Free To Choose 1980 - Vol. 01 The Power of the Market - Full Video

Hello, I'm Robert McKenzie. You join me here in this fine old library on the campus of the University of Chicago. We are about to see the first of 10 films by Milton Friedman, an economist of international repute, winner of the Nobel Prize, one of the most controversial and stimulating Americans of our time. In the weeks that lie ahead as Friedman’s first major television series unfolds, the famous and influential men and women who’ll occupy those seats are going to have a lot to say about Friedman’s view of the society in which we live today, and his

solutions for the ills of our time. For that’s what the series is about: Milton Friedman's view of the way we live now, and where we’re headed. Now like some people here you may be appalled by his ideas, like others, extremely enthusiastic about about them. Whichever way it goes, I think you will be fascinated by what Milton Friedman has to say. (opening music) (radio newscast of morning weather) Milton Friedman's voice: Once all of this was a swamp, covered with forest. The Canarsie Indians who lived here traded the 22 square miles of soggy Manhattan Island to the

Dutch for $24.00 worth of cloth and trinkets. (seagulls squawking) The newcomers founded a city, New Amsterdam, at the edge an empty continent. In the years that followed, it proved a magnet for millions of people from across the Atlantic, people who were driven by fear and poverty, who were attracted by the promise of freedom and plenty. They fanned out over the continent and built a new nation with their sweat, their enterprise and their vision of a better future. For the first time in their lives, many were truly free to pursue their own objectives. That freedom released

the human energies which created the United States. For the immigrants who were welcomed by this statue, America was truly a land of opportunity. (steamboat horn) They poured ashore in their best clothes, eager and expectant, carrying what little they owned. They were poor, but they all had a great deal of hope. (people walking, talking) Once they arrived, they found, as my parents did, not an easy life, but a very hard life. But for many there were friends and relatives to help them get started -- to help them make a home, get a job, settle down in

the new country. (trolley bell and horses clip-clopping) There were many rewards for hard work, enterprise and ability. Life was hard, but opportunity was real. There were few government programs to turn to and nobody expected them. But also, there were few rules and regulations. There were no licenses, no permits, no red tape to restrict them. They found, in fact, a free market, and most of them thrived on it. Many people still come to the United States driven by the same pressures and attracted by the same promise. You can find them in places like this. It's Chinatown

in New York, one of the centers of the garment industry, a place where hundreds of thousands of newcomers have had their first taste of life in the new country. The people who live and work here are like the early settlers. They want to better their lot and they are prepared to work hard to do so. Although I haven't often been in factories like this, it's all very familiar to me, because this is exactly the same kind of a factory that my mother worked in when she came to this country for the first time at the

age of 14, almost 90 years ago. And if there had not been factories like this here then at which she could have started to work and earned a little money she wouldn't have been able to come. And if I existed at all, I'd be a Russian or a Hungarian today, instead of American. Of course she didn't stay here a long time. She stayed here while she learned the language, while she developed some feeling for the country, and gradually she was able to make a better life for herself. Similarly, the people who are here now, they

are like my mother, mostly immigrants from a distant country. They came here because they liked it here better and had more opportunities. A place like this gives them a chance to get started. They are not going to stay here very long or forever. On the contrary, they and their children will make a better life for themselves as they take advantage of the opportunities that a free market provides to them. The irony is that this place violates many of the standards that we now regard as every worker's right. It is poorly ventilated, it is over-crowded, the

workers accept less than union rate- it breaks every rule in the book. But if it were closed down, who would benefit? Certainly not the people here. Their lives may seem pretty tough compared to our own, but that’s only because our parents or grandparents went through that stage for us. We’ve been able to start at a higher point. Frank Visalli's father was 12 years old when he arrived all alone in the United States. He had come from Sicily. That was 53 years ago. Frank is a successful dentist with a wife and family. They live in Lexington,

Massachusetts. (pouring wine, chatting with wife) There is no doubt in Frank's mind what freedom combined with opportunity meant to his father and then to him, or what his Italian grandparents would think if they could see how he lives now. They would not believe what they would see, that a person could emigrate from a small island and make such success out of their life, because to them they were mostly related to the fields, working in the field as a peasant. My father, he came over, he made something for himself, and then he tried to build a

family structure. Whatever he did was for his family. It was for a better life for his family. And I can always remember him telling me that, you know, the number one thing in life is you should get an education to become a professional person. (dinner conversation, dishes clinking) The Visalli family, ike all of us who live in the United States today, owe much to the climate of freedom we inherited from the founders of our country, the climate that gave full scope to the poor from other lands who came here, and were able to make better

