C-SPAN Interview with Milton Friedman

Author: Milton Friedman Milton Friedman Title: Introduction to F. A. Hayek's "Road to Serfdom" Air date: November 20, 1994

BRIAN LAMB: Dr. Milton Friedman, why did you choose or why did they ask you to write the introduction to the F. A. Hayek "Road to Freedom" 50th anniversary ...

MILTON FRIEDMAN: ""Road to Serfdom"."

LAMB: Yes, that's your title on your book. Why did you do it?

FRIEDMAN: The reason they asked me was very clear, because Hayek and I had been associated for a very long time, in particular in an organization called the Montbelleron Society that he founded. The charter meeting was in 1947 in Switzerland. Hans Morgenthau, who was a professor at the University of Chicago when I was there, a political scientist, when I came back from the meeting, he asked me where I had been, and I told him that I had been to a meeting that had been called by Hayek to try to bring together the believers in a free, open society and enable them to have some interchange, one with another. He said, "Oh, a meeting of the veterans of the wars of the 19th century!" I thought that was a wonderful description of the Montbelleron Society.

Well, Hayek and I worked together in the Montbelleron Society and we were fostering essentially the same set of ideas. His "Road to Serfdom" book, the one you have there, which was published 50 years ago, was really an amazing event when it came out. It's very hard to remember now what the attitude was in 1944-45. Throughout the Western world, the movement was toward centralization, planning, government control. That movement had started already before World War II. It started really with the Fabian Society back in the late 19th century -- George Bernard Shaw, the Webbs and so on. But the war itself and the fact that in war you do have to have an enormous amount of government control greatly strengthened the idea that after the war what you needed was to have a rational, planned, organized, centralized society and that you had to get rid of the wastes of competition. That was the atmosphere.

Those of us who didn't agree believed in what we would call a liberal society, a free society -- 19th century liberalism. There were quite a number of us in the United States and in Britain, but in the rest of the world they were very isolated, indeed. Hayek's idea was to bring them together and enable them to get comfort and encouragement from one another without having to look around to see who was trying to stab them in the back, which was the situation in their home countries.

LAMB: The New York Times put on the Op-Ed page your introduction to this edition. Do you know why they did that? What got their attention?

FRIEDMAN: I can't answer that. You'd have to ask the people at the New York Times. On the whole, they have in the past not been very favorable to these ideas -- quite the contrary -- but they've been changing. About two or three years ago, they published -- they've turned down many an Op-Ed piece from me, which I subsequently published in the Wall Street Journal or somewhere else. But a couple of years ago, they did publish an Op-Ed piece from me about the situation after the fall of the Berlin Wall, in which my thesis was a very simple one. Everybody agrees, as a result of the experience in the West, that socialism has been a failure. Everybody agrees that capitalism has been a success, that wherever you have had an improvement in the conditions of the ordinary people over any lengthy time, it's been in a capitalist society, and yet everybody is extending socialism.

After the fall of the Berlin Wall, there were no summits in Washington about how we cut down government. The lesson from the fall of the Berlin Wall was that we have too extensive a government and we ought to cut it down. Everybody agrees, but yet wherever you go, we have to extend socialism. The summit in Washington was about how you enable government to get more revenue in order for government to be more important, which is exactly the opposite. So socialism guides our behavior in strict contrast to what we believe to be the facts of the world.

LAMB: Let me ask you a little bit more about Friedrich Hayek. Who was he?

FRIEDMAN: Fritz Hayek was an economist. He was born in Vienna. He started his professional career in Vienna. In the late 1920s, some people in Britain at the London School of Economics were very greatly impressed with the book he had written and with the work he had done, and they invited him to come to the London School. At a relatively young age, he became a professor at the London School of Economics. He spent the 30s and most of the 40s there. Early in the 1950s, he left London and came to the University of Chicago where he was a professor for about 10 years, and then he went back to Germany. He essentially retired to the University of Freiberg in Germany.

LAMB: How long has he been dead?

FRIEDMAN: He's been dead about two years now, I think. He lived to be 90, and he has an enormous list of books and articles and so on he has published. The "Road to Serfdom," the one we're showing here, was a sort of manifesto and a call to arms to prevent the accumulation of a totalitarian state. One of the interesting things about that book is whom it's dedicated to. It's dedicated "to the socialists of all parties," because the thesis of the book is that socialism is paving the way toward totalitarianism and that Socialist Russia, at the time, is not different from Nazi Germany. Indeed, it was National Socialism -- that's where "nazi" comes from.

