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, “When anyone complains about unfair competition, consumers beware. That is really a cry for special privilege always at the expense of the consumer. What we needed in this country is free competition. As consumers, buying in an international market, the more unfair the competition the better. That means lower prices and better quality for us. If foreign governments want to use their taxpayers money to sell people in the United States goods below cost, why should we complain? Their own taxpayers will complain soon enough and it will not last for very long.”

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Milton Friedman’s Free to Choose – Ep.2 (3/7) – The Tyranny of Control

Richard P. Simmons, Industry Specializing Steel Committee: The dilemma of asking our government for assistance in this problem of unfair competition bothers many of us because the sword does cut both ways. But we believe that what we have attempted to do is far different than the kinds of direct government involvement that occur in many of the foreign nations around the world where the governments provide direct financial assistance in the form of either ownership or loans or subsidies in some fashion or another.

What we have attempted to do is simply to get our government to enforce the United States laws against unfair competition that have been on the United States’ books. We draw clear distinction between that and, for example, the several hundred million dollars that the French government has granted to the French steel companies, or that the British Steel Corporation has received $1.3 billion for capital investment this year. So that while we are uneasy in any way interfacing with our government in what we traditionally believe are the free enterprise prerogatives, yet what we are only asking for is that the government enforce the laws that our Congress has passed. I’m not sure that’s really any different than asking someone to arrest someone that commits a crime. I don’t think we would be accused of being reactionary if we reported somebody who was stealing, to the police if it were in violation of a U.S. law. We think that we’re doing exactly the same thing when we bring cases against foreign producers who we believe are violating U.S. laws.

Friedman: The fallacy with that argument is that it begs the real question. Why should there be laws that in effect prevent you and me from buying in the cheapest market?

When anyone complains about unfair competition, consumers beware. That is really a cry for special privilege always at the expense of the consumer. What we needed in this country is free competition. As consumers, buying in an international market, the more unfair the competition the better. That means lower prices and better quality for us. If foreign governments want to use their taxpayers money to sell people in the United States goods below cost, why should we complain? Their own taxpayers will complain soon enough and it will not last for very long.

History provides lots of evidence on what happens when government protected industries compete with industries who have the operate in an open and free market. It’s almost always the government protected industries that come out second best.

Ask Sir Freddy Laker, the Englishman who introduced low cost air traffic across the Atlantic. Who were his chief competitors? They were all government protected, government financed, government regulated airlines. He came out very well, made a mint of money. And you and I have gotten cheaper travel across the Atlantic.

Nothing would promote the long run health of the steel industry, make it into a more efficient, profitable and productive industry than for the U.S. government to keep its hands off, neither providing special privileges, nor imposing special restraints. And what is true for the steel industry is true for every other industry in the country.

These women work in an industry that so far hasn’t asked for special protection __ the silicon chip industry. Every one of these small squares on this disk is a highly complicated and integrated micro circuit. An American technician examines them for defects. It is highly skilled work and she’s had a lot of training. When she has done her job, the rejects will be separated from the rest and the good circuits will be packed up and sent half way around the world to Malaysia. The product of American technological skills returns looking like this. Each micro circuit has been enclosed in ceramic by a Malaysian worker who is highly productive at this sort of work. But, the Malaysians are not able to test their product so back they come here to America to be fed into these machines.

American engineers are good at producing sophisticated machines. In an operation that lasts a fraction of a second, these machines can test every circuit, can grade it for quality, and then can sort it into one of six different categories of reliability. The invisible hand in this free market has done wonders for both the American girls and their Malaysian counterparts. And that’s not the end yet because American silicon chips are exported to many countries where foreign workers assemble them. The final product is then returned to our stores so that you and I, the consumers, can benefit from $10.00 calculators, as well as from a lot of other electronic devices that not long ago simply did not exist. When this Hi-Fi equipment first came on the market, only the rich could afford it.

But even when the international market and labor seem to work to everyone’s advantage, people still put up arguments against it. The usual argument against complete free trade is that cheap labor from abroad will take jobs away from workers at home. Well, what is cheap? A Japanese worker is paid in yen and American workers paid in dollars. How do we compare the yen with the dollars? We need some way of transforming the one into the other. That is where the exchange rate enters in __ the price of yen in terms of the dollar.

Suppose that some exchange rate, Japanese goods are in general cheaper than American goods, and we will be buying much from Japan and selling little to them. But what will the Japanese do with the extra dollars they earn? They don’t want to buy American goods. By assumption, those are all dear. They want to buy Japanese goods. But to buy Japanese goods, they need yen. Calls will come in from all over the world to places like this, offering to buy yen for dollars. But there will be more offers to buy yen than to sell yen. In order to get customers, those offering to buy will have to raise the price. The price of yen in terms of dollars will go up.

As you remember, that is what happened in 1977 and 1978. By late 1978, it took 50% more dollars to buy a given amount of yen than it had taken a year earlier. But what happens when the price of yen in terms of dollars goes up? Japanese labor is no longer so cheap. Japanese goods are no longer so attractive to American consumers. On the other hand, American labor is no longer so dear to Japanese. American goods are more attractive to the Japanese. We will export more to them. We will import less from them. New jobs will be created in export industries to replace any jobs that might have been lost in industries competing with imports. That is how a free market and foreign exchange balances trade around the world when it is permitted to operate. The problem is that more often than not free market is not permitted to operate. For reasons that seem to make sense if you don’t examine them carefully, government insists on interfering, but when they do it’s not possible to hide the harmful effects for very long.

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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)