lives for themselves and their children. But in the past 50 years, we've been squandering that inheritance by allowing government to control more and more of our lives, instead of relying on ourselves. We need to rediscover the old truths that the immigrants knew in their bones; what economic freedom is, and the role it plays in preserving personal freedom. (gong and Oriental music) That's why I came here to the South China Sea. It's a place where there’s an almost laboratory experiment in what happens when government is limited to its proper function and leaves people free to pursue

their own objectives. If you want to see how the free market really works this is the place to come: Hong Kong, a place with hardly any natural resources. About the only one you can name is a great harbor. Yet the absence of natural resources hasn't prevented rapid economic development. Ships from all nations come here to trade because there are no duties, no tariffs on imports or exports. The power of the free market has enabled the industrious people of Hong Kong to transform what was once barren rock into one of the most thriving and successful places

in Asia. Aside from its harbor, the only other important resource of Hong Kong is people - over 4½ million of them. Like America a century ago, Hong Kong in the past few decades has been a haven for people who sought the freedom to make the most of their own abilities. (traffic and marketplace sounds) Many of them are refugees from countries that don't allow the economic and political freedom that is taken for granted in Hong Kong. Despite rapid population growth, despite the lack of natural resources, the standard of living is one of the highest in all

of Asia. (sewing machine & factory noises) People work hard, but Hong Kong's success is not based on the exploitation of workers. Wages in Hong Kong have gone up four-fold since the War, and that's after allowing for inflation. The workers are free; free to work what hours they choose, free to move to other jobs if they wish. The market gives them that choice. It also determines what they make. You can be sure that somebody somewhere is willing to pay for these cheap, plastic toys. Otherwise they simply wouldn't be made. Competition from places like South Korea and

Taiwan has made cheap products less profitable, so Hong Kong businessmen have been adapting. They have been developing more sophisticated products and new technology that can match anything in the West or East, and their employees have been developing new skills. (high-tech machinery sounds) Hong Kong never stops. There's always some business to be done, some opportunity to be seized. It’s long been a tourist center and a shopper’s paradise, and it's now one of the business centers of the East. It's the ordinary people of Hong Kong who benefit from all this effort and enterprise. (bustling street sounds) This

thriving, bustling, dynamic city has been made possible by the free market- indeed, the freest market in the world. The free market enables people to go into any industry they want, to trade with whomever they want, to buy in the cheapest market around the world, to sell in the dearest market around the world. But most important of all, if they fail, they bear the cost. If they succeed, they get the benefit. And it's that atmosphere of incentive that has induced them to work, to adjust, to save, to produce a miracle. This miracle hasn't been achieved by

government action, by someone sitting in one of those tall buildings telling people what to do. It's been achieved by allowing the market to work. Walk down any street in Hong Kong and you will see the impersonal forces of the market in operation. Mr. Cheung makes metal containers. Nobody has ordered him to. He does it because he has found that he can do better for himself that way than by making anything else. But if demand for metal containers went down, or somebody found a way of making them cheaper, Mr. Cheung would soon get that message. A

few doors away, Mr. Yu's firm has been making traditional Cantonese wedding gowns for 42 years. But the demand for these elaborate garments is falling. The firm has already gotten that message and is now looking for another product. The market tells producers not only what to produce, but how best to produce it, through another set of prices: the cost of materials, the wages of labor, and so on. For example, if these workers could earn more doing something else, Mr. Ho would soon find a way to mechanize his picture frame production. Inside this Chinese medicine shop, a

market transaction is going on. The customer's confidence that this painful-looking ordeal will help him doesn't rest on any official certification of the bone doctor's qualifications. It comes from experience, his own or his friends’. In his turn, the doctor treats him not because he has been ordered to, but because he gets paid. The transaction is voluntary, so both parties must expect to benefit or it will not take place. Believe it or not, this backyard is the entrance to a factory. (factory noise) The workers here are some of the best paid in Hong Kong. It's hot, sticky,

and extremely noisy. The workers are highly skilled, so they can command high wages. They could induce their employer to improve working conditions by offering to work for less, but they would rather accept the conditions, take the high wages, and spend them as they wish. That's their choice. The best-known statement of the principles of a free market, the kind of free market that operates in Hong Kong, was written on the other side of the world. (river running) (bagpipes playing) Two-hundred years ago, in Scotland, Adam Smith taught at the University of Glasgow. His brilliant book, The Wealth

of Nations, was based on the lectures he gave here. (birds singing) The basic principles underlying the free market, as Adam Smith taught them to his students in this university, are really very simple. Look at this lead pencil. There is not a single person in the world who could make this pencil. Remarkable statement? Not at all. The wood from which it's made, for all I know, comes from a tree that was cut down in the State of Washington. To cut down that tree, it took a saw. To make the saw, it took steel. To make the

