On Milton Friedman

0:00Our speaker really needs no introduction. We've all known him for a good many years.

0:08When I first met him in the Mises Seminars way back in 1950, 51 and so forth, he was going for his doctorate and he was having his troubles up at Columbia where he got all three of his degrees. And finally when Eisenhower was kind enough to inflict Arthur Burns on us the first time, The Panic of 1819

0:56and his little pamphlet on money. What has the government done to our money? Murray is an individualist. He's flirted with a new left, but he's got disenchanted with them for a little bit, and he asked them to rest in peace, and now he's calling them the loony left. In his latest publication, he's also editor of this libertarian forum, Dr. Murray Rothbard and it gives me pleasure to present Dr. Murray Rothbard.

1:52Thank you very much, Percy. Yes, sir, any way you wish. Thank you very much, Percy. Don't throw bricks. Right. It's a pleasure being here again. I'm not quite a Milton Friedman generation. That's sort of a petty point. I'm a little bit younger than he is. Sort that into the record. I think a lot of us, a lot of people seem to have been afflicted with an excess of Friedman worship. So I'm not going to stress the good points that Friedman has done in the past few years. I think most people are familiar with it. I might even be so unkind as to paraphrase Friedman's mentor, Henry Simons, wrote an article about Alvin Hanson one time.

2:41Hanson being the top left-wing Keynesian in the past years. The Press has a very short memory, so if somebody comes up with an idea and nobody's said it for the last three years, it's immediately half-finished.

3:16was a great new idea, a great new discovery, and the same thing has happened to Friedman. Almost everything he says is a complete reincarnation of what, for example, Irving Fischer had said 40 years ago, 30 years ago, but since the collective memory of the press and even the economics profession is very short, nobody points this out. So Friedman has discovered all sorts of so-called laws, which are simply rediscoveries or restatements of what Fischer The interest rate rises during inflation, especially during the later stages of inflation, because as prices are going up, they have a discount, a positive price discount, a premium on the interest rate to account for the prices rising.

4:11So that the creditor is demanding a six percent return, for example, and prices are going up six percent a year, obviously you have to ask a lot more than six percent to overcome the inflation. So freedom is supposed to have had this great new discovery in the economics profession now sort of a tizzy and a tizzy about that, and of course Fisher had said exactly the same thing about 40, 50 years ago, and Professor Mises had said the same thing at his work and so forth, but they say the collective memory of the press and the economics profession Friedman's general theory about money and the business cycle is essentially Fisher rediscovered and with a lot of statistics added on to it. I'm going to talk tonight essentially about the political rather than the methodological critique of Friedman.

5:02I can say a lot about the methodology, but I think in this sort of gathering I think we can stress the political economy aspect. I just want to say in passing that Friedman is probably the outstanding proponent in methodology of an extreme variant of logical positivism. In other words, the major opponent of Professor Mises' methodology, so to speak. Friedman is so extreme that he says that a theoretical assumption not only doesn't have to be proven, it can even be false and still be a correct theory. It doesn't matter if the assumptions are false, he says, as long as the predictions are correct, which are based on these false assumptions. This is an extreme version of positivist methodology, and this is the exact counter to everything that praxeology holds dear.

5:50But I don't want to talk about methodology tonight, I just want to mention that in passing. First, and I'm not going to deal too much with this either, is the whole field of monopoly and competition. It's true that in practice, Friedman has come a long way from the original Henry Simons position, the original Henry Simons position which was written in a really screwball book, I think in 1934 called A Positive Programme for Laissez-Faire, which I recommend everybody read because it really states the Chicago school position very clearly, the political position of the Chicago school with great clarity. Clarity, and essentially Simon said that every corporation above the size of a small blacksmith's shop should be broken up, be trust-busted by the government, and reduce down the blacksmith's shop size so that we can all have perfect competition, we can enjoy the benefits of perfection in competition.

