(FORTUNE Magazine) – Would the deans and professors at that epicenter of free market thought, the University of Chicago's graduate school of business, ever support interventionism and subsidies? Yes, and you need look no further than within the school's own hallowed halls.

Since 1981, U. of Chicago's B-school has employed a complex auction-based system for students to pick classes. Incoming MBA candidates are allotted 8,000 points to bid for courses. In an initial registration round, students wager points for a schedule of classes they most want to take. Classes that aren't filled don't cost any points. Prices for filled classes are based on demand.

Four frantic rounds of bidding then ensue, where courses are added (or bought) and dropped (or sold). New prices are posted at the end of each round. Additional points are earned after successfully completing classes.

Deputy dean Robin Hogarth says the system saves everyone a lot of time. "Students don't have to stand in line, and apart from occasional hiccups, it's very well accepted." Ah, but those "hiccups" have generated fiendish games of arbitrage--crafty students have learned how to subvert the system--causing Hogarth to resort to, gulp, intervention. For example, second-year students have been known to sign up for popular lower-level courses taken mostly by first-year students. After these classes close, they can be sold for a hefty sum to fund costly higher-level ones. Neil Harper, a finance student, recalls 53 of his second-year peers registering for a basic statistics course normally sought by first-year students. The long arm of the administration intervened--not unlike the federal guv'mint--and threw them out. Another strategy is to pick up a class on the cheap in the late rounds. Second-year student Anand Narayan got caught in frenzied bidding for an extremely popular financial management course. Narayan shelled out 17,000 points while the wily Harper waited patiently until the fourth round and snapped it up for nothing when a bunch of students balked at the workload and dropped out. And what if Narayan didn't have 17,000 points to "pay" for the course? Not to worry. The University of Chicago business school offers subsidies. Where have you gone, Milton Friedman?

--Rajiv M. Rao