This section begins by introducing the National Bureau of Economic Research. Its purpose was to research economic factors and advise policy makers accordingly. Over the years the NBER has had many talented scholars and economists; one of those was young Milton Friedman.
Milton Friedman was a dynamic individual. After receiving his M.A. from the University of Chicago, he worked at various jobs, including the NBER. Eventually he finished his Ph. D. from Columbia University and settled down as a professor at his alma mater, the University of Chicago, where he worked until his retirement.
Friedman made a profound impact at the University of Chicago. He challenged Keynesian dogmas and laid the foundations of positive economics by writing “An Essay on Methodology of Positive Economics,” explaining the economic science of “what is.” He also wrote “A Monetary History of the United States,” which presented a new explanation and view of the Great Depression.
Friedman also had a significant impact on the Cowles Foundation. He was a critic of their approach and methodology, and for good reason. Friedman’s friend, George Stigler, had been assigned to calculate the least costly “adequate diet.” Choosing over 510 food combinations, he found an acceptable answer. His answer was later tested by George Dantzig’s new simplex method of linear programming and was found to be a mere 24 cents off, reconfirming Friedman’s opinion that “the old ways were good enough.”
The chapter ends with explaining that before World War 2 there was a plethora of economic schools leading the field. By the end, there were two polar opposites: MIT with Paul Samuelson, primarily teaching Keynesian ideas, and Chicago, with Milton Friedman teaching the marvel and magic of markets.
C for Mitch. A reader shouldn't have to guess what you're writing about because you didn't add a title; and there are a few grammatical mistakes.
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Warsh calls these guys "the moderns". No one else uses that phrase. Anyway, this section is about how they all went in different directions in the 1950's, so that there were seeds planted in universities all over America of people who had better mathematical tools, and an interest in getting away from the dismal Malthus/Ricardo/Marshall focus on diminishing marginal productivity, and back to the more optimistic increasing-returns-to-scale story of Smith's pin factory. The latter hasn't been visible much — it's the metaphorical underground river that keeps popping to the surface in Mill, Young, Chamberlain, Robinson and Schumpeter.
Dantzig's linear programming solution to Stigler's problem of the cheapest nutritious diet ran to 77 unknowns and 9 equations. In ECON 2500 we often do more than 9 equations after a few weeks, and 77 variables wouldn't be that unusual towards the end of the section. They might take an hour to program and a second to solve. It took Dantzig's team about 1,000 hours to get a solution.
The Paul Douglas that is briefly mentioned as being displaced by Friedman and his confederates is the Douglas in Cobb-Douglas utility/production function used in this class, and introduced in ECON 2500.
You guys are intellectual descendants of the falling out at Chicago described in this section. My dissertation chair, James Holmes, was a student with Lucas, and had Friedman on his dissertation committee. He ended up getting hired at his first job at Purdue by some of the refugees that had left Chicago (as mentioned on pg. 137).
Trivia: "new math", mentioned on pg. 135, was taught to me starting in kindergarten in 1969.
Gross Trivia: the book mentions how butter producers used the political system to keep margarine out of stores. My late mother-in-laws father ran a neighborhood grocery in the 1930s. At that time, you could buy margarine wholesale, but it had to be uncolored. Butter was naturally yellow, but there were laws that you couldn't sell packaged margarine to look like butter. Margarine is a close cousin of Crisco, so you can imagine what it looked like. Anyway, the job of the youngest daughter in the family was to take the wholesale, uncolored, margarine, and mix in yellow food coloring by hand before it was retailed to customers.
Extra Credit to the first person to post a follow up comment on the meaning of "hair shirt" and how it relates to Friedman.
A hair shirt is garment made of coarse animal hair for the purpose of creating discomfort. It was usually worn by Christian individuals who wanted a reminder of their penitence. Walsh is using this metaphorically in the sense that Friedman knew how to rub people the wrong way and make things uncomfortable. He did this with the Cowles Foundation and they eventually moved to Yale.
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