# The Chicago School and the rise of neoliberalism The intellectual movement that remade the world economy: the London School of Economics and Hayek, the Mont Pelerin Society, Milton Friedman and the Chicago School, and the policy turn from Chile's Chicago Boys to Thatcher, Reagan, and the Washington Consensus. Documented history, with the human costs attributed as critiques. *This story part of: Money and finance* *The London School of Economics: Fabians, the economics wars, and the making of an elite parallel this story* *Keynesian economics: demand, depression, and the fight over full employment parallel this story* ## 1895 — Founding of the London School of Economics Sidney and Beatrice Webb, along with George Bernard Shaw and other Fabian socialists, found the London School of Economics to advance the scientific study of society and improve the material conditions of the working class. The founders intended it as a training ground for progressive, collectivist social reform. Decades later the school would become closely associated with free-market economics, a shift often noted as one of the great ironies in the history of economic thought. ## 1929 — Lionel Robbins appointed head of the LSE economics department Lionel Robbins becomes head of the economics department at the London School of Economics. Robbins favored classical liberal, free-market economics and used his position to recruit like-minded economists, setting the stage for the LSE's turn away from its Fabian origins. ## 1931 — Friedrich Hayek arrives at the LSE At Lionel Robbins's invitation, the Austrian economist Friedrich Hayek moves from Vienna to take up a chair at the London School of Economics. Hayek's arrival made the LSE a rival center to Cambridge for macroeconomic debate and set up his direct intellectual clash with John Maynard Keynes. ## c. August 1931 — The Hayek-Keynes debates Hayek publishes a critical review of Keynes's Treatise on Money, opening a running exchange between the two economists over the causes of business cycles and the proper role of government spending. Keynes argued that active fiscal policy could smooth recessions, while Hayek held that credit expansion caused the malinvestment that produced them. The dispute became the defining rivalry of twentieth-century macroeconomics and shaped the LSE-Cambridge divide. *Source: The Cambridge Companion to Keynes* *Source: Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1974 - Press Release* ## 1936 — Publication of Keynes's General Theory John Maynard Keynes publishes The General Theory of Employment, Interest and Money, arguing that government spending could counteract unemployment during downturns. The book became the foundation of postwar economic policy across the West and the chief target of the free-market economists gathered around Hayek and, later, Milton Friedman. ## March 1944 — Publication of The Road to Serfdom Friedrich Hayek publishes The Road to Serfdom, warning that central planning leads toward tyranny. The book becomes a founding text of the postwar revival of free-market liberalism. ## 1946 — Milton Friedman joins the University of Chicago economics department Milton Friedman joins the economics faculty at the University of Chicago, where he would spend three decades building what became known as the Chicago School of economics. The department emphasized free markets, monetary discipline, and skepticism of government intervention, in direct contrast to the Keynesian consensus dominant at the time. ## 10 April 1947 — Founding of the Mont Pelerin Society Friedrich Hayek gathers 39 economists and intellectuals, including Milton Friedman and Ludwig von Mises, to defend classical liberalism against collectivism. The society becomes the seedbed of the neoliberal movement. ## 1953 — Friedman's "The Methodology of Positive Economics" Milton Friedman publishes his essay setting out a methodology for economics that judges theories by the accuracy of their predictions rather than the realism of their assumptions. The essay became a defining statement of the Chicago School's approach to economic science and shaped how a generation of Chicago-trained economists argued for their positions. ## 1955 — Founding of the Institute of Economic Affairs Antony Fisher, acting on Hayek's advice, founds the Institute of Economic Affairs in London to promote free-market economics to policymakers and the public. The IEA became the model for a wave of free-market think tanks worldwide and later helped popularize monetarist and supply-side ideas within the British Conservative Party. ## 1962 — Publication of Capitalism and Freedom Milton Friedman publishes Capitalism and Freedom, arguing that free markets are essential to political liberty and proposing policies such as floating exchange rates, school vouchers, and a negative income tax. The book brought Chicago School ideas to a broad public audience and became a manifesto for free-market reform in the following decades. ## 1963 — Friedman and Schwartz's A Monetary History of the United States Milton Friedman and Anna Schwartz publish A Monetary History of the United States, 1867-1960, arguing that the Federal Reserve's contraction of the money supply turned a recession into the Great Depression. The book laid the empirical foundation for monetarism, the theory that stable control of the money supply, not fiscal spending, was the key to economic stability. *Source: Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1976 - Press Release* *Source: What Is Monetarism?