This was a kind of manifesto and had a very unexpected effect. It was turned down by several publishers in the United States before the University of Chicago published it, and both in Britain and the United States, it created something of a sensation. It was a best-seller. The Reader's Digest published a condensation of it and distributed 600,000 copies. You had a big argument raising about people who were damning it as reactionary against all the good things of the world and people who were praising it and showing what the real status was.

It's a book well worth reading by anybody because there's a very subtle analysis of why it is that well-meaning people who intend only to improve the lot of their fellows tend to favor courses of action which have exactly the opposite effect. I think from my point of view the most interesting chapter in that book is one labeled "Why the Worst Get on Top." It's, in a way, another example of the famous statement of Lord Acton that "power corrupts and absolute power corrupts absolutely."

LAMB: Lord Acton's quoted several times in the book.

FRIEDMAN: Oh, sure. Lord Acton was a great defender of a free society. The way the worst rise to the top is that if you're given power and you have to exercise it, you are driven by that necessity to do things that many people really would object to doing. Only those people who are willing to behave in a public capacity differently than they would behave in their private capacity are ever going to make it to the top.

LAMB: Who was Lord Acton?

FRIEDMAN: Lord Acton was an English Catholic who was a great historian. He was a professor at Oxford. He had a named professorship, which I've forgotten. He wrote "A History of Liberty," which was very famous and very important. He also was very much involved -- this has nothing to do with this, really -- in the dispute within the Catholic church about the infallibility of the Pope. What do they call it when they call one of these ...

LAMB: Encyclical?

FRIEDMAN: It's a meeting which establishes a policy.

LAMB: Like Vatican II?

FRIEDMAN: Right. One of those in the end of the 19th century was the one at which they declared the doctrine of the infallibility of the Pope, and he fought very hard against that because he was a believer in liberty and freedom and tolerance and did not believe that you should declare any man to be infallible.

LAMB: Why is it that so many conservatives today will cite you but also cite Hayek?

FRIEDMAN: Because, as I said in that introduction, over the years I've gone around and asked people who had shifted from a belief in central government and socialism and what today goes by the name of liberalism what led them to shift, what led them to an understanding that that was a wrong road. Over and over again, the answer has been The "Road to Serfdom".

LAMB: You wrote an introduction in 1971?

FRIEDMAN: I wrote an introduction to a German edition 25 years ago. It was the 25th anniversary. My introduction here is primarily the same one. It's just as applicable now as it was then. The really troublesome thing is what I mentioned earlier. Everybody is persuaded that socialism is a failure, and yet in practice we keep moving down the socialist road. When Hayek's book was published in 1944 -- or let's take not 44, but take 46 or 50 just after the end of the war -- government was much smaller in the United States than it is today. If I remember the numbers, government spending at all levels, for federal, state and local, was about 25 percent of the national income. Today it's 45 percent. That doesn't allow for the effect, not of spending, but of regulations -- the Clean Air Act, the Aid to Disabilities Act and so on -- so that, in fact, we are more than half socialist today; that is, more than half of the total output of the country is being distributed in a way that is determined by the government. That's the regulations.

We pride ourselves on being a free society and having a great deal of liberty. We do, compared to many countries of the world. But just consider the limitations on our freedom. You can't choose what profession to go into. You can't become a lawyer just because you want to become a lawyer. You have to get approval from the government. You have to get a license. That's true for beauticians; it's true for plumbers. It's true in New York City and most big cities for taxicab drivers. There are enormous limitations on what we can do, and this goes much beyond the direct economic sphere.

Consider the question of freedom of speech. During the 1950s, 60s and 70s when there was a big problem of inflation, the government was making a big push about selling savings bonds. They were a gyp. The amount you paid for the savings bond you would never get back in purchasing power. If you held a savings bond for 25 years, at the end of the time when you turned it in, not only was the purchasing power because of inflation less than it had been, but to add insult to injury, you had to pay a tax on the so-called income from it. At the same time, leading bankers would join in advertisements in the newspapers telling everybody to buy savings bonds. I went around and asked bank presidents that I knew why they did that. I asked them first, "Do you buy savings bonds for yourself?" "Oh, no." "Is it a good investment?" "No." "Why do you tell the public it is?" "Because the Treasury wouldn't like it if we didn't." They're not free to speak.

