In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount.  I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “What is wrong with our schools?”  and “Created Equal”  and  From Cradle to Grave, and – Power of the Market. In this episode “The Tyranny of Controls” Milton Friedman shows how government planning and detailed control of economic activity lessens productive innovation and consumer choice.

In this episode Milton Friedman asserts, ” What we need are constitutional restraints on the power of government to interfere with free markets in foreign exchange, in foreign trade, and in many other aspects of our lives.”

Milton Friedman’s Free to Choose – Ep.2 (4/7) – The Tyranny of Control

The main reason why the Japanese yen went up so sharply in price in 1977 and 1978 was because the Japanese government had been trying to prevent the yen from going up in price. In the process what might have been small disturbances were allowed to accumulate into a major gap in trade. As a result when market forces were finally permitted to operate, as sooner or later they must be, it took a major change in the yen exchange rate to bring things back into life. Why don’t governments learn, because governments never learn, only people learn, and the people who learn today may not be the people in charge of economic policy tomorrow.

As you contemplate this, you may come to agree with me, that what we need are constitutional restraints on the power of government to interfere with free markets in foreign exchange, in foreign trade, and in many other aspects of our lives.

DISCUSSION

Participants: Robert McKenzie, Moderator; Milton Friedman; Richard Deason, International Brotherhood of Electrical Workers; Donald Rumsfeld, President, G.D. Searle & Company; Helen Hughes, Director of Economic Studies, World Bank; Jagdish Bhagwati, Professor of Economics, MIT

McKENZIE: Now, here in Chicago, the special guests who have been watching that film have their say.

DEASON: This film has set me on edge. There is political, social, ethical considerations which do not reflect in the economic philosophy put out. There is a pervading feeling in this that the individual worker is to be totally sacrificed for the overall good of society. I see __ I don’t see how possibly you can sacrifice individuals’ for overall good of society because society is nothing but those millions and millions of individuals, put together. And nowhere is there any consideration given to the social and the ethical aspects of the free trade formula that you advocate.

McKENZIE: Let’s get other views now, around the group. What’s your reaction, Don Rumsfeld, as a businessman, to the idea that Milton Friedman’s advanced, that America ought to buy in the cheapest markets, the cheapest goods, without protecting against them?

RUMSFELD: I swore I would never even try to defend Milton Friedman. And I won’t. But let me comment, first, on Dick’s comment. It bothers me to hear social and moral arguments invoked in an issue like this, because it seems to me the measure is what actually happens to human beings. Each individual ought to be concerned about humanity. For a single individual who is unemployed, that’s a hundred percent unemployment.

DEASON: Absolutely.

RUMSFELD: And we recognize that. I recognize that. But the real world is, if you, as the film did, go to India, if you want to see things that one can describe as inhumane, and poverty, and problems of human beings, they exist. And the test ought to be, what works? What, in fact, will provide a circumstance that will be more than dynamic, and more productive in the world?

HUGHES: It is true that in the long run we would all be better off with free trade. I agree with Milton. But it’s the short run that matters, and in the short run there are serious adjustment problems. Now there’s no question that the developing countries need access to markets such as American markets. And America needs them to export so that they can export more to developing countries. American exports to developing countries have moved from something like twenty percent of total exports to thirty percent over the last ten years. But the adjustment is important, because what is happening at present is that it’s not just a random group of workers that is affected by this trade, it’s the most disadvantaged and underprivileged workers in America which are being affected; and they are, by and large, women, and members of minorities; in garments, in electronics. And I think that the adjustment consists of action on both the developing and the developed country sides. From the __ let’s take the American side. On the American side, the unions and industry, I think, have to get off discussion about moral issues and get their act in order.

BHAGWATI: I couldn’t agree more with Helen. I think there is a very valid income distributional problem involved here. Certainly society gets better off, consumers get better off as a result of cheaper imports, and I’m all for that, and there I agree completely with Milton. But if the incidence of the adjustment falls on disadvantaged groups, then you would want to do something about it, if this really becomes an ethical issue. But the other thing which I think Milton does bring up, which I disagree sharply with is: Suppose the foreign governments do subsidize and actively promote exports to you. Should you just sit back and just say, “Well, we’re going to be better off as a result of this”? I don’t think that takes into account the fact of the whole international system can break down as a result of what people perceive in pluralist economics as unfair competition emerging. And I think this is really what you’re beginning to see. So we do need some sanctions. I mean, I may receive stolen property, and I’m better off. Of course I’m better off. But if, as a result of this, I encourage theft, I think few people would agree that was something one did want to worry about.

McKENZIE: Before I call in Milton Friedman on this, a reaction to the comments?

