Milton Friedman - What is America? (Lecture) - The case for Liberty vs. Socialism!

gives me the great pleasure to present to you today Professor Milton fredman thank you very with respect to that title which I admit leaves you wondering what it's all about including me I'll tell you what I really had in mind the title had to do with the question of whether America by which I mean the United States of America I mean our society whether America is what it was whether America is the land of opportunity which produced over the past 200 years the greatest freedom and prosperity for the widest range of people that the world has ever seen whether it still is the land in which people of many races many beliefs many Origins are free to cooperate together to achieve their separate objectives while at the same time retaining A diversity of values and opinions is is that still America or is America what it has seemed to be becoming these past few decades is America not what it has been not the land of promise of the past years but is it instead a land of growing bureaucracy and diminishing freedom is it a land of squabbling groups seeking to control the political levers of power of divisive tendencies that are producing not merely variety not merely diversity but open conflict is it becoming instead a land of ethnic separatism rather than the land of the Melting Pot that's what I intended by this question and that is the theme of the whole series I believe the choice is still open to us that we can still decide you and I and our fellow citizens which of these two directions we want to go in whether we want to return to the path that made this the great land of opportunity for millions and millions and millions of people or whether instead we want to continue down the road toward a destruction of both Liberty in prosperity I believe very deeply that we are nearing the point of no return that we still have the choice but that if we continue much longer along the road that we have been going we no longer shall have the choice that we shall degenerate into a society which uh will lose that spark of creativity that spark of independence of Freedom that we have all loved in our country in this lecture I want to touch briefly on the achievements of the United States and the problems it faces and then probe more deeply into the fundamental principles that in my opinion we must rely on to get back on the right track in other lectures of this series I shall consider other General topics but also specific problem areas I have as I say chronologically this is not the first but logically it is if you look at the achievement of the United States I think the most dramatic example of it is in the field of Agriculture if you go back to the founding of this country in 1776 something like 80 to 90% of the people were on farms it took 8 to nine people working fulltime 12 16 hours a day to feed themselves and their families and perhaps one other person today fewer than 5% of the American people are on farms one person today can feed himself and his family and 19 other and their families and also have a great deal left to export abroad that is really in a nutshell the miracle of America in the modern idiom if you say what made that possible the first tendency of somebody would be to say Well it must must have been that there was a pretty smart and all-sided government that was directing people what to do that organized people's resources but you and I know that the countries in the world where they have that kind of a government organizing their agriculture still have 40 to 50% of the people on farms and indeed are relying on us to feed them and you know and I know that certainly for the first hundred 50 and more years of this country's existence government played a negligible role in this process after all it was not until 1928 total government spending in this country never exceeded 10% of the national income total federal government spending never exceeded 3% of the national income and most of that of course was for the Army and Navy of course government did play an important role in providing a framework within which individuals could pursue their own values and their own interests it even contributed in small in some ways to agriculture in particular through things like extension service and the land Grand colleges but surely the major source of that enormous achievement was simply the fact that people were free to pursue their own interests in their own ways without interference from government that's the most dramatic and obvious exemplification of this miracle that was americ but you can look at it in a more General way here over the 19th century into the 20th century this country welcomed millions and millions of immigrants I suspect that most of the people in this room today are descendants first generation descendants as I am second or third generation ation descendants that most of the people in this room are descendants of those immigrants who came to the United States from foreign lands with empty hands I suppose there is a substantial exception because I see a good number of you who are citizens of other countries and you are not descendants of those but you are the Modern Wave that we ought to be welcoming as immigrants in the same tradition as the tradition which enabled the rest of us to get here you had a flood of immigrants of millions of them coming to this country what brought them here it was the hope of a better life for themselves and their children and in the main they succeeded it is hard to find any Century in history in which so large a number of people experienced so great an improvement in the conditions of their life in the opportunities open to them as the period of the 19th and early 20th century what was the source of this great achievement well as has already been implicit in what I've said the