I know from experience -- I happen to be opposed to tenure in universities. But the only academics who are free to speak that way are people who have permanent tenure and on the verge of retirement. If you look at it from that point of view, there are enormous restrictions on what we can do and say, all imposed by the government. That doesn't count the loss of freedom from the fact that they take money away from hard-working, productive people who are producing this national income and give it to people who are out of work, who are on welfare, or in prisons for that matter. It doesn't include the corruption in our personal property rights that arises through the attempt to prohibit drugs, which has led to tremendous invasions on our liberty. You can have a drug enforcement person come to your door and knock on you because some unknown person has said you're dealing with drugs.

There are many absolutely heartbreaking cases of innocent people whose rights have been violated in this way, whose property has been taken away and who have been unable to regain it. I'm a very old man, and I was graduated from high school in 1928. That's a long time ago. Now, if you look at the situation in 1928, we were much poorer in terms of physical goods. We didn't have microwave, we didn't have washing machines -- you can go down the line. There's no question that we're enormously wealthier today in that sense and enormously have a higher standard of living from that point of view. On the other hand, we were safer, more secure, freer in 1928 than we are now. As of that time, government was spending something like 10 to 15 percent of the national income; the private sector, 85 to 90. Today, government controls over half the national income and private enterprise controls only the rest.

Where have all these good things come from? Can you name any of those additions to our well-being that have come from government? It wasn't government that produced the microwave. It wasn't government that produced the improved automobiles. It wasn't government that produced computers that led to the information age. On the other hand, consider our problems. Our major problems are not economic. Our major problems are social. Our major problems are the underclass in the center cities, the development of crime so that today we're much less safe than we were when I graduated high school. We have much less feeling of security, much less optimism about what the future's going to be like, and all of the problems have been produced but government. Consider the schools. The quality of schooling I got in a public high school in 1928 was almost surely a great deal higher than you can get in any but a small number of schools now.

You have the dropouts, you have the decline in scores on SAT and the like. Why? Because education is the most socialized industry in the United States. Ninety percent of our kids are in public schools, ten percent in private, and education is a completely centralized, socialized system, and it behaves just the way every other socialized system does. It produces a low-quality output, benefits a small number of people -- currently mostly those who are associated with the National Education Association, the American Federation of Teachers -- and does a great deal of harm to a lot of people.

LAMB: Let me ask you about your own beginning. Where were you born?

FRIEDMAN: I was born in Brooklyn, but I had sense enough to move out when I was 13 months old.

LAMB: What did your parents do then?

FRIEDMAN: My parents moved to Rahway, New Jersey, and they were small-scale businessmen who never had an income and by today's standard would have exceeded the poverty standard. They moved to Rahway, New Jersey, where they at first had a small textile factory, and then that wasn't very successful and so they opened a small retail store and that was the source of their income.

LAMB: What influence did they have on what you decided to do for college?

FRIEDMAN: Very little, except for the fact that they encouraged me to want to go to college. As it happened, my father died before I had graduated from high school. I had three sisters and myself. I was the youngest, and I was the only one of the four who went to college.

LAMB: Where did you go?

FRIEDMAN: Rutgers University.

LAMB: A state school.

FRIEDMAN: No, at that time it was not. Rutgers is a very old institution that was established before the Revolution by the Dutch Reform Church, and at the time I went to it, it was really entirely a private school. Only subsequently was it converted into one of the mega-state universities.

LAMB: What did you study?

FRIEDMAN: Hold on. However, I was able to go to it because of an action of the state. The state of New Jersey at that time offered scholarships on a competitive basis. Had a series of exams, and the people who succeeded in those exams and who could demonstrate financial need received free tuition at Rutgers. It was because of that that I was able to go to Rutgers. Now, the tragedy. At the time, that was a very valuable thing. The tragedy is that the state of New Jersey in their new incarnation now has a similar program, but the qualification for getting a scholarship is below average academic quality. It's a program to raise the lesser qualified. It typifies what's happened in our society. Instead of emphasizing strengthening the opportunities open to the able, we have tended increasingly to shift into a state of victims in which the emphasis is on raising the people at the bottom. Now, no social progress has ever come from the bottom up. It's always come from the top small number pulling up the society as a whole and raising it.

LAMB: When did you first get into economics?

FRIEDMAN: I went to Rutgers and I did a joint major at the time in economics and mathematics.

LAMB: Why did you pick it? Do you remember?

