Milton Friedman, recipient of the 1976 Nobel Memorial Prize in Economic Science, is a Senior Research Fellow at the Hoover Institution. This article is reprinted with the permission of Encounter and The Fraser Institute.
“Capitalism and the Jews” was originally presented as a lecture before the Mont Pelerin Society in 1972. It subsequently was published in England and Canada and appears here without significant revision.
Freedom of Entry and Jewish Representation
Moreover, within those countries, Jews have flourished most in the sectors that have the freest entry and are in that sense most competitive. Compare the experience of the Jews in banking, that I have referred to, with their experience in retail trade, which has been almost a prototype of the textbook image of perfect competition and free entry. Or compare their minor role in large industry with their prominence in the professions such as law, medicine, accountancy and the like.[4] Though there are barriers to entry in the professions, too, once past the initial barriers, there is a large measure of free competition for custom. Even the differences within the professions illustrate my theme. In the U.S., for which I know the details, there was for a long time a major difference between medicine and law in the extent to which state licensure was an effective bar to entry. For reasons that are not relevant here, there was significant restriction of entry in medicine, relatively little in law. And Jews were proportionately much more numerous in law than in medicine.
The movie industry in the U.S. was a new industry and for that reason open to all. Jews became a major factor and this carried over to radio and television when they came on the scene. But now that government control and regulation has become more and more important, I am under the impression that the Jewish role in radio and T.V. is declining.
Capitalism and Israel
A rather different example of the benefits Jews have derived from competitive capitalism is provided by Israel, and this in a dual sense.
First, Israel would hardly have been viable without the massive contributions that it received from world Jewry, primarily from the U.S., secondarily from Britain and other Western capitalist countries. Suppose these countries had been socialist. The hypothetical socialist countries might conceivably have contributed, but if so they would have done so for very different reasons and with very different conditions attached. Compare Soviet aid to Egypt or official U.S. aid to Israel with private contributions. In a capitalist system, any group, however small a minority, can use its own resources as it wishes, without seeking or getting the permission of the majority.
Second, within Israel, despite all the talk of central control, the reality is that rapid development has been primarily the product of private initiative. After my first extended visit to Israel two decades ago, I concluded that two traditions were at work in Israel: an ancient one, going back nearly two thousand years, of finding ways around governmental restrictions; a modern one, going back a century, of belief in “democratic socialism” and “central planning.” Fortunately for Israel, the first tradition has proved far more potent than the second.
To summarize: Except for the sporadic protection of individual monarchs to whom they were useful, Jews have seldom benefited from governmental intervention on their behalf. They have flourished when and only when there has been a widespread acceptance by the public at large of the general doctrine of non-intervention, so that a large measure of competitive capitalism and of tolerance for all groups has prevailed. They have flourished then despite continued widespread anti-Semitic prejudice because the general belief in non-intervention was more powerful than the specific urge to discriminate against the Jews.
III. The Anti-capitalist Mentality of the Jews
Despite this record, for the past century, the Jews have been a stronghold of anti-capitalist sentiment. From Karl Marx through Leon Trotsky to Herbert Marcuse, a sizable fraction of the revolutionary anti-capitalist literature has been authored by Jews. Communist parties in all countries, including the patty that achieved revolution in Russia but also present-day Communist parties in Western countries, and especially in the U.S.,[5] have been run and manned to a disproportionate extent by Jews—though I hasten to add that only a tiny fraction of Jews have ever been members of the Communist party. Jews have been equally active in the less- revolutionary socialist movements in all countries, as intellectuals generating socialist literature, as active participants in leadership, and as members.
Coming still closer to the center, in Britain the Jewish vote and participation is predominantly in the Labor party, in the U.S., in the left wing of the Democratic party. The party programs of the so-called right-wing parties in Israel would be regarded as “liberal,” in the modern sense, almost everywhere else. These phenomena are so well known that they require little elaboration or documentation.[6]
Michael Tanner is a senior fellow at the Cato Institute and author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.
New Jersey governor Chris Christie recently warned that America is in danger of becoming a country of “people sitting on the couch waiting for their next government check.” Predictably, the Left was outraged, but Governor Christie wasn’t far off the mark.
During the 2011 debate over raising the debt ceiling, President Obama reminded Americans that the federal government sends out 70 million checks every month. That is probably an underestimate. According to the Washington Post, the president’s number included Social Security, veterans’ benefits, and spending on non-defense contractors and vendors, but not reimbursements to Medicare providers and vendors or electronic transfers to the 21 million households receiving food stamps. (Nor did he include most spending by the Defense Department, which has a payroll of 6.4 million active and retired employees and, on average, cuts checks for nearly 1 million invoices and 660,000 travel-expense claims per month.) The actual number might be closer to 200 million checks every month.
Of course it would be unfair to lump everyone who receives a check from the government in with the people Governor Christie was talking about (though it does say something about the size of government) but, nonetheless, we are becoming a society that relies on government to care for us.
[T]oday, every problem in society prompts calls for government action, response, or funding.
In 1965, just 22 percent of all federal spending was transfer payments. Today it has doubled to 44 percent. That means that nearly half of all federal spending is simply government taking money from one person and giving it to another.
Or look at it another way: In 1965, transfer payments from the federal government made up less than 10 percent of wages and salaries. As recently as 2000, that percentage was just 21 percent. Today, transfer payments are more than a third of salary and wages. Worse, if one includes salaries from government employment, more than half of Americans receive a substantial portion of their income from the government.
Conservatives often criticize transfer payments to the poor, and for good reason. At the federal and state levels combined, we spend nearly $1 trillion per year on anti-poverty or means-tested programs that do more to promote a permanent underclass than to eliminate poverty. But the modern welfare state is much more than programs for the poor. It includes middle-class welfare, such as Social Security and Medicare, which are the real drivers of our future national insolvency. We think of Medicaid as health care for the poor, but as much as two-thirds of Medicaid spending goes to pay for long-term care such as nursing homes for the elderly, much of it for middle-class people sheltering assets. And the modern welfare state also includes corporate welfare, the military-industrial complex, and others living off the taxpayer’s dime. The Export-Import Bank is as much welfare as TANF.
This is the road we are now on. The welfare state started with small programs targeted toward a small number of genuinely needy people. But as politicians figured out the electoral benefits of expanding programs and people realized they could let others work on their behalf, those programs grew until the point at which, today, every problem in society prompts calls for government action, response, or funding.
At the same time, as Governor Christie also noted, this implicitly tells people, “stop dreaming, stop striving.” We demonize those who do succeed, damning them as part of the evil “1 percent.”
This is the real danger of the welfare state. It’s not that it will bankrupt us — though it will. It is that it slowly and insidiously destroys our national character, saps our will to be great, and makes us content with the way things are rather than how they could be. We have seen where this road ends. As Governor Christie warns, it “will not just bankrupt us financially, it will bankrupt us morally.”
Biblical exegesis tells us that the Israelites needed to wander for 40 years in the desert after being released from bondage in Egypt because they couldn’t begin to build a new nation until a new generation grew up that hadn’t been raised in bondage. Those raised in slavery were not trained to think for themselves; they had become dependent on their masters to provide for them. Indeed, when they encountered hardships, many cried for a return to bondage.
Just look to Europe today. The welfare states of Europe are imploding, collapsing under the weight of promises that can no longer be met. Their citizens riot in the streets at the prospect that their government benefits might be reduced.