* ## August 1971 — The Powell Memo Lewis Powell, a corporate lawyer soon to join the Supreme Court, writes a confidential memo to the U.S. Chamber of Commerce urging American business to organize politically and intellectually against what he saw as a rising anti-business, anti-capitalist climate. The memo is widely credited with spurring the growth of business-funded think tanks and advocacy groups that later promoted free-market and deregulatory policy. ## 11 September 1973 — Chile's coup and the arrival of the Chicago Boys General Augusto Pinochet seizes power in Chile in a military coup that overthrows the elected government of Salvador Allende. Pinochet's regime soon turns to a group of Chilean economists trained at the University of Chicago, known as the Chicago Boys, to redesign economic policy. Critics have long argued that the free-market reforms which followed were imposed under an authoritarian government that suppressed opposition through repression, a context the Chicago School's defenders and critics both acknowledge shaped how the experiment is judged. ## 1974 — Hayek awarded the Nobel Memorial Prize in Economic Sciences Friedrich Hayek shares the Nobel Memorial Prize in Economic Sciences with Gunnar Myrdal for their work on money, economic fluctuations, and the interdependence of economic, social, and institutional phenomena. The award gave fresh international visibility to Austrian School and free-market economics after decades in which Keynesian economics had dominated the mainstream. *Source: Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1974 - Press Release* ## c. March 1975 — Friedman's visit to Chile and "The Fatal Conceit" controversy Milton Friedman visits Chile, gives lectures, and meets briefly with Pinochet, advising a rapid, comprehensive program to curb inflation. The visit drew lasting criticism that Friedman lent academic legitimacy to a dictatorship, a charge he addressed publicly by saying he did not regard advising a government as endorsing its politics. The episode remains a central point of contention in assessments of the Chicago School's global influence. ## c. 1975 — Chile's economic shock therapy begins The Chicago Boys, with informal advice from Milton Friedman and Arnold Harberger, implement a sweeping program of privatization, deregulation, trade liberalization, and monetary austerity in Chile. Inflation fell sharply and the economy eventually grew, but the program also produced a severe recession in the early 1980s and a marked rise in inequality, outcomes that critics cite as evidence of the human cost of rapid market liberalization under authoritarian rule. ## 1976 — Friedman awarded the Nobel Memorial Prize in Economic Sciences Milton Friedman receives the Nobel Memorial Prize in Economic Sciences for his work on consumption analysis, monetary history and theory, and the complexity of stabilization policy. The award cemented monetarism and Chicago School economics as a mainstream rival to Keynesianism at the highest level of the profession. *Source: Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1976 - Press Release* ## 1977 — Founding of the Cato Institute Edward Crane, Charles Koch, and Murray Rothbard found the Cato Institute as a libertarian think tank promoting free markets, limited government, and individual liberty. It became one of the most prominent American vehicles for advancing Hayekian and Chicago School policy ideas in Washington. ## c. December 1978 — Deng Xiaoping's economic reforms begin in China Deng Xiaoping launches market-oriented reforms in China, introducing household responsibility in agriculture and opening the economy to foreign investment and trade. Although rooted in China's own political context rather than Chicago School doctrine, the reforms are often cited alongside Thatcher's and Reagan's as part of the broader global turn toward market liberalization in this period. ## 4 May 1979 — Margaret Thatcher becomes British prime minister Margaret Thatcher becomes prime minister of the United Kingdom, having drawn on Hayek's ideas and the Institute of Economic Affairs in developing her program of privatization, trade union reform, and monetary restraint. Her government's policies became one of the two flagship national applications of Hayekian and monetarist economics, alongside Ronald Reagan's in the United States. ## August 1979 — Paul Volcker becomes chairman of the Federal Reserve Paul Volcker becomes chairman of the Federal Reserve amid double-digit inflation in the United States. He moves the Fed toward the monetarist approach of targeting the money supply rather than interest rates directly, applying the logic Friedman had argued for since the 1960s. ## 6 October 1979 — The Volcker shock The Federal Reserve under Paul Volcker sharply raises interest rates, pushing the federal funds rate above 19 percent to break the inflation of the 1970s. The policy triggered a severe recession and high unemployment in the early 1980s but succeeded in bringing inflation down, and it is widely seen as the practical vindication of monetarist thinking in U.S. policy. *Source: Volcker's Announcement of Anti-Inflation Measures* *Source: What Is Monetarism?