FRIEDMAN: No. I liked mathematics and I was good at mathematics and I wanted to be able to earn an income. I may say, I worked my way through school, of course. I earned my own income. I wanted to be able to earn an income. As an innocent youth, the only way I knew that you could use mathematics to earn an income was in actuarial work for insurance companies, and so that was my initial objective. How I got into economics, I don't know, but somehow or other I did get into economics. Now, by the time I graduated in 1932, the situation was very different. We were in the midst of the worst depression we've ever had. The major problems of the country were economic, and it's natural that I would have been interested. As it happened, I was very lucky. When I graduated in 32, I was able to get the offer of two tuition scholarships, one from Brown University in applied mathematics and one from University of Chicago in economics, and it's easy to know why I took the economics at that time.

LAMB: How many books have you written?

FRIEDMAN: Oh, I don't know, 15.

LAMB: The best seller?

FRIEDMAN: The best seller is undoubtedly "Free To Choose," which was written by myself and my wife. It was based on the TV program of the same title. It was a 10-part TV program that was shown in 1980 on PBS. In reverse of the usual procedure, the TV program wasn't based on the book; the book was based on the TV program, because I insisted that I was not going to talk to a written script for the TV program but I was just going to talk. Then from the transcript of the TV program, we developed the book. It's undoubtedly the best seller, although the other you have there, "Capitalism and Freedom" -- again, this is a very interesting contrast. That back was published in 1963. At the time it was published, it was so out of favor, so much outside the intellectual atmosphere of the time that it was not reviewed in any major paper or magazine, other than the Economist in London. It was not reviewed by the New York Times, by the then Herald Tribune, Time, Newsweek. None of them reviewed it, and yet over the subsequent 30 years, it has sold something like a half a million copies.

LAMB: The tie you have on ...

FRIEDMAN: That's Adam Smith's tie.

LAMB: Adam Smith comes up in all your books.

FRIEDMAN: Oh, of course. Adam Smith was the founder of modern economics.

LAMB: When did he live?

FRIEDMAN: In the 18th century. Adam Smith's great book, "The Wealth of Nations," was published in 1776, the same year as the Declaration of Independence.

LAMB: When did you first read it?

FRIEDMAN: In college as an undergraduate.

LAMB: Is he the guy who's most important in your education?

FRIEDMAN: Well, that's very hard to say. He certainly had a major influence on all of us, but after all, I think the influence when you get an education comes from people who are living people, not from books. Books influence you. There's no doubt about it. They make a great difference. But the person who is probably most important in my education -- there are several. One is Arthur Burns, who was subsequently chairman of the Federal Reserve System and so on. He was at Rutgers, and he taught me as an undergraduate and he was really my mentor for a large part of my professional career. I owe a great deal to Arthur. But then I went to the University of Chicago and there was a group of teachers at the University of Chicago -- Jacob Viner, Frank Knight, Henry Simons -- who played a major influence in shaping my views and attitudes.

LAMB: When did you think you had enough independent thought to start writing books like "Free to Choose" and "Capitalism and Freedom"?

FRIEDMAN: That was very late. Up until that point, prior to that, my writings were scientific. See, these books give a misleading impression of my publications. Most of my publications are technical, scientific, economic publications, which really do not have any great interest to the public at large. That's a best-seller, "Free to Choose," but there's no question that the most influential book I've written is not "Free to Choose," but a book that sold probably one-twentieth as many, 5 percent as many copies, namely "A Monetary History of the United States," which I wrote jointly with Anna Schwartz. So I really had a fairly large body of technical economic literature before I started writing on public policy.

LAMB: Where did you meet your wife?

FRIEDMAN: In the first course in economics at the University of Chicago in 1932. We took the same course. It was Jacob Viner's Economic Theory, and, as it happened, Jacob Viner seated his students alphabetically in order to be able to remember their names, and so Rose Director, which was her name, sat next to Milton Friedman. In addition, as Rose always says, she was the only girl in the class at the time.

LAMB: When did you decide to write books together, and how did you separate the responsibility?

FRIEDMAN: Well, that's very hard to answer. We were married in 1938, six years after we first met, and then we had children. Rose did a wonderful job in really taking care of the house, raising children and being an inspiration to me. But she had a professional career before that. She had written some things and worked in research organizations before that. But it wasn't until the kids were grown up and off to college that she was able, really, to spend the time working with me. "Capitalism and Freedom" was based on a series of lectures that I had given at a kind of summer school, and she took those lectures and reworked them into the book, so really she should have been a joint author on that as well.

LAMB: Janet and David?

FRIEDMAN: They're my children.

LAMB: You dedicate "Capitalism and Freedom" to them. Where are they?