first and most important Source was a set of values a set of Institutions that left people alone to free their left people free to pursue their own interests according to their own lights but there was another factor of enormous importance that we no longer have today in the same degree and that was was the existence of two oceans that enabled us to follow George Washington's excellent advice to steer clear of foreign entanglements and that certainly played an enormous role in enabling us to have those institutions and those arrangements that could let people develop their capacities the result of these two factors together was that tremendous growth in production of which I've already spoken the freedom from foreign entanglement the fact that we could devote our attentions to our domestic problems the free institutions promoted an outpouring of initiative of innovation of invention in every area that's the achievement of the United States what is the basic problem of the United States today the problem is that we are threatening to strangle This Promise by government interference let me take as one example a feature I've already spoken of free immigration I have always been amused by kind of a paradox suppose you go around and ask people the United States as you know before 1914 had completely free immigration anybody could get on a boat and come to these Shores and if he landed on Ellis Island he was an immigrant was that a good thing or a bad thing you will find hardly a soul who will say it was a bad thing almost everybody will say it was a good thing but then I suppose I say to the same people but now what about today do you think we should have free immigration oh no they'll say we couldn't possibly have free immigration today why that would that would flood us with immigrants from India and God knows where we'd be driven down to a a bare subsistence level what's the difference how can people be so inconsistent why is it that free immigration was a good thing before 1914 and free immigration is a bad thing today well there's a sense in which that answer is right there's a sense in which free immigration in the same sense as we had it before 1914 is not possible today why not because it is one thing to have free immigration to jobs it is another thing to have free immig ation to welfare and you cannot have both if you have a welfare state if you have a state in which every every resident is is Promised certain minimum level of income or a minimum level of subsistence regardless of whether he works or not produces it or not well then it really is an impossible thing if you have free immigration in the way in which we had it before 1914 everybody benefited the people who were here benefited the people who came benefited because nobody would come unless he or his family thought he would do better here than he would elsewhere and the new immigrants provided additional resources provided additional possibilities for the people already here so everybody could mutually benefit but on the other hand if you come under circumstances where each person is entitled to a pro rate a share of the pot to take the extreme example or even to a low level of the P then the effect of that situation is that free immigration would mean a uh reduction of everybody to the same uniform level of course I'm exaggerating it wouldn't go quite that far but it would go in that direction and it is that perception that leads people to adopt what it first seem like inconsistent values look for example at the obvious immediate practical case of illegal Mexican immigration now that Mexican immigration over the border is a good thing it's a good thing for the PE illegal immigrants it's a good thing for the United States it's a good thing for the citizens of the country but it's only good so long as it's illegal that's an interesting Paradox to think about make it legal and it's no good why because as long as it's illegal the people who come in do not qualify for welfare they don't qualify for Social Security they don't qualify for all the other myriads of benefits that we pour out from what from our left pocket into our right pocket and so as long as they don't qualify they migrate to jobs they take jobs that uh uh most residents of this country are unwilling to take they provide employers with workers of a kind they cannot get they're hard workers they're good workers ERS and they are clearly better off if you ever want to know how people what people prefer the shest sign is how they vote with their feet and there is no doubt how the Bros vote they vote to cross the border with their feet on their feet or in any other way they can by the M by the thousands and perhaps Millions for all I know it's illegal immigration is fascinating because it shows not only the main point I'm trying to bring out now how interconnected are the various aspects of Freedom how interconnected is the problem of governmental arrangements for welfare and governmental arrangements for immigration and other things but it shows a very different point that's kind of a digression and that is how bad laws make socially advantageous acts illegal and therefore leads to an undermining of Morality In general this is an obvious example so long as the migration from Mexico is illegal it's socially advantageous it's doing everybody good but there are many many other examples the standard example of economists of course is p is is tariffs or price control if you have tariffs smuggling is performing a socially virtuous and valuable Act and so you have Smugglers who are now criminals but they are people who are doing something that is good for everybody the effect of this again you can go on and on price control and wage control has exactly the same effect and so on down the line if you have bad laws you create a situation in which it is socially virtuous for people to