6:44And this I say was the original Chicago position, it came quite away from that, happily. And Friedman today doesn't take this position, he says, well, he recognizes the major source in the course of monopoly today as government privileges, government regulation and subsidies and so forth. But still there's a canker there. The theory is still there. The theory being the Chicago position of perfect competition, in quotes, is better than imperfect. In other words, that a firm of a constant demand curve, a horizontal demand curve, is somehow better and superior and more pure, less and more moral than a firm in a state which faces a falling demand curve. So this idealization of perfect competition still remains even though it's played down now in practice in the Friedman position, but it's still there to plague us in the future because sometime in the future we'll get this, we'll again hear the cry from the Chicago school, such and such a corporation should be broken up because it's too big and it's facing a

7:41falling demand curve and so forth. We can expect it at any time, put it that way. Just as Professor Stiegler, Friedman's most distinguished associate, said about 15 years ago that U.S. deals should be broken up into its constituent parts because it was monopolistic, I don't know if he still says that. He's come a long way too for the last 20 years. But as I say, the theoretical structure still remains. But I don't want to deal too much with monopoly and competition either because this is, again, more theoretical than a political position at the present time. Let's get to Friedman's big argument for government intervention in general, which is the so-called neighborhood effect. In this particular, I want to talk about the external benefit part of neighborhood effect. In other words, the idea that if two or three people are doing something which another set of people are benefiting from but aren't paying for, this is a terrible, terrible thing, and these people should be forced to pay for it. This is one version of it.

8:38Now, in practice, again, in practice Friedman doesn't push this to a great extent, he essentially says, well, this is really limited, we limit the application of this to urban parks, central park, and so it should be governmental because you can watch the park and not pay for it, and therefore, it's a terrible thing, you should be forced to pay for it. And also education, which is another big, of course, a very big item, which is in favor of government being up to its neck in, for the same reason. But in general he restricts it more or less to those areas. But my contention is that it can be used, the same argument can be used for almost anything, to justify almost any act of government intervention whatsoever, that freedom is really unjustly limiting it once you accept the argument. For example, one of my favorite examples, which I always use in class, is that if people are enjoying, for example, men are enjoying in particular,

9:30the sight of girls wearing miniskirts, and of course this is on the way out, This is up till now, they've been enjoying the sight of girls wearing miniskirts. And they've been enjoying it without paying for it. In other words, here we have this aesthetic benefit, or psychic benefit, which we're not being forced to pay for. And so therefore, the Freemanite argument should be that we should all be taxed to pay girls to wear miniskirts. And this would iron out the external benefits and smooth out the neighborhood effects. And similarly, this goes for almost anything else. If one of us, for example, becomes a wiser person by reading a great book or reading Socrates or whatever, then he becomes wiser. By this wisdom, he benefits other people along the way, and therefore they should be taxed to subsidize him reading Socrates. And so forth and so on. It's almost infinite.

10:15And this whole approach seems to me to be very peculiar. In the first place, it really means we should all wear sackcloth and ashes because we're all free riders. This is really an attack on the free rider but we're all free riders on the discoveries of the past, the writings of the past, the technical inventions, the capital investment of everybody who's gone before us. We're all getting the benefits of this without paying for it, in a sense. And does that mean we should beat our breasts and tear our hair and be taxed by somebody in order to somehow pay for this, to suffer for these benefits that we're enjoying? It's a very peculiar kind of theory. So what I'm really saying is that free writing, which Friedman is trying to attack here with the neighborhood effects, is really an essential part of civilization altogether.

11:03If we want to abandon free writing, we really have to abandon the fruits of civilization. Now, when I've talked to Chicagoites and Friedmanites about the mini-skirt analogy, by the way, they admit that this is correct, but they say they wouldn't push their theory that far. Well, you know, why not? This is, of course, again, we talk about the rule of logic in political policy. Of course, those of us in favor of logic, I think, have a point there. There's another part of the theory that if you're sort of the other side of the coin of the free rider, is that if you can do something which will benefit other people and you're not doing it, they should be able to force you to do it. If you're not conserving copper or something of that sort, This conversation will help people. They should be able to be forced to do it.

11:50My favorite analogy there is the case of three or four guys, three guys who are playing a string quartet. There's a fourth guy who could play the cello but is sort of recalculated and doesn't want to do it. And the theory then should say they should be able to force him to play the cello because that will benefit all three of them. And this, again, is part of the neighborhood. I'm not saying Friedman says this, but I'm saying that he should be saying this, but you're a consistent neighborhood effect theorist. So there's so much, I think, for neighborhood effects, but I'm saying this is Friedman's major argument for government intervention in almost any area that he thinks the argument applies, such as education. Okay, now to get to a point, which I think is the most, is probably, this is of course the value of judgment, I think it's probably the single most disastrous economic idea ever invented, which is the idea of the negative income tax or the guaranteed annual income.

