activity analysis and macroeconometric models as creating tools for central planning and Keynesian demand management. We examine the interactions and methodological debates between the two groups, which led to the departure of the Cowles Commission to Yale University in 1955.

Presented at a History of Economics Society session on “The Cowles Commission and Foundation: Transforming and Formalizing Economics,” Allied Social Science Associations annual meetings, San Diego, California, January 5, 2020. We are grateful to the late Olav Bjerkholt for providing us with a copy of the memorandum from Friedman to Willets at the Rockefeller Foundation and to Harald Hagemann for drawing our attention to the 1938 letter from Cowles to Marschak in the Marschak Papers. Robert Dimand thanks the Cowles Foundation and the Université de Haute Alsace for visiting fellowships.