Category Archives: Milton Friedman

5 myths that conceal reality by Milton Friedman

A great speech below:

Here are the myths:Robber Baron Myth, The Cause of Great Depression Myth, The Demand for Government Service Myth, The Free Lunch Smith, and The Robin Hood Myth.

1) the Robber Baron Myth, 2) the Great Depression Myth, 3) the Demand for Government Service Myth, 4) the Free Lunch Myth, and 5) the Robin Hood Myth.  – See more at: http://mjperry.blogspot.com/2012/09/classic-milton-friedman-video-from-1977.html#sthash.dDqboqYg.dpuf
In this classic video from 1977, Milton Friedman delivers a 52-minute lecture at Utah State University titled “Myths That Conceal Reality” including: 1) the Robber Baron Myth, 2) the Great Depression Myth, 3) the Demand for Government Service Myth, 4) the Free Lunch Myth, and 5) the Robin Hood Myth.  – See more at: http://mjperry.blogspot.com/2012/09/classic-milton-friedman-video-from-1977.html#sthash.dDqboqYg.dpuf
In this classic video from 1977, Milton Friedman delivers a 52-minute lecture at Utah State University titled “Myths That Conceal Reality” including: 1) the Robber Baron Myth, 2) the Great Depression Myth, 3) the Demand for Government Service Myth, 4) the Free Lunch Myth, and 5) the Robin Hood Myth.  – See more at: http://mjperry.blogspot.com/2012/09/classic-milton-friedman-video-from-1977.html#sthash.dDqboqYg.dpuf

Sunday Reader: Milton Friedman’s “Five Myths That Conceal Reality”

 

Milton Friedman is one of the most influential thinkers of the last 100 years.  He stood in opposition to The Loud Left, but then a lot of people did.  His opinions alone are not what made him great.  What made him potent and unique is that he was a great teacher.  He spoke with a clarity and substance than exposed the rhetoric of The Left for the shallow, muddled logic it truly is.

I had the pleasure of hearing Milton speak at a university where I was lecturing.  He took on all comers after his talk, and the braver (or more suicidal) of the faculty challenged him.  In his gentle way he eviscerated every one of them; reduced them to silence, lost in the clutter and tangle of their socialist contradictions.

This YouTube below is long; almost an hour.  In the age of Twitter and IM and the hieroglyphs of text messages, of short attention spans and shorter tempers and bumper sticker politics, perhaps long, thoughtful statements of philosophy have no place anymore.  OTOH, if you’ve never heard Milton speak at length, you have been deprived of exposure to one of the great thinkers and teachers, a deprivation this YouTube will correct.

Spend a few minutes here, with Milton.  Especially if you get your daily news and political wisdom from those deep economic thinkers John Stewart and Stephen Colbert on Comedy Central, you literally need Milton more than you know.  Obama’s rhetorical nonsense and Joe Biden’s mental lapses, the entirety of Keynesian dogma, will never sound the same to you again.

Milton begins:  “As you are all aware, there has been a drastic shift in public attitudes public opinion in the past fifty years or so, with respect to the role of the individual on the one hand and the role of government and collective institutions on the other.”

“There has been a shift in the philosophy and attitudes of the public from a belief in individual responsibility, from a belief in a society in which the role of government was as an umpire, to a belief in a society in which the emphasis is on social responsibility and the role of government as Big Brother and protector of the individual. As always when such shifts arise in public opinion, they are largely produced and reinforced by the development of myths about prior experience.”

“Somebody wrote that a myth is like an air mattress: there’s nothing in it, but it’s wonderfully comfortable, and deflation causes an uncomfortable jolt. My purpose today is to give you that jolt.”

Related posts:

“Friedman Friday” Milton Friedman – Power of Choice (Biography) Part 3

Milton Friedman – Power of Choice (Biography) Part 3 Published on May 21, 2012 by BasicEconomics Tribute to Milton Friedman English Pages, 8. 9. 2008 Dear colleagues, dear friends, (1) It is a great honor for me to be asked to say a few words to this distinguished and very knowledgeable audience about one of our greatest […]

“Friedman Friday” Milton Friedman – Power of Choice (Biography) Part 2

Milton Friedman – Power of Choice (Biography) Part 2 Published on May 21, 2012 by BasicEconomics My Tribute to Milton Friedman: The Little Giant of Free Market Economics By: admin- 11/17/2006 09:49 AM RESIZE: AAA  Milton Friedman, the intellectual architect of the free-market reforms of the post-World War II era, was a dear friend. I […]

“Friedman Friday” Milton Friedman – Power of Choice – Biography (Part 1)

Milton Friedman – Power of Choice – Biography (Part 1) Published on May 20, 2012 by BasicEconomics   David R. Henderson The Pursuit of Happiness ~ Milton Friedman: A Personal Tribute May 2007 • Volume: 57 • Issue: 4 David Henderson (davidrhenderson1950@gmail.com) is a research fellow with the Hoover Institution and an economics professor at […]

Milton Friedman’s Chicago Boys started the Chilean Miracle and it is still helping ordinary people today!!!

Milton Friedman and Chile – The Power of Choice Uploaded on May 13, 2011 In this excerpt from Free To Choose Network’s “The Power of Choice (2006)”, we set the record straight on Milton Friedman’s dealings with Chile — including training the Chicago Boys and his meeting with Augusto Pinochet. Was the tremendous prosperity unleashed […]

Margaret Thatcher admired Milton Friedman

RARE Friedman Footage – On Keys to Reagan and Thatcher’s Success Margaret Thatcher and Milton Friedman were two of my heroes. Thatcher praises Friedman, her freedom fighter By George Jones, Political Editor 12:01AM GMT 17 Nov 2006 A tireless champion of the free market Let’s not get misty eyed over the Friedman legacy Milton Friedman, […]

Milton Friedman and Chile an update

Milton Friedman was a great economist and a fine speaker. ___________________ I have written before about Milton Friedman’s influence on the economy of Chile. Now I saw this fine article below from http://www.heritage.org  and below that article I have included an article from the Wall Street Journal that talks about Milton Friedman’s influence on Chile. I […]

“Friedman Friday” Milton Friedman explains negative income tax to William F. Buckley in 1968

December 06, 2011 03:54 PM Milton Friedman Explains The Negative Income Tax – 1968 0 comments By Gordonskene enlarge Milton Friedman and friends.DOWNLOADS: 36 PLAYS: 35 Embed   The age-old question of Taxes. In the early 1960′s Economist Milton Friedman adopted an idea hatched in England in the 1950′s regarding a Negative Income Tax, to […]

Milton Friedman admired Margaret Thatcher

RARE Friedman Footage – On Keys to Reagan and Thatcher’s Success Margaret Thatcher and Milton Friedman were two of my heroes. Milton Friedman on How Francois Mitterrand (and Failed Lefty Economics) Helped Re-elect Margaret Thatcher Matt Welch|Apr. 10, 2013 9:37 am Yesterday I wrote a column about how Margaret Thatcher liberated Western Europe from the […]

Milton Friedman had a solution to today’s welfare mentality!!!

  I have written about the tremendous increase in the food stamp program the last 9 years before and that means that both President Obama and Bush were guilty of not trying to slow down it’s growth. Furthermore, Republicans have been some of the biggest supporters of the food stamp program. Milton Friedman had a […]

“Friedman Friday” Milton Friedman on “Firing Line” in 1968

Milton Friedman, Ronald Reagan And William F. Buckley Jr. Peter Robinson, 12.12.08, 12:01 AM EST In a time of crisis, don’t forget what they had to say. As the federal deficit surpasses $1 trillion, Congress debates a bailout for the Detroit automakers and President-elect Barack Obama draws up plans for a vast new stimulus package, […]

FRIEDMAN FRIDAY SEPTEMBER 4, 2006 An Interview with Milton Friedman

_______________

An Interview with Milton Friedman

I recently sat down with Milton Friedman, a few days before his 94th birthday, to discuss the impact of two of his most important contributions to economics and liberty: A Monetary History of the United States, 1870-1960 [co-written] with Anna Schwartz, and Capitalism and Freedom. The ideas in both books had tremendous influence on the economic and intellectual landscape.

You can listen to our two-part podcast conversation on EconTalk:

For help with listening to podcasts, go to the EconTalk FAQ.

The following transcript consists of excerpts from that conversation.

Russell Roberts
Features Editor

Russ Roberts: Welcome to EconTalk, part of the Library of Economics and Liberty. I’m your host, Russ Roberts, of George Mason University. My guest today is Milton Friedman. Milton is a senior research fellow at Stanford University’s Hoover Institution, the 1976 Nobel Laureate in Economics and a hero to millions in the United States and around the world for his insights and actions on behalf of economics and liberty.

Russ Roberts: Milton, I’d like our conversation to focus on the ideas contained in two of your books, A Monetary History of the United States, 1867–1960, a massive scholarly work, and Capitalism and Freedom, a slim monograph on the principles of a free society.

Let’s begin with the Monetary History of the United States. Written with Anna Schwartz. Published in 1963, it was an extraordinarily detailed and careful study of the role of money in the economy. And among many important insights, it made the case that inflation is everywhere and always a monetary phenomenon. When that book was published, what was the reaction of the profession to its scholarship?

Milton Friedman: The profession on the whole appreciated its scholarship. As I remember as best I can, there were three different reviews in three different professional journals, all of which were highly favorable even though—I think—two out of the three [reviews] were written by strong Keynesians.

Russ Roberts: And what was its impact in affecting the way the profession, at least in the short run, looked at the role of money?

Milton Friedman: I find that a very hard question to answer. Obviously, many things were going on in the world. Bretton Woods was on. The 1960s were a period of pretty good prosperity. On the whole, during the ’50s and the ’60s, it looked as if the Keynesian interpretation was right. After all, during that period, we had relatively prosperous countries, relatively stable prices, and relatively low interest rates.

It was a golden era, as it were, and everybody was said to be operating on Keynesian lines. What really changed the public perception and also the professional perception was the experience of the 1970s. During the 1970s, you had a combination that under Keynesian analysis could not exist. You had high inflation and high unemployment at the same time—named stagflation—and that combination was really ruled out by the simple kind of Keynesian analysis that was in vogue. But it was that experience which more than anything else led to a basic change in public and intellectual attitudes toward money.

Russ Roberts: So the scholars and the public had to try to puzzle out why this seeming impossibility was definitely occurring.

Milton Friedman: Yes and no. Because of our book, because of Bob Lucas’ work, we had predicted that this would happen and, therefore, it was like an experiment. You wait and see what happens and the predicted results happened.

Russ Roberts: There was a lens to look through to explain what was going on.

Milton Friedman: Sure, because this lens had predicted that you could have both high unemployment and high inflation at the same time.

Russ Roberts: I was an undergraduate and a graduate in the 1970s and my textbooks at the undergraduate level—not the graduate level, because I attended a small university in the Midwest I think you used to have an affiliation with, the University of Chicago—but as an undergraduate, my textbooks talked about all the different theories of inflation—cost push, cost pull, the role of unions, the role of industrial concentration and, of course, the possibility that Milton Friedman, this maverick thinker was right, that money had something to do with it.

It’s my impression that’s not true anymore; that the intellectual environment understands today that inflation is caused by a rapid growth in the money supply.

Milton Friedman: I think it does. I think that’s clear and the last 30 years, last 20 years I should say, has done a great deal to rub that in because every central bank has come to accept the view that it’s responsible for inflation.

Russ Roberts: Let’s talk about those central banks. What role do you think the Monetary History had—and the related work around it, of course—in influencing central bankers in focusing on the money supply in its role of affecting inflation?

Milton Friedman: I think it had a great deal of effect. I think what was most important was a chapter in the Monetary History that dealt with the Great Depression. The difficulty of having people understand monetary theory is very simple—the central banks are good at press relations. The central banks hire people and the central banks employ a large fraction of all economists so there is a bias to tell the case—the story—in a way that is favorable to the central banks.

But the Great Depression was such a major event and such a disaster that there was no way in which you could talk it away, although they tried to do so. If you read the annual reports of the Federal Reserve Board or its testimony before Congress, you will find that as late as 1933, at the very depths of the depression, it’s talking about how much worse things would have been if the Fed hadn’t behaved so well.

But the evidence was so clear. You had a decline in the quantity of money by a third from 1929 to 1933 and that coincided with the decline in the economy by half or so. When you have 25 percent of the working force unemployed, you can’t just talk it away.

Russ Roberts: But at the time, the main lesson that people drew from that was that capitalism is broken.

Milton Friedman: Absolutely. The lesson people drew was that it was a fault of business. It was a market failure. But I think the reason they drew that lesson was because of the way in which the self interest of the monetary authorities led them to promote it.

Russ Roberts: And you could toss in the self-interest of FDR in painting himself as a savior despite the severe recession of 1938.

Milton Friedman: But that would have been the same for them even if they had recognized the cause, only they would have concentrated more on doing—on abolishing the Fed or on reformulating the Fed. But the reason why the public and the intellectuals at large held to that perception was because that was what they were being told by the authorities.

Russ Roberts: And so it justified a great deal of government intervention in the economy at the time, obviously.

Milton Friedman: Oh, it certainly did.

Russ Roberts: And you’re suggesting that the Monetary History was the beginning of a revision toward a different perspective.

Milton Friedman: Well, I don’t know. On the ideological side, there were other things at work. Hayek’sRoad to Serfdom, which was published in 1945 made the ideological case. I don’t know what role the Monetary History played in the public at large but in terms of the monetary authorities, in terms of money, there’s no doubt that it played a considerable role.

Russ Roberts: And that chapter on the Great Depression must have alarmed them greatly about their potential for doing harm.

Milton Friedman: Exactly, exactly.