If anyone wants to know what this next election is really about, Governor Christie just told us.
_____________
Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.
Sincerely,
Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com
One thing that stands out about Dan Mitchell is that is not a Democrat or a Republican but a lover of freedom like Milton Friedman was. Take a look at this article of his below.
Thanks to several years of fiscal restraint during the 1990s, the burden of federal spending dropped to 18.2% of gross domestic product by the time Bill Clinton left office. The federal budget today consumes more than 24% of economic output, a one-third increase since 2001 in the share of the U.S. economy allocated by politics rather than market forces. That makes the Republican House budget, which would reverse this trend, extremely important for the economic health of the country.
Both political parties deserve blame for the spending spree that’s put America in a fiscal ditch. President George W. Bush was a big spender and President Obama has compounded the damage with his stimulus spending and other programs.
But the era of bipartisan big government may have come to an end. Largely thanks to Rep. Paul Ryan and the fiscal blueprint he prepared as chairman of the House Budget Committee earlier this year, the GOP has begun climbing back on the wagon of fiscal sobriety and has shown at least some willingness to restrain the growth of government.
The Ryan budget has generated considerable controversy in Washington, and it will become even more of an issue now that Mr. Ryan is Mitt Romney’s running mate. So it’s an appropriate time to analyze the plan and consider what it would mean for America.
Chad Crowe
The most important headline about the Ryan budget is that it limits the growth rate of federal spending, with outlays increasing by an average of 3.1% annually over the next 10 years. If spending is left on autopilot, by contrast, it would grow by 4.3% (or nearly 39% faster). If President Obama is re-elected, the burden of spending presumably will climb more rapidly.
This comes as a surprise to many people since the press is filled with stories about the Ryan budget imposing trillions of dollars of “savage” and “draconian” spending cuts. All of these stories, however, are based on Washington’s misleading budget process that automatically assumes an ever-expanding government. The 4.3% “base line” increase is the benchmark for measuring “cuts”—even though spending is rising rather than falling, and it’s only the rate of spending growth that is being slowed.
Even limiting spending so it grows by 3.1% per year, as Mr. Ryan proposes, quickly leads to less red ink. This is because federal tax revenues are projected by the House Budget Committee to increase 6.6% annually over the next 10 years if the House budget is approved (and this assumes the Bush tax cuts are made permanent). Since revenues would climb more than twice as fast as spending, the deficit would drop to about 1% of gross domestic product by the end of the 10-year budget window.
To balance the budget within 10 years would require that outlays grow by about 2% each year. Spending in the Ryan budget means the federal budget reaches balance in 2040. There are many who would prefer that the deficit come down more quickly, but from a jobs and growth perspective, it isn’t the deficit that matters.
Rather, what matters for prosperity and living standards is the degree to which labor and capital are used productively. This is why policy makers should focus on reducing the burden of government spending as a share of GDP—leaving more resources in the private economy.
The simple way of making this happen is to follow what I’ve been calling the golden rule of good fiscal policy: The private sector should grow faster than the government. This is what happens with the Ryan budget. The Congressional Budget Office expects nominal economic output (before inflation) to grow about 5% each year over the next decade. So if federal spending grows 3.1% annually, the burden of federal spending slowly shrinks as a share of GDP.
According to the House Budget Committee, the federal budget would consume slightly less than 20% of economic output if the Ryan budget remained in place for 10 years. This would be remarkable progress considering that the federal government is now consuming 24% of GDP vs. Mr. Clinton’s 18.2% in 2001. If Paul Ryan’s policies are social Darwinism, as Mr. Obama and his allies allege, one can only speculate where Bill Clinton ranks in their estimation.
Spending restraint also creates more leeway for good tax policy. Regardless of what you think about deficits, the political reality is that it is difficult to lower tax rates if government borrowing remains at high or rising levels. If deficit spending continues at current levels, then higher tax rates are almost sure to follow. And higher tax rates can’t create an environment conducive to more investment and jobs.
The Ryan budget avoids this unpleasant outcome by addressing the problem of excessive government spending. This makes it possible to extend the 2001 and 2003 tax-rate reductions. It also clears the way for other pro-growth reforms, such as Gov. Romney’s proposed across-the-board 20% income tax cut, a more competitive 25% corporate tax rate, and less double-taxation of dividends and capital gains.
One of the best features of the Ryan budget is that he reforms the two big health entitlements instead of simply trying to save money. Medicaid gets block-granted to the states, building on the success of welfare reform in the 1990s. And Medicare is modernized by creating a premium-support option for people retiring in 2022 and beyond.
This is much better than the traditional Beltway approach of trying to save money with price controls on health-care providers and means testing on health-care consumers. Price controls are notoriously ineffective—because health-care providers adapt by ordering more tests and procedures—and politically unsustainable due to lobbying pressure. Means testing imposes an indirect penalty on people who save and invest during their working years. That should be a nonstarter for a political party that seeks to encourage productive behavior and discourage dependency.
But good entitlement policy also is a godsend for taxpayers, particularly in the long run. Without reform, the burden of federal spending will jump to 35% of GDP by 2040, compared to 18.75% of output under the Ryan budget.
Assuming the GOP ticket prevails in November, Mitt Romney will make the big decisions on fiscal policy. But there is no escaping the fiscal math. If Mr. Romney intends to keep his no-tax-hike promise, he has to restrain the growth of spending. This doesn’t mean he has to go with every detail of the Ryan budget—but it’s certainly a good place to start.
Mr. Mitchell is a senior fellow at the Cato Institute.
A version of this article appeared August 16, 2012, on page A11 in the U.S. edition of The Wall Street Journal, with the headline: What’s Really in the Ryan Budget.
Everywhere school vouchers have been tried they have been met with great success. Why do you think President Obama got rid of them in Washington D.C.? It was a political disaster for him because the school unions had always opposed them and their success made Obama’s allies look bad.
In 1980 when I first sat down and read the book “Free to Choose” I was involved in Ronald Reagan’s campaign for president and excited about the race. Milton Friedman’s books and film series really helped form my conservative views. Take a look at one of my favorite films of his and this one deals with school vouchers:
Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 1 of 6.
Volume 6 – What’s Wrong with our Schools
Transcript:
Friedman: These youngsters are beginning another day at one of America’s public schools, Hyde Park High School in Boston. What happens when they pass through those doors is a vivid illustration of some of the problems facing America’s schools.
They have to pass through metal detectors. They are faced by security guards looking for hidden weapons. They are watched over by armed police. Isn’t that awful. What a way for kids to have to go to school, through metal detectors and to be searched. What can they conceivably learn under such circumstances. Nobody is happy with this kind of education. The taxpayers surely aren’t. This isn’t cheap education. After all, those uniformed policemen, those metal detectors have to be paid for.
What about the broken windows, the torn school books, and the smashed school equipment. The teachers who teach here don’t like this kind of situation. The students don’t like to come here to go to school, and most of all, the parents __ they are the ones who get the worst deal __ they pay taxes like the rest of us and they are just as concerned about the kind of education that their kids get as the rest of us are. They know their kids are getting a bad education but they feel trapped. Many of them can see no alternative but to continue sending their kids to schools like this.
To go back to the beginning, it all started with the fine idea that every child should have a chance to learn his three R’s. Sometimes in June when it gets hot, the kids come out in the yard to do their lessons, all 15 of them, ages 5 to 13, along with their teacher. This is the last one-room schoolhouse still operating in the state of Vermont. That is the way it used to be. Parental control, parents choosing the teacher, parents monitoring the schooling, parents even getting together and chipping in to paint the schoolhouse as they did here just a few weeks ago. Parental concern is still here as much in the slums of the big cities as in Bucolic, Vermont. But control by parents over the schooling of their children is today the exception, not the rule.
