“Friedman Friday” :“A Nobel Laureate on the American Economy” VTR: 5/31/77 Transcript and video clip (Part 5)

Milton Friedman on the American Economy (5 of 6)

 

Uploaded by on Aug 9, 2009

THE OPEN MIND
Host: Richard D. Heffner
Guest: Milton Friedman
Title: A Nobel Laureate on the American Economy VTR: 5/31/77
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Below is a transcipt from a portion of an interview that Milton Friedman gave on 5-31-77:

Friedman: But as a matter of practical experience, no complicated society can be run solely on the command principle. It’s just impossible. And therefore, in one sense, the market is essential; there’s no way of avoiding it. Now, you don’t mean it in that sense. You mean another sense. In what sense is it written that the free market is desirable?

HEFFNER: Well, desirable, I didn’t really mean that. NO, I meant in the first instance where is it written that this concept, which I thought was comparatively modern, of the free marketplace…

FRIEDMAN: Well, in the modern version of it it really dates back to Adam Smith in 1776, which is just 200 years. There are precursors to that of course. But as…

HEFFNER: How did we survive? How did we get there?

FRIEDMAN: Well, but you know, ideas, you know about the Frenchman who discovered at the age of 70 that he had been talking prose all his life. Because we can give words to things doesn’t mean that those things didn’t exist before we gave words to them. The free market has been around for thousands and thousands of years. The theory of a free market in a systematic organized way dates back to Adam Smith in 1776. But the free market doesn’t.

HEFFNER: so the answer to the question of where it is written is really in Adam Smith, The Wealth of Nations?

FRIEDMAN: Yes, that’s the first major source. There have been lots since. But that’s still a book worth reading.

HEFFNER: Indeed. You know, I was thinking about, before we began to do this program, I was thinking about where is it written. And I was considering going back to a very ancient civilization, mostly in terms of the reports that we have that you may in your visits to Israel advise the new Israeli government in terms of its economic problems. And I wanted to ask you a question. I wanted to ask you a question about a remark that I had heard you make in connection with this story about the role you might play in relation to the new Israeli government. You said something like this – and to the degree that I’m distorting your words or your thoughts, please correct me – “It is somewhat strange that socialism is supposed to find so many friends, and capitalism so many enemies among Jews when perhaps some people might think that the essence of the Jewish tradition is so alien to socialism and so akin to capitalism.” And I wondered, to the extent that you meant much of that, what you meant by it?

FRIEDMAN: Well, I think I mean, I would endorse certainly that statement as you put it, while going onto say it needs some elaboration in some respects. Let me see if I can put it to you in a sort of a different way. My first visit to Israel was made about 15 years ago. I was there for about three months as a visitor at the Hebrew University in Jerusalem. And after I left Israel, I summarized my impressions by saying that I thought that the best way to understand Israel was to recognize that two Jewish traditions were at war with one another in Israel. One of them was a very recent tradition, a tradition of 100, 150 years old. That’s the tradition of socialism. That’s the tradition you referred to in your initial comments, that it is true that on the whole the Jewish intellectuals have been strongly pro-socialist. And that’s contributed disproportionately to the socialist literature. That was the one tradition. The other tradition, I said, was a tradition that was at least 2,000 years old. It was a tradition that had arisen during the Diaspora and as a result of the Diaspora. It was a tradition of how you get around government regulations, how you find chinks in controls, how you find those areas in which the free market operates and make the most of them. It was that tradition which had enabled the Jews to survive during centuries of persecution by the constituted authorities. Once in a while there would be a monarch who would intervene in favor of the Jews. But almost always that was because there had been a Jew who had accumulated enough money through the free market, through capitalism, to have loaned money to the monarch and have him in his debt. The story in the Bible of Esther is not a very usual story. That isn’t usually the way it occurs. Most of the time the Jews have survived despite the opposition of the powers that be, not because of them. And this ancient tradition of 2,000 years is still very much alive in Israel. And what I said at that time was that fortunately for Israel the ancient tradition is strongly renewable.

Now, let me go back to that in a modern context. I believe that there are few people in the world who have benefitted as much from capitalism and free enterprise as the Jews. Suppose you ask yourself in what countries it is that the Jews have been able to survive and thrive. They’ve been able to survive and thrive primarily in those countries that have had capitalism and free enterprise. They haven’t been able to survive and thrive in the socialist utopias of Russia or of Poland. They haven’t been able to, they weren’t able to survive and thrive in the national socialist state of Nazi Germany. They have been able to survive and thrive in places like Great Britain, in Germany when it was capitalist before Hitler, in France which is largely capitalist, and the United States. And more important, in what parts of those economies have they done best? In those parts where government has had the least role to play. You do not find in the United states that the Jews have done very well in large-scale manufacturing or in commercial banking, because those are areas which are very closely intertwined with government. In banking you need a governmental franchise. And there is probably no industry in the United States in which there are fewer Jews, surprising as it may seem, in major positions of responsibility than in the commercial banking industry. Where have they thrived? In the industries which have been most competitive, where there’s been the least monopoly, private or public: retaining, which was open to all; in new industries, in Hollywood. Why? Because it was a new, brand new industry. There were no settled positions of privilege or of power, no government involvement.

So, Jews have done best – and other minorities. I’m not only speaking of Jews. If you look at the Japanese in the United States, if you look at the blacks in the United States, in every case they have done best in those areas where you have had the greatest degree of competition; and they have done worst in those areas where you have had the most monopoly and the most governmental link to government. So on the one hand, there are no people in the world who have benefitted so much from capitalism as the Jews. Look at Israel. Suppose socialism had triumphed in the world. How would Israel have gotten support? Did Israel get support in its early and difficult days from the governments of the world? Or from people? And from what people? From the Jews who had managed to make a little bit of a competence for themselves and accumulated a little funds in the capitalist bastions of the world.

So, the Jews have benefitted enormously from capitalism. And yet on the other side – and that’s the issue you raise – here you have the paradox that the Jews have been among those who have contributed much to undermine the intellectual foundations of capitalism.

HEFFNER: Is this a dichotomy that exists in contemporary Israel too?

FRIEDMAN: Of course. Of course. It has existed.

HEFFNER: Then how will you make a contribution?

FRIEDMAN: Oh, well, you know how it is. I will make a contribution. I would be delighted to if I could. But you know, people ask for advice from people who they know will give them the advice they want to hear. Well, there’s no shortage of good economists in Israel. They are very good economists. They know what to do. And in fact, the economists in Israel have not been in favor of governmental policies in Israel. It’s like it has been in the United States, where the economists have been opposed uniformly to many governmental policies, such as the price-fixing policies I was talking about, such as rent control. Similarly, the economists in Israel have been almost unanimously opposed to some, many governmental controls and regulations. What’s happened in Israel is that you now have a new party that came into power. … It’s a party that proclaims it’s belief in private enterprise. It proclaims its desire to reduce the size of government and to give greater opportunities to individuals. Their objectives are excellent. I hope they achieve them. I’m not wholly confident that they will, in fact. I have many doubts about whether they will succeed. And a reason why they have asked me if I would advise them is because they know that I believe in a free economy and that their policy is my policy. And insofar as I can give any assistance, I am delighted to, both because of my general desire to see freedom prosper, and also because I have a very strong personal sympathy and interest in Israel. I am Jewish by origin and culture. I share their values and their belief. I share the admiration which many have had for the miracles that have occurred in Israel. So if I can make any contribution to a more effective policy for preserving Israel, Israel’s freedom and strength, I would certainly be delighted to do so.

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