Russ Roberts: And at that time, in the 1960s, there was a lot of debate about what the role of the central bank should be and because inflation was relatively low, there was much less attention paid to that role.

Milton Friedman: Here and there, there were things like the Federal Reserve Bank of St. Louis, which was arguing against the Federal Reserve policy and which was arguing that they should pay more attention to the quantity of money, but they were mavericks. But so far as the bulk of the population, the bulk of the profession, the bulk of the people hired by the monetary authorities, they all were Keynesians.

Russ Roberts: Focusing on the central bank role, going back again to the ’70s when I was in school and shortly after your book came out, the focus was on the money supply—the quantity of money, counting it, controlling it through open market operations.

Something changed in the last 25 or 30 years. That’s not what Alan Greenspan or Ben Bernanke talk about. They talk about other things and they play with that short-term interest rate, not the so-called stock of money that you focused on so intensely in the book.

Milton Friedman: That’s what the talk about but that’s not what they do.

Russ Roberts: What do they do?

Milton Friedman: They use the short-term interest rate as a way of controlling the quantity of money. If you look at the statistics, the rate of change of the quantity of money from month to month, quarter to quarter, year to year, it has never been so low as it has been over the last 20 years.

I don’t believe there’s another 20-year period in the history of the country in which you can find so steady a rate of growth in the quantity of money and that can’t all be an accident. That’s because they use the short-term interest rate. Look at it in the simplest possible way.

The Fed says the short-term interest rate should be 4.5 percent. How do they keep it there? By buying and selling securities on the open market. Now you’re Mr. Bernanke; you’re Mr. Greenspan. You’re watching that. And with the current short-term interest rate, you find that the quantity of money is starting to creep up more rapidly than you really want. Well, then you will tend to be favorable to raising to a higher rate of interest.

At that higher rate of interest, the demand for money is less and so the supply of money under that phenomenon, instead of having to sell government bonds to keep it there, they have to buy government bonds to keep it there or vice versa. Maybe I’m getting it mixed up. But in any event, the short-term interest rate is a tool with which you can control the quantity of money.

Russ Roberts: But they don’t talk about it that way.

Milton Friedman: No, they don’t talk about it that way.

Russ Roberts: Why do you think that is? Do you have any idea?

Milton Friedman: I don’t know. I’ve always been puzzled by why they insist on using the interest rate rather than the quantity of money.

If you really carried out the logic concerning the quantity of money, you deprive the Federal Reserve of anything to do. Suppose the Federal Reserve said it was going to increase the quantity of money by 4 percent a year, year after year, week after week, month after month. That would be a purely mechanical project. You could program a computer to do that.

Russ Roberts: Like an indexed mutual fund takes away the fun of being a fund manager.

Milton Friedman: Right. That’s part of the reason. But the main reason, I think, is different. It’s that the central bank associates with banks. It regards itself as sort of a mentor of the banking system and, to the individual bank, it doesn’t believe it creates a quantity of money. That doesn’t make any sense to them.

What they deal with are interest rates and therefore, it’s natural and so many of the central bankers are themselves from the banking industry. They’re bankers. And so it’s natural for them to think in terms of interest rates and, moreover, when they think in terms of interest rates, they’ve got all kinds of interest rates—short-term interest rates, long-term interest rates—all kinds of excuses for exercising power or thinking they’re exercising power.

Russ Roberts: Taking credit for exercising power.

Milton Friedman: I’ve always been in favor of abolishing the Federal Reserve and substituting a machine program that would keep the quantity of money going up at a steady rate.

Russ Roberts: And over the last 20 years or so, they’ve approximated that.

Milton Friedman: Come closer to approximating it. Absolutely.

Russ Roberts: And I would argue, and I assume you would as well, that the relative stability of the U.S. economy over the last 20 years is a reflection of that steady growth in the money supply.

Milton Friedman: I think there’s no doubt at all.

Russ Roberts: The non-erratic path.

Milton Friedman: It’s a golden period. It’s a period in which you had declining inflation but a fairly steady rate, a steady level. You had only three recessions, all of them brief, all of them mild. I don’t believe you can find another 20-year period in American history. But it’s interesting to note that so far as the international acceptance of monetary control is concerned, it was started by the Bank of New Zealand, not by the Federal Reserve Bank.

It was some time in the 1980s when New Zealand essentially came close to privatizing its central bank. It set up a situation in which the governor of the Central Bank of New Zealand had a contract with the government in which he agreed to keep the price level—inflation—within a certain bound; 0 to 3 percent or 0 to 2 percent. And if he did not do so, he could be fired.

Russ Roberts: Not decapitated, merely fired.

Milton Friedman: Merely fired.

Russ Roberts: But it still concentrated his mind sufficiently.

Milton Friedman: Oh, yes. And Don Brash was appointed as the first governor of the Central Bank of New Zealand. He’s now the leader of the opposition in the New Zealand Parliament. But at the time, he came from business. He was a businessman and he is an extraordinarily able and effective fellow and he took this job on at the time when New Zealand had a very high inflation rate and he succeeded in living up to his contract.

And that really set the pattern. It was the New Zealand experience, I’m sure, that had more to do with other central banks around the world adopting inflation targeting than the United States experience.

Russ Roberts: Because it was so dramatically effective in New Zealand?

Milton Friedman: It was the first time that anybody had explicitly adopted an inflation target. So that was something that everybody observed. And, secondly, it was so dramatically effective.

Russ Roberts: So are you optimistic about the role the central bank will continue to play in that inflation and price level story? You said we’ve had a golden era of 20, 25 years of stable prices, steady growth with only minor—by historical standards—minor recessions. Are you optimistic about the next 25 years?

Milton Friedman: I have great difficulty not being optimistic about it. All the evidence would seem to be optimistic. On the other hand, I can’t hold back a doubt. Governments want to spend money and sooner or later, governments are going to want to spend money without taxing it and the only way to do that is to print money—to create inflation.

Inflation is a form of taxation. How long will governments be able to resist the temptation? And particularly as people become adjusted to being in a world of stable inflation. They will be bigger suckers as it were. It will be easier to get a lot out of it. If everybody anticipated inflation, you couldn’t get anywhere by inflating.

Russ Roberts: But once you get people lulled into the expectation of a lack of it, there’s the potential to exploit it. Let me ask the question in a different way. A lot of people credit Alan Greenspan with the expansion and success. They give Paul Volcker some credit as well at the early part of this period that we’re talking about.

But they make it sound like the key to success in monetary policy is you just got to get the right person in the job. When Ben Bernanke or whoever is following him comes in, there’s this absurd microscopic examination of the aura and vapors around such a person. And you’re suggesting it really has nothing to do with it.

Milton Friedman: Well, how is it that New Zealand can do it. How is it that Australia can do it. How is it that Great Britain can do it. These are all countries which followed New Zealand. New Zealand started it. But then Australia and Great Britain also adopted inflation targeting.

Russ Roberts: Well, they just happened to find the right guy in each of those places.

Milton Friedman: Oh, they were all lucky. Absolutely. (Laughter.) I’ve always felt that the big defect politically of the Federal Reserve is precisely that so much depends on unelected representatives. The central bank is treated as if it were the Supreme Court. That’s why during the Depression, there was no effective controls on the central bank. There were members of Congress who knew what to do and who trying to get the Fed to do it but they had no way to do so.

Russ Roberts: There was no incentive directly. There was an indirect incentive, of course, which was humiliation and the stigma which has endured. They had no idea at the time of how bad that would turn out—how those decisions would look in retrospect. But you’re suggesting that the disadvantage of the current system is a lack of accountability.

Milton Friedman: Right.

Russ Roberts: But the alternative, the elected system, has the problem that you mentioned earlier of the temptation to exploit the ability to create money to increase revenue.

Milton Friedman: But that’s why what you want—if possible—is a mechanical system. If there was any virtue to the gold standard, it was that virtue. Maybe you could create the same thing now. My favorite proposal really is a little bit more sophisticated—or less sophisticated if you want to look at it that way—than a straight increase in the quantity of money. I would—if I had my choice—freeze the amount of high-powered money. Not increase it.

Russ Roberts: High-powered money being bills and cash.

Milton Friedman: High-powered money is the currency plus bank reserves.

Russ Roberts: Okay.

Milton Friedman: I would freeze that and hold it constant and have it as sort of a natural constant like gravity or something. Now, you would think that that’s a bad idea because there would be no provision for expansion; however, high-powered money is a small fraction of total money and the ratio of total money to high-powered money has been going up over time. So the economy would create more money and on average, you would have a pretty stable money growth and a pretty stable monetary system.

Russ Roberts: What do you think the odds are of that happening?

Milton Friedman: Zero.

Russ Roberts: Zero? Well, that’s a small number, zero. I wish you were a little more optimistic.

Milton Friedman: No, I don’t think it’ll happen unless there is another catastrophe like the Great Depression. But other than that, it’s not going to happen. I think the real danger of this [the current monetary system] breaking down is there’s no danger of it breaking down into a Great Depression. The real danger is it’ll break up into an inflation.

When I see in the Federal Reserve reports that the inflation anticipation for 10, 20 years is on the order of 2 percent a year, I find it very hard to believe it. Sooner or later, the government’s going to get out of hand.

Russ Roberts: But this current run is a lovely illustration of your ideal— a non-discretionary, mechanistic rule. The average person finds it very unappealing. Discretion always seems to be better than rules.

Milton Friedman: That’s right.

Russ Roberts: What you’re saying is that with that discretion—which is not ideal in your world—yet with that discretion, they have followed the rule.

Milton Friedman: Yes.

Russ Roberts: So far. They’ve given the impression to the world that they are wise and careful engineers at the helm of the monetary system and yet they have acted as robots.

Milton Friedman: That’s right.

Russ Roberts: What a wonderful example of a lack of damage done by that discretion. So far. But I understand your pessimism.

Russ Roberts: Milton, let’s turn to Capitalism and Freedom. In the book, you lay out the principles of what you call liberalism. Sometimes you call it liberalism, sometimes 19th Century liberalism. Sometimes you’ve called it classical liberalism. And you advocate there a limited role for government in the legal and monetary system and maximal freedom and responsibility for the individual. And in that book, which was published in 1962, but based on lectures, I think, that you gave in the late 1950s—

Milton Friedman: 1956.

Russ Roberts: So the ideas in that book are 50 years old this year. And in 1956 and thereafter in the book in 1962, you argued for a volunteer army, flexible exchange rates, a monetary rule for stable prices, educational vouchers, privatizing Social Security and a negative income tax. At the time, those ideas were not conservative at all—

Milton Friedman: They were very radical.

Russ Roberts: Some people might call them conservative but you called them liberal because they were about freedom. They were considered either conservative or whacky. What was the reaction to the book when it came out?

Milton Friedman: I don’t know. I really don’t know how to answer that question because when it came out, it did not receive a great deal of attention to begin with. It was reviewed in no major newspaper. The New York Times didn’t review it. The only reviews were in professional magazines. It was reviewed in the American Economic Review, in theEconomic Journal and other major professional journals but it got very little public attention.

Russ Roberts: And I’m surprised it was actually reviewed there. A book like that today would be much less likely to be reviewed in theAmerican Economic Review or Economic Journal. It was a polemic of sorts. That’s a little strong.

Milton Friedman: It was a polemic.

Russ Roberts: It was a treatise. It was a manifesto.

Milton Friedman: But by that time, I had acquired a considerable reputation as an economist in professional economics. There was a good deal in this book, however, which was of professional economics importance. What you’ve mentioned—floating exchange rates—and the monetary stuff. It was polemic but it wasn’t primarily polemic.

Russ Roberts: And it’s not written in a polemical style.

Milton Friedman: No, it tried to be a rational argument and it tried to consider the evidence for the points that are made. But you’re stressing how much has since been achieved from it.

Russ Roberts: Correct.

Milton Friedman: But I’ve always stressed the opposite. If you look at the list in Chapter 1 or 2—I have a long list of things government ought not to be doing.

Russ Roberts: And it’s not exhaustive. You say at the end of it this is just the beginnings of a list.

Milton Friedman: The only one of those that has really been achieved is a volunteer army.

Russ Roberts: Right. We’ve made some inroads potentially on agricultural price supports which is, I think, the first thing you list on that page. There was actually somewhat serious talk about changing them. But you’re right. You could argue the glass is half empty. But as, again, someone who came of intellectual age in the 1970s and who was sympathetic to the ideas in the book, to put it mildly, advocating those ideas at the time, any of the ones we’ve talked about on the positive side that actually happened or are close to happening, was a recipe for being treated as a buffoon or a fool or a heartless person. I think it’s an extraordinary intellectual and policy experiment over the last 50 years that so many of those things have come to pass.

Milton Friedman: And what’s happened is that the public attitude has changed tremendously. In 1945, 1950, at the end of the war, intellectual opinion was almost wholly collectivist. Everybody was a socialist. They may not have used the term but that’s what they were. However, practice was not socialist. Practice was free enterprise.

The role of government at that time was such smaller than it has since become and from 1945 on to 1980, what you had was galloping socialism. Government took over more and more control. Government spending went from about 20 percent of national income—government federal, state and local—to about 40 percent of national income until Reagan came along.

But Reagan was able to do what he did because in that 20-year period, intellectual opinion had changed. What had before been a hypothesis was now fact. You now could see what the government did and people didn’t particularly like what the government did. So public attitudes about government had changed very much over that period and I think maybe Capitalism and Freedom added a little of that but I think experience was much more responsible.

Russ Roberts: At the time, the other side of the intellectual argument, the socialist or communist side, was doing quite poorly. But we were not aware of it. The Soviet Union was doing much, much worse than it appeared to be doing.

Milton Friedman: Sure.