break it and this in turn breaks down respect for laws in general and plays a not negligible factor in my op opinion in the decline in at of the in the attitude of toward law obedience and Morality In recent decades but let me go back to my same my main theme because I want to show how in how important these things are by a very simple and personal illustration if the United States in the 1890s had had the had had the laws that we now have the laws supposedly protect the worker supposedly to protect the poor if I existed at all today I would be a citizen of the Soviet Union that's not a prospect I would have relished but my parents IM immigrated here in the 1890s they were in their teens my mother was 14 and my father was 16 or 17 they were able to immigrate here why not merely because we had free immigration but also for example because we had no minimum w wage laws had there been minimum wage laws there would have been no jobs for them to toh take minimum wage laws like so many of these other interferences though enacted in the name of helping the poor in fact deny the very poorest opportunity and you can go down the line there would been no entrepreneurs willing to provide employment under the only kinds of conditions and with the only kind of jobs that they were qu ified for now of course it's a very hypothetical thing because if they couldn't have emmigrated to the US they might not have met over in carpeo ruthenia where they came from and if they had met in carpo ruthenia they might not have gotten married and if they had gotten married they might not have conceived me and I had been conceived and you can go on with all the rest of the ifs but had I survived that particular area which was at that time part of Ostro Hungary later of Czechoslovakia is now part of the Soviet Union can we get back on the right on the on what what I regard as the right track or are we have we been through a golden age you know I've always been fascinated by the story of Golden Ages and history the fascinating thing about them is how brief they are if you go back to the Golden Age of the 5 fifth century BC in Greece or you go back to the golden age in Rome or go back to the several Elizabethan Golden Ages or to the Renaissance in each case you have the the same kind of phenomenon a tremendous efflorescence of flowering of culture of art of Industry of architecture of whatnot for about 75 100 125 150 years and then somehow or other it all disappears it's the same people same pelian Peninsula same land that was there before the Golden Age came and that is there after the Golden Age disappears have we been going through such a process was the 19th and first half of the 20th century our golden age are we on the way down or is there still a possibility of our being able to resume and have a renewed a second a repeated Golden Age we have many great assets we have the asset of great wealth accumulated as a result of 200 years of a large degree of Freedom we have enormous diversity in our population we have great Springs of initiative and we have another feature that was brought that I can best bring out by referring to a crack that our chairman George Stigler made some 30 years ago shortly after the war uh he and I and as it happens the third person in this Auditorium traveled together to Europe to attend a meeting in Switzerland it was our first time in Europe or his and mine and we spent two or three days in England and London and two or three 3 days in Paris and then you know George is quick in learning and as we left Paris George remarked you see he said you know he said I've discovered the fundamental difference between the English the French and the Americans I should say we have been very much impressed in Britain by the extent to which uh everybody was England was being strangled by the by the law Obedience of its people and cues were everywhere and so on and we were impressed in France by how rampant the black market was and so George's conclusion was he said you know the fundamental difference is this the English obey all laws good bad or IND different the French obey no laws good bad or indiffer the Americans obey the good laws well there's a very important element of Truth in that that because there probably is no more fundamental defense against tyranny than the Ingenuity of the people in fighting ways around laws that they don't agree with our masters found that out when they tried to prevent people from drinking hard liquor and the American people demonstrated their capacity that is really an enormous source of strength and it's in fact I must say my own main source of optimism but we also have great liabilities in trying to restore a new golden ede we already have gone very far in the direction of restricting our freedom I need not go into all the details but all of you are aware of the many ways in which you and I are not free to control our own lives in accordance with our own values and there is a tremendous tyranny of the stat status quo each one of us will be very very negative about the restrictions on freedom except for those that benefit us now that's a different story it's far easier to get a law into effect and to repeal it as we've all found out because you always establish interest vested interest which is very hard for any of us to get back so it's not it's not by any means an easy test but I think and this is what I really want to talk mostly about in today to get back on the track we need an understanding of the real nature of Freedom economic and political and the inter relationship between the two we need really to have a greater understanding than these General comments I have so far given of the kind of system the kind of principles that an enabled us to to get this great achievement of the past 200 years we need to understand how it is that a free market Works to enable millions of