Increasingly, schools have come under the control of centralized administration, professional educators deciding what shall be taught, who shall do the teaching, and even what children shall go to what school. The people who lose most from this system are the poor and the disadvantaged in the large cities. They are simply stuck. They have no alternative.
Of course, if you are well off you do have a choice. You can send your child to a private school or you can move to an area where the public schools are excellent, as the parents of many of these students have done. These students are graduating from Weston High School in one of Boston’s wealthier suburbs. Their parents pay taxes instead of tuition and they certainly get better value for their money than do the parents in Hyde Park. That is partly because they have kept a good deal of control over the local schools, and in the process, they have managed to retain many of the virtues of the one-room schoolhouse.
Students here, like Barbara King, get the equivalent of a private education. They have excellent recreational facilities. They have a teaching staff that is dedicated and responsive to parents and students. There is an atmosphere which encourages learning, yet the cost per pupil here is no higher than in many of our inner city schools. The difference is that at Weston, it all goes for education that the parents still retain a good deal of control.
Unfortunately, most parents have lost control over how their tax money in spent. Avabelle goes to Hyde Park High. Her parents too want her to have a good education, but many of the students here are not interested in schooling, and the teachers, however dedicated, soon lose heart in an atmosphere like this. Avabelle’s parents are certainly not getting value for their tax money.
Caroline Bell, Parent: I think it is a shame, really, that parents are being ripped off like we are. I am talking about parents like me that work every day, scuffle to try to make ends meet. We send our kids to school hoping that they will receive something that will benefit them in the future for when they go out here and compete in the job market. Unfortunately, none of that is taking place at Hyde Park.
Friedman: Children like Ava are being shortchanged by a system that was designed to help. But there are ways to help give parents more say over their children’s schooling.
This is a fundraising evening for a school supported by a voluntary organization, New York’s Inner City Scholarship Fund. The prints that have brought people here have been loaned by wealthy Japanese industrialist. Events like this have helped raise two million dollars to finance Catholic parochial schools in New York. The people here are part of a long American tradition. The results of their private voluntary activities have been remarkable.
This is one of the poorest neighborhoods in New York City: the Bronx. Yet this parochial school, supported by the fund, is a joy to visit. The youngsters here from poor families are at Saint John Christians because their parents have picked this school and their parents are paying some of the costs from their own pockets. The children are well behaved, eager to learn, the teachers are dedicated. The cost per pupil here is far less than in the public schools, yet on the average the children are two grades ahead. That is because teachers and parents are free to choose how the children shall be taught. Private money has replaced the tax money and so control has been taken away from the bureaucrats and put back where it belongs.
This doesn’t work just for younger children. In the 60’s, Harlem was devastated by riots. It was a hot bed of trouble. Many teenagers dropped out of school.
“Milton Friedman is a scholar of first rank whose original contributions to economic science have made him one of the greatest thinkers in modern history.” —President Ronald Reagan
“How grateful I have been over the years for the cogency of Friedman’s ideas which have influenced me. Cherishers of freedom will be indebted to him for generations to come.” —Alan Greenspan, former Chairman, Federal Reserve System
“Right at this moment there are people all over the land, I could put dots on the map, who are trying to prove Milton wrong. At some point, somebody else is trying to prove he’s right That’s what I call influence.” —Paul Samuelson, Nobel Laureate in Economic Science
“Friedman’s influence reaches far beyond the academic community and the world of economics. Rather than lock himself in an ivory tower, he has joined the fray to fight for the survival of this great country of ours.” —William E. Simon, former Secretary of the Treasury
“Milton Friedman is the most original social thinker of the era.” —John Kenneth Galbraith, former Professor of Economics, Harvard University
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 […]
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 […]
Friedman Friday” Free to Choose by Milton Friedman: Episode “What is wrong with our schools?” (Part 3 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 3 of 6. Volume 6 – What’s Wrong with our Schools Transcript: If it […]
Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 2 of 6. Volume 6 – What’s Wrong with our Schools Transcript: Groups of concerned parents and teachers decided to do something about it. They used private funds to take over empty stores and they […]
Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 1 of 6. Volume 6 – What’s Wrong with our Schools Transcript: Friedman: These youngsters are beginning another day at one of America’s public schools, Hyde Park High School in Boston. What happens when […]
I have been writing President Obama letters and have not received a personal response yet. (He reads 10 letters a day personally and responds to each of them.) However, I did receive a form letter in the form of an email on July 30, 2012. I don’t know which letter of mine generated this response so I have linked several of the letters I sent to him below with the email that I received. However, I think it was probably this one below:
President Obama’s state of the union speech Jan 24, 2012
President Obama c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500
In a night of disappointments, the complete lack of any mention of Social Security other than as an excuse to raise taxes was one of the greatest. Although the Social Security trustees, several of whom are members of the President’s cabinet, has warned that the program faces perpetual deficits, the President evidently has no plan to protect the retirement security of millions of Americans who face a 25% benefit cut in less than 25 years. Most officeholders join the President in treating Social Security as an issue that can be discussed later – much later, but the reality is that just like a leaky roof, the longer that the President and Congress waits to fix the program, the more expensive the reforms will be.
Tax Reform? It’s Needed, but There’s A Better Way to Go – Emily Goff
President Obama says he is ready and willing to embark on tax reform. This is a welcome statement, as our current tax system is ripe for overhaul. However, instead of piecemeal approaches or solutions that give preferences to one industry or company over another, the President should look to the fundamental reforms that the New Flat Tax, as part of The Heritage Foundation’s Saving the American Dream, would bring.
Obama Doubles Down on the Worst U.S. Tax Policy – J.D. Foster
One of the universally acknowledged banes of the federal income tax has for years been the individual Alternative Minimum Tax. Borne in its current form in the 1986 tax reform act, this parallel system which runs in parallel to the regular income tax forces taxpayers to calculate their taxes twice and pay the larger of the two.
Today, this tax makes no sense, and most tax reform proposals of sufficient heft seek as a primary goal the repeal of the AMT. Tonight, President Obama proposed not merely to embrace the AMT in principle, but to extend the principle robustly to the business income tax – to create a new basic minimum tax for businesses. Once again, when it comes to tax policy, President Obama sees what needs to be done – and does the exact opposite.
___________________
Got to tackle entitlement reform but your speech did not mention that once.
Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your committment as a father and a husband.
Sincerely,
Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com
July 30, 2012
Dear Everette:
Thank you for sharing your thoughts with me. I have heard from many Americans who are worried about the future of their retirement savings, and I appreciate your perspective.
Retiring with dignity is a promise we must keep to all Americans, and I am working hard to strengthen our retirement system. That is why I am committed to protecting Social Security and addressing Americans’ concerns. Social Security cannot be subjected to risky privatization plans because the future of hard-working Americans should not be left to the fluctuations of financial markets.
To better secure their retirement and prepare for unforeseen circumstances, Americans must also save for their future in other ways. We are laying the foundation for all individuals to participate in workplace retirement accounts. Employees would be automatically enrolled in pension plans and could opt out if they choose. Simple and automatic enrollment makes it easier for people to plan for retirement. This would assist the 75 million working Americans—about half the workforce—who lack access to retirement plans through their employers. Please join me online to learn more at: www.whitehouse.gov/agenda/seniors-and-social-security.