Russ Roberts: And so if we had had the facts about the Soviet Union, the experiential case for capitalism and markets might have been even stronger. But it really is rather remarkable that given the intellectual apologists for the Soviet Union of the day, how much the tide changed in public opinion despite the lack of direct evidence that we had.

Milton Friedman: We had very little direct evidence outside the United States and I think it was the evidence of the government in the United States that was playing a role. But I really have never done any serious work on trying to trace the course of general public opinion except as it worked for the politics of it. Reagan could never have gotten elected if there had not been a big change in public opinion. He could not have been elected in 1950.

Russ Roberts: And Goldwater was not electable in 1964 who in many ways was the most free market candidate of the 20th Century. Yet George W. Bush, who is not much of a classical liberal, did at least talk about what he described as privatizing Social Security, a topic that Reagan might think was a good idea but I don’t think ever talked about it publicly, advocated it, never made it a campaign issue. I think probably afraid of it, perhaps correctly so.

I remember in my youth, again going back to the ’70s, talking about eliminating Social Security was an invitation to be described as a person who wanted to see old people die in the streets “as they did before the 1930s” as if somehow Social Security had prevented this from happening, which is bizarre given the level of Social Security in the 30s.

Milton Friedman: Of course.

Russ Roberts: —and all the private mechanisms we have for taking care of ourselves. And so, obviously, Capitalism and Freedom played a role. You mentioned earlier The Road to Serfdom by Hayek in affecting public opinion. There was definitely an intellectual foundation laid for these public opinion changes that gave people something to hold onto.

Milton Friedman: Well, we know that, for example—we happen to know—that Reagan read Capitalism and Freedom before I ever met him and, clearly, that’s a way in which a book has influence.

Russ Roberts: But it also has influence through affecting the electorate who—

Milton Friedman: Oh, sure.

Russ Roberts: And Free to Choose, a book we haven’t mentioned yet, which was a documentary on public television at first and then I think the book followed the documentary or was it the other way around?

Milton Friedman: The book was based on the documentary but appeared in print before the documentary. What happened was we finished all the work on the documentary in the spring of ’79 and we spent the summer of ’79 using the transcripts of the program as a basis for Free to Choose book and Harcourt Brace did a remarkable job of publishing the book. We went to the printers in September and it was in the bookstores in December. Jovanovich—at the time, it was Harcourt Brace Jovanovich—Bill Jovanovich was very much of a fellow thinker and he contributed to our program.

Russ Roberts: In what way?

Milton Friedman: Oh, to begin with, the first step in creating the program was that I gave a series of lectures all over the country on the subjects that were going to be in the program to provide material for the producer and directors to weave into film. And he gave us a contract for publishing the transcripts of those lectures.

Russ Roberts: So that helped finance the trip. The book and the TV series, which reached millions, obviously, helped as well with the ideas of Capitalism and Freedom which probably didn’t sell quite as well —marketed by the University of Chicago Press—but with similar ideas.

Milton Friedman: No, no. The University of Chicago Press did a good job in marketing considering the absence of book reviews. After all,Capitalism and Freedom has sold something like 600,000 copies. Free to Choose has sold over a million copies. And we found it very fascinating to observe the way sales of Capitalism and Freedom went. To begin with, they were relatively few. And then they gradually started to increase and it was entirely person to person—word of mouth.

Russ Roberts: And it is a book that’s still quite topical.

Milton Friedman: The basic principles that we believe in are going to stay the same for the next thousand years. That aspect of it will never go out of date. What goes out of date are the particular applications. We still find Adam Smith’s book, Wealth of Nations well worth reading even though it’s published in 1776.

Russ Roberts: Yes, it is surprisingly informative.

Milton Friedman: It certainly is and it’s so well written.

Russ Roberts: I think a huge part of your success—obviously not the logic but the success of the ideas—is your ability to communicate clearly and effectively to a non-technical audience.

Milton Friedman: Well, I’m not a stylist the way Smith was. The modern economist who really I think matches that is George Stigler.

Russ Roberts: Absolutely. He had a graceful pen. And it was a pen probably, not a keyboard, if I had to guess.

Milton Friedman: Oh, there’s no doubt that it was a pen.

Russ Roberts: I know you can give us the empirical evidence. Let me ask you about another idea in Capitalism and Freedom that you later elaborated on in a Sunday New York Times magazine story in the early 1970’s. You wrote there: “There is one and only one social responsibility of business, to use its resources and engage in activities designed to increase its profits, so long as it stays within the rules of the game which is to say engages in open and free competition without deception or fraud.”

I feel that that view of business, the one that says it should maximize its profits, is increasingly under attack and there’s a strong activism afoot in the land to turn corporations and businesses into social organizations, welfare agencies, charitable organizations. One, do you agree with me? Do you think that’s true? And two, what can we do about it? Any ideas?

Milton Friedman: I think it’s absolutely true. There’s no doubt that that’s—the view that there are many stakeholders and not only the shareholders has spread. And business itself propagates the idea because it’s good public relations. They spend money entirely with a view to the bottom line but label it social responsibility spending.

And that sentence, I think, is still just as true as it ever was and I’ve never seen an occasion to change my view about that. Suppose a business wants to do charity. What is it that gives it any special ability to do charity properly? The XYZ Company, in addition to producing XYZ trucks, also wants to be socially responsible and so it does what it thinks is charity. What is its special capacity for that?

It may know how to make trucks but does it know the right way to spend charitable money? And whose money is it spending? It’s spending somebody else’s money. It’s a very bad practice. Business has had such a big incentive to label itself socially responsible—it’s primarily responsible for that conception.

Russ Roberts: Yeah, I worry about that slippery slope as they brag about how well they’ve done in those different dimensions. I’d like them to brag about how profitable they are. That means they’ve produced something that people enjoy, are willing to pay for and have found a way to produce it at a lower cost.

Milton Friedman: The truth of the matter is that the only way anybody can make money is by producing something that people want to buy, but it can give away money without meeting that restriction.

Russ Roberts: That reminds me of one explanation for why people, I think, lean on businesses to indulge other activities besides producing products well. It’s the Willie Sutton theory of why you rob banks—that’s where the money is.

The Chicago City Council recently passed an ordinance requiring large retailers—mainly Wal-Mart and Target—to pay at least $10.00 an hour in wages and $3.00 an hour in benefits.

If you ask the proponents why should Wal-Mart finance a higher standard of living for their workers, why should the investors of Wal-Mart, the stockholders, and Target, be the ones that finance that, I think the answer would be “Well, they have the money.”

That ignores, of course, the incentive effects that then result. They’re the last people that you’d want to have finance this because it discourages them from creating jobs for low skill people. But I think that first order effect of “Well, they’ve got the money, they write the checks so therefore they’ve got the responsibility” has a huge appeal to the average person.

Milton Friedman: But it’s always been true that business is not a friend of a free market. I have given a lecture from time to time under the title Suicidal Impulses of the Business Community, something like that, and it’s true. It’s in the self-interest of the business community to get government on its side. It’s in the self-interest of a particularbusiness. Look at this crazy business about ethanol. Who’s benefiting from that?

Russ Roberts: Farmers. Corn farmers.

Milton Friedman: No, the farmers aren’t benefiting.

Russ Roberts: The landowners.

Milton Friedman: What’s the company that produces it?

Russ Roberts: Archer Daniels Midland. So of course, they lobby and talk about the enormous environmental benefits of ethanol.

Milton Friedman: But the real puzzle—puzzle isn’t quite the right word—the real problem here is where do you find the support for free markets? If free markets weren’t so damn efficient, they could never have survived because they have so many enemies and so few friends. People think of capitalism or free markets as something that obviously is supported by business. People think that if a business party is a party in politics, it will promote free market. But that’s wrong. It will be in the self-interest of individual businesses to promote a tariff here and a tariff there, to promote the use of ethanol—

Russ Roberts: Special regulations for its competitor that apply just by chance to its competitors but not to itself—

Milton Friedman: That’s right.

Russ Roberts: —or that they already comply with but their competitors don’t happen to comply with.

Milton Friedman: And it’s so hard in general, so much harder, to repeal anything government is doing than it is to get it to do it. There are so many stupid things that government is doing that, clearly, it would be in the self-interest of the public at large to have repealed. Who would—who can really on logical grounds defend sugar quotas? There’s no way of defending sugar quotas.

Russ Roberts: You don’t think it’s a big national security issue? [laughter]

Milton Friedman: That was why they were imposed. Because of Cuba. They were initially imposed against Castro. But once you got them, you couldn’t get rid of them.

Russ Roberts: It’s a good example because the beneficiaries are very few.

Milton Friedman: They’re very few.

Russ Roberts: We understand that politically that gives them a certain reason to be loud in talking to the representatives but you’d think the fewness of them would eventually be decisive in overturning it but it has not.

Milton Friedman: No, it’s not, because it’s an advantage. If 50 percent of the people were sugar farmers, you couldn’t possibly have sugar quotas, because it costs too much to the others. But if 1% of the people are sugar producers, for each dollar that they get, that’s divided among 99 people so it’s only one cent to the individual.

Russ Roberts: So their incentive to yell is small— which brings us back to a question that you write about in Capitalism and Freedom.Issue by issue, it’s easy to make the case for discretion.

When you see the cumulative effect of going issue by issue, you really can make the case for principles. You give the example in the book of freedom of speech. Obviously, a lot of Americans are against freedom of speech.

Milton Friedman: Oh, sure.

Russ Roberts: And if you went issue by issue, you’d find a lot of speech that would be voted down as not appropriate and yet we sustain it through enough people believing that it’s a good thing.

Milton Friedman: But even here, with the campaign finance laws, we’re reducing freedom of speech drastically.

Russ Roberts: That gets back to your point about businesses wanting government to protect them. In this case, the business is the industry of government. Politicians like the protection that campaign finance laws gives them.

Milton Friedman: Yeah.

Russ Roberts: That’s a very tough one when they regulate themselves. They do tend to be a little self-interested there. It’s very sad.

Milton Friedman: But how do we get that repealed? What politician is going to come up and make a big fight on repealing the McCain-Feingold legislation.

Russ Roberts: Although the Supreme Court occasionally does speak up and suggest that this is not really consistent with the Constitution.

Milton Friedman: Well, the Supreme Court is not a very strong support in some cases. Look at what it did with property—with eminent domain. The Kelo case is not really a good advertisement for a free market Supreme Court.

Russ Roberts: But ironically, it did produce a backlash at the state and local level against using it.

Milton Friedman: The Institute of Justice—which is a remarkably good organization—has been promoting that backlash against it and they’ve been doing a very good job. It may well be that you’ll end up with a stronger support for property than you originally had. But that wasn’t the intention of the Supreme Court.

Russ Roberts: Let’s go back to the difficulty of repealing bad laws. You mentioned sugar quotas, sugar price supports, as an example. What role do you think economic illiteracy, a lack of understanding on the part of the public of the full effects of legislation, plays in sustaining laws that are described as in the national interest but are really serving special interests?

Milton Friedman: Very little. Because it’s not in the self-interest of the recipients to figure it out. What housewife is going to spend the time to save the extra money—maybe it’s $5.00 or $10.00 a year she pays extra on sugar? It doesn’t pay to try to figure out. What you’re dealing with is rational ignorance. The rational part is what I want to emphasize. It’s not ignorance that is avoidable because it’s rational to be ignorant.

Yet somehow, people do get it. Minimum wages have become less popular than they used to be. They’ve been trying to pass a rise in the minimum wage for years and they haven’t passed one. And that’s because, I think, there is more understanding of the economic merits or demerits of it than there used to be—more people recognize the effect of a higher minimum wage on the employment of the poor.

Russ Roberts: On the flip side, the living wage, which are these local ordinances or like the one in Chicago we spoke about earlier, gets attention and often passes.

And if anything, you’d think there the effects are going to be more stark in a local area—employers have more choices to leave the area which they wouldn’t have at the federal level. On the case of gasoline price controls, true, no one clamors for price controls but we have all these implicit price controls—threats by attorney generals to prosecute gougers in the wake of Katrina or worse, vaccine manufacturers who might have the gall to charge a market-clearing price.

Instead we have the president of the United States two winters ago begging people to not use the vaccine if they’re not really at risk, instead of using the price mechanism which is so much more effective. It seems to be a paradoxical pattern? Do you have any thoughts on that?

Milton Friedman: I don’t think there’s anything very paradoxical about it. First place, we are now only 20 or 30 years from when we had price controls [on gasoline]. And so a large fraction of the population had personal experience with it. Twenty or 30 years from now, after there’s nobody living who had experience with price controls, I wouldn’t be surprised to see it come back again.

We have to keep ourselves open to the facts. The facts are that the world has become better and better over time. The 19th Century was better than the 18th Century. The 20th Century was better than the 19th Century. The 21st Century is going to be better than the 20th Century. There was once an article back in, oh, 1780 or something, which said how many people lived in free countries and how many lived in the rest—non-free.

And the ratio of people who live in free countries to the total population of the world has surely been going up throughout this whole—these past two centuries. It went up most dramatically recently when the Berlin Wall fell, when the Soviet Union went out of existence. So there’s reason to be optimistic.

Somehow or other, these stupid individuals who vote these bad laws seem to have enough sense to keep from voting laws bad enough to create a negative GNP. So I think in the end, you’ve got to remain an optimist.

Russ Roberts: I share your optimism and I like the long-term perspective. On any one day, you can always get depressed about what’s going on in Washington or in city hall but the long-term trend is toward more freedom and a higher standard of living and although it seems very difficult for people to recognize that, they’re always moaning; the educated class is always moaning about how things have never been worse. We stand on the brink of a precipice either because we have a trade deficit or China or manufacturing jobs are in decline or the inequality due to this, that or the other, or immigration. There’s always some threat to our prosperity that’s imminent and yet we manage to keep going.