steel, it took iron ore. This black center, we call it lead but it's really graphite, compressed graphite, I'm not sure where it comes from, but I think it comes from some mines in South America. This red top up here, the eraser, a bit of rubber, probably comes from Malaya, where the rubber tree isn't even native. It was imported from South America by some businessmen with the help of the British government. This brass feral--I haven't the slightest idea where it came from, or the yellow paint, or the paint that made the black lines, or the glue

that holds it together. Literally thousands of people cooperated to make this pencil, people who don't speak the same language, who practice different religions, who might hate one another if they ever met. When you go down to the store and buy this pencil, you are in effect, trading a few minutes of your time for a few seconds of the time of all of those thousands of people. What brought them together and induced them to cooperate to make this pencil? There was no commissar sending out offices, sending out orders from some central office. It was the magic

of the price system, the impersonal operation of prices that brought them together, and got them to cooperate to make this pencil so that you could have it for a trifling sum. That is why the operation of the free market is so essential, not only to promote productive efficiency, but, even more, to foster harmony and peace among the peoples of the world. These people are crossing between two very different societies. This is Lo Wu, the official border crossing point between China and Hong Kong. Nowadays there's a considerable amount of traffic at this border. People cross a

little more freely than they used to. Many people from Hong Kong trade in China, and the market has helped bring the two countries closer together, (train sounds) but the barriers between them are still very real. On this side of the border, people are free not only in the marketplace, but in all their lives. They are free to say what they want, to write what they want, to do pretty much as they please. Not so over there. That is why people in China who cannot get permission to leave, go to desperate lengths to escape. They risk

their lives in the process. Many lose their lives, but that doesn't keep others from following. Some are attracted by the higher material standard of life in Hong Kong, but more by the natural human desire to be free. The people who get official permission to leave China are fortunate. They are going to be able to enjoy the benefits of the economic freedom they will find in Hong Kong. But more important, that will give them a much wider freedom. Human and political freedom has never existed, and cannot exist, without a large measure of economic freedom. Those of

us who have been so fortunate as to have been born in a free society tend to take freedom for granted, to regard it as the natural state of mankind, it is not. It is a rare and precious thing. Most people throughout history, most people today, have lived in conditions of tyranny and misery, not of freedom and prosperity. The clearest demonstration of how much people value freedom is the way they vote with their feet, when they have no other way to vote. Of course, many of the people who pour into Hong Kong will end up in

conditions that most of us in the West would find appalling. Hong Kong is very far from utopia. It has its slums, its crime, its desperately poor people. (boat engines) But the people are free. That's, after all, why so many of them have come here, despite having to live in leaky house boats in one of Hong Kong's many small harbors. Here they have the freedom and the opportunity to better themselves, to improve their lot, and many succeed. There's appalling poverty in Hong Kong, it's true, but the conditions of the people have been getting better over time.

They're far better off now than they were when they first came across the border from China. And that poverty, appalling to us, because we're accustomed to much higher standards of life, is not poverty as viewed by most of the people in the world. It's a poverty to which they would aspire. A state of affairs they would like to achieve. There is an enormous amount of poverty in the world everywhere. There is no system that's perfect. There is no system that's going to eliminate completely poverty, in whatever sense. The question is: Which system has the greatest

chance? Which is the best arrangement for enabling poor people to improve their life, and on that, the evidence of history speaks with a single voice. I do not know any exception to the to the proposition that, if you compare like with like, the freer the system, the better off the ordinary poor people have been. Ask yourself what it is that assures these garment workers in Hong Kong a good wage-- not high by Western standards, but high enough to enable them to live far better than most people in the world. It’s not government or trade unions

that do it. These workers do well because there is competition for their labor and skills. When a businessman faces trouble, a market threatens to disappear, or a new competitor arises, there are two things he can do. He can turn to the government for a tariff or a quota or some other restriction on competition, or he can adjust and adapt. In Hong Kong, the first option is closed. Hong Kong is too dependent on foreign trade, so that the government has simply had to adopt a policy of complete non-interference. That's tough on some individuals, but it’s extremely

healthy for the society as a whole. Only the businessmen who can adapt, who are flexible and adjustable, survive, and they create good employment opportunities for the rest. The complete absence of tariffs or any other restrictions on trade is one of the main reasons why Hong Kong has been able to provide such a rapidly rising standard of life for its people. Even Communist China recognizes Hong Kong's success. It set up shop here and now accepts the universal symbol of capitalism. The Bank of China, the official bank of Communist China, is the largest bank in Hong Kong.

