Freshwater school (economics)

In economics, the freshwater school (or sometimes sweetwater school) comprises US-based macroeconomists who, in the early 1970s, challenged the prevailing consensus in macroeconomics research. A key element of their approach was the argument that macroeconomics had to be dynamic and based on how individuals and institutions interact in markets and on how they make decisions under uncertainty.

This new approach to macroeconomics was centered in the faculties of Carnegie Mellon University, the University of Chicago, New York University, Cornell University, the University of Minnesota, and the University of Rochester. They were called "freshwater school" because Pittsburgh, Chicago, Rochester, Minneapolis, etc. are located nearer to the North American Great Lakes.

The established methodological approach to macroeconomic research was primarily defended by economists at the universities and other institutions located near the east and west coast of the United States. These universities included University of California, Berkeley, Brown University, Harvard University, University of Pennsylvania, Princeton University, Columbia University, and Yale University. They were therefore often referred to as the saltwater schools.

The terms "freshwater" and "saltwater" were first used in reference to economists by Robert E. Hall in 1976, to contrast the views of these two groups on macroeconomic research. More than anything else it was a methodological disagreement about to what extent researchers should employ the theory of economic decision making and how individuals and firms interact in markets when striving to account for aggregate ("macroeconomic") phenomena.

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