Milton Friedman: And yet—another thing on the glass being half empty. While everybody complains about Bush’s tax cuts, nobody really is in favor of higher taxes. There’s no broad sentiment, no broad move [to raise taxes].

Russ Roberts: I want to ask you about George Stigler who you mentioned earlier. Stigler was an observer of the political scene. He was a political economist who described why things were the way they were but he felt it was a waste of time to be an advocate, a preacher, a proselytizer for a particular philosophy or ideology because politicians face these incentives and you’re not going to change what they do. Being an advocate for this policy or that policy or trying to increasing liberty—as you have—is a Quixotic endeavor. Is that a fair assessment of his view?

Milton Friedman: There’s a lot of truth to it. George always used to say, “Milton wants to change the world. I just want to observe it.” But it wasn’t true. That was what he would say. But after all, you never heard George say a good thing about bigger government. You never heard him in any way express views that differed from yours and my views about what we ought to be doing. So I think that was a little bit of a show that he put on.

Russ Roberts: But he didn’t spend as much time as you have professionally.

Milton Friedman: No, no. He did spend much more time on observing.

Russ Roberts: And you have spent a great deal of time obviously on observing but a sizeable amount of time on urging or prodding or pushing politicians and others—the rest of us—to advocate for smaller government and more individual freedom.

Milton Friedman: I have.

Russ Roberts: As a person who spent a lot of time in the—not just in the academic vineyard but in the policy vineyard, do you look back on that as fruitful work?

Milton Friedman: I really had two lives. One was as a scientist—as an economist—and one was as a public intellectual. And everybody more or less does his major scientific work at a relatively early age And it’s kind of natural, I think, that people switch from the one area to the other. Really until the 1970s, I did not have much contact in politics whatsoever.

I had some but not much. But then, I think increasingly as the scientific side of my life matured and I happened to know more people in politics, my interests and my activities switched to some extent. I think what really motivated it more than anything else was when I was writing columns for Newsweek.

Russ Roberts: Which was fun, I assume.

Milton Friedman: It was fun. It was fine. I found it a very challenging thing to do and it made me—forced me—to keep up with the current affairs that were going on and also it brought me into contact with people who were active in politics.

Russ Roberts: Did colleagues other than George voice an opinion about you spending your time that way? I know at that point in your life, you were already incredibly respected and successful but—

Milton Friedman: No. No.

Russ Roberts: For a young scholar, it’s not the best use of time often.

Milton Friedman: I always told my students that if they went to Washington, they shouldn’t stay there more than two years or they’ll get ruined. And in general, I’ve argued to youngsters who came up to me and wanted to be ideologists, wanted to promote an ideological view, that they first better get themselves established as an economist or as a scholar and get a good job and then they could afford to do it.

Russ Roberts: What advice would you give to those who love liberty and would like to see its cause thrive? You talked about some optimism, that the broad historical trends are good. Anything in the short run that you think would be useful or good for people to be aware of or take advantage of?

Milton Friedman: I think people have to do what they want to do. I think that the best thing that people can do who want to promote the free market is to talk about the free market, to think about the free market, to write about the free market and to get into arguments.

Russ Roberts: Something you’ve spent a lot of time at.

Milton Friedman: I’ve had a lot of experience in it, a great deal.

Russ Roberts: That’s good advice. Thank you, Milton.


*See Milton Friedman’s biography in the Concise Encyclopedia of Economics.To post a followup to this essay, go to EconTalk.org.

Return to top


________________________________________________

Milton Friedman on Hayek’s “Road to Serfdom” 1994 Interview 1 of 2

Milton Friedman on Hayek’s “Road to Serfdom” 1994 Interview 2 of 2

_____________________________________________

Friedman Friday” Free to Choose by Milton Friedman: Episode “What is wrong with our schools?” (Part 5 of transcript and video)

Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 5 of 6.   Volume 6 – What’s Wrong with our Schools Transcript: Are your voucher schools  going to accept these tough children? COONS: You bet they are. (Several talking at once.) COONS: May I answer […]

Free to Choose by Milton Friedman: Episode “What is wrong with our schools?” (Part 4 of transcript and video)

Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 4 of 6.   Volume 6 – What’s Wrong with our Schools Transcript: It seems to me that if one is truly interested in liberty, which I think is the ultimate value that Milton Friedman talks […]

Friedman Friday” Free to Choose by Milton Friedman: Episode “What is wrong with our schools?” (Part 6 of transcript and video)

Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 6 of 6.   Volume 6 – What’s Wrong with our Schools Transcript: FRIEDMAN: But I personally think it’s a good thing. But I don’t see that any reason whatsoever why I shouldn’t have been required […]

___________________

FRIEDMAN FRIDAY The Social Responsibility of Business is to Increase its Profits by Milton Friedman The New York Times Magazine, September 13, 1970.

Milton Friedman on Self-Interest and the Profit Motive 1of2

Milton Friedman on Self-Interest and the Profit Motive 2of2

The Social Responsibility of Business is to Increase its Profits

by Milton FriedmanThe New York Times Magazine, September 13, 1970. Copyright @ 1970 by The New York Times Company.

When I hear businessmen speak eloquently about the “social responsibilities of business in a free-enterprise system,” I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free en­terprise when they declaim that business is not concerned “merely” with profit but also with promoting desirable “social” ends; that business has a “social conscience” and takes seriously its responsibilities for providing em­ployment, eliminating discrimination, avoid­ing pollution and whatever else may be the catchwords of the contemporary crop of re­formers. In fact they are–or would be if they or anyone else took them seriously–preach­ing pure and unadulterated socialism. Busi­nessmen who talk this way are unwitting pup­pets of the intellectual forces that have been undermining the basis of a free society these past decades.

The discussions of the “social responsibili­ties of business” are notable for their analytical looseness and lack of rigor. What does it mean to say that “business” has responsibilities? Only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but “business” as a whole cannot be said to have responsibilities, even in this vague sense. The first step toward clarity in examining the doctrine of the social responsibility of business is to ask precisely what it implies for whom.

Presumably, the individuals who are to be responsible are businessmen, which means in­dividual proprietors or corporate executives. Most of the discussion of social responsibility is directed at corporations, so in what follows I shall mostly neglect the individual proprietors and speak of corporate executives.

In a free-enterprise, private-property sys­tem, a corporate executive is an employee of the owners of the business. He has direct re­sponsibility to his employers. That responsi­bility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while con­forming to the basic rules of the society, both those embodied in law and those embodied in ethical custom. Of course, in some cases his employers may have a different objective. A group of persons might establish a corporation for an eleemosynary purpose–for exam­ple, a hospital or a school. The manager of such a corporation will not have money profit as his objective but the rendering of certain services.

In either case, the key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation or establish the eleemosynary institution, and his primary responsibility is to them.

Needless to say, this does not mean that it is easy to judge how well he is performing his task. But at least the criterion of performance is straightforward, and the persons among whom a voluntary contractual arrangement exists are clearly defined.

Of course, the corporate executive is also a person in his own right. As a person, he may have many other responsibilities that he rec­ognizes or assumes voluntarily–to his family, his conscience, his feelings of charity, his church, his clubs, his city, his country. He ma}. feel impelled by these responsibilities to de­vote part of his income to causes he regards as worthy, to refuse to work for particular corpo­rations, even to leave his job, for example, to join his country’s armed forces. Ifwe wish, we may refer to some of these responsibilities as “social responsibilities.” But in these respects he is acting as a principal, not an agent; he is spending his own money or time or energy, not the money of his employers or the time or energy he has contracted to devote to their purposes. If these are “social responsibili­ties,” they are the social responsibilities of in­dividuals, not of business.

What does it mean to say that the corpo­rate executive has a “social responsibility” in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers. For example, that he is to refrain from increasing the price of the product in order to contribute to the social objective of preventing inflation, even though a price in crease would be in the best interests of the corporation. Or that he is to make expendi­tures on reducing pollution beyond the amount that is in the best interests of the cor­poration or that is required by law in order to contribute to the social objective of improving the environment. Or that, at the expense of corporate profits, he is to hire “hardcore” un­employed instead of better qualified available workmen to contribute to the social objective of reducing poverty.

In each of these cases, the corporate exec­utive would be spending someone else’s money for a general social interest. Insofar as his actions in accord with his “social responsi­bility” reduce returns to stockholders, he is spending their money. Insofar as his actions raise the price to customers, he is spending the customers’ money. Insofar as his actions lower the wages of some employees, he is spending their money.

The stockholders or the customers or the employees could separately spend their own money on the particular action if they wished to do so. The executive is exercising a distinct “social responsibility,” rather than serving as an agent of the stockholders or the customers or the employees, only if he spends the money in a different way than they would have spent it.

But if he does this, he is in effect imposing taxes, on the one hand, and deciding how the tax proceeds shall be spent, on the other.

This process raises political questions on two levels: principle and consequences. On the level of political principle, the imposition of taxes and the expenditure of tax proceeds are gov­ernmental functions. We have established elab­orate constitutional, parliamentary and judicial provisions to control these functions, to assure that taxes are imposed so far as possible in ac­cordance with the preferences and desires of the public–after all, “taxation without repre­sentation” was one of the battle cries of the American Revolution. We have a system of checks and balances to separate the legisla­tive function of imposing taxes and enacting expenditures from the executive function of collecting taxes and administering expendi­ture programs and from the judicial function of mediating disputes and interpreting the law.

Here the businessman–self-selected or appointed directly or indirectly by stockhold­ers–is to be simultaneously legislator, execu­tive and, jurist. He is to decide whom to tax by how much and for what purpose, and he is to spend the proceeds–all this guided only by general exhortations from on high to restrain inflation, improve the environment, fight poverty and so on and on.

The whole justification for permitting the corporate executive to be selected by the stockholders is that the executive is an agent serving the interests of his principal. This jus­tification disappears when the corporate ex­ecutive imposes taxes and spends the pro­ceeds for “social” purposes. He becomes in effect a public employee, a civil servant, even though he remains in name an employee of a private enterprise. On grounds of political principle, it is intolerable that such civil ser­vants–insofar as their actions in the name of social responsibility are real and not just win­dow-dressing–should be selected as they are now. If they are to be civil servants, then they must be elected through a political process. If they are to impose taxes and make expendi­tures to foster “social” objectives, then politi­cal machinery must be set up to make the as­sessment of taxes and to determine through a political process the objectives to be served.

This is the basic reason why the doctrine of “social responsibility” involves the acceptance of the socialist view that political mechanisms, not market mechanisms, are the appropriate way to determine the allocation of scarce re­sources to alternative uses.

On the grounds of consequences, can the corporate executive in fact discharge his al­leged “social responsibilities?” On the other hand, suppose he could get away with spending the stockholders’ or customers’ or employees’ money. How is he to know how to spend it? He is told that he must contribute to fighting inflation. How is he to know what ac­tion of his will contribute to that end? He is presumably an expert in running his company–in producing a product or selling it or financing it. But nothing about his selection makes him an expert on inflation. Will his hold­ ing down the price of his product reduce infla­tionary pressure? Or, by leaving more spending power in the hands of his customers, simply divert it elsewhere? Or, by forcing him to produce less because of the lower price, will it simply contribute to shortages? Even if he could an­swer these questions, how much cost is he justi­fied in imposing on his stockholders, customers and employees for this social purpose? What is his appropriate share and what is the appropri­ate share of others?

And, whether he wants to or not, can he get away with spending his stockholders’, cus­tomers’ or employees’ money? Will not the stockholders fire him? (Either the present ones or those who take over when his actions in the name of social responsibility have re­duced the corporation’s profits and the price of its stock.) His customers and his employees can desert him for other producers and em­ployers less scrupulous in exercising their so­cial responsibilities.

This facet of “social responsibility” doc­ trine is brought into sharp relief when the doctrine is used to justify wage restraint by trade unions. The conflict of interest is naked and clear when union officials are asked to subordinate the interest of their members to some more general purpose. If the union offi­cials try to enforce wage restraint, the consequence is likely to be wildcat strikes, rank­-and-file revolts and the emergence of strong competitors for their jobs. We thus have the ironic phenomenon that union leaders–at least in the U.S.–have objected to Govern­ment interference with the market far more consistently and courageously than have business leaders.

The difficulty of exercising “social responsibility” illustrates, of course, the great virtue of private competitive enterprise–it forces people to be responsible for their own actions and makes it difficult for them to “exploit” other people for either selfish or unselfish purposes. They can do good–but only at their own expense.

Many a reader who has followed the argu­ment this far may be tempted to remonstrate that it is all well and good to speak of Government’s having the responsibility to im­pose taxes and determine expenditures for such “social” purposes as controlling pollu­tion or training the hard-core unemployed, but that the problems are too urgent to wait on the slow course of political processes, that the exercise of social responsibility by busi­nessmen is a quicker and surer way to solve pressing current problems.

Aside from the question of fact–I share Adam Smith’s skepticism about the benefits that can be expected from “those who affected to trade for the public good”–this argument must be rejected on grounds of principle. What it amounts to is an assertion that those who favor the taxes and expenditures in question have failed to persuade a majority of their fellow citizens to be of like mind and that they are seeking to attain by undemocratic procedures what they cannot attain by democratic proce­dures. In a free society, it is hard for “evil” people to do “evil,” especially since one man’s good is another’s evil.

I have, for simplicity, concentrated on the special case of the corporate executive, ex­cept only for the brief digression on trade unions. But precisely the same argument ap­plies to the newer phenomenon of calling upon stockholders to require corporations to exercise social responsibility (the recent G.M crusade for example). In most of these cases, what is in effect involved is some stockholders trying to get other stockholders (or customers or employees) to contribute against their will to “social” causes favored by the activists. In­sofar as they succeed, they are again imposing taxes and spending the proceeds.

