BTSA Podcast: "Free to Choose" Milton & Rose Friedman with Prof. Mark Skousen

Milton Friedman was a Nobel Prize-winning economist whose work covered a broad range of economic topics and public policy issues. Friedman was a major influence as a thinker, a writer, teacher, and advisor to governments and major political figures in America and elsewhere. Mark Skousen is an economist, writer, and editor of Forecasts and Strategies, also was a good friend of Milton Friedman. Mark Skousen, the economist Milton Friedman, he may have stood just about five feet tall, but he was considered very much a giant in the field of economics for decades in this country. What is he best known for? Well, Milton Friedman, I think, is best known as the primary architect of free market economics after World War II. It was at this time that most economists or certain politicians all around the world were advocating nationalization, socialization, big government, deficit spending. And Milton Friedman came along and through his empirical work came to conclusion that this was not the direction that the world should go, that we needed to go back to the Adam Smith model of individual, encouraging individual entrepreneurship and let individuals make and businesses make decisions on what is the best way to handle their affairs, particularly in business, rather than central planning by government. And so in that sense, Milton Friedman was indeed a giant. And there's a funny story because there's a picture that I put together, kind of photoshopped Milton Friedman with John Kenneth Galbraith. John Kenneth Galbraith, the Harvard economist, who was a Keynesian economist and advocate of big government, and he stood six foot nine. And so I have him juxtaposed with Milton Friedman, who is about five feet tall, as you said. And then I have the quote underneath it by George Stigler, who was Milton Friedman's colleague and also a very tall man, and he said, all great economists are tall. There are two exceptions, John Kenneth Galbraith and Milton Friedman. Tell us about Milton Friedman's early years. He grew up, I understand, in the New York City area. But tell us about his early years, his home, his family life. Yeah, so he was from a working class family. Their parents were immigrants from the Ukraine area, came over, changed their names to Friedman, Jewish background. Milton himself was, even though he was trained, they were practicing Jews. He later rejected religion and was pretty much agnostic. But when he married his wife, Rose, she insisted on a traditional Jewish wedding, and he agreed to do that. But as a working class, poor family, his parents recognized his intelligence, and he was able to focus in particularly on mathematics. He went to Rutgers University. He worked his way, actually, as a waiter. Can you imagine being a waiter, Milton Friedman coming up and taking your order? That would be quite something. But he went on to focus on mathematics. But then with the Great Depression coming on, he changed his interest to economics because of the terrible deep depression that we were in. He got accepted at the University of Chicago, and it was there that he was introduced to his economics, the first generation of the Chicago school that adopted a more free market perspective, particularly in microeconomics, of letting individuals and businesses decide what is best rather than central planning. So he had some early skepticism of government policy, even from that very origin of his life. That reminds me of the Great Depression in this country. Milton Friedman had some thoughts about the causes of the Great Depression, the role of the Federal Reserve. What did he have to say? Well, this is where he made his really major contribution to economics in general, and I think changed the whole attitude that the profession has had in public policy. So the traditional view was that free market capitalism failed during the Great Depression and that the only thing that could save it is government increasing its influence, engaged in central planning and deficit spending. This was the Keynesian revolution that occurred. And then in the 1950s, Milton Friedman, working with Anna Schwartz, did an exhaustive study of monetary policy from the Civil War period all the way to the early 1960s, and in particular, in his chapter called The Great Contraction, he transformed the traditional view by discovering that Federal Reserve policy was not positive during this time period, it was not a lender of last resort, and by allowing banks to fail on a massive scale, thousands of banks failed, starting with the Bank of the United States, the money supply declined by a third, and so he basically concluded that Federal Reserve policy acted ineptly and it was government, not free enterprise, that caused the Great Depression. So you can imagine the change that this had. So in textbooks, instead of just talking about market failure, today, more and more textbooks are talking about government failure and the need for a stable monetary policy, which was his most important contribution to economics and public policy, that the Federal Reserve should not engage in easy money, tight money, easy money, tight money, which is the traditional thing that they do, but that they should provide a stable policy of increasing the money supply at a very stable rate that's noninflationary, and if that was the case, then free enterprise capitalism could flourish with very little government intervention. So in many ways, he became an advocate of laissez-faire capitalism and has influenced the world and many countries that have changed their views, going from central planning to deregulation, lower taxes, opening up to foreign investment, privatization, all of these things, Friedman advocated, and I think he's had a tremendous influence, not to say he's won the war, so to speak, because there's still a battle going on between big government and limited government, but his influence is felt every time there's a debate on this subject. Makes me want to ask Mark Skousen, what would he think of today's Fed and, more broadly, today's economic climate in this country, especially debt and spending, inflation, what do you think? Well, he died in 2006, so he did not see the financial crisis of 2008, the real estate collapse, and the quantitative easing by the Fed. I think he would be quite critical of the Fed today being so activist and engaging in buying up of assets, mortgage