people to cooperate peacefully together I know no better way to bring this out than by a very simple example that I owe to an old friend of mine Leonard Reed who once wrote a little article called I the pencil this is the only prop I have for this TV show as you can see it's a plain yellow pencil said Leonard Reed in his article you know it's a funny thing he said there's nobody in the world who knows how to make a pencil now that seems like a silly thing to say isn't it this is just the most obvious thing it's only a piece of wood with a something black in the middle and a little red tip at the end what do you mean nobody knows how to make a pencil well suppose you were to start start to set out to make a pencil first of all you have to get some wood don't you where do you get the wood you have to go to the Pacific Northwest probably and cut down some trees how do you cut down some trees you have to have some sawce to cut it with where do you get the saws you have to have some steel where do you get the steel you have to have a steel mill in order to have the steel mill you have to get the iron ore and you can add all the rest so in order to know how to make a pencil you would have to know know everything there is to know about how to start from iron ore and coal and get iron and convert it into saws and cut down trees but that's only the beginning this black stuff in the middle that we call lead isn't lead it's graphite I think I'm not absolutely sure and I am told it comes some some mines in South America so in order to get that black stuff in between you would have to take a trip down to South America and know all about how to extract graphite from the minds in South America now this little red tip at the top that's rubber where does it come from well the major source of natural rubber is Malaya that's quite another distance and I don't know how many of you know that the rubber tree was not native to Malaysia it was originally imported into Malaysia by private Enterprises trying to make some money and they transplanted it from somewhere in South America I think it was Brazil but I don't guarantee that and they brought it over into Malaysia and established the pl the plantations there and got this rubber so somehow or other in order to make a pencil you'd have to know about the rubber now there's a little brass tip around here and I've run out of my own technological knowledge I don't have the slightest idea where that comes from though there are probably people in the audience who could tell us nobody knows how to make a pencil but the miracle of this pencil isn't that nobody knows how to make it the miracle of the pencil is how did it get Made Who told that fell over in Malaya to tap his tree and send a little bit of rubber over here to put at the end of this pencil so I could have a pencil in my hand what's happened what is it that has enabled this little Elementary transaction to take place I'm not sure what the price of this thing is nowadays these things change so fast when I first started hearing about this story it was a nickel pencil but that won't do anymore it's probably two for a quarter or 15 sense of Peace but what happens when I go down the store and I put down a quarter and get two of these pencils I am trading with thousands of people all over the world people in Washington state who are cutting down trees people in South America people over in Malaya I'm making a deal with them I'm saying to them indirectly I'll give you two minutes of talk for two of these pencils fact i' I I hope I've underpriced myself in that calculation now how is that brought about is there some commissar sitting in some central office who is sending out orders to these people in Malaya to these people in South America to the people in Washington how is it that they are led to cooperate with one another that's the miracle of the price system because note these thousands of people who have been led to engage engag in this simple transaction with me not one of them has been forced to do it nobody has had a gun to his head they've all done it why because each one of them thinks he's better off in this transaction and somehow or other I've done it because I think I'm better off everybody has benefited there's been no Central Direction these people who have cooperated with one another don't speak the same language they're people of all different religions they may hate hate one another in every respect but this hasn't prevented him somehow or other from being led to cooperate together it hasn't prevented some kind of a wonderful Machinery from bringing together these various components all together into this little pencil what is that Machinery what is it that has induced people to do this how has it been brought about that Machinery is the prices that Machinery is what the story is All About That Machinery is what enabled the United States to develop as it did because it's this price system which has the great virtue that it doesn't require any Central Direction it doesn't require any commissars it doesn't require people to be able to talk the same language it doesn't require to be be people to be of the same religion in fact the beauty of the price system is said when you buy this pencil you have no idea the religion of the people who went into it whose work went into it when you buy your daily bread you don't know whether the wheat was grown by a black man or a white man by a chinan or a Indian or uh anybody else and as a result the price system enables you to have cooperation among millions of people peacefully cooperating on one little phase of their life while each one goes about his own business in respect of everything else it works so well it works so efficiently that ordinarily we're not aware of it it's like the uh your car it never occurs to you what a complicated businesses is until 3:00 on in the