6/6/12 Republican Leadership Press Conference Published on Jun 6, 2012 by HouseConference Today House Republican leaders, joined by Senate Republican Leader Mitch McConnell, discussed the importance of preventing any tax increase to provide certainty to America’s job creators. Even President Bill Clinton and Larry Summers agree — taxes should not be raised on anyone in […]
President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here. We need […]
I have been writing President Obama letters and have not received a personal response yet. (He reads 10 letters a day personally and responds to each of them.) However, I did receive a form letter in the form of an email on July 16, 2012. I don’t know which letter of mine generated this response so I have linked several […]
President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here. […]
Glenn Beck Presents: F.A. Hayek’s “The Road to Serfdom” (Part 2) President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get […]
Milton Friedman, recipient of the 1976 Nobel Memorial Prize in Economic Science, is a Senior Research Fellow at the Hoover Institution. This article is reprinted with the permission of Encounter and The Fraser Institute.
“Capitalism and the Jews” was originally presented as a lecture before the Mont Pelerin Society in 1972. It subsequently was published in England and Canada and appears here without significant revision.
The Jews as an Example of the Paradox
My aim here is not to give a ready answer—for I have none. My aim is rather to examine a particular case of paradox–the attitude of Jews toward capitalism. Two propositions can be readily demonstrated: first, the Jews owe an enormous debt to free enterprise and competitive capitalism; second, for at least the past century the Jews have been consistently opposed to capitalism and have done much on an ideological level to undermine it. How can these propositions be reconciled?
I was led to examine this paradox partly for obvious personal reasons. Some of us are accustomed to being members of an intellectual minority, to being accused by fellow intellectuals of being reactionaries or apologists or just plain nuts. But those of us who are also Jewish are even more embattled, being regarded not only as intellectual deviants but also as traitors to a supposed cultural and national tradition.
This personal interest was reinforced by the hope that study of this special case might offer a clue to the general paradox—typified by West Germany where Jews play a minor role. Unfortunately, that hope has not been fulfilled. I believe that I can explain to a very large extent the anti-capitalist tendency among Jews, but the most important elements of the explanation are peculiar to the special case and cannot readily be generalized. I trust that others will be more successful.
II. The Benefit Jews Have Derived from Capitalism
An Anecdote and Some History
Let me start by briefly documenting the first proposition: that the Jews owe an enormous debt to capitalism. The feature of capitalism that has benefited the Jews has, of course, been competition.[1] Wherever there is a monopoly, whether it be private or governmental, there is room for the application of arbitrary criteria in the selection of the beneficiaries of the monopoly—whether these criteria be color of skin, religion, national origin or what not. Where there is free competition, only performance counts. The market is color blind. No one who goes to the market to buy bread knows or cares whether the wheat was grown by a Jew, Catholic, Protestant, Muslim, or atheist; by whites or blacks. Any miller who wishes to express his personal prejudices by buying only from preferred groups is at a competitive disadvantage, since he is keeping himself from buying from the cheapest source. He can express his prejudice, but he will have to do so at his own expense, accepting a lower monetary income than he could otherwise earn.
A recent personal experience illuminates sharply the importance of competition. Some years ago, I attended an International Monetary Conference held in Montreal. The persons there consisted, on the one hand, of members of the Conference, who include the two top executives of the major commercial banks throughout the world; on the other, of persons like myself invited as speakers or participants in panel discussions. A conversation with an American banker present who recounted a tale of anti-Semitism in American banking led me to estimate roughly the fraction of the two groups who were Jewish. Of the first group—the bankers proper—I estimated that about 1 per cent were Jewish. Of the much smaller second group, the invited participants in the program, roughly 25 per cent were Jewish.
Why the difference? Because banking today is everywhere monopolistic in the sense that there is no free entry. Government permission or a franchise is required. On the other hand, intellectual activity of the kind that would recommend persons for the program is a highly competitive industry with almost completely free entry.
This example is particularly striking because banking is hardly a field, like, say, iron and steel, in which Jews have never played an important role. On the contrary, for centuries Jews were a major if not dominant element in banking and particularly in international banking. But when that was true, banking was an industry with rather free entry. Jews prospered in it for that reason and also because they had a comparative advantage arising from the Church’s views on usury, the dispersion of Jews throughout the world, and their usefulness to ruling monarchs precisely because of the isolation of the Jews from the rest of the community.[2]
This anecdote illuminates much history. Throughout the nearly two thousand years of the Diaspora, Jews were repeatedly discriminated against, restricted in the activities they could undertake, on occasion expelled en masse, as in 1492 from Spain, and often the object of the extreme hostility of the peoples among whom they lived. They were able nonetheless to exist because of the absence of a totalitarian state, so that there were always some market elements, some activities open to them to enter. In particular, the fragmented political structure and the numerous separate sovereignties meant that international trade and finance in particular escaped close control, which is why Jews were so prominent in this area. It is no accident that Nazi Germany and Soviet Russia, the two most totalitarian societies in the past two thousand years (modern China perhaps excepted), also offer the most extreme examples of official and effective anti-Semitism.
If we come to more recent time, Jews have flourished most in those countries in which competitive capitalism had the greatest scope: Holland in the sixteenth and seventeenth centuries, and Britain and the U.S. in the nineteenth and twentieth centuries, Germany in the late nineteenth and early twentieth century—a case that is particularly pertinent when that period is compared with the Hitler period.[3]
1. The only other writer I have come across who explicitly stresses the benefits Jews have derived from capitalism is Ellis Rivkin, The Shaping of Jewish History (New York: Scribner’s, 1971). Unfortunately, Rivkin’s interesting analysis is marred by misconceptions about the nature and operation of capitalism. He takes the accumulation of capital rather than free entry as its distinguishing feature.
2. See for example Hannah Arendt, The Origins of Totalitarianism (New York: Harcourt, Brace & Co., 1951), on “court Jews,” also Werner Sombart, The Jews and Modern Capitalism (London: T.Fisher Unwin, 1913) [translated from 1911 German original].
3. Sombart argues that the relation is the reverse: that capitalism flourished where it did because Jews were given a considerable measure of freedom. But he would not have denied that the relation is reciprocal. And his version has been seriously questioned by economic historians. See Introduction by Bert F. Hoselitz to the American edition of Sombart’s book, Jewish Contributions to Civilization, 1919, chapter viia, pp. 247-267.
In 1980 economist and Nobel laureate Milton Friedman inspired market reform in the West and revolutions in the East with his celebrated television series “Free To Choose.”
Thirty years later, in this one-hour documentary, the young Swedish writer, analyst and Cato Institute Fellow Johan Norberg travels in Friedman’s footsteps to see what has
actually happened in the places Friedman’s ideas helped transform. In location after location Norberg examines the contemporary relevance of Friedman’s ideas in the 2011 world of globalization and financial crisis. Central to his examination are the perennial questions concerning power and prosperity, and the trade-offs between individual liberty and income equality.
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I have enjoyed reading this series of reviews by T. Kurt Jaros on Milton and Rose Friedman’s book “Free to Choose.” I hope you enjoy it as much as I did.
T. Kurt Jaros is currently a Master’s student studying Systematic Theology at King’s College in London. He holds a B.A. in Philosophy and Political Science cum laude and an M.A. in Christian Apologetics high honors from Biola University, an evangelical Christian university outside of Los Angeles.