securities, buying treasuries directly from the government, increasing the money supply 40% in 2020 during the pandemic, the COVID pandemic, and now engaging in extremely tight money policy, and money supply has actually been declining recently. So that's not Friedman's formula. Friedman wanted the Fed to be replaced by a computer, and obviously that's not happening. If anything, it's going the opposite direction of what Friedman would want. One of the other major contributions of Milton Friedman, if I read it correctly, Mr. Skousen, is what we know as the federal withholding tax, something that dates back to World War II. Personal income tax, he strongly advocated, right? So during the world war time, he was one of the architects working for the treasury in World War II and wondering how can we pay for this war, and his solution was to make it easy to pay taxes through withholding. So he was one of those who advocated withholding. His wife, Rose, who played a major role in his life, by the way, in co-authoring a number of his books and editing them, she chastised him. Friedman said, I would do it again because it was necessary during the war, but he did regret it because it allowed the government to get so big, not only in terms of taxation, but spending. The whole idea of not having a balanced budget, he favored a balanced budget amendment, he favored limitations on taxes. He said he's always in favor of a tax cut under any circumstances. He would favor reducing the amount of revenue going to government. He was not an anarchist. He was certainly, his son, by the way, David, is an advocate of anarchy, but Milton Friedman was always a limited government, small government point of view, so he, even though he supported the income tax, he certainly would not like the huge progressive taxation that we have today. You go back to Adam Smith who advocated easy taxes, and do we have easy taxes today? I don't think anyone, I think everyone would agree with Milton Friedman, taxes are not easy today because there's all kinds of, people are always trying to find ways to get around paying their taxes. You touched on the influence that he had over the many years, the decades. He's influenced many of the figures we've covered here on C-SPAN over the years, presidents and foreign leaders, other public officials. Who were his biggest devotees, if that's the word? Who was he closest to, and who admired him the most in the public sphere? Well, certainly Ronald Reagan and Margaret Thatcher were big fans of Friedman, and also Friedrich Hayek of the Austrian school as well, both titans in the free market, giants in the land, so to speak, of free market economics. But he also had a tremendous influence in not only the Reagan administration and Thatcher across the pond, but also came and spoke in China, went to Hong Kong and used Hong Kong as an example in his free-to-choose series of the best example of free market economics. He would be rolling over in his grave right now, seeing what is happening with China taking back Hong Kong prematurely, violating the agreements and so forth. So political freedom was really important to Friedman, and he thought you needed both economic and political freedom. He was very much instrumental in creating the Economic Freedom Index that the Fraser Institute and the Heritage Foundation have created. And this has universal interest because every nation is ranked on how much economic freedom they have. And studies have shown that countries that have the highest level of economic freedom grow the fastest, and growth is absolutely essential to a prosperous and democratic country. So we need economic growth. He would be very disappointed in the slow growth that we're seeing all around the world, mainly because government has become more intrusive. It's a constant battle that Friedman fought, and thought he had won with the collapse of the Berlin Wall and the Soviet central planning model. But it's a constant battle, that's for sure. Milton Friedman was also criticized for a trip he made in 1975 to Chile. He made speeches, public talks, and wound up advising the military dictator there, Pinochet. What's your take on what happened there, that part of the history, and what the fallout was? Well, he never did advocate or defend Pinochet in his suppression of free speech and dissidence. So he was very critical of that. I know he was criticized because he went there and did advocate free market reforms that the Chicago boys... There was a whole group of economists who got their PhD from the University of Chicago, and under the influence of the Chicago school, they adopted many free market reforms. And Pinochet, despite his draconian methods of suppressing democracy, did recognize the need for economic reform. After all, that's why the Marxists took over Chile in the first place, was because they were not doing that well economically, and had all kinds of problems. And they made it even worse, and so that's why Pinochet intervened militarily. So he never supported the military coup, and so forth. I think it was unfair to criticize him for that. He was there primarily as an advocate of stable money, lower taxes, deregulation, privatization, opening up your borders to foreign investment, and privatizing Social Security. This was one of the major changes that Jose Pinera, the Labor Secretary, who is a big fan of Milton Friedman, adopted. Chile was the first major country in the world to adopt privatized Social Security, a topic that Milton and Rose Friedman advocated in Capitalism and Freedom. And I think it's been overall a success. It's been adopted by many other countries, so that's the influence of Milton Friedman there. 