morning on a dark Road it stops functioning and then you suddenly realize it's a complicated mechanism and it's the same way with the price system so long as it is working so long as it's operating so long as it's being bringing people together it doesn't even occur to you that it's this kind of a complicated mechanism how is it that it achieves us bringing a people together fundamentally at bottom the essential the essential idea of the price mechanism is that both parties to a transaction can benefit provided it is voluntary and not coerced there's this terrible tendency and most economic fallacies derived from that tendency to think of everything as what the game theorists have come to call a zero sum game to think there's a fixed piie and if I get more you must get less if somebody was able to make a fortune for himself he must have done it by grinding under his heel the poor people because because the pie is fixed and he takes a bigger part the great Insight behind the free market the great Insight of Adam Smith's great book The Wealth of Nations was that it is not a zero sum game that it is possible for both people to afford to a transaction to benefit and that this Insight can be used to organize people's activities over a very wide area it's very easy to see that principle operating if you think of of two people under any circumstances making a voluntary deal I'll give me I'll trade my pen knife for your roller skate clearly that isn't a deal unless both people are better off it's much harder to see how that same principle is involved in the far-flung transactions that went into making this pencil and yet the same principles are there the price system operates in this way because it doesn't require orders it operates in this way because it can transmit information in a very efficient way without any person having to send an order what happens if you or the rest of us want to get some more pencils well the people who are manufacturing pencils suddenly discover that they're making some money and they say we better make some more pencils nobody has told them about that they've just discovered it down at the corner drugstore and they in turn say sent out some orders to people who are making the producing the wood to the people who are producing the rubber the effect of this is to raise the prices a little all the way down the line for the particular items in demand and that higher price becomes a signal to people all over the world that there's a greater demand a greater desire for this particular object now the beautiful thing about that signal is that the information is transmitted to those in a very efficient way because only the important item is transmitted the people who are in the market for producing wood don't have to know why more wood is demanded they don't have to know what that whether the demand for pencils has gone up because there have been 14,000 more government regulations that have to be filled filled out in pencil or whe maybe the demand for pencils has gone up because a post office said have said if you address your letters in pencil we'll only charge you 13 cents St they don't have to know why there are more pencils or whether it's because there's a baby boom and more children are going to school and writing all they have to know is that somebody is willing to pay a little bit more money for some more wood and some more graphite and some more rubber that information is spread and the only people who have to know about it are the people who are in a position to to provide the additional wood or the additional graphite or the additional rubber so the information is transmitted economically and efficiently and it's transmitted to those who need it from those who need it in the second place the information combines with it an incentive to act on the basis of that information it's no good sending out a message to people we need more wood but we're only going to pay you the same amount we did before you're not going to get anything out of it well so you need more wood fine that's the end of it the beauty of the price system is that along with this information and this is the second stage goes an incentive to act on the basis of it because the man who is selling wood if the price has gone up a little well he figures he can make a little more money in that way and so he has an incentive to act on it and that incentive is there because his income is ultimately going to be determined by the prices of the things he sells the price system can operate to coordinate the activities of millions of people around the world because it combines three functions the function of transmitting information of providing an incentive for people to act on the basis of that information and last but not least a mode for Distributing the product of that activity these three are enormously important but it's very easy to try to separate them most great schemes for social reform come hoist on the attempt to separate them I remember once being at a at a conference which brought together economists from the East and economists from the West economists from behind the Iron Curtain and economists from the west and there was a brilliant economist from behind the Iron Curtain this fell had all by himself disc rediscovered Adam Smith well that was a pretty brilliant thing to do Adam Smith was a pretty brilliant fell but the one thing that stopped him this was someone from hungry as it happened was that they kept trying to figure out how they could get the benefits of the first two functions of the price system without the benefit of the last how you could get the benefits of the information and the incentive effects of the price system without also using it to distribute the income and you will see that I have come back full circle to my paradx about immigration because that's exactly why in the modern kind of