FRIEDMAN: Janet's at Davis, California. She's a lawyer, but her husband is a computer specialist who teaches at the Davis Branch of the University of California. My son David is now -- well, he's had a checkered career in the sense that he got a degree in physics, a Ph.D. in physics, but he's become an economist. He never took a course in economics except over the dinner table.

LAMB: Where is he?

FRIEDMAN: He's at the University of Chicago in the law school where he does research in law and economics.

LAMB: When did you win the Nobel Prize and for what?

FRIEDMAN: I won the Nobel Prize in 1976, and I won it for none of those things, but for "Monetary History of the United States "and an earlier book of mine called "A Theory of the Consumption Function," which, I may say, are funny things. "A Theory of the Consumption Function" is, in my mind, the best thing I ever did as a piece of science. "Monetary History" is undoubtedly the most influential, and "Free to Choose is the best selling," so they are not similarly characterized.

LAMB: I'm going to take it even a step lower, if you will. I want you to tell a little bit of the pencil story.

FRIEDMAN: Oh, sure. I'd be delighted to.

LAMB: Your picture on this book has you with a pencil in your hand.

FRIEDMAN: That didn't originate with me. I got it from Leonard Read, who was the head of the Foundation for Economic Education. It's used to tell how the market works, and it's used to tell how people can work together without knowing one another, without being of the same religion or anything. The story starts like this: Leonard Read and I held up a lead pencil -- so-called, one of these yellow pencils -- and we said, "Nobody knows how to make a pencil. There's not a single person in the world who knows how to make a pencil." In order to make a pencil, you have to get wood for the outside. In order to get wood, you have to have logging; you have to have somebody who can manufacture saws. No single person knows how to do all that. What's called lead inside isn't lead. It's graphite. It comes from some mines in Latin America. In order to be able to make a pencil, you'd have to be able to get the lead. The rubber at the tip isn't really. Nowadays it isn't even natural rubber, but at the time I was talking, it was natural rubber. It comes from Malaysia, although the rubber tree is not native to Malaysia but was imported into Malaysia by some English botanists.

So in order to know how to make a pencil, you would have to be able to do all of these things. There are probably thousands of people who have cooperated together to make that pencil. Somehow or other, the people in South America who dug out the graphite cooperated with the people in Malaysia who tapped the rubber trees, cooperated with maybe the people in Oregon who cut down the trees. These thousands of people don't know one another. They speak different languages. They come from different religions. They might hate one another if they saw them. What is it that enabled them to cooperate together? The answer is the existence of a market. The answer is the people in Latin America were led to dig out the graphite because somebody was willing to pay them. They didn't have to know who was paying them; they didn't have to know what it was going to be used for. All they had to know was somebody was going to pay them.

Indeed, going back to Hayek, one of the most important articles he ever wrote -- it doesn't show up in the book -- was about the way in which prices are an information mechanism, the role of prices in transmitting information. Let's suppose there's a great increase in the demand for graphite. How do people find out about that? Because the people who want more graphite offer a higher price for it. The price of graphite tends to go up. The people in Latin America don't have to know anything about why the demand went up. Who is it who's willing to pay the higher price? The price itself transmits the information that graphite is scarcer than it was and more in demand.

If you go back to the pencil thing, what brought all these people together was an enormous complex structure of prices -- the price of graphite, the price of lumber, the price of rubber, the wages paid to the laborer who did this and so on. It's a marvelous example of how you can get a complex structure of cooperation and coordination which no individual planned. There was nobody who sat in a central office and sent an order out to Malaysia, "Produce one more thimble of rubber," or sent a signal. It was the market that coordinated all of this without anybody having to know all of the people involved.

LAMB: How many times have you told that pencil story?

FRIEDMAN: Well, I really haven't told it that many times. I told it in the TV program and then I told it in the book, but I think this is the third time.

LAMB: You're living in San Francisco, where we are. What brought you here?

FRIEDMAN: When I reached the age of 65 -- I was at that time living in Chicago and teaching in Chicago -- I decided I had graded all the exam papers I was going to grade. My wife grew up in Portland, Oregon, and she was in love with San Francisco. She tried to move us out here many times during our life together, but she never succeeded until I decided I was going to retire from active teaching. Fortunately, the Hoover Institution at Stanford University offered me the opportunity to be a fellow at Hoover so I could continue my research and writing without doing any teaching.

LAMB: Peter Robinson, who is a "Booknotes" that people will see at another time, said that he got an MBA from Stanford and never once did anybody bring up Adam Smith or Milton Friedman.