12:44Of course, here again is an interesting situation. Friedman coined the idea of a negative income tax, in other words, a guaranteed minimum income floor for everybody. This became the inspiration for more radical schemes such as Robert Theobald and the ad hoc committee of the Triple Revolution and so forth and so on. And also, of course, for Nixon's current welfare program. The problem with a negative income tax is that it provides an income floor by right. In other words, as a rightful claim, as an automatic claim upon production. It no longer becomes the sort of thing we have to go to the welfare department and sort of hat in hand and fill out forms and say you really deserve it and they don't think you do and you have to argue about it, which is sort of a degrading thing.

13:30Now it becomes automatic. You fill out your income tax form, you say you've gotten less than the prescribed floor Now this, what I'm saying here is that the present welfare system, as crummy as it is, as bad as it is, as inept and as inefficient and bureaucratic as it is, is precisely saved from disaster by the very ineptness, that's very bureaucracy and very inefficiency, because it means that the whole system of going on welfare in the first place is chaotic, so it's not automatic. Second place, it's unpleasant. You have to go through all these bureaucrats, these tin horn bureaucrats to justify being on welfare in the first place. And this very unpleasantness provides an extremely necessary disincentive effect to prevent people from going on welfare. This is the incidentally the original and the old 19th century laissez-faire liberal position.

14:18If you have to have welfare at all, it should be very, very unpleasant, so it's to discourage people from going on it. And the Freeman theory, in the name of efficiency and simplicity and automatic and automaticity and so forth, eliminates this very essential unpleasant feature, makes the thing as I say automatic. What we have to realize is that there is a supply function or supply curve for going on welfare. And the various empirical studies have shown the quantitative importance of this. Supply function is essentially this, it's inversely proportional, one to the difference between the prevailing wage rate in the area and the welfare level. In other words, if the prevailing wage rate remains the, If the welfare level remains the same and the prevailing wage rate in the area rises, people start leaving welfare and going on to start working because the difference between the money they can get from working and the money they get from welfare increases.

15:11This gap goes up. So they go off welfare and onto the payroll. If on the other hand the welfare level goes up and the prevailing wage remains the same, then they start going on welfare because the amount of money they can get from working, which is generally a pain in the neck, decreases. So the incentive to go on welfare increases. This means that being on welfare is not somehow a divine act. In other words, it doesn't come from outside the system. Being on welfare is a supply function, and it responds to different incentives and disincentives. And one of the incentives is the prevailing wage rate as compared to the welfare rate, welfare payment rate. And it's also the supply function of going on welfare is inversely proportional to the cultural disincentive, as we put it.

15:56In other words, the stronger the cultural aversion, cultural resistance to being on welfare, the less the people will tend to be on it. This accounts, for example, for the reason why the rural poor, there are much less rural poor going on welfare than urban poor, even though rural poor are just as poor, if not even more so. But in the rural areas there's a stigma, a general social stigma in the neighborhood for going on welfare, it's generally imposed, and bitterly so, especially the people who are paying for it,

16:54The Albanians in New York are invariably very poor, they're all slum dwellers, and none of them are on welfare for a simple reason, as one Albanian leader put it, Albanian-American leader put it, Albanians do not beg, and to Albanians, taking welfare is like begging on the street, period. So since to the Albanian, being on welfare is like begging on the street, they just are not on welfare, even though their income level is much lower than the average population. The same goes for the Chinese Americans who are generally poor but almost none on welfare. But I'll get back to the whole welfare question a little bit later. At any rate, the negative income tax, by making it a dole automatic, my contend, opens the floodgates to an enormous increase, an enormous accession of people living on production.

17:45And here I recommend Henry Hazlitt's critique of the negative income tax in the Freeman about, I think, four years ago, In the first place, what obviously is going to happen, if the negative income tax is put in, is that the floor, which Friedman sets at essentially $1,500 a year, because it's 3,000 with 50% off, so it amounts to $1,500 a year, this floor obviously will start increasing to beat the ban at a very rapid rate, because the first thing people will say is, well, $3,000 is officially considered by the government as the poverty level for a family of four, and therefore you can't subsidize some of that money. The Welfare Client Organizations are already demanding their so-called right to a guaranteed $6,000 a year income.