DEASON: Yes. Really to Don and to Helen. Don, you choose to set aside, or you appear to choose to set aside the social and the ethical considerations. And __

RUMSFELD: Not at all, what I said was: You have to put the fact on a scale, that there are social and ethical considerations with a free market or without one. And the tendency is for people to invoke morality only on their side, and not to recognize that there are problems of human beings in this world that are going to occur in each case. And the measure, or the test ought to be, what actually happens out there and address that question.

DEASON: But you must, you must also very much consider the social aspect of this situation. Helen’s comment, the short-term displacement. I have a question for Milton at this point: How long do you put as a timetable on the displacement of these people, of these workers? Five years, ten years, a generation? How long will it be before overall society, you know, balances itself out and the individual is no longer hurt?

FRIEDMAN: Let me take your first __ your last question first and then go to your basic question. I have always been in favor of phasing out tariffs over a five year period, a twenty percent reduction a year for five years to give people time to adjust. Now to your fundamental issue. I thought I had heard every objection to my views imaginable, but you are the first one who has ever accused me of putting the interests of society as a whole ahead of the interests of individuals. If there is one element in my social philosophy, in my ethical philosophy that’s predominant, it is that the ultimate unit is the human being, the individual, and that society is a means whereby we jointly achieve our objectives. I would argue that the social and moral issues are all on the side of free trade, that it is you, and people like you, who introduce protection, who are the ones who are violating fundamental social and moral issues. Tell me, what trade union represents the workers who are displaced because high tariffs reduce exports from this country? Because high tariffs make steel, for example, or other goods, more expensive, as a result, those industries which use steel have fewer __ have to charge higher prices, they have fewer employees, the export industries that would grow up to balance the imports __ tell me, what union represents them? What moral and ethical view do you have about their interests?

McKENZIE: Richard Deason.

DEASON: You still haven’t answered my basic question: How long of a time period, how long of a frame __ five years, ten years, a generation? You still haven’t answered it.

FRIEDMAN: I said __ I said five years.

DEASON: Five years __

McKENZIE: Could we be clear, Milton, on this point. You’re saying, though, that tariffs should be phased out over five years regardless of the action of other countries. It’s not a sort of negotiation or anything else?

FRIEDMAN: Regardless. Regardless of the actions of other countries. So far, obviously, I would prefer to have other countries reduce their tariffs __

McKENZIE: But if they don’t move, America should move?

FRIEDMAN: Absolutely.

McKENZIE: Do you go along with that, Don Rumsfeld?

RUMSFELD: In others words, you’re against reciprocal __

FRIEDMAN: I’m not against __

RUMSFELD: __ you favor getting to truly reciprocal trade, but you’re willing to get there unilaterally?

FRIEDMAN: Yeah.

RUMSFELD: Yeah. It seems to me that it’s probably worth moving in that direction. I don’t know where I would stop. I am not __

McKENZIE: Well, it’s a five year program. Will you buy that?

RUMSFELD: Well, it seems to me that you get action, reaction. To the extent you’re doing something that makes sense for human beings, presumably, that would be persuasive with others. Presumably there would be a logical sequence where other countries would begin to sense that had a certain degree of validity in the world.

McKENZIE: Will that happen, Helen Hughes?

HUGHES: Providing you do something for the displaced workers in the country in which they’re displaced. Because if you don’t do something, if you don’t take some action, and it’s generally got to be government action, you will get such a backlash that you’ll be back in the thirties with the sort of thing that happened with high unemployment.”

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“The Failure of Socialism” episode of Free to Choose in 1990 by Milton Friedman (Part 1)

By Everette Hatcher III | Posted in Milton Friedman, Ronald Reagan | Edit | Comments (0)

Bob Chitester Discusses Milton Friedman and ‘Free to Choose’

Published on Jul 30, 2012 by LibertarianismDotOrg

Milton Friedman, A Centennial Appreciation

by Donald J. Boudreaux

This article appeared in Newsday on July 30, 2012.

At the height of the Vietnam War, U.S. commander Gen. William Westmoreland testified before the President’s Commission on an All-Volunteer Force. The 15 members of that commission were charged with exploring the feasibility of ending the military draft.

Staunchly opposed to an all-volunteer military, which must pay its soldiers market wages, Gen. Westmoreland proclaimed that he did not want to command “an army of mercenaries.” One of the commission members immediately shot back with a question: “General, would you rather command an army of slaves?” That penetrating query was posed by Milton Friedman, a diminutive (he stood only 5 feet 3 inches tall) giant among 20th-century scholars. Were he still alive — he died in 2006 — Friedman would celebrate his 100th birthday on July 31.

Bald and bespectacled, Friedman looked every part the University of Chicago economics professor that he was. During his long tenure at that celebrated institution, he produced a stream of cutting-edge research on consumer behavior, on the role of money, and on the history of U.S. and British monetary policy. The impressive quantity, quality, and importance of this research without doubt places Friedman among the top two or three economists of the past century.