FRIEDMAN: I can believe that.

LAMB: Why would that be?

FRIEDMAN: Because you still have, although it's not the same as it was in 1963 -- there's more tolerance for the kind of ideas I am in favor of. The general academic community is very much socialist in the sense in which Hayek speaks of the socialists. The general academic community, nowadays it's labeled political correctness. The ideas of Adam Smith, the ideas of Friedrich Hayek, of Milton Friedman are not very congenial to those who believe that the way in which you get things done is by having government come in and do them.

LAMB: You said earlier that you're an old man. Do you feel like an old man?

FRIEDMAN: Physically at the moment I do, but not intellectually.

LAMB: Why physically?

FRIEDMAN: I recently had an operation on my back, which had some side effects from which I've been very slow in recovering.

LAMB: How old are you now?

FRIEDMAN: I'm 82 years old.

LAMB: Other than this operation, do you think differently because you're an older person?


LAMB: Do you have things you want to accomplish?

FRIEDMAN: Absolutely. My wife and I are in the process of trying to write our memoirs.

LAMB: What in that process are you finding? Is it hard?

FRIEDMAN: Yes, because when you start digging back into your past, you find that you've forgotten so much and there's so much to dig out.

LAMB: What's the purpose of the memoir?

FRIEDMAN: Well, that's hard to answer. The purpose of the memoirs is we have been very fortunate people. In fact, our tentative title for it is "Two Lucky People." We've been very fortunate in our life. We've had a great deal of activity. We've spent a long time. We've been able to be at the center. For example, we spent years with the New Deal in Washington. I was involved in wartime research during the war. We've lived through and been associated with a lot that has gone on, and we believe that people have forgotten that story.

We're not mostly interested in telling about ourselves, but we want to tell about the world in which we grew up and the world which enabled us, both of whom came from families which by any standard of today would have been regarded as below the poverty level, but neither her family nor mine ever thought of themselves as poor. They weren't poor. They didn't have a very high level of income, but they weren't poor. Unfortunately, the world is moving in a way in which that is no longer likely to be the case. We think maybe we have a story to tell that will be of interest to the public people at large.

LAMB: How are you going about it?

FRIEDMAN: By writing it.

LAMB: Separately, together? Do you dictate?

FRIEDMAN: No. In a word processor mostly. Sometimes by hand, but mostly in a word processor. But the way we've always done it. We each write parts of it, and then we share it and so on. I don't believe the problem of collaboration is a very difficult one.

LAMB: How far away are you from completing it?

FRIEDMAN: We're about halfway through.

LAMB: What size will it be when it's finished?

FRIEDMAN: I don't know. At the moment, it's about this big, but how big it'll be, I don't know. We're up into the 1950s.

LAMB: As you look around today and watch the world move, where are the influences in the society today? Do books influence? Newspapers? Television?

FRIEDMAN: I would say the television has a tremendous influence, but I think books also have an influence. It's not easy to answer that question. That's a very sophisticated and subtle question, and I don't have an easy answer to it. I think experience plays an enormous role. The collapse of the Berlin Wall, for example, was undoubtedly the most influential action for the last hundred years because it put finis to an attitude. The general attitude had been that the future was the future of government, that the way in which you got good things done was by having government do it. I believe the collapse of the Berlin Wall and the exposure of what was happening in Russia, the contrast between East Germany and West Germany has been made a lesson; more recently, the experience of East Asia, of Hong Kong, of Singapore.

Today people may not behave in accordance with their knowledge, but everybody knows that the way to develop and to improve the lot of people is through private markets, free enterprise and small government. We're not practicing what we should be preaching. I've been saying that the former communist states are trying as hard as they can to go to where we were 50 years ago, whereas we're trying as hard as we can to go to where they were 10 years ago.

LAMB: Why?

FRIEDMAN: Because of the inertia and the drive for power. It's very hard to turn things around. The big problem with government, as Hayek points out, is that once you start doing something, you establish vested interests, and it's extremely difficult to stop and turn that around. Look at our school system. How is it our school system is worse today than it was 50 years ago? Look at the welfare state. We've spent trillions of dollars without any success. But unsuccessful experiments in government -- I've said if an experiment in private enterprise is unsuccessful, people lose money and they have to close it down. If an experiment in government is unsuccessful, it's always expanded.

LAMB: What is it that government does that you like?