He enjoys learning and thinking about theology, specifically historical theology, philosophical theology and philosophy of religion, and issues pertaining to monergism and synergism. Additionally, he enjoys learning and thinking about political philosophy, economics, American political history, and campaigns.
This is part of a series on Milton Friedman’s “Free to Choose.”
In my previous post I explained the role of government in the marketplace. This is part four of a book series on Free to Choose by Milton Friedman.
In the second chapter, Friedman writes on the role of government as it relates to trade. He makes a strong case for free trade, and specifically focuses on international trade. However, the same principles ought to be applied to domestic trade.
Friedman believes that the restrictions on economic freedom have “also affected our freedom of speech, of press, and of religion.” This is evident through the examples he uses throughout the chapter and even in instances we can think of right now. Consider the hated Stamp Act that the British imposed upon the American colonies. This was a tax placed upon legal documents, contracts, newspapers and even play cards. Also consider the more recent example of how economic regulations have affected our freedom of religion (in four words): Sandra Fluke, birth control.
Bureaucrats like to think that economic regulations are helpful to the American people. But in reality, protectionism exploits consumers. Friedman even sites consumers as “major victims of such measures.” In the attempt to secure American jobs, bureaucrats hold off consumers from saving money because the nation is, as Adam Smith pointed out, unable to get the largest volume of imports as possible for as little as it can pay.
Friedman recognizes that without tariffs, workers may be harmed through a cut in wages or even laid off, if a foreign nation can produce products more cheaply. But this happens anyway in the domestic marketplace. Yet this would allow workers to look for work in industries where there might be a need for innovation. Put another way: why do we want to support inefficient businesses when we can save consumers money? Without the tariffs, we “might very well produce a stronger and more efficient” industry.
There are four arguments in favor of tariffs that Friedman rejects (two of which are explained here). First, the government should protect against foreign trade because of national security. Consider the steel industry. Friedman thinks this is foolish because we could just stockpile steel. And even still, the U.S. steel industry would not be completely destroyed because of the low transportation costs. Second, the “infant industry” argument is used to defend baby companies who would fail unless otherwise protected. But this happens anyway; “most firms experience losses in their early years.” In reality, this is just a smokescreen for more government regulation and serving the special interests. This argument is hardly ever used to support companies that have yet to come into existence. After all, such hypothetical companies have no spokesmen or lobbyists.
We need to follow the suggestions of Friedman and take certain measures to promote freedom. Instead of giving foreign aid and then imposing restrictions on trade,
“We could say to the rest of the world: we believe in freedom and intend to practice it. We cannot force you to be free. But we can offer full cooperation on equal terms to all. Our market is open to you without tariffs or other restrictions. Sell here what you can and wish to. Buy whatever you can and wish to. In that way cooperation among individuals can be worldwide and free.”
I must say that I have lots of respect for Reason Magazine and for their admiration of Milton Friedman. However, I do disagree with one phrase below. At the end of this post I will tell you what sentence it is. Uploaded by ReasonTV on Jul 28, 2011 There’s no way to appreciate fully the […]
Milton Friedman on Hayek’s “Road to Serfdom” 1994 Interview 1 of 2 Uploaded by PenguinProseMedia on Oct 25, 2011 Says Federal Reserve should be abolished, criticizes Keynes. One of Friedman’s best interviews, discussion spans Friedman’s career and his view of numerous political figures and public policy issues. ___________________ Two Lucky People by Milton and Rose Friedman […]
What a great man Milton Friedman was. The Legacy of Milton Friedman November 18, 2006 Alexander Tabarrok Great economist by day and crusading public intellectual by night, Milton Friedman was my hero. Friedman’s contributions to economics are profound, the permanent income hypothesis, the resurrection of the quantity theory of money, and his magnum opus with […]
Milton Friedman videos and transcripts Part 7 On my blog http://www.thedailyhatch.org I have an extensive list of posts that have both videos and transcripts of MiltonFriedman’s interviews and speeches. Here below is just small list of those and more can be accessed by clicking on “Milton Friedman” on the side of this page or searching […]
Milton Friedman at Hillsdale College 2006 July 2006 Free to Choose: A Conversation with Milton Friedman Milton Friedman Economist Milton Friedman is a senior research fellow at the Hoover Institution at Stanford University and a professor emeritus of economics at the University of Chicago, where he taught from 1946-1976. Dr. Friedman received the Nobel Memorial […]
Milton Friedman said that getting George Bush I to be his vice president was his biggest mistake because he knew that Bush was not a true conservative and sure enough George Bush did raise taxes when he later became President. Below is a speech by George W. Bush honoring Milton Friedman: Milton Friedman Honored for […]
Below is a discussion from Milton Friedman on Bill Clinton and Ronald Reagan. February 10, 1999 | Recorded on February 10, 1999 audio, video, and blogs » uncommon knowledge PRESIDENTIAL REPORT CARD: Milton Friedman on the State of the Union with guest Milton Friedman Milton Friedman, Senior Research Fellow, Hoover Institution and Nobel Laureate in […]
Milton Friedman and Chile – The Power of Choice Uploaded by FreeToChooseNetwork 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 […]
Milton Friedman’s negative income tax explained by Friedman in 1968: President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a […]
Milton Friedman on the American Economy (5 of 6) Uploaded by donotswallow on Aug 9, 2009 THE OPEN MIND Host: Richard D. Heffner Guest: Milton Friedman Title: A Nobel Laureate on the American Economy VTR: 5/31/77 _____________________________________ Below is a transcipt from a portion of an interview that Milton Friedman gave on 5-31-77: Friedman: […]
“There are very few people over the generations who have ideas that are sufficiently original to materially alter the direction of civilization. Milton is one of those very few people.”
That is how former Federal Reserve Chairman Alan Greenspan described the Nobel laureate economist Milton Friedman. But it is not for his technical work in monetary economics that Friedman is best known. Like mathematician Jacob Bronowski and astronomer Carl Sagan, Friedman had a gift for communicating complex ideas to a general audience.
It was this gift that brought him to the attention of filmmaker Bob Chitester. At Chitester’s urging, Friedman agreed to make a 10 part documentary series explaining the power of economic freedom. It was called “Free to Choose,” and became one of the most watched documentaries in history.
The series not only reached audiences in liberal democracies, but was smuggled behind the iron curtain where it played, in secret, to large audiences. Reflecting on its impact, Czech president Vaclav Klaus has said: “For us, who lived in the communist world, Milton Friedman was the greatest champion of freedom, of limited and unobtrusive government and of free markets. Because of him I became a true believer in the unrestricted market economy.”
July 31st, 2012 is the 100th anniversary of Friedman’s birth. To commemorate that occasion, we’d like to share an interview with “Free to Choose” producer Bob Chitester. Like this interview, the entire series can now be viewed on-line at no cost at http://www.freetochoose.tv/, thanks to the incredible technological progress brought about by the economic freedom that Milton Friedman celebrated.
Produced by Andrew Coulson, Caleb O. Brown, Austin Bragg, and Lou Richards, with help from the Free to Choose Network.
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This article below was also carried by the Arkansas Democrat-Gazette on August 12, 2012.
Don Boudreaux is an adjunct scholars at the Cato Institute, a professor of economics at George Mason University, and is author of Hypocrites & Half-Wits.
Added to cato.org on July 30, 2012
This article appeared in Newsday on July 30, 2012.
