Hayek and Friedman

Milton Friedman was born 104 year ago while Friedrich Hayak was born 117 years ago. Yet their teaching are still relevant today.

Friedrich Hayek’s work with the Mont Pèlerin Society, an international association founded by him in 1947 and later led by Milton Friedman, was  concerned about systemic problems with capitalism rather than stopping the interventionist state.  Yet Hayek rather than Friedman has been mentioned more by conservatives since the Great Recession of the late 2000s.

Here is an explanation as to why from Angus Burgin, author of The Great Persuasion: Reinventing Free Markets since the Depression:

An essential difference between Hayek and Friedman here was that Hayek was in many ways a dark thinker. If you read Hayek in the 1930s and 1940s, the thinks the world is coming apart. Certainly Hayek’s response to the Great Depression was not one that imbued with a great deal of optimism. He thought that to a certain extent you just have to wait things out; if you try to intervene to solve the problem you’ll only exacerbate it.

Whereas Friedman was this tremendous optimist. Friedman was always emphasizing–he said that what Hayek and Robbins got wrong when they were responding to the Great Depression was precisely that: that they said you shouldn’t do anything. He thought that part of what he was doing in monetary theory was to try to come up with a way to say that there was a solution, something that could be done that would prevent this kind of problem. A kind of counternarrative to Keynes. And he always emphasized–instead of dwelling on the catastrophic situation that the world was in, he always emphasized the ways in which those catastrophes could be solved by the market.

And so when you reach this moment of deep pessimism that I think a lot of people associated with organizations like the Tea Party felt, Hayek in many ways feels more consonant with that set of views. His chiliastic tones align with the perspective that a lot of market advocates have in the present day. In that sense it’s not surprising at all that there’s kind of a revival of Hayek.

At the same time, I would say to them that precisely what made Friedman so influential in the public sphere was that sense of optimism. I make an argument in the book that Friedman was in many ways the rhetorical underpinning of Reaganism, that a lot of Reagan’s messages about the benefits of the market were derived from rhetoric that Friedman had developed. And so in emphasizing this dark perspective that can be very powerful among subsets of people who agree with that perspective but in the end can limit the public influence of a group in a broader political environment that in difficult times is looking for optimistic solutions rather than expressions of despair.

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” Friedrich Hayek – The Fatal Conceit

Great Achievements Do Not Come From Government

Today marks the 101st year since the birth of Milton Friedman, whose observations and conclusions ring loud and true today.

Regarding achievements, Friedman said,

“The great achievements of civilization have not come from government bureaus.”

Albert Einstein Was Not Inspired by Government Order

“Einstein didn’t construct his theory under order from a [government] bureaucrat. ” Milton Friedman

Henry Ford was not ordered to improve production by government.

Henry Ford didn’t revolutionize the automobile industry in that way.” [by government order] – Milton Friedman

Milton Friedman argues that the only cases in which the masses have escaped from grinding poverty, the only cases in recorded history is where the society had capitalism and largely free trade.

On the other side of history, the masses are worst off in the societies that depart from capitalism. Such as when Stalin moved to force the collectivization of farming which resulted in the drastic drop in living standards of the masses and widespread famine where an estimated 5 to 10 million people died of starvation.

Stalin’s Collectivism death by starvation.

“So the record of history is absolutely crystal clear that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.” – Milton Friedman

Friedman on Fiscal Policy and Secular Stagnation

Graph: When high unemployment continues despite the spending, the spending is often followed by a sharp economic contraction like the recession of 2008.

Milton Friedman states,

“Ever since the new deal, a primary excuse for the expansion of government activity at the federal level has been the supposed necessity for government spending to eliminate unemployment.”

At first Keynesians say that government spending is necessary to ‘prime the pump.’ They argue incorrectly over and over again, that temporary expenditures by the Fed would get the economy going and the government could then ‘step out of the picture.’ Well the government never steps out of the picture.

Secular Stagnation
Even during good times, theories are needed to keep the government spending going. Keynesian economics theory of “Secular Stagnation” was developed to help justify continuing spending. The Theory explains as the economy becomes mature, there are no new opportunities for investment and people still want to save. Therefore it is necessary for the governemnt to spend, spend, spend and run a perpetual and increasing deficit. The theory goes on to make the claim that the securities issued to finance the deficit would provide individuals with a way to accumulate savings while increasing governmental expenditures will ultimately provide the needed employment.