FRIEDMAN: I would like government to enforce law and order. I would like government to provide the rules, effectively, that guide our life, that determine what's proper and to do very little other than that.

LAMB: What kind of a grade do you give to the American system of government today? How is it working?

FRIEDMAN: As it was in 1928 or as it is in 1994? It's a great system. The fundamental system is great, but it hasn't been working in the last 30 years.

LAMB: Why not?

FRIEDMAN: Because we've been departing from its fundamental principles. The founders of country believed in individual freedom, believed in leaving people be, letting them be alone to do whatever they wanted to do. But our government has been increasingly departing from those constitutional principles. You know, there's a provision in the constitution that Congress shall not interfere with interstate commerce. That provision had some meaning at one time, but it has no meaning now at all. Our courts have ruled that anything you can think of is interstate commerce, and so the government exercises extensive control over things that it has no business interfering with.

LAMB: What do you think of the Federal Reserve Board today?

FRIEDMAN: I've long been in favor of abolishing it. There's no institution in the United States that has such a high public standing and such a poor record of performance.

LAMB: What did Arthur Burns think of that?

FRIEDMAN: He didn't like that very much, but, needless to say, I didn't hesitate to say it to him. Look, the federal reserve system was established in 1914, started operation in 1914. It presided over a doubling of prices during World War I. It produced a major collapse in 1921. It had a good period from about 1922 to about 28. Then it undertook actions which led to a recession in 1929 and 30, and it converted that recession by its actions into the Great Depression. The major villain in the Great Depression was, in my opinion, unquestionably the federal reserve system. Since that time, it presided over a doubling of prices during World War II. It financed the inflation of the 1970s. On the whole, it has a very poor record. It's done far more harm than good.

LAMB: What do you say to the people who say and write that it's just a matter of time until it all comes tumbling down, meaning the tremendous debt we have in this country will catch up with us?

FRIEDMAN: The debt is not the problem. The debt is not the problem. You've got to compare a debt with the assets which correspond to it. It need not come tumbling down. Whether it comes tumbling down will depend on what we do. If we continue to expand the role of government, if we let government grow beyond limit, it will come tumbling down. But that isn't going to happen. The attitudes of the American people have changed, and they've become aware of the fact that government is too big, too intrusive, too extensive, and I have a great deal of confidence in the American people that they're going to see to it that doesn't happen.

LAMB: But if you were sitting around with experts in a room and they said, "Let's look at the future," where are the problems? We listen every day on the radio and read in the newspapers that it's just a matter of time.

FRIEDMAN: I think that's wrong. Fundamentally, what's been happening is that in the period I talked about from 1928 to now, we have been starving the successful part of our society, namely, the free private enterprise system, and we have been feeding the failure. Government controls over 50 percent of the output of the country, but thank God government is not efficient. Most of that is wasted.

LAMB: Another one of our "Booknotes" guests in this series is John Kenneth Galbraith. If you put the two of you in a room together, which one's the happiest with what's happened over the last 50 years?

FRIEDMAN: Ken would be much happier than I would be.

LAMB: Why would he be?


LAMB: Why do you think he's happier and why do you think his side's been more successful?

FRIEDMAN: Because the story they tell is a very simple story, easy to sell. If there's something bad, it must be an evil person who's done it. If you want something done, you've got to do it. You've got to have government step in and do it. The story Hayek and I want to tell is a much more sophisticated and complicated story, that somehow or other there exists this subtle system in which, without any individual trying to control it, there is a system under which people in seeking to promote their own interests will also promote the well-being of the country -- Adam Smith's invisible hand.

Now, that's a very sophisticated story. It's hard to understand how you can get a complex interrelated system without anybody controlling it. Moreover, the benefits from government tend to be concentrated; the costs tend to be disbursed. To each farmer, the subsidy he gets from the government means a great deal. To each of a much larger number of consumers, it costs very little. Consequently, those who feed at the trough of government tend to be politically much more powerful than those who provide it with the wherewithal.

LAMB: During your lifetime, who are the leaders you think have been the most loyal to their beliefs and have done the best job?

FRIEDMAN: I would certainly put Ronald Reagan high on that list.

LAMB: What do you say to David Frum's thesis? Have you read "Dead Right"?

FRIEDMAN: Yes. He's quite right. I agree with it.

LAMB: That conservatives basically buy off now ...

