The Chicago School(s) of Democratic Capitalism is an interesting new paper by Emmett and Van Horn.
Our main contention is that two different re-conceptualizations of liberal democracy took place among Chicago economists in the postwar period. The first emerged out of Frank H. Knight’s ruminations in the 1930s on the failures of liberalism. By the 1940s, Knight devoted most of his attention to the question of whether rational norms for intelligent democratic action could provide a means of avoiding those failures. The second came in the early 1950s when Aaron Director gave up both the classical liberalism of his predecessor Henry Simons and Knight’s re-conceptualization. Although both Knight and Director viewed liberalism as flawed, they sought solutions to its inadequacies in different ways. While Director asserted the fundamental role of competition in the economic realm, Knight argued that an appreciation for competition must be accompanied by recognition of the equally fundamental roles of discussion and ethics.
A subsidiary contention is that Director’s re-formulation provided the underlying conception of democracy in the subsequent work of the Chicago School. While Knight may have taught the Chicago economists price theory, his emphasis on democratic discussion and ethics, coupled with their commitment to the competitive order, diminished his importance to the emerging Chicago approach. Our argument, therefore, lends support to the view that Knight played a smaller role, and Director a more important role, in the Chicago School’s development than often thought.