At the height of the Vietnam War, U.S. commander Gen. William Westmoreland testified before the President’s Commission on an All-Volunteer Force. The 15 members of that commission were charged with exploring the feasibility of ending the military draft.
Staunchly opposed to an all-volunteer military, which must pay its soldiers market wages, Gen. Westmoreland proclaimed that he did not want to command “an army of mercenaries.” One of the commission members immediately shot back with a question: “General, would you rather command an army of slaves?” That penetrating query was posed by Milton Friedman, a diminutive (he stood only 5 feet 3 inches tall) giant among 20th-century scholars. Were he still alive — he died in 2006 — Friedman would celebrate his 100th birthday on July 31.
Bald and bespectacled, Friedman looked every part the University of Chicago economics professor that he was. During his long tenure at that celebrated institution, he produced a stream of cutting-edge research on consumer behavior, on the role of money, and on the history of U.S. and British monetary policy. The impressive quantity, quality, and importance of this research without doubt places Friedman among the top two or three economists of the past century.
Don Boudreaux is an adjunct scholars at the Cato Institute, a professor of economics at George Mason University, and is author of Hypocrites & Half-Wits.
Friedman, indeed, is one of the few scholars whose receipt of the Nobel Prize in Economics — which he received in 1976 — did at least as much to bestow prestige on that award as that award did to bestow prestige on him. (The first Nobel Prize in Economics wasn’t awarded until 1969.) Friedman’s stupendous scholarly achievements alone justify commemoration of the centenary of his birth.
But at least as important as Friedman’s scholarship was his lucid and energetic public advocacy of limited government and free markets. He explained with unmatched clarity how a modern economy’s complexities, nuances, and dynamism almost always thwart even the best-intentioned efforts by government officials to intervene into markets.
In a scene from the opening episode of his successful 10-part 1980 PBS series “Free to Choose,” Friedman held in his hand an ordinary pencil. Looking into the camera, and speaking without a script, he explained that a pencil — so seemingly simple — requires for its production the knowledge and labors of millions of people from around the world.
Some workers cut down the trees; other workers make the chainsaws used to cut down the trees; yet other workers make the steel used to manufacture the chainsaws; and yet other workers specialize in mining the iron ore used to make the steel. Still other workers mine the graphite to make the “lead” for the pencil, while many others work in factories to make the yellow paint that commonly adorns pencils, while still other workers perform the many tasks required to produce the rubber for each pencil’s eraser.
Just to list the number of different, highly specialized jobs that must be performed to produce a commonplace pencil would take volumes. Few of these workers know each other, and none of them knows how to do any more than one or two of the countless jobs that must be done if we are to be well-supplied with pencils.
Friedman explained how free-market prices, along with the lure of profit and the fear of loss, guide entrepreneurs, firms, and workers from across the globe to produce just the right amounts of wood, graphite, paint, erasers, and the many other parts of pencils.
No government commissars are involved. There’s no central plan for the production of pencils. Yet we have high-quality pencils in abundance and for sale at low prices. What’s true for pencils, of course, is true also for more complex items such as automobiles, electric lighting, MRI machines, and on and on — that is, for nearly every good commonly found in modern industrial society.
No one equaled Friedman’s skill at explaining how free markets succeed at coordinating the activities of legions of individuals to produce the goods and services that we today take for granted. Likewise, no one equaled his skill at explaining how government regulators are typically oblivious to the complexity of the coordination achieved by markets. Being oblivious, regulators’ interventions too often obstruct this market coordination.
Note that Friedman would heartily agree with President Obama that no one prospers in today’s economy exclusively through his or her own individual efforts. Where Friedman would disagree — and disagree strongly — is with Obama‘s suggestion that the main source of help that each of us gets from others is government. While government might supply some necessary pieces, such as highways and law courts, the vast bulk of what society supplies for each person’s sustenance and success comes not from government but from the ongoing private efforts of millions of individuals acting in free markets.
Friedman’s brilliant use of the pencil, like his reply to Gen. Westmoreland, reveals the great talent Friedman had for cutting to the heart of the matter in ways easily understood by almost everyone.
Revealing the awesome complexity of the humble pencil makes clear that no government regulators can ever hope to know enough about the entire economy to regulate it as well as it is regulated by free-market forces. Calling the military’s seizure of years of labor from young men “slavery” reveals the fact that draftees — like plantation slaves of old — are forced against their will to work for others and on terms dictated by others.
Friedman’s response to Gen. Westmoreland is evidence also of Friedman’s lifelong commitment to the cause of human freedom. Not only was conscription economically inefficient (as Friedman showed in academic research), it was also an affront to the values of a free society.
In a free society government is kept as small and as constrained as possible, charged with doing only those few tasks that are widely believed to be doable only by government — tasks such as building roads and supplying national defense. All other tasks are left to the creative forces of the free market. And in doing those few tasks, Friedman maintained, the freedom and dignity of every individual must always be respected.
Americans of my generation likely first encountered Friedman through his regular column in Newsweek, which ran from 1966 through 1984. Each of these essays cogently made the case for reducing the reach of government. In making this case, Friedman consistently defied conventional stereotypes. He was, he always insisted, not a conservative but, rather, a liberal — a true liberal, in the original meaning of that term.
Being a classical liberal, Friedman vigorously championed not only economic freedoms but also freedoms emphasized by many folks on the political left, such as freedom of speech and of assembly. It speaks volumes of Friedman’s principles that he, the owlish and dedicated scholar so beloved by many establishment conservatives for his support of free enterprise, was among the most vocal and unwavering opponents of the “war on drugs.” He insisted, with characteristic wit, that “the government has no more right to tell me what goes into my mouth than it has to tell me what comes out of my mouth.” Truly great men and women are rare. What they all share is the courage of their convictions, the wisdom to distinguish cant from reality, and enormous energy and ability in working to make the world a better place. Milton Friedman was one such genuinely great man.