FRIEDMAN: I'm not a conservative. I never have been a conservative. Hayek was not a conservative. The book that follows this one in Hayek's list was "The Constitution of Liberty," a great book, and he has an appendix to it entitled "Why I Am Not a Conservative." We are radicals. We want to get to the root of things. We are liberals in the true meaning of that term -- of and concerned with freedom. We are not liberals in the current distorted sense of the term -- people who are liberal with other people's money.

LAMB: You write about Thomas Jefferson. What was he?

FRIEDMAN: I would certainly put him very high on the list. He was a great man. There's no question about that, and he was certainly a believer in freedom. He was not a conservative.

LAMB: Would he have been a liberal?

FRIEDMAN: Yes, in my sense, not in the corrupted sense of today.

LAMB: But what's confusing as you watch today's people who embrace him, you have the Jefferson-Jackson dinners every year for the Democratic Party, and Lincoln is embraced by both sides. What was he?

FRIEDMAN: He's much more difficult to characterize because his role in our history had to do with the Civil War, and that's not something to be characterized in terms of socialist or liberal or conservative.

LAMB: Is Thomas Jefferson a Democrat as we know the Democratic Party today?

FRIEDMAN: No, he would not.

LAMB: What would he be today?

FRIEDMAN: He would be a libertarian.

LAMB: A member of the Libertarian Party?

FRIEDMAN: Not necessarily. See, I'm a libertarian in philosophy, but, as I say, I'm a libertarian with a small "l" and a Republican with a capital "r."

LAMB: You supported and were close to Barry Goldwater.

FRIEDMAN: Yes, I was.

LAMB: What was he?

FRIEDMAN: A libertarian in philosophy, not in party.

LAMB: What is Bill Clinton?

FRIEDMAN: Oh, he's a socialist.

LAMB: Defined as being what?

FRIEDMAN: As somebody who believes that the way to achieve good things is to have government do it. You can't think of a more socialist program than the health care program that he tried to get us to adopt.

LAMB: You said earlier in the discussion when we were talking about Rutgers that the worst way to go is to take care of the bottom up. Explain that.

FRIEDMAN: Not to take care of them in the sense of giving them a minimum income, but to believe that the progress of society is going to come from the bottom.

LAMB: So how do you take care of someone who is in the lower third?

FRIEDMAN: In my book "Capitalism and Freedom" I propose something called a negative income tax, of getting rid of all of the welfare programs we now have, but replace them by essentially a minimum income.

LAMB: But you also say that's not going to happen very quickly.

FRIEDMAN: Well, we're moving toward that. The earned income credit is in that line.

LAMB: What will that do?

FRIEDMAN: What we're not going to move toward, the place we're wrong is with all of the special welfare programs we have -- food stamps, aid to families with dependent children. There are probably a hundred such programs, and what I've argued is that we ought to replace that whole ragbag of programs with a single negative income tax.

LAMB: In your lifetime, have you ever had a theory that proved to be wrong? Do you ever go back and say, "I was wrong"?

FRIEDMAN: Oh, yes, sure.

LAMB: What was it?

FRIEDMAN: During World War II when I was at the Treasury, I was essentially a Keynesian, as I believed that the way to control inflation was by controlling government spending. I paid very little attention to money. Only after World War II when I started to work in the field of money did I come to a different conclusion. Now, I believe Keynes was a great man. He was a great economist, but I think his theory is wrong.

LAMB: And his theory, basically stated, is?

FRIEDMAN: Basically stated, the fundamental element of it, is that what matters is spending and what matters in particular is government spending and that government must play a major role in guiding the society. He was a liberal in the 19th century sense, but he was also an elitist, and he believed that there was a group of able public-spirited intellectuals who should be given charge of society.

LAMB: When people look at Milton Friedman 25 years from now -- you'll probably still be here ...

FRIEDMAN: I won't be here.

LAMB: What do you want them to remember? Do you want them to remember you as a writer, as a teacher, as a philosopher, as an economist?

FRIEDMAN: Again, I want them to remember me as an economist.

LAMB: And what principle do you want them to remember the most?

FRIEDMAN: That's hard to say because there are quite a number. I mentioned "The Theory of the Consumption Function," which is a very technical book but which yet, I believe, has had a good deal of influence within the discipline of economics. But I really don't know how to answer that question. I think that people 25 years from now will have to answer it, not me.

LAMB: Milton Friedman has been our guest, and he wrote the introduction of this 50th anniversary edition of F. A. Hayek's book, "The Road to Serfdom," and he has a few books of his own. We thank you very much for joining us.

FRIEDMAN: Very nice to be here.

Copyright 1994 TapeWriter, Inc.

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