This is from History of Economic Thought: A Critical Perspective, by E.K. Hunt, a long out of print textbook I had when I was an undergraduate at CSU Chico [update: it is has been published again by M E Sharpe]. It explains how the “Austrian and Chicago schools reduce all human behavior to rational maximizing exchanges and hence are able to prove that in every respect, economic and non-economic, a free market, capitalist system is the best of all possible worlds,” and gives some of the critical reactions to that point of view:
The Austrian and Chicago Schools
The school of neoclassical economists that advocates extreme laissez-faire Capitalism represents the contemporary counterparts of Senior and Bastiat. In a sense this group really represents two separate but similar schools – the Austrian School and the Chicago School. The Austrian School traces its lineage directly back to Carl Menger (Chapter Eleven), Menger’s extreme methodological individualism is the basis of the social philosophy of the Austrian School.
While Menger’s first generation of disciples included both social reformers and conservatives, the ultraconservative nature of the Austrian School is more properly thought of as the product of two of Menger’s second-generation disciples, Ludwig von Mises and Friedrich A. Hayek. Both von Mises and Hayek taught at various times at the University of Chicago. Together with Frank H. Knight, who taught for many years at the University of Chicago, they were the most important influences in the formation of the Chicago School. For the past generation, Milton Friedman has been the most influential member of the Chicago School. In 1976, Friedman was awarded the Nobel Prize in economics. Continue reading