There's no doubt that Communist China recognizes the power of the market. In all this, the government of Hong Kong has played an important part; not only by what it has done, but as much by what it has refrained from doing. It has made sure that laws are enforced and contracts honored. It has provided the conditions in which a free market can work. Most importantly, it has not tried to direct the economic activities of the colony. No government official is telling these people what to do. They are free to buy from whom they want, to sell

to whom they want, to work for whom they want. Sometimes it looks like chaos and so it is, but underneath it's highly organized by the impersonal forces of a free marketplace. (outdoor marketplace sounds) The impersonal forces of a free marketplace at work back here in the United States. Prices are the key. The prices that people are willing to pay for products determines what's produced. The prices that have to be paid for raw materials, for the wages of labor, and so on, determine the cheapest way to produce these things. And in addition, these self same prices,

the wages of labor, the interest on capital, and so on, determine how much each person has to spend on the market. It's tempting to try to separate this final function of prices from the other two, to think that some how or other you can use prices to transmit the information about what should be produced and how it should be produced, without using those prices to determine how much each person gets. Indeed, government activity over the past few decades has been devoted to little else. But that's a very serious mistake. If what people get is not

going to be determined on what they produce, on how they produce it, on how successfully they work, what incentive is there for them to act in accordance with the information that is transmitted? There is only one alternative: Force, some people telling other people what to do. (vendors selling, people shopping) The fundamental principle of the free society is voluntary cooperation. The economic market, buying and selling, is one example. But it's only one example. Voluntary cooperation is far broader than that. To take an example that at first sight seems about as far away as you can get,

the language we speak, the words we use, the complex structure of our grammar. No government bureau designed that. It arose out of the voluntary interactions of people seeking to communicate with one another. Or consider some of the great scientific achievements of our time: the discoveries of an Einstein or a Newton, the inventions of a Thomas Alva Edison or an Alexander Graham Bell. Or even consider the great charitable activities of a Florence Nightingale or an Andrew Carnegie. These weren't done under orders from a government office. They were done by individuals deeply interested in what they were

doing, pursuing their own interests, and cooperating with one another. This kind of voluntary cooperation is built so deeply into the structure of our society that we tend to take it for granted. Yet the whole of our Western civilization is the unintended consequence of that kind of a voluntary cooperation, of people cooperating with one another to pursue their own interests, yet in the process building a great society. (music) McKenzie: We are here at the Harper Library at the University of Chicago to Our distinguished guests have their own ideas, too. So, let's join them now. It seemed

to me he was saying that the golden age for America, when it was truly a land of opportunity, was the late 19th, early 20th century, no regulations, no permits, no red tape. I would argue that the government played a decisive role in an enormous grant to the railroads in creating an America capitalist economy. And secondly, if you go back to that golden age, you find that the government constantly intervened in a rather characteristic way, it used troops against strikers. American labor history has been the most violent, bloody class struggle anywhere in the world, and the

government, up until 1932, the law, the courts, the society, always sided with business, always sided against working people. Therefore I would argue that both economically and in terms of repressing the attempts of people to assert their freedom, our government prior to the rise of the welfare state in this country was more or less owned by business. Milton Friedman. Michael Harrington is seeing the hole in the barn door and he's not looking at the barn door itself. The plain fact is during the whole of that period, while government did intervene from time to time, and mostly

to do harm, I agree with him that government intervention was, in the main, not a good thing, tariffs for example. On the other hand, throughout that whole period government spending, federal government spending, central government spending, never was more than 3 percent of the national income. It was trivial. The land grants to the railroads were a minor factor. I'm not--I don't approve of them. I'm not saying they were a good thing, but they were a very minor factor. One has to have a sense of proportion and that goes to the whole discussion. I am not an

anarchist. I am not in favor of eliminating government. I believe we need a government, but we need a government that sets a framework, and rules within which individuals, pursuing their own objectives, can work together and cooperate together, and they work together and cooperate together not only in economic areas. I want to hold you for a moment, though, to that golden age theory, that we were best when we were regulated least in the late 19th and early 20th century, because remember the sweatshop analogy comes out of there, when there was no attempt to restrict hours of

work or to regulate working conditions. Now, is that a view you accept of that period? Well I think it's necessary to contrast what's happened in the interim. I don't see how we can talk about that without comparing it with the interim period. Now you talked earlier about the fact that during the last fifty years we had squandered some of our inheritance of freedom. FRIEDMAN: Absolutely And I believe during the last fifty years we really have improved our freedom. I spent over half that time working for one of the world's largest industrial companies, the Dupont Company,

deeply involved with the launching of new ventures, and got to know the free enterprise system well, and have a very healthy respect for it. But during that interval, and particularly during the last few years when I have been more involved with government and with environmental matters, I have become convinced that our freedom was improved when the people are allowed to add to their freedom in the marketplace. The freedom for voting with their dollars in the market place, the freedom to vote with their ballots in the polling place, to put some restraints on the excesses of

