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  • Author: Leo Melamed
  • Publication Date: 09-2011
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: The story is fairly well known. In 1971, as chairman of the Chicago Mercantile Exchange, I had an idea: a futures market in foreign currency. It may sound so obvious today, but at the time the idea was revolutionary. I was acutely aware that futures markets until then were primarily the province of agriculture and—as many claimed—might not be applicable to instruments of finance. Not being an economist, the idea was in need of validation. There was only one person in the world that could satisfy this requisite for me. We went to Milton Friedman. We met for breakfast at the Waldorf Astoria in New York. By then he was already a living legend and I was quite nervous. I asked the great man not to laugh and to tell me whether the idea was “off the wall.” Upon hearing him emphatically respond that the idea was “wonderful,” I had the temerity to ask that he put his answer in writing. He agreed to write a feasibility paper on “The Need for Futures Markets in Currencies,” for the modest stipend of $7,500. It turned out to be a helluva trade.
  • Topic: Economics
  • Political Geography: New York, Chicago
  • Author: J. Daniel Hammond
  • Publication Date: 09-2011
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Chicago School economists have come in for criticism since the financial crisis and so-called Great Recession began in 2007. Commentators have blamed recent problems on a laissez-faire faith in the efficacy of markets and simple rules for business-cycle policy—ideas associated with economics as taught and practiced at the University of Chicago. Events over the past four years, we are told, demonstrate the need for a restoration of Keynesian thinking about business cycles and activist government policies to keep markets from failing. However, there is another aspect of Chicago School economics that is commonly overlooked. This is the conviction that economists' understanding of the business cycle is meager in light of the knowledge necessary for activist countercyclical policy to be effective. From this comes the Chicago School concern that economists and policymakers not attempt to do something beyond their capability. Overreaching can make the problems worse.
  • Topic: Economics, Financial Crisis
  • Political Geography: Chicago