* ## 1980 — Broadcast of Free to Choose Milton and Rose Friedman's television series Free to Choose airs on American public television, presenting free-market economics to a mass audience through ten episodes on subjects from consumer choice to inflation. An accompanying book of the same name became a bestseller and, alongside Capitalism and Freedom, remains one of the most widely read popular statements of Chicago School economics. ## 20 January 1981 — Ronald Reagan becomes U.S. president Ronald Reagan is inaugurated as president of the United States on a platform of tax cuts, deregulation, and reduced government spending, drawing on Chicago School and supply-side economics. His administration, alongside Thatcher's in Britain, became the leading example of neoliberal policy applied at the level of a major national government. > "interference that would be escalated once Reagan became President in 1981" > — Sinister Forces: A Grimoire of American Political Witchcraft ## 1989 — John Williamson coins the term Washington Consensus Economist John Williamson coins the term Washington Consensus to describe a set of ten policy prescriptions, including fiscal discipline, privatization, deregulation, and trade liberalization, that the U.S. Treasury, IMF, and World Bank commonly recommended to developing countries and Latin America. The term became shorthand, often used critically, for the global spread of Chicago School and neoliberal policy through international lending institutions. ## 9 November 1989 — Fall of the Berlin Wall and the end of Soviet-style central planning The Berlin Wall falls, and within two years the Soviet bloc's centrally planned economies collapse, discrediting comprehensive state planning in the eyes of most Western economists. The event was widely read as a vindication of Hayek's warnings in The Road to Serfdom and gave momentum to market-oriented reform across the former communist world. ## 11 March 1990 — Chile returns to democracy Patricio Aylwin is inaugurated as president, ending seventeen years of military rule under Pinochet and restoring civilian democratic government to Chile. Chile's subsequent governments largely retained the market-oriented economic framework built by the Chicago Boys while extending social spending, a mixed legacy still debated by economists and historians. ## c. 1991 — Friedman's second visit to Chile and public defense of his role In later years Friedman continued to defend his advice to Chile, arguing that the economic liberalization, however imposed, ultimately helped end the dictatorship by creating a prosperous middle class that pushed for democratic change. Critics rejected this argument, pointing to the years of repression that accompanied the reforms and to the sharp rise in inequality documented by Chilean economists. ## January 1992 — Russia's shock therapy reforms Boris Yeltsin's government, advised by economists including Jeffrey Sachs, launches rapid price liberalization and privatization intended to convert Russia's planned economy to a market system in a compressed timeframe, a strategy that drew directly on the shock-therapy model first associated with Chile. The result was severe inflation, a collapse in output, and the rise of the oligarchs, and it became one of the most cited cautionary examples in debates over the pace of market reform. ## 16 November 2006 — Milton Friedman's death Milton Friedman dies at age 94. Obituaries across the political spectrum credited him as the most influential economist of the second half of the twentieth century, while critics of his legacy pointed to rising inequality and the instability associated with deregulated finance in the years leading up to the 2008 financial crisis. ## September 2008 — The 2008 financial crisis and reassessment of deregulation The collapse of Lehman Brothers triggers a global financial crisis that prompts widespread reassessment of the deregulatory policies associated with Chicago School economics, particularly in banking and finance. Critics argued the crisis exposed the limits of self-correcting markets, while defenders of the Chicago tradition argued the causes lay in specific regulatory and monetary failures rather than in free-market principles as such. ## c. 2013 — Founding of the LSE's Hayek scholarship debate revives on campus Decades after Hayek's departure, the London School of Economics continues to be cited in economics education as the site of the twentieth century's defining debate between Keynesian and free-market economics, with Hayek's old rooms and the LSE's Fabian founding often invoked together as one of the discipline's sharpest ironies. Historians of economic thought regularly use the LSE's dual legacy, socialist founders and free-market faculty, as a teaching example of how institutions can outgrow their founders' intentions.