the marketplace, particularly when you're concerned with such things as the long-term impact on our health from the pollution of our environment, the introduction of carcinogenic materials, or the radiation of our of our people with nuclear products. What about putting some restraints on the excesses of government? Hasn't that become an ever more serious problem? How is it that a government of the people, supposedly, does things which a very large fraction of the people would really prefer not to have done, such as over-tax them, over-govern them, over-regulate them? I think you're looking, again, at one side and

not the other. And of course I agree we have to look at what's happened in the interim. We're better off than we were fifty years ago. Never would deny that. But we stand on the shoulders of the people that went before us. We have to look at how much they achieved from where they started, and that was the period in which you had the tremendous influx of immigrants from abroad, millions and millions and millions of them, when you opened up a new continent, when you had achievements. Milton, are you saying, though, that there's any sense,

in which you'd rather go back to those circumstances where there are no regulations of factory work, no hours, limitations of hours worked? Do you want to return to that or do you just say that was a stepping-stone to where we are now? It depends on what you mean by circumstances. I don't want to have to go back to using a horse and buggy instead of an automobile, but I would prefer to go back to the kinds of governmental regulations, or absence of regulations, the greater degree of freedom which was given to individuals to pursue one

activity or another, which prevailed then, than which prevails now. I think that, really, our industrial leaders have been dragged into the future screaming. They resisted the Child Labor laws; they resisted Social Security, labor unions, and now the environmental movement. Once the government forced them to pay attention to those, by the voting of the people in the ballot box and in the polling place, then the industrial leaders, business leaders, paid attention to those rules and have done a good job in most cases of abiding by them. FRIEDMAN: Excuse me. Now Bob Galvin is an industrialist, now

come on, is that a fair statement? Maybe the industrialists have a clearer view of history and its prospects. The most precious asset we possess is freedom. The easiest way to lose one's freedom is to go into receivership, and I mean economic receivership. Because a receiver is a dictator. And to the degree that we employ the costs and the burdens of government that lead us in the direction of further debt, ultimate receivership, and then the political consequence of the imposition of the political dictator over the economic and the job and the living rights of the individual,

maybe the industrialists can see farther down the pike as to the consequence of all this. Michael Harrington. I just think that -- two things. One, to view freedom positively: I think people over 65 years of age in the United States today are freer now because of Medicare. I do not think that the freedom to die from the lack of medicine was a very good thing. Secondly, related to industrialists, I think that one of the startling things about American history is that when Franklin Roosevelt was saving the system from itself, the main beneficiaries were screaming bloody

murder at him for being a traitor to his class, when he was in fact the salvation of that class. And I think if you, therefore, if you look at our history, I do think you find a tremendous myopia on the part of industrialists, and you find that the positive increments to our freedom, interestingly enough, have not come from the college graduates, but often from people with -- not from the best people. It's come from working people, it's come from poor people, it's come from blacks and Hispanics and the like. Milton, would you reply, but then

tell us why you took us to Hong Kong to prove something. Sure. Unaccustomed as I am to agreeing with Michael Harrington, I will agree in part with what he's just said. I do not believe it's proper to put the situation in terms of industrialist versus government. On the contrary, one of the reasons why I am in favor of less government is: because when you have more government industrialists take it over, and the two together form a coalition against the ordinary worker and the ordinary consumer. I think business is a wonderful institution provided it has to

face competition in the marketplace and it can't get away with something except by producing a better product at a lower cost, and that's why I don't want government to step in and help the business community. Now I want to go to your question about Medicare. There are many people who have benefited from Medicare, but you're not looking at the cost side. What has happened to the people who are paying for it? It isn't -- we don't have a free good, it isn't coming from nowhere. And are they benefiting from it in a cost effective way?

Those are the questions. It's demagoguery, if you'll pardon me, Michael Harrington, to say the people who have Medicare are freer. Of course, in one dimension. But they themselves have been paying all their lives, and have they gotten a good bargain? At the moment they have. The young men, the young working people who are going into Social Security now, they're going to get a very raw deal indeed. Milton, interestingly on that point, people over 65 are paying more of their spendable income for medical care now, than they were before Medicare was enacted. It's been not a

very successful program. Government doesn't do things well. It doesn't do things well if it hasn't done things well in Britain, in Canada, in the United States. Now, Milton, then you took us to Hong Kong on exactly that point. That here you said was a true model of the market operating. Now is that really the fair description of Hong Kong? At the moment, yes. It's not -- again, there aren't any such things as a hundred percent one way and a hundred percent the other. Everything is mixed, of course. Hong Kong has a government, and it happens