a welfare state free immigration is not really feasable because in that kind of a state we have gone too far in eliminating the function of the price system for Distributing the income as well as providing information and incentive in any event the main point I want to bring out is that this is the way in which the market system works it's a system people tend to think that you can only have a system if some human mind designs it if some single person controls it that it's otherwise disorganized chaotic that's the usual word the chaos of the price system but if you let your mind go over this simple example and see how you have organized these many people around the world you will see that it is really a system not simply chaos and a system which has its laws of its own dynamics of its own the typical thing that we always say when we talk about organizing economic activity is to say that there are two ways of organizing economic activity command the method of the army or voluntary exchange the method of the market that's really false as a practical matter in practice with any complicated modern society it is simply impossible to organize it by command there is no cybernetic system there is no Computing system powerful enough to enable somebody at the center or however you decentralize it through command to control the last detailed activ of everybody along the line you know that the standard way one of the standard devices for labor disputes is to throw the rule book at the employer to or as they sometimes say to work according to rule you simply instruct the workers you follow every single rule in the rule book precisely in detail that'll bring any Factory in the world to a Hal somewh you cannot dis dispense with the separated knowledge and interest of the people at the bottom of the line and that's why except in the simplest cases and even in the simplest cases we're all members of families and the standard example that is ordinarily given about the simple command economy is a family it it used to be the father it's now the mother who's in control but if you all of us have been in families and you know you really can't organize a family by command you have to do it by voluntary agreement I don't know how many of you have read hedri Smith's Splendid book on the Russians but he discusses the Russian economy there's a case in which command has been follow carried perhaps to its highest extent in any country in the world in any society in the world but as he points out mostly Russia is really organized through voluntary exchange of one kind or another as you all probably know to go back to my first example of Agriculture something like 3% of the arable land in Soviet Union is in small private plots the statistics are that something like a third of all the food of the country comes from that 3% of the arable land I'm not saying it grows on it I suspect it comes through it the Russians are not without their Ingenuity in getting around systems too and but much more beyond that Smith points out that if something goes wrong with your electric light fixture the last thing you'll do in the world is to call a government organization for the repair and maintenance of light bulbs you will instead find a Moonlighting fella who will come around in the evening and for a private side payment fix your electricity otherwise you'll be without electricity for well any an indefinite length of time there is a flourishing voluntary exchange economy but even more than that within the factories within the uh uh governmental Arrangements all the way down the line you have to rely on people using their own initiative so that in fact there is only one way in which any complicated Society can be organized but there is an enormous difference between a system in which that is permitted to be the dominant way and a system in which that way has to overcome the distorting influences of the commands what you have in every society is fundamentally the use of voluntary exchange at the bottom but if it is accompanied by an excess of attempted command the combination of the two is tyranny and misery the command produces a tyrrany and the most that voluntary exchange fighting against those commands can do is to prevent the misery from being absolute it at least relieves the misery a little and allows the system to operate let me close by emphasizing that I've been discussing the role of the market and a free exchange the role of Freedom economic freedom and its connection with political human religious freedom that the role of the market this point I'm making about the market enabling you to separate the economic activities from the other activities is what's essential to the maintenance of political and social freedom but let me emphasize that I am not I am emphasizing that because I think that's what we need more of I am not arguing that government does not have a role of course it does I am not an anarchist but I am persuaded that the problem of our society today is too much government not too level indeed I am persuaded that government is failing to perform the functions which it alone can perform because we are trying to have it perform functions which it cannot perform in Walter lipman's phrase which I may say goes back to the 1920s we are an overg governed Society I believe we can get back on the right track only as the public at large comes to recognize that the direction we have been going is a false Direction a direction that will lead us not where we want to be but where we do not want to be and that we can get back only on the right track only by stopping and then reversing that Trend thank [Applause] you [Applause]

Channel: BasicEconomics

Views: 141,962

Keywords: liberty, Milton Friedman, Economy, Economic, Freedom, Economics (Field Of Study)

Id: fwDhx1XkXX0

Length: 43min 7sec (2587 seconds)

Published: Sat Apr 14 2012