The situation of the individual proprietor is somewhat different. If he acts to reduce the returns of his enterprise in order to exercise his “social responsibility,” he is spending his own money, not someone else’s. If he wishes to spend his money on such purposes, that is his right, and I cannot see that there is any ob­jection to his doing so. In the process, he, too, may impose costs on employees and cus­tomers. However, because he is far less likely than a large corporation or union to have mo­nopolistic power, any such side effects will tend to be minor.

Of course, in practice the doctrine of social responsibility is frequently a cloak for actions that are justified on other grounds rather than a reason for those actions.

To illustrate, it may well be in the long run interest of a corporation that is a major employer in a small community to devote resources to providing amenities to that community or to improving its government. That may make it easier to attract desirable employees, it may reduce the wage bill or lessen losses from pilferage and sabotage or have other worthwhile effects. Or it may be that, given the laws about the deductibility of corporate charitable contributions, the stockholders can contribute more to chari­ties they favor by having the corporation make the gift than by doing it themselves, since they can in that way contribute an amount that would otherwise have been paid as corporate taxes.

In each of these–and many similar–cases, there is a strong temptation to rationalize these actions as an exercise of “social responsibility.” In the present climate of opinion, with its wide spread aversion to “capitalism,” “profits,” the “soulless corporation” and so on, this is one way for a corporation to generate goodwill as a by-product of expenditures that are entirely justified in its own self-interest.

It would be inconsistent of me to call on corporate executives to refrain from this hyp­ocritical window-dressing because it harms the foundations of a free society. That would be to call on them to exercise a “social re­sponsibility”! If our institutions, and the atti­tudes of the public make it in their self-inter­est to cloak their actions in this way, I cannot summon much indignation to denounce them. At the same time, I can express admiration for those individual proprietors or owners of closely held corporations or stockholders of more broadly held corporations who disdain such tactics as approaching fraud.

Whether blameworthy or not, the use of the cloak of social responsibility, and the nonsense spoken in its name by influential and presti­gious businessmen, does clearly harm the foun­dations of a free society. I have been impressed time and again by the schizophrenic character of many businessmen. They are capable of being extremely farsighted and clearheaded in matters that are internal to their businesses. They are incredibly shortsighted and muddle­headed in matters that are outside their businesses but affect the possible survival of busi­ness in general. This shortsightedness is strikingly exemplified in the calls from many businessmen for wage and price guidelines or controls or income policies. There is nothing that could do more in a brief period to destroy a market system and replace it by a centrally con­trolled system than effective governmental con­trol of prices and wages.

The shortsightedness is also exemplified in speeches by businessmen on social respon­sibility. This may gain them kudos in the short run. But it helps to strengthen the already too prevalent view that the pursuit of profits is wicked and immoral and must be curbed and controlled by external forces. Once this view is adopted, the external forces that curb the market will not be the social consciences, however highly developed, of the pontificating executives; it will be the iron fist of Government bureaucrats. Here, as with price and wage controls, businessmen seem to me to reveal a suicidal impulse.

The political principle that underlies the market mechanism is unanimity. In an ideal free market resting on private property, no individual can coerce any other, all coopera­tion is voluntary, all parties to such coopera­tion benefit or they need not participate. There are no values, no “social” responsibilities in any sense other than the shared values and responsibilities of individuals. Society is a collection of individuals and of the various groups they voluntarily form.

The political principle that underlies the political mechanism is conformity. The indi­vidual must serve a more general social inter­est–whether that be determined by a church or a dictator or a majority. The individual may have a vote and say in what is to be done, but if he is overruled, he must conform. It is appropriate for some to require others to contribute to a general social purpose whether they wish to or not.

Unfortunately, unanimity is not always feasi­ble. There are some respects in which conformity appears unavoidable, so I do not see how one can avoid the use of the political mecha­nism altogether.

But the doctrine of “social responsibility” taken seriously would extend the scope of the political mechanism to every human activity. It does not differ in philosophy from the most explicitly collectivist doctrine. It differs only by professing to believe that collectivist ends can be attained without collectivist means. That is why, in my book Capitalism and Freedom, I have called it a “fundamentally subversive doctrine” in a free society, and have said that in such a society, “there is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

___________________

“Friedman Friday” (“Free to Choose” episode 3 – Anatomy of a Crisis. part 7of 7)

TEMIN: We don’t think the big capital arose before the government did? VON HOFFMAN: Listen, what are we doing here? I mean __ defending big government is like defending death and taxes. When was the last time you met anybody that was in favor of big government? FRIEDMAN: Today, today I met Bob Lekachman, I […]

“Friedman Friday” (“Free to Choose” episode 3 – Anatomy of a Crisis. part 6of 7)

worked pretty well for a whole generation. Now anything that works well for a whole generation isn’t entirely bad. From the fact __ from that fact, and the undeniable fact that things are working poorly now, are we to conclude that the Keynesian sort of mixed regulation was wrong __ FRIEDMAN: Yes. LEKACHMAN: __ or […]

FRIEDMAN FRIDAY Levin on Milton Friedman: ‘One Thing to Have Free Immigration to Jobs, Another for Welfare’ By Michael Morris | January 16, 2015

____________

Levin on Milton Friedman: ‘One Thing to Have Free Immigration to Jobs, Another for Welfare’

By Michael Morris | January 16, 2015 | 5:12 PM EST

During his show on January 15, 2015, Nationally syndicated radio host Mark Levin recalled the famed economist Milton Friedman and explored an important reason why open immigration, despite what many now think, is not in the best interest of the United States and its citizenry.

“I want to talk about what’s about to happen,” said Levin, “and it’s going to upset you and disappoint you. I have no control over that.”

You aren’t going to be happy about it, Levin suggests.

Levin continued:

“I want to remind you of something – what Milton Friedman said many years ago about what he called free immigration to jobs and welfare. I played this some time ago, as well as many other clips, and we’ve dug deeply into this subject. You know more about the issue of immigration and illegal immigration and amnesty than the average political hack voter.”

I want to remind you about what Milton Friedman said about all of this, “because this whole notion that you can have open borders or you can pretend you are going to secure the border, and then, immediately after passing that bill, you’re passing a wide range of other bills, which all add up to so-called comprehensive immigration reform,” says Levin. “There’s nothing reformist about it.”

Milton Friedman had the following to say about immigration:

“I have always been amused by kind of a paradox. Suppose you go around and ask people: ‘The United States, as you know, before 1914 had completely free immigration. Anybody could get on a boat and come to these shores. If you landed on Ellis Island, it was an immigrant. Was that a good thing or a bad thing?’ You will find hardly a soul who will say it was a bad thing. Almost everybody will say it was a good thing.

“But then, suppose I say to the same people: ‘But now, what about today? Do you think we should have free immigration?’

“’Oh no,’ they’ll say. ‘We couldn’t possibly have free immigration today. Boy that would, uhh, that would flood us with immigrants from India and God knows where. We’d be driven down to a bare subsistence level.’

“What’s the difference? How can people be so inconsistent? Why is it that free immigration was a good thing before 1914 and free immigration is a bad thing today?

“Well, there is a sense in which that answer is right. There is a sense in which free immigration, in the same sense in which we had it before 1914, is not possible today.

“Why not? Because it is one thing to have free immigration to jobs. It is another thing to have free immigration to welfare.”

“It is one thing to have free immigration to jobs, which is what the radical amnesty crowd argues for, including many in the Republican Party, and another thing to have free amnesty or free immigration to welfare,” repeated Levin.

“And look how Obama is handling this issue, in addition to his lawlessness,” remarked Levin.

“He’s immediately trying to sign people up for social security, many of whom haven’t paid a penny into it. He’s immediately trying to sign people up to Medicaid, for all kinds of benefits.

“And this is, really, one of the key issues,” said Levin. It’s ignored by many. It is argued that it will benefit the U.S. economically; it is said that the people coming here do so because they love this country; and these people reject Milton Friedman’s words.

“You have a massive welfare state. We have too many American citizens, who are dipping into our welfare system and are encouraged to do it,” said Levin.

Mark Levin then finished with this query, followed by Milton Friedman’s answer:

“What do you think dirt poor people from overseas, aliens, are going to do when they come into this country – when they’re encouraged to do this by our own government and politicians?

“So it’s one thing to come to America, it’s one thing to immigrate for jobs, it’s another for welfare.”

_________________

Milton Friedman is the short one!!!

Milton Friedman’s Free to Choose (1980), episode 3 – Anatomy of a Crisis. part 1

“The Power of the Market” episode of Free to Choose in 1990 by Milton Friedman (Part 5)

Milton Friedman The Power of the Market 5-5 How can we have personal freedom without economic freedom? That is why I don’t understand why socialists who value individual freedoms want to take away our economic freedoms.  I wanted to share this info below with you from Milton Friedman who has influenced me greatly over the […]

“The Power of the Market” episode of Free to Choose in 1990 by Milton Friedman (Part 4)

FRIEDMAN FRIDAY Milton Friedman demolishes Obama’s equal pay argument Apr. 18, 2014 12:06pm Benjamin Weingarten

__________________________

Milton Friedman demolishes Obama’s equal pay argument

Last week, President Obama made his his National Equal Pay Day proclamation, repeating the misleading statistic that “women still make only 77 cents to every man’s dollar.”

As Major Garrett perceptively noted, the manner in which the President carried out the equal pay push reflected former advisor David Plouffe’s ingenious strategy of “stray voltage”:

“The theory goes like this: Controversy sparks attention, attention provokes conversation, and conversation embeds previously unknown or marginalized ideas in the public consciousness. This happens, Plouffe theorizes, even when—and sometimes especially when—the White House appears defensive, besieged, or off-guard.”

While this post itself is perhaps reflective of the effectiveness of Plouffe’s strategy, nevertheless we thought it worth pointing out a video uncovered by George Mason University Professor Don Boudreaux over atCafe Hayek. The video, which comes from a series of lectures delivered by Milton Friedman from 1977-1978, which were intended to serve as content for the “Free to Choose” video series (which preceded hisbest-selling book of the same name), deals with the substance of “equal pay” for “equal work” legislation.

Here is the clip:

Below are a couple of Friedman’s most compelling arguments:

  • “Over and over we have to look at the actual consequences of policies, not the names of them. The immediate occasion that we’re talking about now…”equal pay for equal work,” is a claim for people supposedly for the feminist cause. Now I believe that’s an anti-feminist slogan. It will hurt the feminists. It will not help them. Why? I believe that every individual man, woman, or child should have an opportunity to get a job if he wants to and can do it. But now, if there are some people who are prejudiced — if Mr. Jones is a male chauvinist — and he would prefer to have a man rather than a woman; or a Mr. Smith is a believer in feminine rights, and would prefer to have a woman rather than a man, it doesn’t matter. But take the male chauvinist pig: If you have a law that he must pay the woman and the man the same, and if he can find some way around having to hire the woman, he gets away free. He doesn’t have to pay for his prejudice. On the other hand, suppose he has the prejudice, but we let people compete. Then the woman at least has the weapon of offering to work for less. And he has to pay for his prejudice. The free market, by enabling people to compete openly, is the most effective device that has ever been invented for making people pay for their prejudices, and thus for making it costly for them to exercise it. And what you do when you impose the equal pay for equal work law, is that you make the expression of prejudice costless. And as a result you harm the people you intend to help.”
  • “I do not believe that it is desirable that we move in the direction of having a government bureaucrat decide whether A may hire B or not, whoever A and B are…and in consequence I think programs of this kind are both reducing our freedom and reducing equality. And they will…disadvantage…the very groups [which the policymakers and their supporters] intended to help.”

Also of note, Friedman recommends W.H. Hutt’s “The Economics of the Colour Bar,” a book we have discussed before, in which Hutt argues that apartheid in South Africa began with a trade union push for “equal pay” for “equal work” legislation.

Milton Friedman The Power of the Market 1-5

Debate on Milton Friedman’s cure for inflation

If you would like to see the first three episodes on inflation in Milton Friedman’s film series “Free to Choose” then go to a previous post I did. Ep. 9 – How to Cure Inflation [4/7]. Milton Friedman’s Free to Choose (1980) Uploaded by investbligurucom on Jun 16, 2010 While many people have a fairly […]

By Everette Hatcher III | Also posted in Current Events | Tagged , , , , | Edit | Comments (0)

“Friedman Friday” Milton Friedman believed in liberty (Interview by Charlie Rose of Milton Friedman part 1)

Charlie Rose interview of Milton Friedman My favorite economist: Milton Friedman : A Great Champion of Liberty  by V. Sundaram   Milton Friedman, the Nobel Prize-winning economist who advocated an unfettered free market and had the ear of three US Presidents – Nixon, Ford and Reagan – died last Thursday (16 November, 2006 ) in San Francisco […]

_______________

FRIEDMAN FRIDAY Quote from Friedman from the book CAPITALISM AND FREEDOM

______________________

 

I Agree with Milton Friedman!

By James Kwak

In Capitalism and Freedom, Milton Friedman asks what types of inequality are ethically justifiable. In particular (pp. 164–66):

“Inequality resulting from differences in personal capacities, or from differences in wealth accumulated by the individual in question, are considered appropriate, or at least not so clearly inappropriate as differences resulting from inherited wealth.

“This distinction is untenable. Is there any greater ethical justification for the high returns to the individual who inherits from his parents a peculiar voice for which there is a great demand than for the high returns to the individual who inherits property? …

“Most differences of status or position or wealth can be regarded as the product of chance at a far enough remove. The man who is hard working and thrifty is to be regarded as ‘deserving’; yet these qualities owe much to the genes he was fortunate (or fortunate?) enough to inherit.”

