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FROM CHOICE TO WELFARE: THE CONCEPT OF THE CONSUMER IN THE CHICAGO SCHOOL OF ECONOMICS*

Published online by Cambridge University Press:  04 July 2016

NIKLAS OLSEN*
Affiliation:
The Saxo Institute, University of Copenhagen E-mail: nolsen@hum.ku.dk

Abstract

This article examines the role of the consumer in the writings on regulation launched by the Chicago school from the 1930s to the 1980s. It shows how Chicago school scholars used the concept of the consumer to shape and justify their calls for deregulation, as they continually claimed to offer market solutions that protect and benefit the consumer. The focus is on how the scholars at issue executed a shift from choice to welfare in their consumer concept as they began more decisively to embrace deregulation in the postwar period. From initially having described consumers as individual agents, capable of ensuring democracy and freedom in modern society by expressing their choices on a partly regulated market, they began to portray consumers as a coherent, homogeneous and predictable mass, acting on a deregulated market and serving merely as a tool of so-called consumer welfare, understood as economic efficiency and aggregate wealth.

Type
Articles
Copyright
Copyright © Cambridge University Press 2016 

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Footnotes

*

I would like to thank Jacob Jensen, Dieter Plehwe, David Singh Grewal, Edward Nik-Khah, Gunvor Simonsen and the three anonymous referees for valuable comments on this paper.

References

1 See, first of all, Van Horn, Robert, Mirowski, Phillip and Stapleford, Thomas A., eds., Building Chicago Economics: New Perspectives on the History of America's Most Powerful Economics Program (Cambridge, 2011)CrossRefGoogle Scholar; Emmett, Ross B., ed., The Elgar Companion to the Chicago School of Economics (Cheltenham, 2010)CrossRefGoogle Scholar; Van Overtfeldt, Johan, The Chicago School: How the University of Chicago Assembled the Thinkers Who Revolutionized Economics and Business (Chicago, 2007)Google Scholar; Leeson, Robert, The Eclipse of Keynesianism: The Political Economy of the Chicago Counter-revolution (Basingstoke, 2000)CrossRefGoogle Scholar; and the relevant chapters in Davies, William, The Limits of Neoliberalism: Authority, Sovereignty and the Logic of Competition (London, 2014)CrossRefGoogle Scholar; Burgin, Angus, The Great Persuasion: Reinventing Free Markets since the Depression (Cambridge, MA, 2012)CrossRefGoogle Scholar; Payne, Christopher, The Consumer, Credit and Neoliberalism: Governing the Modern Economy (New York, 2012)Google Scholar; Crouch, Colin, The Strange Non-death of Neoliberalism (Cambridge, 2011)Google Scholar; Peck, Jamie, Constructions of Neoliberal Reason (Oxford, 2010)CrossRefGoogle Scholar; Mirowski, Phillip and Plehwe, Dieter, eds., The Road from Mont Pelerin: The Making of the Neoliberal Thought Collective (Cambridge, 2009)CrossRefGoogle Scholar; Eduardo F. Canedo, “The Rise of the Deregulation Movement in Modern America, 1957–1980” (Ph.D. 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 Miller, H. Laurence Jr, “On the ‘Chicago School of Economics’,” Journal of Political Economy, 70/1 (1962), 64–9Google Scholar. Since the 1970s the terms “Chicago school of economics,” “Chicago school of law and economics” and “Chicago school” have been used interchangeably. For a recent discussion of the challenges involved in defining the term see Backhouse, Roger, “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), 345–9CrossRefGoogle Scholar.

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4 Besides Henry Simons, who died shortly before the Mont Pèlerin Society was founded, only Jacob Viner and Robert Bork among the above-mentioned Chicago school scholars were not members.

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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 a critique of Burgin's strong focus on Friedman see Shenk, Timothy, “The Long Shadow of Mont Pèlerin,” Dissent, 60/4 (2013), 98102 CrossRefGoogle Scholar. 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 For an account of how the consumer was born as a social–political concept during the nineteenth century, and pushed to the centre of public political discourse in Europe and the United States in the interwar years, see Trentmann, Frank, “The Modern Genealogy of the Consumer: Meanings, Identities and Political Synapses,” in Trentmann, Frank and Brewer, John, eds., Consuming Cultures, Global Perspectives: Historical Trajectories, Transnational Exchanges (Oxford, 2006), 1969 Google Scholar.