1976 Nobel Prize winner. What did he win that award for, and just how famous did Milton Friedman become during that period? So Friedman was definitely famous even before then, for having written a best-selling book called Capitalism and Freedom, and then his Changing the World's View of the Great Depression, being caused by free market capitalism. It's a 1963 book, A Monetary History of the United States. But his fame really took off after winning the Nobel Prize in 1976, which he won for his—primarily, in my opinion, his monetary theory and his, as I said, one line. One line in the book, A Monetary History of the United States, made him famous. And that one line is, the money supply dropped by a third under the Federal Reserve. This was unknown until Friedman and Anna Schwartz, his co-author, actually created M1 and M2. It didn't exist prior to Friedman's creation, and it was only then that they discovered how inept the Federal Reserve policy was. So after that, as you know, when you win the Nobel Prize, fame and all kinds of opportunities come, writing for Newsweek on a weekly basis with Paul Samuelson and his series, Free to Choose, that became a best-selling book and also TV series in 1980. Then he went on to write regularly for The Wall Street Journal and Travel the World and wrote continually books and various articles and stuff. So he was definitely on demand. But one thing I really like about Milton Friedman as a person was that he was willing to talk to you no matter—I mean, when I first met him, he didn't know who I was, but he was willing to talk to me. And we've developed a friendship the last 30 years of his life. And I had lunch with him, dinner with him. In fact, I think I was the last person to have a dinner or lunch with Milton Friedman in San Francisco at his favorite Italian restaurant. He was 94 years of age, and I said, oh, wow, in five or six years, you'll get to be 100. Isn't that exciting? Aren't you looking forward to turning 100? And he says, I hope not. He was losing his eyesight and he was really struggling physically. So it was really tough on him in the last year. And he had had two heart attacks, heart disease, and that's what he ended up dying of. What were his thoughts on social issues? Where would he fall on the spectrum when it comes to social issues? Well, give me some examples. Oh, gosh, let's talk about things like what we called welfare back in those days, or the abortion issue, other social issues like that. Well, I would say, I don't know what his views were on abortion. But I do know that he was very much against the draft. And many people give him credit for the volunteer army that we have today. Because in the early 1970s, he had advocated abolishment of the draft. That was really important for a volunteer to choose whether you want to defend your country or not. So that was a big factor. As far as welfare is concerned, he was very concerned about that. As most free market economists are, you want to encourage people to stand on their own and not have to depend on the dole, on the welfare. The permanent welfare system is not something that he liked at all. He advocated a negative income tax to encourage people so that they wouldn't lose all their benefits if they started working. So the negative income tax is his concept, which is basically kind of almost a universal income plan that is advocated today, although this is a little bit different in his approach. And then the other thing that he was very concerned about was school choice. Public education, he felt, was inherently unworkable and was a serious problem in our country, education. So he was a big advocate of school choice, of the voucher system, the popularity of vouchers today that are being supported by more and more individual states. I think there's something like 37 states now that support school choice. So he definitely supported that kind of a change as well. But these are examples of where his success rate is mixed, because school choice is working. And in fact, he created the Friedman Foundation, which is now called EdChoice, in advocating school choice in the voucher program. So he's been very successful in that concern. But as far as welfare reform, he certainly would be a big supporter of the Clinton and Gingrich Welfare Reform Act of 1996, I believe it was, which was very effective and worked well until the Bush administration and the financial crisis. There actually was a period of time when the number of people on food stamps and Medicaid declined because of the Welfare Reform Act. So he would have been very supportive of that as well. So he was a strong advocate of individual responsibility and getting people off of welfare. Let me ask the legacy question about Milton Friedman as we wrap up here, Mr. Skousen. What was his legacy and draw the line between his life, what he believed, and the way the world operates today? Well, I think his legacy is one that there is no such thing as a free lunch, that someone has to pay for all of these expenses, and how can we do it efficiently and productively? Ultimately, Milton Friedman was an advocate of the Adam Smith model, which was called the system of natural liberty. The Wealth of Nations by Adam Smith came out in 1776, a declaration of economic independence, if you will. And Friedman, he once said that Adam Smith was a revolutionary just as we are revolutionaries today. So Milton Friedman, this is the 300th anniversary of Adam Smith's birth this year. And if Milton Friedman was alive today, he would be very much involved in celebrations of this Adam Smith model, which is basically the model that we need to depend on individuals making their own decisions rather than government constantly making them for you. And that idea, that legacy is never going to go away. There's always going to be this debate between how much government, what is the size of government, and so forth. And Friedman would always advocate less government than more government, because it meant putting, it's not that it was a negative approach, it was actually a positive approach, because he would say, listen, this means that more, you have your own responsibility in making your own decisions, rather than someone else telling you what to do. And that's essentially an American perspective. We don't like people telling us what to do, whether it's during a pandemic, whether it's in a war. We want to make those decisions ourselves. And so I think that that is the ultimate legacy that Milton Friedman has. And by the way, he's one of the few economists that are honored on his birthday, July 31st of each year. And many people around the world celebrate Milton Friedman on July 31st as kind of a holiday for free market economics. So that's quite a legacy. How many economists do we honor their birth year? Like he, like his. Mark Skousen, economist, writer, editor, thank you very much for your time and your insight on the life of Milton Friedman. Appreciate it. My pleasure. Thank you. Thanks for listening to the Books That Shaped America podcast. For more information about the series, you can visit our website, cspan.org slash Books That Shaped America. And remember to follow this podcast so you never miss an episode.