Milton Friedman’s 100th: Exploring His Wisdom for the Ages (Part I: Worldview) by Robert Bradley Jr. July 31, 2012 [Ed. note: Milton Friedman’s views will be further explored in Part II on energy and Part III on political capitalism.] “Our central theme in public advocacy has been the promotion of human freedom … [It] underlies […]
I was impacted in 1980 by the film series “Free to Choose” and I was very impressed by the performance by Thomas Sowell. Today he remembers his former teacher Milton Friedman. Friedman could be a help today By Thomas Sowell Creators Syndicate Tuesday July 31, 2012 7:00 AM If Milton Friedman were alive […]
In the video above Milton Friedman takes on some liberal students with their challenges to capitalism. Secretary of Defense Donald H. Rumsfeld speaking at Tribute to Milton Friedman (transcript) As Delivered by Secretary of Defense Donald H. Rumsfeld, White House, Washington, D.C., Thursday, May 09, 2002 Mr. President (George W. Bush), Rose and Milton […]
Every Friday you need to click on http://www.theDailyHatch.org if you would like to see a video clip of Milton Friedman as he shares his common sense conservative economic views. Many of his articles are posted too. I remember growing up and reading those great articles every week in Newsweek. They are just as relevant today as […]
Milton Friedman videos and transcripts Part 12 On my blog http://www.thedailyhatch.org I have an extensive list of posts that have both videos and transcripts of MiltonFriedman’s interviews and speeches. Here below is just small list of those and more can be accessed by clicking on “Milton Friedman” on the side of this page or searching […]
published Tuesday, July 31st, 2012 Chattanooga Times Free Press Milton Friedman at 100 Milton Friedman Photo by Associated Press /Chattanooga Times Free Press. enlarge photo One hundred years ago today, the most powerful defender of economic liberty in American history was born in Brooklyn to poor Jewish immigrants. Though he stood barely […]
No one did more to advance the cause of school vouchers than Milton and Rose Friedman. Friedman made it clear in his film series “Free to Choose” how sad he was that young people who live in the inner cities did not have good education opportunities available to them. Remembering Milton Friedman’s School Choice Legacy […]
Testing Milton Friedman – Preview Uploaded by FreeToChooseNetwork on Feb 21, 2012 2012 is the 100th anniversary of Milton Friedman’s birth. His work and ideas continue to make the world a better place. As part of Milton Friedman’s Century, a revival of the ideas featured in the landmark television series Free To Choose are being […]
What a great defense of Milton Friedman!!!! Defaming Milton Friedman by Johan Norberg This article appeared in Reason Online on September 26, 2008 PRINT PAGE CITE THIS Sans Serif Serif Share with your friends: ShareThis In the future, if you tell a student or a journalist that you favor free markets and limited government, there is […]
Milton Friedman on Hayek’s “Road to Serfdom” 1994 Interview 2 of 2 Uploaded by PenguinProseMedia on Oct 26, 2011 2nd half of 1994 interview. ________________ I have a lot of respect for the Friedmans.Two Lucky People by Milton and Rose Friedman reviewed by David Frum — October 1998. However, I liked this review below better. It […]
With the national debt increasing faster than ever we must make the hard decisions to balance the budget now. If we wait another decade to balance the budget then we will surely risk our economic collapse.
The first step is to remove all welfare programs and replace them with the negative income tax program that Milton Friedman first suggested.
Milton Friedman points out that though many government welfare programs are well intentioned, they tend to have pernicious side effects. In Dr. Friedman’s view, perhaps the most serious shortcoming of governmental welfare activities is their tendency to strip away individual independence and dignity. This is because bureaucrats in welfare agencies are placed in positions of tremendous power over welfare recipients, exercising great influence over their lives. In addition, welfare programs tend to be self-perpetuating because they destroy work incentives. Dr. Friedman suggests a negative income tax as a way of helping the poor. The government would pay money to people falling below a certain income level. As they obtained jobs and earned money, they would continue to receive some payments from the government until their outside income reached a certain ceiling. This system would make people better off who sought work and earned income.
Participants: Robert McKenzie, Moderator; Milton Friedman; James R. Dumpson, Chief Administrator, Human Resources Admin., NYC; Thomas Sowell, Professor of Economics, UCLA; Robert Lampman, Professor of Economics, Institute of Poverty; Helen Bohen O’Bannon, Secretary of Welfare, State of Pennsylvania
FRIEDMAN: __ but political reality changes and that’s the important thing. I want to say one more thing about this, this whole problem that we’ve been talking about. And that is, going back to Bob Lampman’s comment, there is one thing that can be said in favor on the welfare program. Unaccustomed as I am to saying anything in favor of it; and that is, that it is the only social program I know of which at least, on the average, give money to people who are in lower income classes than those who pay the taxes. Every other welfare program, not only does a lot of money go to the people who are well off, but on the average the poor are taxed and the well-to-do are subsidized. We in the upper income classes have been very clever at conning the poor suckers at the bottom to pay us nice salaries as bureaucrats and to provide us with nice benefits at their expense, and at least the welfare program doesn’t do that.
MCKENZIE: And you stated with great confidence that it will come, the negative income tax, even though you recognize the hurdles. Why are you so sure it will come?
FRIEDMAN: Because the present system has within it the seeds of its own destruction. There is no way in which a system constructed like the present, in my opinion, can avoid creating more and more social problems, and something is going to have to be done. Nobody has proposed any alternative, so far as I know, there is no effective alternative to the negative income tax and so it gets knocked down and it keeps rising, it gets knocked down and it keeps rising.
MCKENZIE: He finally raised the question though whether in any modern industrial democracy like this one it’s conceivable system to be run without fairly elaborate welfare underpinning of some kind. What do you feel?
O’BANNON: I don’t think it can be because I think essentially the welfare __ set of welfare programs reflect the values of this society that if it didn’t there would have been revolt long before now. Yes, there are rumblings about its cost, and I think that’s primarily a function of rapid rates of inflation eroding real income earning power of the middle-class taxpayer, but I think on one level we wanted to give up the responsibility of caring, the responsibility of day-to-day actual caring and in a technical, modern, industrial society like we have the tax system and the government system is probably __ is a viable alternative. I don’t think we’re going to get out of it. I don’t think you’re going to see private charities who can take my money that I’m free to give, or not give, and essentially make a difference in people’s lives of any substance on any level.
SOWELL: I don’t think it has anything to do with the society being modern, technological or industrial, it has to do with an ideology and particularly an ideology that is very strong among academic intellectuals or in the media, and I think that as time goes on and more and more intelligent ideas replace the kinds of vague visions that dominate today, that the political climate will change and that’s the only thing that stands in the way of reform right now.
MCKENZIE: Jim Dumpson.
DUMPSON: I don’t think you’re going to get rid of the system but I’m interested __ welfare system, I’m interested in Tom’s last statement about academicians and theories and so forth, we forgot that we’re talking about people and we may sit in the ivory tower and talk about whether this system will work and either logically or illogically why it won’t work, at the same time there are masses of people outside who are locked out of the system that you and I are part of and somehow we’ve got to make sure those people are taken care of and the short of not doing it, of course, means that your safety and my safety and the vitality of this government and of our country is at stake. The Mayor of the city of New York asked me, when we had a strike, what would I do if I couldn’t get checks out to people when our workers were on strike and I said to him, “After the first month _ chaos.” And he said, “What do you mean?” I said, “No man or woman in this city of New York, you included Mr. Mayor, will be safe if we cannot take care of people…”
MCKENZIE: We leave this discussion and hope you’ll join us for the next episode of Free To Choose
____________
Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.
Sincerely,
Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com
With the national debt increasing faster than ever we must make the hard decisions to balance the budget now. If we wait another decade to balance the budget then we will surely risk our economic collapse.
The first step is to remove all welfare programs and replace them with the negative income tax program that Milton Friedman first suggested.
Milton Friedman points out that though many government welfare programs are well intentioned, they tend to have pernicious side effects. In Dr. Friedman’s view, perhaps the most serious shortcoming of governmental welfare activities is their tendency to strip away individual independence and dignity. This is because bureaucrats in welfare agencies are placed in positions of tremendous power over welfare recipients, exercising great influence over their lives. In addition, welfare programs tend to be self-perpetuating because they destroy work incentives. Dr. Friedman suggests a negative income tax as a way of helping the poor. The government would pay money to people falling below a certain income level. As they obtained jobs and earned money, they would continue to receive some payments from the government until their outside income reached a certain ceiling. This system would make people better off who sought work and earned income.
Participants: Robert McKenzie, Moderator; Milton Friedman; James R. Dumpson, Chief Administrator, Human Resources Admin., NYC; Thomas Sowell, Professor of Economics, UCLA; Robert Lampman, Professor of Economics, Institute of Poverty; Helen Bohen O’Bannon, Secretary of Welfare, State of Pennsylvania
LAMPMAN: I think it’s a viable approach to some part of the problems of poverty. It involves, first of all, cash payments rather than in kind payments as I understand it? It involves payments on a non-categorical basis.