Regarding Secular Stagnation, Friedman wrote in 1962:

This view has been thoroughly discredited by theoretical analysis and even more by actual experience.

The whole idea of secular stagnation is embraced only by the ever enlarging government program bureaucrats. The new spending programs didn’t work then, yet are still with us today. Instead of government ‘stepping out of the picture’ the government keeps the new bureaucracy keeps growing year after year. Worse of all, many of the programs don’t even go into effect until after the recession has passes.

To keep the spending going it is argued that a healthy expansion must not be jeopardized by cuts in government expenditures. Instead the long term effects are damaging to the economy by creating an ‘inflationary bias’ in government policy while increasing the tax burden on Americans.

Milton Friedman Word of the Day: Augury

Augury – an event that is experienced as indicating important things to come; “he hoped it was an augury”; “it was a sign from God.”

From Milton’s Capitalism and Freedom:

As Adam Smith once said, “There is much ruin in a nation.” Our basic structure of values and the interwoven network of free institutions will withstand much. I believe that we shall be able to preserve and extend freedom despite the size of the military programs and despite the economic powers already concentrated in Washington. But we shall be able to do so only if we awake to the threat that w face, only if we persuade our fellow men that free institutions offer a surer, if perhaps at times a slower, route to the ends they seek than the coercive power of the state. The glimmerings of change that are already apparent in the intellectual climate are a hopeful augury.

Friedman was an optimistic man who believe to have real freedom one needed to live in a trichotomy of economic freedom, civil freedom AND political freedom.

The Power Of Choice

An interesting compilation of Milton Freeman as an economic freedom philosopher. Milton makes the case for economic freedom as a precondition for political freedom.

The title of this video, The Power of Choice is really a summary of his philosophy. Let me restate his thesis: If you have the power to choose anything, a job, a pizza, home and so on, you have freedom. Freedom to choose is power. Economic Freedom can, but does not necessarily, lead to political freedom.

If you do not have freedom to choose your job, your home or even your healthcare, then you will never have political freedom. But if you have freedom to choose, you have the conditions right for political freedom. Please note: this is not guarantee of political freedom. It is just a condition that is necessary for political freedom.

Famous Friedman Quotes

Milton Friedman – University of Chicago School of Economics Professor

As I read the comments by Milton Friedman, I can’t help but think about how his words relate so much to today’s economic and political issues.

“Nobody spends somebody else’s money as carefully as he spends his own. Nobody uses somebody else’s resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property.”

See Video: Friedman Explains Spending

“There’s no such thing as a free lunch.”

“The only way that has ever been discovered to have a lot of people cooperate together voluntarily is through the free market. And that’s why it’s so essential to preserving individual freedom.”

“The most important single central fact about a free market is that no exchange takes place unless both parties benefit.”

“My major problem with the world is a problem of scarcity in the midst of plenty … of people starving while there are unused resources … people having skills which are not being used.”

“The most important ways in which I think the Internet will affect the big issue is that it will make it more difficult for government to collect taxes.”

“The black market was a way of getting around government controls. It was a way of enabling the free market to work. It was a way of opening up, enabling people.”

“The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy.”

“Governments never learn. Only people learn.”

“Only government can take perfectly good paper, cover it with perfectly good ink and make the combination worthless.”

“The greatest advances of civilization, whether in architecture or painting, in science and literature, in industry or agriculture, have never come from centralized government.”

“So the question is, do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible? And my answer to that is, no they do not.”

“Nothing is so permanent as a temporary government program.”

“We have a system that increasingly taxes work and subsidizes nonwork.”

“I’m in favor of legalizing drugs. According to my values system, if people want to kill themselves, they have every right to do so. Most of the harm that comes from drugs is because they are illegal.”

“If you put the federal government in charge of the Sahara Desert, in 5 years there’d be a shortage of sand.”

“Inflation is the one form of taxation that can be imposed without legislation.”