to be a government in this case -- there's no democracy in Hong Kong. It's run from Britain. It's a Crown Colony of Britain, and the British governor general and so on, and financial secretary run it. But the situation in Hong Kong is: That there is very little government regulation of industry. There's complete free trade. There are no tariffs, there are no export subsidies, there are no restrictions on the purchase and sale of monies, so that it is, comes about as close to a complete free market as you can find in the world today. And there

is no doubt that the main beneficiaries have been the low-income people, the poor people who have poured into Hong Kong by the hundreds of thousands and millions, out of Red China and who keep on trying to get in there. This goes to Michael Harrington's question, if an industrial system, if a free enterprise system is a system in which the poor are ground beneath the heels of the rapacious industrialists he's worried about, how would he explain the success in Hong Kong, the extent to which people continue to vote with their feet to go there? You're not

asking us to make of the United States one gigantic Hong Kong, or a sweatshop, or whatever you want to call it. You would acknowledge that there is a historical development of an economy, and what may be right for one stage in the development of an economy may not be right for another stage. Isn't the issue, where do we go from here? What pragmatic decisions do we make about the direction of the American economy? Should it be toward more and more government, or should it be trying to preserve an adequate balance between freedom of choice and

government intervention? Again, the problem is to distinguish two things. This comes back to an earlier comment. The circumstances in terms of the physical arrangements, and the circumstances in terms of the rules that guide the society. Now in the case of Hong Kong, of course I'm not asking that we crowd our people to a density of population such as Hong Kong has. Hong Kong is a marvelous example just because its circumstances are so terrible, it's physical circumstances. And the people in Hong Kong would love to get elsewhere, into less crowded circumstances, if other people would let

them in. This is the problem of immigration, which is a very important restriction on human freedom. In the period before 1913 we had complete, a hundred percent freedom of immigration into the United States. We don't now, but go back to your question. Do you think Hong Kong would exist if it weren't in close juxtaposition to Communist China? Hong Kong would exist. It is very dubious that it would have the policies it has now if it weren't in close juxtaposition to Communist China. Well, now, but to answer your question directly: Yes, I am in favor of

the United States having not the circumstances, not the physical circumstances, but the policies that Hong Kong has had of zero tariffs, of complete free trade, of no restrictions on exports, no restrictions on monetary transactions, of a far greater degree of...far lesser degree of governmental regulation. I agree with what Russell Peterson said before, that there are third-party effects. There are things like pollution. The question is whether we're handling them in the right way, and I think we're not. I want to bring Bob Galvin in here. Bob, the beginning of Milton's agenda there, no tariffs, for example,

no restrictions, no quotas. Now, will business, big business, wear that kind of policy? I think big business and all business could wear that kind of policy if we could find the appropriate balancing factor that in the rest of world trade, where we trade outside our border, and as others come in, we are required to trade against socialized institutions. That's a very different kind of an institution than the private institution. The private institution can clearly operate more efficiently if it is not imposed upon by an artificial price from the socialized institution across the seas. So I

think there has to be, not protectionism, but there has to be an international rule of the road that prevents the socialized institution from subsidizing and taking advantage of the private institution. Do you include the nine countries to the Common Market, though, as socialist countries, or are you prepared to open competition from all the nine countries in the Common Market? The nine countries of the European Common Market engage in the most dramatic of the socialized institutions. I don't agree with him at all. We are hurting ourselves by restricting trade from abroad. Other countries are hurting themselves

and us by the measures you describe, but we're only hurting ourselves even the more if we imitate them. I don't think, Dr. Friedman, that your mother would get a job sewing today in America if we had no tariffs at all. What would happen is: there wouldn't be any sewing jobs in America, we'd be making nothing but computers. But then there would be some other kinds of jobs. Then she would get a job at a very low level in making computers. Yeah. Although you face the problem that you've had both a leading businessman and a leading

conservative congressman, not accepting your prescription of sweeping away- But, of course, the two greatest enemies -- I would say the greatest enemies of free enterprise and of freedom in the world have been on the one hand the industrialists, and on the other hand most of my academic colleagues, who end up in government. For opposite reasons. For opposite reasons. Michael Harrington, I guess, would agree with this. People like Michael Harrington and my academic colleagues want freedom for themselves. They want free speech, they want freedom to write, they want freedom to publish, to do research, but they

don't want freedom for any of those awful businessmen. Now the businessmen are very different. Every businessman wants freedom for somebody else, but he wants special privilege for himself. He wants a tariff from congress, and the congressmen -- well the way in which congressmen get elected is by performing favors to constituents. And if indeed you were to wipe out completely all tariffs, if you were to reduce government controls in this country to what they are now, I do not think that would be in the self-interest of -- Well, then - -- even Barber Conable, for whom