MCKENZIE: What do you mean non-categorical?
LAMPMAN: That is to say, it doesn’t matter whether you’re a female-headed family or a male-headed family or whether you’re young or old, you’re sick or well.
MCKENZIE: If your income falls below a certain level you __
LAMPMAN: Pay some guaranteed income level for people based on family size and then it has a take-back rate which is modest, I suppose, by definition. Now, the question is: How many things you want to use that program to replace? How many things you want to replace with such a negative income tax program.
MCKENZIE: Would you replace everything with it __ just __ we clear that point up. Would you virtually wipe out the remaining forms of welfare if you got this program going?
FRIEDMAN: Yes, I would not __ I think its purpose is precisely to provide a transition between where we are now and where we would like to go because while __ because I agree with you, that given that we’ve corrupted the people on welfare and gotten them on there. We do have an obligation not to throw them out in the street and put them in the difficult adjustment you’ve made. We’ve got to ease the __
MCKENZIE: Yeah. Okay. Right.
FRIEDMAN: __ ease it off __
MCKENZIE: Sure. Yeah.
FRIEDMAN: __ and so __ but I would want to replace all __
MCKENZIE: Yeah. Okay.
FRIEDMAN: __ present welfare programs.
MCKENZIE: Let’s get reactions to this and then we’ll come back to you.
SOWELL: Well, I saw some figures recently which said that if you took all the money spent on poverty in the United States and divided it by all the poverty families you’d come out with a figure of $32,000 per family. Now, the average poverty family is apparently not getting the $32,000 and so clearly someone in between the treasury and those families is getting an awful lot of that money and I think if you simply eliminated the middle man, as they say in the commercials, that there’d be an awful lot of benefit both to the poor and to the taxpayers.
DUMPSON: I’m supportive of the negative income tax concept and the objective of it. I’d like to point out, however, that administratively we have another bureaucracy set up. Somebody has to take into account earnings. Someone has to decide when to pay back that which they’re entitled to. There’s a time lag between the paying back __ the earning and the paying back. There are a variety of problems in there that I will be prepared to accept but I want you to know that government intervention is not going to be eliminated.
O’BANNON: The issue that I have is: Where do children come in? What are their rights under a negative income tax? And are we, by building in a negative income tax, in fact subsidizing the illegitimacy that Tom Sowell is so concerned about?
FRIEDMAN: The major reason it is not feasible today to have a negative income tax is because the present welfare bureaucracy would be out of work. They are the major objectors and as Senator Pat __ he’s now a senator, Pat Moynihan demonstrated in his book on the Nixon program, the chief obstacle to getting it enacted was the welfare bureaucracy. So that I don’t believe these administrative problems, if you got it enacted, would be at all serious.
O’BANNON: I think the other assumption under the negative income tax, and it’s one that I’m not sure I can buy, is that everybody has a minimum level of understanding about how to spend money. In other words, how to use the marketplace to satisfy wishes. And I, as an economist, would say, yes, we do. We __ everybody from age four to a hundred knows how to use money to satisfy wants and that’s the __
FRIEDMAN: But they don’t. They don’t. There are all sorts of problems of people who are not going to be able to. But that’s a minority problem. That’s a problem for private activity and private charity. One thing is sure: They’re spending __ they would be spending their own money and that however knowledgeable you are about money __
O’BANNON: They would be spending my money.
FRIEDMAN: They would be spending my money, but it would be one stage less then. Right now, the welfare worker is spending Mr. A’s money to help Mr. C. And there’s a big takeoff in the middle as Tom Sowell said.
SOWELL: The question is not whether the people on welfare or low incomes can all spend their money effectively; the question is: How effectively do they spend it as compared to how effectively the bureaucrats spend it for them. Comparing anything to perfection or to some arbitrary standard settles nothing. The same thing is true in the education area. They’re saying “Would families be able to spend their __ select schools for their kids under a voucher system,” for example. Well, the question is: Could they possibly do much worse than the current bureaucrats are doing in the public school system.
O’BANNON: Oh __
MCKENZIE: We’ve run on education on another program. Bob Lampman.
(Laughing)
LAMPMAN: I want to quibble with something you said, Tom, about half of the money not going to the poor or something. That doesn’t __ shouldn’t leave the viewer to think that all the money is going to the administrators of programs. A lot of what you are talking about goes to non-poor recipients. For example, social security, as a program, pays a roughly half of its benefits to people who otherwise would not be poor. Unemployment insurance pays about two-thirds of its benefits or so to non-poor persons. And those are, in some definitions, welfare or anti-poverty programs and that’s how statisticians come up with this horrendous sounding discrepancy between the total amount of money spent and the total cash benefits that go to the poor.
SOWELL: Well, I think, I think it’s a perfectly valid point though, because supposedly we were not setting up unemployment benefits and social security in order to keep the affluent.
LAMPMAN: Well, this goes back to its big philosophy, debate we might have. I think that it’s easy to oversimplify things and say that all these programs, including the public schools are there to be a help to the poor and poor only.
FRIEDMAN: Yeah, but I was saying __
LAMPMAN: But let me mention that the negative income tax has some of its impetus in that it would be a way of confining benefit payments to people who are __
SOWELL: Yes. Yes.
LAMPMAN: __ and it would cut out benefits for an awful lot of people who now have expectations that they’re going to get them, not in the form of public assistance, but in the form of social insurance as we use the term.
SOWELL: Well, in order to be made for not disappointing the expectations on which people have built their lives for one generation, but not of continuing for eternity in order to avoid one generation of transition.
MCKENZIE: What are the other hurdles toward getting underway. Now, you said, I don’t know how seriously, the biggest almost the only hurdle is the welfare bureaucracy.
FRIEDMAN: No. Now, there’d be the biggest immediate group of lobbyists that will lobby against it.
MCKENZIE: Yep.
FRIEDMAN: The biggest hurdle in getting it over at the moment is that there is no way of constructing a sensible negative income tax system that will not hurt some people. There will be some people who will get less money than they are now getting under __ particularly those in the upper income groups. Particularly the affluent who are now being subsidized by the welfare and they, will make it politically difficult for the people to put it into effect. The attempt is to put a negative income tax in effect which costs less money, is easier to administer, and yet which doesn’t pay anybody in the society one dollar less than he’s now getting. There’s no way in which you can construct such a program. But, although it’s not politically feasible now, the force of history is on its side, it’s going to become political __
MCKENZIE: Dr. James Dumpson.
DUMPSON: Let’s not say that the __ give the impression that welfare administrators were against negative income tax, the fat program for example, as Moynihan says, because they would lose their jobs, for example. Many of us were opposed to it because of certain features in that program: A $24 __ $2,400 level for a family of four. We were opposed to that. And if one goes down the Congressional record, those who testified, will be shown to be saying, “Yes, we’re for it conceptually. But we’re against this piece and this piece, if you change that you’ll have our support.”
FRIEDMAN: I was in the same position. I first proposed the negative income tax twenty-five years ago but I testified against the final version of the Nixon plan. Why? Because the welfare bureaucrats had led them to introduce changes in it which converted it from a decent satisfactory negative income tax to one which would have been just as bad as what you have now. Would have been added on top of everything else.
O’BANNON: Cold reality.
FRIEDMAN: It’s political reality __
O’BANNON: That’s right.
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Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.
Sincerely,
Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com
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