A Tech Travel Agent can get a laptop rental to you within 24 business hours in over 1000 cities worldwide. Call 800-736-8772

We have 3987 Installers, Technicians and Engineers stationed in nearly 1000 locations worldwide to serve you.

Milton Friedman on Minimum Wage Laws

According to Friedman, “There are no positive objectives achieved my minimum wages. It’s real purpose is to reduce competition with the trade unions.”

The well intentioned ‘do-gooders’ think that raising the minimum wage helps low wage earners. According to Friedman, the opposite occurs. What you do when you raise the minimum wage is to ensure that those whose skills are not up to the new rate will become unemployed.

The market, if allowed to set wages, will maximize the total number of jobs. That is due to the laws of supply and demand. It works for labor just as any other product or commodity. The number of jobs  will be adjusted by the rate the market will bear. Raise the minimum wage and you will see a reduction in the lowest paid jobs.

Friedman: Central Park is a Filthy Place

As a libertarian, Milton Friedman advocates private enterprise wherever possible. He uses central park in New York as a prime example of what is wrong with the government owning the park. 

It used to be that you could take your children to central park, drop them off with a teenage babysitter and feel good about it. Not any more since the park is government owned it has become a filthy unsafe place. No one in their right mind would consider dropping their kids off at the park today.

Not so with the museums in New York. Museums are privately owned. Some are for profit, some are not for profit. Museums, because they are owned by the people who manage them, are safe and clean. I would indeed allow my children to be dropped off at a museum because the owners are the best stewards of the property.

People are the best stewards of their own money. Governement is the worst. More info: Friedman Explains Spending

Friedman Calls Himself a Liberal

Milton Friedman is considered one of the nation’s foremost Conservative economist. But Mr. Friedman says this, “I never consider myself as a conservative economist…”

“Conservative means conservative, keeping thinks as they are. I don’t want to keep things as they are. The true conservatives today are the people who are in favor of ever bigger government. The people who call themselves liberals today, ‘the New Dealers’, they are the true conservatives because they want to keep going on the same path we are going on.”

Milton Friedman Calls Himself a Liberal
He says, “I call myself a liberal in the true sense liberal. In the sense of which means and of and pertaining to freedom.”

Milton wants to evoke change, change is liberalism. Change from Big Governement spending, one which allows people to spend their own money. Milton Friedman Explains Spending. He argues that people are the best stewards of their own money and government is the worst spender of money.

Milton Friedman would be proud of the change that the miss-named Conservative movement is making today. If he were alive, I am sure he would be at the Chicago Tea Party. I am sure he is smiling today.

Friedman would never ‘Fire Forigners First’

Iowa Republican Senator Chuck Grassley urged US companies to fire foreign workers first. That attitude embodies everything that is wrong with the thinking in Washington. Milton Friedman surely would agree that companies need to decide for themselves what employees should be laid off.

Fire Foreigners First is just the opposite medicine the economy needs. Who will take responsibility, Senator, when companies begin to fail because they lose crucial talent required for the company to continue with critical company operational initiatives? How many more companies would a policy like Firing Foreigners First cause to lose market share or worse fail?

Freedom to choose productive work knows no boundary in today’s multinational world. Ordering Microsoft, Texas Instruments,  or Caterpillar, who all recently announced major job layoffs, to Fire Foreigners First is saying you cannot use resources from foreign sources.  Capitol, equipment AND human resources should be free traded and free of excessive regulation.

Companies like Microsoft need to hire professionals from other countries in certain fields because there is a shortage of qualified Americans to meet the needs. Microsoft last year had petitioned Congress for more H-1B visas specifically to hire engineer programmers. About 60,000 professionals are currently needed in the US to fill high tech jobs. 

Grassley said, “My point is that during a layoff, companies should not be retaining H-1B or other work visa program employees over qualified American workers.”

A spokesperson from Microsoft said what Milton Friedman would say. He said,  “We care about all our employees, so we are providing services and support to try to help every affected worker, whether they are US workers or foreign nationals working in this country on a visa.” 

Senator Grassley, I urge you to be a free trade conservative and move much more to the right. Let companies be free to choose which resources will help maximize profits, jobs and the overall health of the company.