I think Friedman is correct here. This is basically the same point that I made in my earlier post: the money that you make because you are smart and hard working is the product of good fortune just as much as the money that you inherit directly from your parents.

Read more at Medium.

“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 7 of 7)

  Michael Harrington:  If you don’t have the expertise, the knowledge technology today, you’re out of the debate. And I think that we have to democratize information and government as well as the economy and society. FRIEDMAN: I am sorry to say Michael Harrington’s solution is not a solution to it. He wants minority rule, I […]

“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 6 of 7)

PETERSON: Well, let me ask you how you would cope with this problem, Dr. Friedman. The people decided that they wanted cool air, and there was tremendous need, and so we built a huge industry, the air conditioning industry, hundreds of thousands of jobs, tremendous earnings opportunities and nearly all of us now have air […]

________________

Milton Friedman on the NEGATIVE INCOME TAX (from a 1973 interview)

______________________

Milton Friedman on the NEGATIVE INCOME TAX (from a 1973 interview)

Milton Friedman – The Negative Income Tax

Milton Friedman and Margaret Thatcher were two of my heroes and I know that you can learn a great deal from their lives and their economic philosophies. Ronald Reagan and Margaret Thatcher were both were influenced by Milton Friedman. I suggest checking out these episodes 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.

A 1973 INTERVIEW WITH MILTON FRIEDMAN – PLAYBOY MAGAZINE

It’s not my intention to violate any copyrights – just to provide the information minus the scantily clad girls:

Bertrand Russell studied economics briefly but quit because it was too easy. Max Planck, the physicist whose break-throughs in quantum mechanics were as revolutionary as Einstein’s in relativity, dropped economics because it was too hard. They were probably both right. That sort of paradox seems to agree with Milton Friedman—and to surround him. Friedman’s own reputation, for example, as the most original economic thinker since John Maynard Keynes, is due in large part to his exhaustive criticism of the theories first set forth by Keynes. There are other contradictions. Even though he had an ambiguous advisory role in the Goldwater campaign and supported Nixon’s re-election—despite the fact that Nixon has said he is now a Keynesian in matters of economic policy—Friedman calls himself a liberal. (In his book Capitalism and Freedom, he argues that “collectivists” have stolen the label.) He takes any number of positions that by themselves would appeal to the left, only to couple them with proposals that seem clearly right wing: He thinks we should close the tax loopholes—and eliminate the graduated income tax; and he is in favor of a negative income tax (in effect, a guaranteed income); but he wants to shut down Social Security.

If there is a single conceptual anchor for these proposals, it is Friedman’s deep and abiding belief in free enterprise. In his view, the free market is the best device ever conceived for ordering human affairs, and he sees it everywhere threatened by the welfare state. Laissez faire and the intellectuals who support it had once sunk to such low esteem that John Kenneth Galbraith could joke that a meeting of free enterprisers held in Switzerland after World War II broke up in disagreement over the question of whether the British navy should own or lease its battleships. It is testimony to Friedman’s tireless, good-natured efforts and the vigor of his arguments that economic ideas once regarded as hopelessly out of date are now being seriously discussed again.

In a way, Friedman is proof of his own assertions about the free market and the opportunities it affords. His parents immigrated to this country from eastern Europe and settled in Brooklyn, then in Rahway, New Jersey where Friedman grew up in working-class surroundings. Under a scholarship, he attended Rutgers University, where he studied math and was introduced to his life’s work in a course taught by Arthur Burns, who is now the chairman of the Federal Reserve Board as well as a friend and student of Friedman’s. He held a number of teaching and research jobs—encountering an occasional obstacle thrown up by anti-Semitism—before joining the faculty of the University of Chicago in 1946, the same year he took his Ph.D. from Columbia. The university has been the focal point of his life ever since, and the branch of economic thought that includes his ideas is called “The Chicago School.”

Perhaps the best example of Friedman’s migration from the wilds of economic theory to a position near center stage involves his approach to money. In his book A Monetary History of the United States, a classic in its field, he argues that the crucial factor in economic trends has been the quantity of money, not what the Federal Government is doing about taxes or spending at any given time. While not all economists were convinced, they were impressed. And early in the first Nixon Administration, Friedman’s ideas were finally implemented as well as discussed. His official influence has waned somewhat since then—Nixon subsequently introduced wage and price controls, which are anathema to Friedman—but the 60-year-old economist says, “I like to be an independent operator, anyway.”

When he’s not teaching at Chicago or traveling to a debate or lecture or testifying before a Congressional committee (“a waste of time and I generally try to get out of it”), Friedman can be found in Ely, Vermont where he and his wife, Rose, who is also an economist and edits his books, have a home near the crest of a high, gently sloping hill that gives way to the Connecticut River Valley. Friedman spends almost half of each year on this hill, writing (he has a column in every third issue of Newsweek), skiing, relaxing and enjoying the good life—all pleasures to which few of us would have access, he would remind you, in a collectivist society. Senior Editor Michael Laurence, who is Playboy’s resident financial expert, and Associate Articles Editor Geoffrey Norman visited Friedman at his hillside retreat to conduct this interview. Their report:

“Friedman is the sort of man who really lives for ideas. His home and office are piled with books, papers, manuscripts, journals and correspondence, and his talk is generally academic, though relieved by an occasional anecdote or aphorism. He clearly loves intellectual give and take—so much that in the three days of our interview, he took time out to instruct our photographer in the merits of free enterprise and to take several phone calls from people in Washington who wanted his advice on and appraisal of recent developments in international finance.

“Whoever he was talking to, Friedman showed an almost childlike enthusiasm when his mind went to work on a subject, even if it was the formulation of a program he’s been advocating since the early Fifties. There was also something about the very cogency of the man’s ideas. The unity of his vision. His consistency. Whatever one thinks of his positions, we found it impossible not to admire the skill of his arguments and his nearly Socratic use of logic. Since neither of us had ever quite fathomed pure economics or been able to understand why economists—who wield such a profound influence over all our lives—have such difficulty in agreeing on anything, we began by trying that one out on him.”

 

 

 

PLAYBOY: Before we deal with the negative income tax, let’s talk about your more fundamental suggestions for reform of the income tax itself.
FRIEDMAN: Well. I’d like to move toward an enormously simplified income tax, by eliminating all present deductions except for a personal exemption and substituting a flat-rate tax for the current graduated schedule. Let’s consider the deductions first. I would eliminate all personal deductions, except for strictly occupational expenses. There would be no more tax deductions for charitable contributions, for interest payments, for real-estate taxes; no more special treatment for capital-gains income, for oil depletion or for all the rest. The income tax would then be based on what it was supposed to be based on all along: individual income.
From this figure, representing his total receipts in excess of business costs, each taxpayer would be entitled to deduct a sum—a personal exemption—that reasonably reflects the cost of a survival existence in the 1970s. When the income tax was enacted, the personal exemption was supposed to assure that there would be no tax whatever on people with very low incomes. The assumption was that everybody deserved a subsistence income before he was taxed. But today, this concept has become a joke. We still have a personal exemption, but—considering the effects of inflation—it’s lower now than it’s ever been. I would double the present personal exemption, to $1500 or $1600 per person.

PLAYBOY: At what percentage of income would you place the flat-rate tax?
FRIEDMAN: If you eliminate the present deductions and retain the present personal exemption, you could scrap the current graduated rates—which run from 14 percent up to 70 percent—and raise the same amount of revenue with a flat-rate tax of around 16 percent. This sounds unbelievable, but it’s true. Our current graduated rates, while they supposedly go from 14 up to 70 percent, are fraudulent. Very few people pay taxes in the higher brackets, largely because of the loopholes we’ve heard so much about.

PLAYBOY: According to the conventional wisdom, the graduated tax is a good way to democratically redistribute wealth by allocating the revenues to social programs. Doesn’t it do that?
FRIEDMAN: The graduated tax, to the extent that it works, doesn’t redistribute wealth. Not only does most of the tax revenue from the higher income brackets not go to the poor in the form of social programs, the graduated tax also protects rather than redistributes wealth. It is, in effect, a tax on becoming wealthy. It doesn’t affect people who are already wealthy. All it does is protect them from the competition of those who would share the wealth with them.

PLAYBOY: Do you think a confiscatory inheritance tax would better solve the problem?
FRIEDMAN: There’s no such thing as an effective inheritance tax. People will always find a way around it. If you can’t pass $100,000 on to your children, you can set them up in a profitable business; if you can’t do that, you can spend the money educating them to be physicians or lawyers or whatever. A society that tries to eliminate inheritance only forces inheritance to take different forms. The human desire to improve the lot of one’s children isn’t going to be eliminated by any government in this world. And it would be a terrible thing if it were, because the desire of parents to do things for their children is one of the major sources of the energy and the striving that make all of us better off. Even an effective inheritance tax, if one could be concocted, wouldn’t prevent the transmission of wealth, but it would put an enormous damper on progress. I’ve never been able to understand the merit of the sort of equality that would chop the tall trees down to the level of the low ones. The equality I would like to see brings the low ones up.

PLAYBOY: Would your flat-rate tax bring the low ones up or would it—at the expense of those in the lower brackets—benefit primarily those who would pay less under your system than they do now?
FRIEDMAN: I think it would be fairer to almost everyone than the present system, assuming you eliminated the loopholes. After all, loopholes are nothing more than devices that allow people with relatively large incomes to avoid high taxation. The Brookings Institution, which has been looking into this, estimates that if you eliminated all the loopholes, you would increase total taxable income by something like 35 percent. Given a 21 or 22 percent average tax rate on the current base to collect current revenues, you can see that on a base a third again as large, a flat-rate tax of around 16 percent would raise the same amount of money. Personally, I can’t imagine many people saying that such a tax would be unfair. As you suggest, people who are very poor might make such a claim, with some justification. That’s why I’d also like to double the size of the present personal exemption. Then it would take a flat-rate tax of around 20 percent to yield the same amount of revenue that the current system raises.

PLAYBOY: You make it sound almost simple. Yet few knowledgeable people besides yourself have ever seriously considered such a proposal.
FRIEDMAN: That’s not necessarily an indictment of the soundness of the idea. But you have a point. The current system, with all its loopholes, makes many taxpayers—especially the influential ones, who have a large voice in government policy—think they have a vested interest in the status quo. Probably most present taxpayers would prefer the current system of taxation to the one I’ve proposed. Yet the one I propose would probably save everybody money.

PLAYBOY: But tax reform can’t save everyone money; the revenue has to come from somewhere. Surely the rich people who pay little or no taxes under the present system wouldn’t benefit by the elimination of tax loopholes.
FRIEDMAN: You’re wrong. You’re not taking into account what it costs people to avoid taxes. This is one of the most important—and most overlooked—points in the whole field of taxation. Let me give you the simplest case: municipal bonds. As you know, the income from municipal bonds is tax-free. You’re not even required to report it. For this reason, municipal bonds pay a much lower return; if corporate bonds are paying eight percent, municipals might be paying five. Suppose you buy some municipal bonds. You get the income from them, yet on the government books, no taxes on this income are recorded. But still, you do pay a tax. You pay three dollars in eight—the difference between what you could have got if you had bought corporate bonds at eight percent and what you did get buying municipals at five. That’s a 37 1/2 percent tax. It’s not recorded, but you’re still paying it. What happens, in effect, is that as a buyer of municipal bonds, you pay a 37 1/2 percent tax to the Federal Government, which turns your money immediately over to the municipality.
A better example is the oil-depletion allowance. A man drills for oil. It costs him $100,000 to drill the hole, but he expects to find only $50,000 worth of oil. Still, he drills the hole because of the tax advantage of being able to deduct the drilling cost from other income. That makes it worth while to drill. But understand, he’s not really drilling for oil, he’s drilling for tax advantage. If it weren’t for the tax laws, nobody would spend $100,000 to find $50,000 worth of oil. So there’s $50,000 of pure waste in such an undertaking. Businessmen call it buying a tax shelter.

PLAYBOY: Who actually bears this cost—the entrepreneur or taxpayers at large?
FRIEDMAN: A good question, and one not easily answered. Individuals enter such transactions, obviously, because they think others will bear most of the burden. If they thought they’d have to pay the cost themselves, they would probably never get involved. But when you have a whole nation of entrepreneurs, each seeking tax advantage, it’s impossible to say just who pays the bill. In essence, we all do. All you can say is that when a man pays $100,000 to drill a hole that will produce $50,000 in oil, $50,000 has been wasted. Given a better tax system, this waste would not have occurred. And that alone justifies changing the tax system.

PLAYBOY: The oil companies defend the depletion allowance on the ground that it encourages exploration for new oil reserves in the U.S.—reserves that might be crucial in a national emergency.
FRIEDMAN: They do, but have you ever seen them give an estimate of how much it costs to provide emergency reserves by this device rather than by others? Two different questions are involved here. First, do considerations of national defense require a large oil reserve for emergencies? Second, what is the best and cheapest way to provide such a reserve? The answer to the first question is far from clear, given the likelihood that any major war involving nuclear weapons would be extremely short. But even if the answer is yes, there are ways of providing a reserve that would be far cheaper than requiring consumers year after year to pay unnecessarily high prices for oil in order to finance exploration for additional wells, and then using the oil from these wells for current consumption, so you have to explore for still more wells.
But I’m getting away from the question you raised: whether the rich could benefit from getting rid of the loopholes. My main point is that all these wasted expenditures, tax shelters—whatever you might label these evasive maneuvers by the well-to-do few—are largely at their own expense. True, they reduce the taxes they pay, but only at a high cost. Philip Stern wrote an article in The New York Times Magazine a few months ago entitled Uncle Sam’s Welfare Program—For the Rich. His argument went like this: People like H.L. Hunt, let’s say, pay $2,000,000 a year in taxes. But if the loopholes were closed, he’d pay $20,000,000. Therefore, Stern said, the current system is the equivalent of Congress’ enacting an $18,000,000 welfare grant for Mr. Hunt, paid for by the public. This is sheer demagogic nonsense, because it completely neglects what it costs Mr. Hunt to avoid the taxes. Maybe Mr. Hunt, to avoid paying $20,000,000 in taxes, paid $16,000,000—by buying municipal bonds, digging uneconomical holes, paying high-priced tax lawyers to find new loopholes. There probably is an element of welfare for the rich, but it’s much less than many people imagine.
Joseph Pechman of the Brookings Institution has estimated that the loopholes reduce tax collections by 77 billion dollars a year. My guess—and it’s just a guess— is that this 77-billion-dollar loss in taxes through the loopholes produces no more than 25 billion dollars for the people who use them. In fact, I’d be surprised if it produced that much. The rest, as I’ve tried to explain, is simply wasted.