I have the very greatest respect, or Bob Galvin, for whom I have the respect. I think it would be in the self-interest of Michael Harrington. Now let's ask what the American people want and will wear, because you're saying, in effect, that to get elected the congressman is giving the people what they want. Now, aren't you saying in the end, then, the people don't want this or don't understand the advantage of it? I'm saying that my whole function and purpose is to try to persuade the people to make a different thing politically profitable. I'm trying to

persuade the people to make it clear that congressmen who pursue these policies are gonna lose their jobs. And if we do that, congressmen are pursuing their self-interests. They're in a market, there's a political market. They've got a product to sell, and they've got to appeal to their customers. And I am just engaging in the kind of advertising Mr. Galvin and other companies use. ...very experienced politician, Governor Peterson. Well, let me ask you how you would cope with this problem, Dr. Friedman. The people decided that they wanted cool air, and there was tremendous need, and so

we built a huge industry, the air conditioning industry, hundreds of thousands of jobs, tremendous earnings opportunities and nearly all of us now have air conditioned homes and cars and offices. Then the people decided they wanted clean air, and they couldn't buy it in the marketplace, so they voted at the polling place. They got elected representatives to go to the congress and say, we are going to have clean air. Now overnight there was a new market, and the free enterprise system responded to that, and now there's a big environmental industry making earnings, providing jobs, but also

serving this public need to have the freedom to breathe clean air. You grossly underestimate the extent to which the private market is able to do it. It's not an accident that the air, before you had any of this legislation, air and water were cleaner in the United States today than they were in the United States a hundred years ago. You know the automobile added one kind of pollution, but it eliminated a far worse kind of pollution. If you consider what the streets of New York would look like today if you were still transporting people by

horse-drawn vehicles, you would have pollution on a scale that would stagger you. In the same way, it's not an accident that the air is cleaner and the water purer in those countries today that are the most advanced, than they are in the backwards country. It's not been in Afghanistan that you find clean air and water. It's in the advanced countries. So the market is a very much more subtle mechanism than people give it credit for being. I would like to get this back to the real world, because in the real world there is no possibility

that American business, which is a welfare-dependent business system, is going to adopt these ideas. What these ideas function as in the real world is a rationalization for the myth of free enterprise, which disguises the fact of state capitalism as an argument against social intervention, in a society that does intervene on behalf of the steel industry very quickly. Finally in terms of the American political process, I don't believe that the political process is so simple as having the people elect the government. The fact is: that when a Jimmy Carter is elected president on a relatively liberal

platform, he then has to win business confidence, because of the control of the investment process by corporate power. And I think that fact, corporate power, rationalized by free enterprise myths, is the central problem of freedom in our time, and that's what has to be attacked. Before we come to Milton again - No, no. I've got to comment on this, because I think we mustn't let words get in the way of what really is the case. I take it you think we don't have socialism. I would say to you that 46 percent of every corporation in

this country is owned by the U.S. Government. That's the corporate income tax, that means out of every dollar of profits the corporation makes, 46 cents goes to the U.S. Government. The actual tax is far higher than that because you tax that doubly when it comes to the individual. The extent to which corporations control their investment decisions has been increasingly reduced. The government is dictating what they spend their investment funds on in the name of pollution control, in the name of other things. It's a myth to suppose that there is some kind of a big corporate

power over here. There was a time when corporations were more influential than they are now, but at the moment I think they're a beleaguered minority rather than the dominant majority. I'd like to take the others into this for a moment. What is the process, for those of you who want to roll back the state, or to push back governmental influence, on the operation of the economy? Before we let Milton in on that, what would you do as an active politician, as another politician, and a businessman? Well, I personally think we ought to restrain the growth

of government in the future. How? By putting some sort of limit on government expenditures. I would like to see a constitutional amendment doing that, otherwise we're going to continue to have the government growing faster than the economy and thus pushing more and more of the gross national product through the tin horn of government. I think that would be a mistake. It's a difficult thing to do. I hope we can find some way to do it without making ourselves less free in some way. Governor Peterson, can it be done? Yes, I think we can make substantial

headway by furthering our pluralistic society, by encouraging, educating more people to think comprehensively. I think one of the big problems in our world is that leaders in government and in industry are shortsighted. They don't look at the long-term impacts of their decisions. And in a democracy such as ours the power is with the people, just like the textbooks say. And if they get this more comprehensive understanding and knowledge, they're gonna see to it that the special interests of the elected officials will be in tune with getting reelected, and they will look at the long-term views