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11 What follows is based on Cohen, Lizabeth, A Consumers’ Republic: The Politics of Mass Consumption in Postwar America (New York, 2003), 1761 Google Scholar. 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 ideal of the “citizen consumer.”

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14 For accounts of the Chicago school in the interwar period see the references in note 1.

15 Simons, Henry C., “A Positive Program for Laissez-faire: Some Proposals for a Liberal Economic Policy” (1934), in Simons, Economic Policy for a Free Society (Chicago, 1948), 4077 Google Scholar. For an introduction to Simons and to the essay at issue see Sherryl D. Kasper, “Henry C. Simons,” in Emmett, The Elgar Companion to the Chicago School of Economics, 331–6. 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.

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19 Ibid., 50.

20 Ibid., 71.

21 Ibid., 58, 57.

22 Ibid., 73.

23 Ibid.

24 Van Horn, “Jacob Viner's Critique”; Van Horn, “Reinventing Monopoly.”

25 Cited from Van Horn, “Jacob Viner's Critique,” 281 n. 6.

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27 Aaron Director, Foreword, in Simons, Economic Policy for a Free Society, v–vii, at v.

28 Canedo, “The Rise of the Deregulation Movement,” 1–2.

29 Ibid., 134–56.

30 Horowitz, Daniel, Vance Packard and American Social Criticism (Chapel Hill, 1994)Google Scholar; Horowitz, The Anxieties of Affluence: Critiques of American Consumer Culture, 1939–1979 (Amherst, 2004).

31 Neoclassicism is a widely contested concept which has been assigned a plurality of meanings. See Lawson, Tony, “What Is This ‘School’ Called Neoclassical Economics?”, Cambridge Journal of Economics, 37 (2013), 947–83CrossRefGoogle Scholar. My definition of neoclassicism follows Morgan and Rutherford, “The Character of the Transformation.” See also Backhouse, Roger, “Economics,” in Backhouse, Roger and Fontaine, Philippe, eds., The History of the Social Sciences since 1945 (Cambridge, 2010), 3870 CrossRefGoogle Scholar, which likewise argues that the American economics profession underwent a change from pluralism to neoclassicism in the postwar period, but provides a more comprehensive and detailed account that also illuminates disciplinary developments in other countries.

32 For how this figure was born during the marginal revolution in the late nineteenth century see Payne, The Consumer, 20–32; and Morgan, Mary S., “Economic Man as Model Man: Ideal Types, Idealization and Caricatures,” Journal of the History of Economic Thought, 28/1 (2006), 127 CrossRefGoogle Scholar.

33 For accounts of the institutional roles played by Friedman and Stigler at Chicago and in the Mont Pèlerin Society see Burgin, The Great Persuasion, 152–85; and Edward Nik-Khah, “George Stigler, the Graduate School of Business, and the Pillars of the Chicago School,” in Van Horn, Mirowski and Stapleford, Building Chicago Economics, 116–50.

34 Van Horn, “Reinventing Monopoly”; Van Horn, “Jacob Viner's Critique”; Van Horn and Mirowski, “The Rise of the Chicago School.”

35 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,” 134–56.

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37 Friedman, Capitalism and Freedom, 14–15.

38 Ibid., 91.

39 Ibid., 197.

40 Friedman and Friedman, Free to Choose, 227.

41 Friedman, Capitalism and Democracy, 120. See also Van Horn, “Jacob Viner's Critique,” 295–7.

42 Friedman and Friedman, Free to Choose, 264.

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 Heyck, Hunter, “Producing Reason,” in Solovey, Mark and Cravens, Hamilton, eds., Cold War Social Science: Knowledge Production, Liberal Democracy, and Human Nature (New York, 2012), 99116 CrossRefGoogle Scholar; and Amadea, Sonia, Rationalizing Capitalist Democracy: The Cold War Origins of Rational Choice Liberalism (Chicago, 2003)Google Scholar.

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47 George Stigler, “Can Regulatory Agencies Protect the Consumer?”, Stigler, The Citizen and the State, 178–188, at 181.

48 Steven G. Medema, “Chicago Price Theory and Chicago Law and Economics: A Tale of Two Transitions,” in Van Horn, Mirowski and Stapleford, Building Chicago Economics, 151–79.

49 George Stigler, “The Theory of Economic Regulation,” in Stigler, The Citizen and the State, 114–41.

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 behaviour. 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 Stigler, The Citizen and the State, 78–102, at 88.