PLAYBOY: Under the graduated-tax system, the wealthy pay far more—in theory, at least—than those in any other income bracket. Under your proposed flat-rate system, they and everyone else would have to pay only 20 percent. But with all the loopholes at their disposal—even though you say they save less than they think by using them—don’t the rich stand to lose more than anyone else under your system, with its no-loopholes stipulation?
FRIEDMAN: Not necessarily. If I were Howard Hughes, I’d rather pay 25 percent in taxes than buy a tax shelter that costs me 50 cents on the dollar. Wouldn’t you? The only people this change would actually hurt are those who make their living by providing tax shelters for others. Statistically, these are a tiny minority. Moreover, money would be more economically invested than it is now, and these better investments would create more wealth, and thus generate more taxes, all up and down the line.

PLAYBOY: Most people would have less quarrel with the flat-rate tax than with the elimination of all personal deductions other than provable business expenses. Doesn’t a man who’s hit, say, with tremendous medical expenses one year deserve a tax break?
FRIEDMAN: I have a good deal of sympathy for the deductibility of catastrophic medical expenses—more than I do for almost any other deductions. Medical expenses are a sort of occupational expense—the cost of earning an income. But for the sake of this proposal, I’d eliminate all deductions. For any income tax to really work, it’s got to be simple and straightforward—something you can fill out on one side of one page without too much trouble. Admit one loophole and you admit them all.
As for how to cope with medical expenses if they’re nondeductible, the solution is a simple one: Buy insurance. When a man buys medical insurance, he’s betting the price of the premium that he’s going to get sick and the insurance company is betting the cost of his medical bills that he won’t. If he wins, he gets his bills paid for; if he loses, he’s out the premium. But it was his own decision—and responsibility—to buy the insurance. If hedoesn’t buy insurance, on the other hand, he’s betting that he’s not going to get sick. If he loses, my question is: Why should the rest of us have to pick up his expenses by paying in taxes for the medical bills he deducts from his return? Let him pay the bills; that’s what he risked when he bet.

PLAYBOY: But you assume that this man is a gambler, that he makes a calculated decision not to buy insurance. Don’t most people fail to buy insurance because of either ignorance or poverty?
FRIEDMAN: We’re not talking about poverty-stricken people here, we’re talking about taxpayers. As for ignorance, that’s not a valid argument. My fundamental belief is that you’ve got to hold people individually responsible for their actions.

PLAYBOY: Even as nontaxpayers, the poor can afford neither insurance nor medical expenses. Would you hold them individually responsible for such costs?
FRIEDMAN: Obviously, it bothers me, as it bothers anyone else, to see people destitute, whether through their own fault or not. That’s why I’m strongly in favor of charitable activities, whether individual or joint. One of the worst features of the current system of Social Security and welfare arrangements is that it has drastically reduced the feeling of obligation that members of society traditionally felt toward others. Children today feel far less obligation toward their parents than they did 50 years ago. If the state is going to take care of the parents, why should the children worry? Similarly with the poor. Who feels a personal obligation to help the poor? That’s the government’s job now.

PLAYBOY: To return to the point you raised earlier, you think a negative income tax will change this?
FRIEDMAN: I hope it will. But before we really get into that, let me stress one thing. If we were starting with a clean slate—if we had no government welfare programs, no Social Security, etc.—I’m not sure I would be in favor of a negative income tax. But, unfortunately, we don’t have a tabula rasa. Instead, we have this extraordinary mess of welfare arrangements, and the problem is: How do you get out of them? You can’t simply abolish them, because when we enacted these programs, we assumed an obligation to those who are now being helped by them. In fact, we have induced people to come under the protection of these programs.

PLAYBOY: What do you mean?
FRIEDMAN: I mean that the law of supply and demand works very generally. If there is a demand for poor people, the supply of poor people will rise to meet the demand. In setting up programs such as Aid to Dependent Children and all the other welfare programs, we have created a demand for poor people. Don’t misunderstand me. I’m not blaming poor people. You can hardly blame them for acting in their own interest. Take a poor family in the South, working hard for a very low income. They learn that in New York City they can get $300 a month—or whatever it is—without working. Who can blame such a family for moving to New York to get that income? The blame falls on those of us who set up the incentives in the first place. The blame also falls on us for creating a system that not only induces people to seek its benefits but forces them to stay in the program once they’re enrolled and demeans them terribly in the process of helping them.
I remember how impressed I was, six or eight years ago, when a young man who was writing a book on welfare programs in Harlem came to see me. He said, “You know, I’ve been reading Capitalism and Freedom, where you talk about the extent to which government bureaucracy interferes with the freedom of individuals. You really don’t know the extent of this. Your freedom hasn’t been much interfered with; my freedom hasn’t been much interfered with. When do we meet a government bureaucrat? Maybe when we get a parking ticket or talk about our income taxes. The people you should have been talking about,” he said to me, “are those poor suckers on welfare. They’re the people whose freedom is really being interfered with by government officials. They can’t move from one place to another without the permission of their welfare worker. They can’t buy dishes for their kitchen without getting a purchase order. Their whole lives are controlled by the welfare workers.” And he was absolutely right. The freedom of welfare recipients is terribly restricted. Whether we’re doing this for good purposes or bad, it’s not a wise thing to do. Not if we believe that individuals should be responsible for their own actions.

PLAYBOY: For those who don’t know how it works, would you explain how welfare forces people to stay on the dole once they’re enrolled?
FRIEDMAN: If someone on welfare finds a job and gets off welfare, and then the job disappears—as so many marginal jobs do—it’s going to take him some time to go through all the red tape to get back onto the program. This discourages job seeking. In the second place, if he gets a job that pays him, say, $50 or $75 a week, he’s going to lose most of that extra money, because his welfare check will be reduced accordingly—assuming he’s honest and reports it. Since he gets to keep only a small fraction of his additional earnings, there’s small incentive for him to earn.
Also, the present setup has encouraged fathers, even responsible fathers, to leave their families. Again, it’s a matter of incentives. If a man is working and has an income above the minimum, he’s not entitled to welfare. But if he deserts his family, they can receive welfare. That way, he can continue to earn his income and contribute it to his family, in addition to the welfare they get. Many ADC families are actually created by fake desertions. Of course, you have real desertions, too. If a deserted woman is going to be immediately eligible for welfare, the incentive for the family to stick together is not increased, to put it mildly. So the problem is: How do you get out of all this? And this brings us back to the question you asked a moment ago. I see the negative income tax as the only device yet suggested, by anybody, that would bring us out of the current welfare mess and still meet our responsibilities to the people whom the program has got in trouble.

PLAYBOY: How would the negative tax work?
FRIEDMAN: It would be tied in with the positive income tax. The two are similar. Ideally, I’d like to see a flat-rate tax above and below an exemption. I’ve already discussed the flat-rate tax above an exemption. The tax on income below the exemption would be a negative one. Instead of paying money, the low-income person would receive it. Consider the current tax system. If you’re the head of a family of four, with an income of roughly $4000, your personal exemptions, plus automatic deductions, plus low-income allowance, will mean that you pay no tax. Suppose you’re the same family of four with an income of $6000; you’d end up with a taxable income of $2000—that is, $6000 minus $4000—and you’d pay a fraction of that $2000 in taxes. Now suppose you had the same family of four with an income of $2000, you’d have a taxable income of minus $2000—that is, $2000 minus $4000. But under present law, with a taxable income of minus $2000, you pay no tax and that ends the business.
With a negative income tax, an income of $2000 would be subject to negative taxation. Instead of paying taxes, you’d get some money. Just how much would depend on the negative tax rate. If the negative tax rate were 20 percent, you’d get $400. If the rate were 50 percent, you’d get $1000. The 50 percent negative tax rate is simplest, so it’s the one I always like to use for illustration. If you have no income at all, for example, you would have a negative taxable income of $4000—that is, zero minus $4000. You would be entitled to receive 50 percent of that: $2000.

PLAYBOY: In other words, your system would amount to a guaranteed annual income of $2000 for a family of four?
FRIEDMAN: Yes. But it’s very important, in all systems like this, to keep in mind you’re talking about two different numbers: the minimum income, which would be guaranteed to every family or taxpayer; and the break-even point, which is the point at which people would stop receiving money and start paying it. In the example I just gave, $2000 is the base—the amount you’d receive from the government if you earned nothing at all. On the way between the base and the break-even point, which is $4000 in this example, you would receive 50 cents less from the government for every extra dollar you earned, so you’d get to keep 50 cents. This provides a consistent incentive for additional earnings. Above $4000, you’d be on your own. You’d receive nothing extra. In fact, you’d have to start paying taxes, partly to help those who are less fortunate than you.

PLAYBOY: Do you think your negative tax program would be an adequate substitute for our present welfare programs—Aid to Dependent Children, food stamps and the rest?
FRIEDMAN: I believe it would be far superior to the present programs—superior from the point of view of the recipients and also of the taxpayers. But you asked whether it would be adequate. I really don’t think you can discuss negative taxation in terms of adequacy or fairness. You have to ask a different question: How much are you and I willing to tax ourselves in order to benefit someone else? The great fallacy in these discussions is the assumption that somehow somebody else is going to pay the bill. Early in his campaign, Senator McGovern came out with a proposal to give a grant of $1000 to every person in the country. That was really a form of negative income tax, but one on a very high level. Essentially, what McGovern proposed was a $4000 guarantee for a family of four, with a $12,000 break-even point. The result would have been to sharply reduce the incentive to work for people in a very wide income range. It would have reduced the incentives for people making between $4000 and $12,000 by enabling them to collect from the government rather than pay taxes; and it would have reduced incentives for people making more than $12,000 by requiring them to pay much higher taxes. And much of the extra money collected from people making above $12,000 would have gone not to the desperately poor but to people with middle-class incomes.
We have to ask not only how much the recipients get but also who pays for it. Can you really justify taxing people receiving $13,000 a year in order to raise the income of people receiving $11,000 a year? So while I’m in favor of a negative income tax, I don’t favorany negative income tax. I want one that has both the guarantee and the break-even point low enough so that the public will be willing to pay the bill, and one where the marginal tax rate, between the guarantee and the break-even point, will be 50 percent or so, low enough to give people a substantial and consistent incentive to earn their way out of the program.

PLAYBOY: Do you think any of these proposals you’ve been discussing—on taxes, welfare, and so on—has a chance of public acceptance?
FRIEDMAN: There have been some hopeful signs. Some things I’ve been saying for a number of years now are receiving a little more attention. Some of the proposals I’ve made concerning international financial arrangements, for instance. Also, the negative income tax has become a fairly respectable notion. But you see, the problem is twofold. First, you have to sell your ideas, to convince people that government programs generally do the opposite of what their well-meaning proponents intend—that they aren’t getting their money’s worth for taxes. But even if people are convinced by the arguments, there is the problem of getting them to give up what they see as in their special interest. Everyone wants to make sure that he is getting his. Nobody will let go until he’s sure the other guy is, too. And that’s the biggest problem.

PLAYBOY: Is there a solution?
FRIEDMAN: If there is, it would be in bundling things together. That’s how we keep government out of the censorship business. It’s not a matter of taking one case at a time and deciding each case on its merits. If we did that, we would have free speech for very few. Someone would be able to get a law passed prohibiting free speech for Seventh-day Adventists. Or vegetarians. Or Black Panthers.
We talked earlier about reducing the tax rates and closing the loopholes. The right wing would be more than willing to give up the loopholes in return for lower rates; and the left wing would probably be more than willing to give up the high rates in return for closing the loopholes. So it looks as if there’s a deal to be made. But you can’t make a deal through the usual legislative channels, because neither side trusts the other—and both are right. The only way I can see to make such a deal is by a constitutional amendment that says, for example, Congress can impose an income tax as long as the only deductions are for strict occupational expenses and a personal exemption, and as long as the highest tax rate is no more than twice the lowest. Personally, I would prefer a flat rate, but to achieve consensus, it would be better to limit the degree of graduation. That would give both sides some assurance that the deal wouldn’t come unstuck.