just like the citizenry is. So I am all in favor of an all-out push to get this freedom to vote in the polling place, added to the freedom of the marketplace, because that's a potent combination. But voting in the polling place is a very different kind of freedom than voting in the marketplace. When you vote in the polling place, it is important, but it's very different. When you vote, you vote for a package. And, if you are in the minority, you lose. you don't get what you want. When you vote in the marketplace everybody gets

what he votes for. If you vote for a -- I vote for a green tie, I get a green tie. You vote for a blue tie, you get a blue tie. If we do that in the polling booth, if 60 percent of us vote for a green tie, you have to wear a green tie. Oh, but the 40 percent don't just shut up. They can try to influence decision-making to their own. Of course they can try to influence but it's a very different and less efficient mechanism for matching performance, matching results, to individual taste and

preference. Whatever kind of car I buy, I still get dirty air. There are good people running this society, and most of the people that we're talking about work someplace, and they know that their company is doing something pretty good, or trying to do something pretty good. I think the people are going to start telling the leaders where they've gone wrong and start to redress it by the direction of the ballot box. The people in general are more conservative and in particular are more liberal. That is to say, if you ask the people in general, what

do you think of government, "Get it off my back, less taxes." If you ask in particular what about health, national health; what about full employment, government is the employer of last resort. What about pollution, do something about it. Everett Ladd had an article in Fortune about a year ago, which is hardly a radical left-wing journal, showing this contradiction. And I think that there is in the United States today a rapid movement to the left, right and center, which I, obviously, hope will be resolved not by an across-the-boards cut aimed primarily at poor and working people,

but by an increasing democratization of economic power, and an increasing democratization of the government. I think that in this complicated society of huge institutions and bureaucracies, if we talk about freedom, one of the things I would like to see would be a law providing funds for any significant minority to buy the research to counter the majority. If you don't have the expertise, the knowledge technology today, you're out of the debate. And I think that we have to democratize information and government as well as the economy and society. I am sorry to say Michael Harrington's solution

is not a solution to it. He wants minority rule, I don't. I want individual rule. I want human beings separately and individually to have control of their lives. I don't believe that a minority that differs with me should have the right to take money out of my pocket to do research for them. They should go out and try to persuade people to contribute to them. I should be free to get people to contribute to me to present my ideas. But the idea of having some kind of an official government agency that is going to finance

dissidents-- in the first place, anybody who has any sense of realism about the way government operates at all will know that will end up in the hands of the majority and not the minority. But can government in this extremely interdependent, complex world economy which is developing, can you have a mystical belief in the invisible hand of Adam Smith? I happen to think that Adam Smith was one of the greatest intellectual figures in the history of the world, and that capitalism was one of the greatest advances that humankind has ever made. But precisely because I put

this in historical context; capitalism, as a friend of mine by the name of Karl Marx predicted some time ago, has developed tremendous tendencies towards monopoly, concentration, multinational corporations, money supplies that are not controlled by the Federal Reserve Bank or even the president of the United States anymore. And to think that you can respond to this radically new environment by an 18th century solution, I think really comes down to an intellectual exercise whose practical, political effect is to rationalize conservative power in America. This is a myth, a complete myth, that the development of an inter-developed country

in a more complicated world necessitates greater government intervention. Government intervention has not grown in those areas which arise out of the complexity and interdependence of the world. It's grown where? In taking money from some people and giving it to others. All I have to say is that government, Dr. Friedman, has to live in the 20th century, Of course. -- much less the 19th or the 18th. And we have to take society as it exists today and build on that. To me, the decisive thing at issue here is an essentially mythic, nonhistorical presentation of an abstract

solution, taken out of time, which does not look to the tremendous evolution of capitalist society, the tremendous interdependence of the world, the fact that we now have not only national economic planning, but at the Tokyo summit we have institutionalized international economic planning of the major industrial capitalist powers. And under those circumstances, granted the enormous achievement of Adam Smith, granted the enormous achievement of the capitalist society, under this radically changed historical situation to propose those classic old solutions, I think is to propose something nonserious which, however, does function seriously to rationalize conservative corporate economic and political

power. The great achievements of the 19th century came from -- by departing from the kind of system you now want to reimpose. You want to take us back to the 18th and 17th century when we had a corporate society, when we had government controlling things. The whole issue is not what somebody is proposing in the 20th, or the 19th and the 18th, the whole issue is what is the right thing to do? What is the best way in which we can widen our opportunities, preserve our freedom, maintain our prosperity, and it seems to me the

kind of solutions you would propose involve more of the same, more of the measures that have failed over and over again to achieve the objectives. Well, we leave the debate there this week and we hope you'll join us again for the next edition of Free To Choose. (closing music)