54 Robbins, Lionel, An Essay on the Nature and Significance of Economic Science (London, 1933)Google Scholar. For an account of the reception of Robbins's essay in the discipline see Backhouse, Roger E. and Medema, Steven G., “Defying Economics: The Long Road to Acceptance of the Robbins Definition,” Economica, 76 (2009), 805–20CrossRefGoogle Scholar. For an account of the disciplinary discussions of welfare economics taking place in the wake of Robbins’ essay see Amadea, Rationalizing Capitalist Democracy, 88–102.

55 Stigler, George, The Theory of Competitive Price (New York, 1942)Google Scholar. See also Backhouse and Medema, “Defying Economics,” 811.

56 Nik-Khah, “George Stigler,” 140–41, and Canedo, “The Rise of the Deregulation Movement,” 110–11.

57 Edward Nik-Khah, “What is ‘Freedom’ in the Marketplace of Ideas?”, in Anna Yeatman, ed., “Neoliberalism and the Crisis of Public Institutions,” Working Papers in the Human Rights and Public Life Program, Whitlam Institute within Western Sydney University, 2 (2015), 56–69.

58 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,” 105–6.

59 Kitch, Edmund W., “The Fire of Truth: A Remembrance of Law and Economics at Chicago, 1932–1970,” Journal of Law and Economics, 66/1 (1983), 163234 CrossRefGoogle Scholar, at 178.

60 Burgin, The Great Persuasion, 152–213; Nik-Khah and Van Horn, “The Ascendancy of Chicago Neoliberalism.”

61 Canedo, “The Rise of the Deregulation Movement.”

62 Cohen, A Consumers’ Republic, 397.

63 Thompson, Noel, Social Opulence and Private Restraint: The Consumer in British Socialist Thought since 1800 (Oxford, 2015)CrossRefGoogle Scholar; and Horowitz, Daniel, Consuming Pleasures: Intellectuals and Popular Culture in the Postwar World (Philadelphia, 2012)CrossRefGoogle Scholar.

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65 Canedo, “The Rise of the Deregulation Movement,” 98–132.

66 Rodgers, The Age of Fracture, 41–66; Backhouse, “Economics.”

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69 For an account of Director's life and work see Robert Van Horn, “Aaron Director,” in Emmett, The Elgar Companion to the Chicago School of Economics, 265–9.

70 See also Kitch, “The Fire of Truth.”

71 Steven G. Medema, “Chicago Law and Economics,” in Emmett, The Elgar Companion to the Chicago School of Economics, 160–64. For an account of the American law and economics movement that arose from the 1960s onwards see Teles, Steven, The Rise of the Conservative Law and Economics Movement: The Battle for Control of the Law (Princeton, NJ, 2008)Google Scholar.

72 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.

73 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), 1443–55.

74 Quoted in Kitch, “The Fire of Truth,” 83.

75 Posner had served as judge of the Court from 1981 to 1993.

76 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 Heyer, Kenneth, “Consumer Welfare and the Legacy of Robert Bork,” Journal of Law and Economics, 57/3 (2014), 1932 CrossRefGoogle Scholar; Hovenkamp, Herbert J., Federal Antitrust Policy: The Law of Competition and Its Practice, 4th edn (St Paul, 2011)Google Scholar; Orbach, Barak Y., “The Antitrust Consumer Welfare Paradox,” Journal of Competition Law & Economics, 7/1 (2010), 133–64CrossRefGoogle Scholar; and Priest, George L., “The Abiding Influence of The Antitrust Paradox: An Essay in the Honor of Robert H. Bork,” Faculty Scholarship Series (Yale Law School), 643 (2008), 455–63Google Scholar. See also Davies, The Limits of Neoliberalism; and Crouch, The Strange Non-death of Neoliberalism.

77 Bork, Robert, The Antitrust Paradox: A Policy at War with Itself (New York, 1978), 7 Google Scholar.

78 Ibid., 90.

79 Ibid.

80 Ibid., 91 and 90.

81 See also Crouch, The Strange Non-death of Neoliberalism, 55–7.

82 See also the discussion of the normative implications of The Antitrust Paradox in Davies, The Limits of Neoliberalism, 70–107.

83 Bork, The Antitrust Paradox, 116, original emphasis.

84 Ibid., ix.

85 Ibid., 69.

86 See the references in note 76.