Milton Friedman believed in liberty (Interview by Charlie Rose of Milton Friedman part 1)

Charlie Rose interview of Milton Friedman My favorite economist: Milton Friedman : A Great Champion of Liberty  by V. Sundaram   Milton Friedman, the Nobel Prize-winning economist who advocated an unfettered free market and had the ear of three US Presidents – Nixon, Ford and Reagan – died last Thursday (16 November, 2006 ) in San Francisco […]

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

Milton Friedman: Free To Choose – The Failure Of Socialism With Ronald Reagan (Full) Published on Mar 19, 2012 by NoNationalityNeeded Milton Friedman’s writings affected me greatly when I first discovered them and I wanted to share with you. We must not head down the path of socialism like Greece has done. Abstract: Ronald Reagan […]

_________________

“Minimum-Wage Rates” by Milton Friedman Newsweek, 26 September 1966

__________________________

Milton Friedman – A Conversation On Minimum Wage

“Minimum-Wage Rates” by Milton Friedman Newsweek, 26 September 1966 ©The Newsweek/Daily Beast Company LLC

Congress has just acted to increase unemployment. It did so by raising the legal minimum-wage rate from $1.25 to $1.60 an hour, effective in 1968, and extending its coverage. The result will be and must be to add to the ranks of the unemployed. Does a merchant increase his sales by raising prices? Does higher pay of domestic servants induce more housewives to hire help? The situation is no different for other employers. The higher wage rate decreed by Congress for low-paid workers will raise the cost of the goods that these workers produce—and must discourage sales. It will also induce employers to replace such workers with other workers—either to do the same work or to produce machinery to do the same work or to produce machinery to do the work. Some workers who already receive wages well above the legal minimum will benefit—because they will face less competition from the unskilled. That is why many unions are strong supporters of higher minimum-wage rates. Some employers and employees in places where wages are already high will benefit because they will face less competition from businessmen who might otherwise invest capital in areas that have large pools of unskilled labor. That is why Northern manufactures and unions, particularly in new England, are the principal sources of political pressure for higher legal minimum-wage rates. The groups that will be hurt the most are the low-paid and the unskilled. The ones who remain employed will receive higher wage rates, but fewer will be employed. As Prof. James Tobin, who was a member of president Kennedy’s Council of Economic Advisers, recently wrote: “People who lack the capacity to earn a decent living need to be helped, but they will not be helped by minimum-wage laws, trade-union wage pressures or other devices which seek to compel employers to pay them more than their work is worth. The more likely outcome of such regulations is that the intended beneficiaries are not employed at all.” The loss to the unskilled workers will not be offset by gains to others. Smaller total employment will result in a smaller total output. Hence the community as a whole will be worse off. Women, teen-agers, Negroes and particularly Negro teen-agers, will be especially hard hit. I am convinced that the minimum-wage law is the most anti-Negro law on our statute books—in its effect not its intent. It is a tragic but undoubted legacy of the past—and one we must try to correct—that on the average Negroes have lower skills than whites. Similarly, teen-agers are less skilled than older workers. Both Negroes and teen-agers are only made worse off by discouraging employers from hiring them. On the-job training—the main route whereby the unskilled have become skilled—is thus denied them. The shockingly high rate of unemployment among teen-age Negro boys is largely a result of the present Federal minimum-wage rate. And unemployment will be boosted still higher by the rise just enacted. Before 1956, unemployment among Negro boys aged 14 to 19 was around 8 to 11 per cent, about the same as among white boys. Within two years after the legal minimum was raised from 75 cents to $1 an hour in 1956, unemployment among Negro boys shot up to 24 per cent and among white boys to 14 per cent. Both figures have remained roughly the same ever since. But I am convinced that, when it becomes effective, the $1.60 minimum will increase unemployment among Negro boys to 30 per cent or more. Many well-meaning people favor legal minimum-wage rates in the mistaken belief that they help the poor. These people confuse wage rates with wage income. It has always been a mystery to me to understand why a youngster is better off unemployed at $1.60 an hour than employed at $1.25. Moreover, many workers in low wage brackets are supplementary earners—that is, youngsters who are just getting started or elderly folk who are adding to the main source of family income. I favor governmental measures that are designed to set a floor under family income. Legal minimum-wage rates only make this task more difficult. The rise in the legal minimum-wage rate is a monument to the power of superficial thinking. ____________________________________________________________________________ Reprinted in Milton Friedman, An Economist’s Protest: Columns on Political Economy, pp. 144-145. Glen Ridge, New Jersey: Thomas Horton & Daughters, 1972. Compiled by Robert Leeson and Charles Palm as part of their “Collected Works of Milton Friedman” project. Reformatted for the Web. 10/25/12

Friedman Friday” Free to Choose by Milton Friedman: Episode “What is wrong with our schools?” (Part 5 of transcript and video)

Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 5 of 6.   Volume 6 – What’s Wrong with our Schools Transcript: Are your voucher schools  going to accept these tough children? COONS: You bet they are. (Several talking at once.) COONS: May I answer […]

Free to Choose by Milton Friedman: Episode “What is wrong with our schools?” (Part 4 of transcript and video)

Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 4 of 6.   Volume 6 – What’s Wrong with our Schools Transcript: It seems to me that if one is truly interested in liberty, which I think is the ultimate value that Milton Friedman talks […]

 

______________________

Milton Friedman’s 7 Most Notable Quotes Rob Nikolewsk July 31, 2014

______________________

Milton Friedman’s 7 Most Notable Quotes

Harry Truman once complained he wanted to find a one-handed economist because he was tired of asking a direct question of those on his economic team, only to have them say, “On the one hand … but on the other hand.”

If there was one hand that noted economist Milton Friedman favored, it was the “invisible hand” of the free market.

Today marks the 102nd anniversary of Friedman’s birth. He died in 2006, but during his long career Friedman won over admirers and drove left-of-center critics crazy with his direct and eloquent defense of capitalism.

Friedman won the Nobel Prize in economics in 1976. But perhaps his greatest influence was nudging people who otherwise may have had little interest in the “dismal science” of economics to look at the world through a new set of eyes and question their assumptions.

Here’s a look at some of Friedman’s most notable quotes:

  1. “The most important single central fact about a free market is that no exchange takes place unless both parties benefit.”
  2. “Most economic fallacies derive from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.”
  3. “A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.”
  4. “When everybody owns something, nobody owns it, and nobody has a direct interest in maintaining or improving its condition. That is why buildings in the Soviet Union—like public housing in the United States—look decrepit within a year or two of their construction…”
  5. “Concentrated power is not rendered harmless by the good intentions of those who create it.”
  6. “One of the great mistakes is to judge policies and programs by their intentions rather than their results.”
  7. “If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand.”

Read more on Watchdog.org.

Rob Nikolewski

@Watchdogorg

Rob Nikolewski is a reporter for Watchdog.org, a national network of investigative reporters covering waste, fraud and abuse in government. Watchdog.org is a project of the nonprofit Franklin Center for Government & Public Integrity.

“Friedman Friday” EPISODE “The Failure of Socialism” of Free to Choose in 1990 by Milton Friedman (Part 5)

Milton Friedman: Free To Choose – The Failure Of Socialism With Ronald Reagan (Full) Published on Mar 19, 2012 by NoNationalityNeeded Milton Friedman’s writings affected me greatly when I first discovered them and I wanted to share with you. Abstract: Ronald Reagan introduces this program, and traces a line from Adam Smith’s “The Wealth of […]

“Friedman Friday” EPISODE “The Failure of Socialism” of Free to Choose in 1990 by Milton Friedman (Part 4)

Milton Friedman: Free To Choose – The Failure Of Socialism With Ronald Reagan (Full) Published on Mar 19, 2012 by NoNationalityNeeded Milton Friedman’s writings affected me greatly when I first discovered them and I wanted to share with you. Abstract: Ronald Reagan introduces this program, and traces a line from Adam Smith’s “The Wealth of […]

“Friedman Friday” EPISODE “The Failure of Socialism” of Free to Choose in 1990 by Milton Friedman (Part 3)

 

_________________

40 Years Later: Milton Friedman’s Legacy in Chile “Chilean Miracle” Struck a Blow against Communism When Needed Most José Niño April 22, 2015

_______________________

José Niño

José Niño is a graduate student based in Santiago, Chile. A citizen of the world, he has lived in Venezuela, Colombia, and the United States. He is currently an international research analyst with the Acton Circle of Chile. Follow@JoseAlNino.

40 Years Later: Milton Friedman’s Legacy in Chile

“Chilean Miracle” Struck a Blow against Communism When Needed Most

Economics Nobel Laureate Milton Friedman was one of the most persuasive advocates of free markets and free minds. (Friedman Foundation)

EspañolThe power of ideas to help shape political movements has been grossly underestimated over the years. In truth, some of the largest political transformations in human history have come from ideas that were developed in the secluded confines of an intellectual’s home or in obscure academic institutes. Regardless of the origins, ideas can snowball into powerful vehicles of social change.+

As Friedrich Hayek noted in one of his most powerful works, Intellectuals and Socialism, the triumph of socialist ideas can largely be attributed to the ideas first put forward by various intellectuals. They began with relatively well-off intellectuals and then made their way to “second-hand dealers” — journalists, scientists, doctors, teachers, ministers, lecturers, radio commentators, fiction writers, cartoonists, and artists — who then spread those ideas to the masses.+

Intellectuals like Milton Friedman took it upon themselves to reverse this trend and create an environment that was more favorable to free markets. Steadfast in his beliefs in the power of ideas, Friedman knew that big changes usually start out in small venues.+

It was in Chile where Friedman’s vision was first implemented on a large scale. The results were nothing short of spectacular, as Chile was able to escape a veritable economic collapse and experience an unprecedented boom.+

Chile’s economic success was no mere coincidence; it was the product of ideas that Milton Friedman put forward in the 1950s. To understand how such a radical change was brought about, one must first look at the origins of the Chicago Boys, the group of Chilean economists that played a pivotal role in the transformation of Chile’s economy during the 1970s and 1980s.+

The Chicago Boys

Under the tutelage of the United States Agency for International Development (USAID), the University of Chicago signed a modest agreement with the Pontifical Catholic University of Chile in the 1950s to provide a group of Chilean students training in economics.+

In exchange, the University of Chicago would send four faculty members to help the Catholic University build up their economics department. Of these four faculty members, Arnold Harberger would serve as the Chicago Boys’ principal mentor.+

What at first looked liked just another exchange program between universities would play a substantial role in Chile’s economic rise.+

A Country Mired By Statism

At the start of this program, Chile’s economy was in the doldrums. Another victim of Raúl Prebisch’s Import Substitution Industrialization (ISI) policy, Chile had a very loose central banking policy, featured 15 different exchange rates, heavy tariffs, and a number of import and export controls. Subsequent governments maintained the same neo-mercantilist structure up until the 1970s.+

During this era of economic malaise, the Chicago Boys constructed El Ladrillo (The Brick), a text primarily shaped by economist Sergio de Castro which advocated for economic liberalization in all sectors of the Chilean economy. Sadly, this text was largely ignored at that time.+

It wasn’t until the presidency of Salvador Allende that the Chicago Boys’ talents would be desperately needed.+

On the Road to Cuba 2.0

Though democratically elected by a narrow margin in 1970, Salvador Allende was determined to turn Chile into the next Cuba by undermining all of its democratic institutions. Through price controls, arbitrary expropriations, and lax monetary policy, Allende put the Chilean economy on the verge of collapse. By 1973, inflation reached 606 percent and per capita GDP dropped 7.14 percent.+

Under the command of General Augusto Pinochet, the military deposed Allende’s government. Despite this tumultuous change, the military ruler did not have a clear economic vision for Chile.+

Enter Milton Friedman

Milton Friedman’s visit to Chile in March 1975 proved to be quite fateful. Friedman was on a week-long lecture tour for various think thanks. Eventually, Friedman sat down with the general himself for 45 minutes. Right off the bat, Friedman recognized that Pinochet had very little knowledge of economics. After their meeting, Friedman sent Pinochet a letter with a list of policy recommendations.+

Friedman was blunt is his diagnosis of Chile’s economy: for the country to recover, it had to truly embrace free-market measures.+

Ideas Put in Action

Cooler heads prevailed and Pinochet let the Chicago School disciples occupy various posts in the military government. In April 1975, El Plan de Recuperación Económica (The Economic Recovery Plan) was implemented. Soon Chile curbed its inflation, opened up its markets, privatized state-owned industries, and cut government spending. By the 1990s, Chile was experiencing the largest economic boom in its history.+

The numbers don’t lie:+

Chile's economic takeoff is nothing short of miraculous. (JosePinera.com)

A Freedom Fighter

A principled libertarian, Friedman criticized Pinochet’s repressive political measures. Friedman understood that economic and political freedoms are not mutually exclusive. The principles laid in Friedman’s book Capitalism and Freedom inspired José Piñera, a notable Chilean reformer, to become a part of Chile’s classical liberal revolution.+

Like Friedman, Piñera understood the link between economic and political freedom. This motivated him to help ratify the Chilean Constitution of 1980. The most classically liberal constitution in Latin America’s history, it established the transition towards free elections and Chile’s return to democracy.+

Additionally, Piñera was the architect of Chile’s private social security system that empowered millions of workers and has fostered the growth of an ownership society. This model has been exported to dozens of countries abroad and has served as a market-based alternative to government-run pension systems.+

The “Chilean Miracle” represented the first major triumph against communism during the Cold War. Chile’s classical-liberal revolution subsequently inspired the Thatcher Revolution of 1979 and the Reagan Revolution of 1980. These ideas had resounding effects all over the globe and marked the beginning of the end for Soviet-style models of economic organization.+

There is still much work to do, as the illegitimate children of Marxist and Keynesian thought still run loose these days throughout Latin America. But one thing is absolutely certain: an idea whose time has come is unstoppable.+

RIP Milton Friedman

Milton Friedman is the short one!!!

Milton Friedman’s Free to Choose (1980), episode 3 – Anatomy of a Crisis. part 1

“The Power of the Market” episode of Free to Choose in 1990 by Milton Friedman (Part 5)

Milton Friedman The Power of the Market 5-5 How can we have personal freedom without economic freedom? That is why I don’t understand why socialists who value individual freedoms want to take away our economic freedoms.  I wanted to share this info below with you from Milton Friedman who has influenced me greatly over the […]

“The Power of the Market” episode of Free to Choose in 1990 by Milton Friedman (Part 4)

 

___________________