Friedman, indeed, is one of the few scholars whose receipt of the Nobel Prize in Economics — which he received in 1976 — did at least as much to bestow prestige on that award as that award did to bestow prestige on him. (The first Nobel Prize in Economics wasn’t awarded until 1969.) Friedman’s stupendous scholarly achievements alone justify commemoration of the centenary of his birth.

But at least as important as Friedman’s scholarship was his lucid and energetic public advocacy of limited government and free markets. He explained with unmatched clarity how a modern economy’s complexities, nuances, and dynamism almost always thwart even the best-intentioned efforts by government officials to intervene into markets.

In a scene from the opening episode of his successful 10-part 1980 PBS series “Free to Choose,” Friedman held in his hand an ordinary pencil. Looking into the camera, and speaking without a script, he explained that a pencil — so seemingly simple — requires for its production the knowledge and labors of millions of people from around the world.

Some workers cut down the trees; other workers make the chainsaws used to cut down the trees; yet other workers make the steel used to manufacture the chainsaws; and yet other workers specialize in mining the iron ore used to make the steel. Still other workers mine the graphite to make the “lead” for the pencil, while many others work in factories to make the yellow paint that commonly adorns pencils, while still other workers perform the many tasks required to produce the rubber for each pencil’s eraser.

Just to list the number of different, highly specialized jobs that must be performed to produce a commonplace pencil would take volumes. Few of these workers know each other, and none of them knows how to do any more than one or two of the countless jobs that must be done if we are to be well-supplied with pencils.

Friedman explained how free-market prices, along with the lure of profit and the fear of loss, guide entrepreneurs, firms, and workers from across the globe to produce just the right amounts of wood, graphite, paint, erasers, and the many other parts of pencils.

No government commissars are involved. There’s no central plan for the production of pencils. Yet we have high-quality pencils in abundance and for sale at low prices. What’s true for pencils, of course, is true also for more complex items such as automobiles, electric lighting, MRI machines, and on and on — that is, for nearly every good commonly found in modern industrial society.

No one equaled Friedman’s skill at explaining how free markets succeed at coordinating the activities of legions of individuals to produce the goods and services that we today take for granted. Likewise, no one equaled his skill at explaining how government regulators are typically oblivious to the complexity of the coordination achieved by markets. Being oblivious, regulators’ interventions too often obstruct this market coordination.

Note that Friedman would heartily agree with President Obama that no one prospers in today’s economy exclusively through his or her own individual efforts. Where Friedman would disagree — and disagree strongly — is with Obama‘s suggestion that the main source of help that each of us gets from others is government. While government might supply some necessary pieces, such as highways and law courts, the vast bulk of what society supplies for each person’s sustenance and success comes not from government but from the ongoing private efforts of millions of individuals acting in free markets.

Friedman’s brilliant use of the pencil, like his reply to Gen. Westmoreland, reveals the great talent Friedman had for cutting to the heart of the matter in ways easily understood by almost everyone.

Revealing the awesome complexity of the humble pencil makes clear that no government regulators can ever hope to know enough about the entire economy to regulate it as well as it is regulated by free-market forces. Calling the military’s seizure of years of labor from young men “slavery” reveals the fact that draftees — like plantation slaves of old — are forced against their will to work for others and on terms dictated by others.

Friedman’s response to Gen. Westmoreland is evidence also of Friedman’s lifelong commitment to the cause of human freedom. Not only was conscription economically inefficient (as Friedman showed in academic research), it was also an affront to the values of a free society.

In a free society government is kept as small and as constrained as possible, charged with doing only those few tasks that are widely believed to be doable only by government — tasks such as building roads and supplying national defense. All other tasks are left to the creative forces of the free market. And in doing those few tasks, Friedman maintained, the freedom and dignity of every individual must always be respected.

Americans of my generation likely first encountered Friedman through his regular column in Newsweek, which ran from 1966 through 1984. Each of these essays cogently made the case for reducing the reach of government. In making this case, Friedman consistently defied conventional stereotypes. He was, he always insisted, not a conservative but, rather, a liberal — a true liberal, in the original meaning of that term.

Being a classical liberal, Friedman vigorously championed not only economic freedoms but also freedoms emphasized by many folks on the political left, such as freedom of speech and of assembly. It speaks volumes of Friedman’s principles that he, the owlish and dedicated scholar so beloved by many establishment conservatives for his support of free enterprise, was among the most vocal and unwavering opponents of the “war on drugs.” He insisted, with characteristic wit, that “the government has no more right to tell me what goes into my mouth than it has to tell me what comes out of my mouth.” Truly great men and women are rare. What they all share is the courage of their convictions, the wisdom to distinguish cant from reality, and enormous energy and ability in working to make the world a better place. Milton Friedman was one such genuinely great man.

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