18:30So the hopped-up pressure to keep raising the floor almost indefinitely is already under way. These nine organizations are already demanding their so-called right to a guaranteed $6,000 a year income. So the hopped-up pressure to keep raising the floor, almost indefinitely, is already underway. It's even before the thing has begun. So it's pretty obvious that this floor, starting at a fairly reasonable-looking $1,500, is going to skyrocket very quickly. But there's another point. That's a fairly obvious point. The other point is who will continue working, which person who gets below the floor, for example, will keep working. In other words, if the floor is $3,000 a year, there will be very, very few people who will keep working at $2,500 a year.

19:16They can just simply quit, work zero hours a week, sit on the porch and get $3,000 from the government instead of getting $500 from the government. So, what I contend is that, well, what happens is the current, you see, if you see the current estimates about the cost of a guaranteed annual income, the cost will look fairly reasonable. 5 billion a year, 10 billion, 15 billion, doesn't look catastrophic. However, these costs are all based on the assumption that everybody will continue working the same way they're working now. The disincentive effect, which seems to me will be catastrophic from this sort of thing, are not taken into account. So the fact that you have the guys, if the floor is 3,000, I can tell everybody below 3,000 will quit pretty quickly. If they don't quit, they're pretty screwy. They'll quit. The person getting $3,000 will quit, or how about the people getting above $3,000?

20:03Well, they're going to quit, too, because if you're getting, say, $3,500 a year, it means you're working 40 hours a week in order to get $500 a year. That's not very much. So I think people will quit en masse up to at least $4,000, maybe $5,000 a year, something like that. Now, as they quit, this means they have an enormous number of people flooding onto the dole. Somebody's got to pay for this, and of course, the person who pays for it is the taxpayer. This means taxes have to be increased very sharply on the guys who are still working. The guy's getting above $5,000 a year. And as the taxes are increased on them, their after-tax income goes down maybe to $4,000 or $3,000, so they start quitting. And as they start quitting, this floods the role some more, and they have to increase the taxes on those continuing to work. Maybe those above $6,000, they start quitting.

20:51What I'm saying is, I envision with a guaranteed annual income, a vicious spiral upward or downward, or whatever, until we wind up with everybody on the dole and nobody working. which even the Keynesians can't really cope with, that kind of assistance. I just foresee total disaster with this thing coming into effect. Also, just as an extra tidbit on this, is that the Friedman Dole, in addition to the present one, but the Friedman Dole is automatic, increases the subsidy per kid, per welfare kid, In other words, a family of eight people, six kids, or seven kids, or whatever, gets a lot more proportionally in a person with two kids. If you're paying people per kid, it means it subsidizes the kid population. In other words, it especially subsidizes the kid population among the poor, the very people who should have less kids, if not more.

21:42I don't buy the whole thing about the whole current hysteria about the population bomb and the population explosion, everybody should all commit suicide in order to stop air pollution and all that sort of thing. along with that, but surely we shouldn't be deliberately subsidizing more kids among poor people. It seems to me a very peculiar kind of system, but here again, the Friedman's negative income tax would do this as an automatic right of free gap. In other words, you couldn't talk to a person saying maybe you should have a few less kids or something like that to be considered, you know, and it would be, in fact, an intrusion of their privacy. So therefore, what I'm saying is that it's not true that the Friedman Plan, as many conservatives say, would be better, at least, in the current system, although not ideal. What I'm saying is it would be much, much worse in the current system, precisely because it would be efficient, in quotes, and automatic, and a guaranteed sort of thing.

22:33And this, incidentally, is an example, it seems to me, of Friedman's general penchant for making the existing system more efficient, and by doing it, making it much worse. This is, I think, just one example of this. Also, of course, another point is that in practice, if a man wants a negative income tax, replace all current welfare system. You abolish the entire patchwork of welfare programs, you substitute the negative income tax. In practice, what's going to happen, as we see is already happening with the Nixon program, is that the guaranteed annual income will be added on top of the current welfare stuff. It won't replace anything. Nobody's gonna get rid of free lunches for blind mothers and that sort of thing, nobody. All that's gonna stay, and on top of that, The Social Security Proposal

23:44and abolish old age relief, saying the thing will really be less costly to the taxpayer than before. That was the big economic talking point. Of course, what happened in practice was that not only the social security costs continued to rise astronomically, but old age relief itself is much higher now than it was in the 1930s. In other words, nobody abolished state old age relief. We simply added the social security up top of the old programs. This is obviously what's going to happen with a negative income tax. And also, of course, I think it's pretty clear that the so-called requirement of the Nixon program, this is just nothing to do with Friedman at this point, but simply Friedman in action is what the Nixon program really is. The conservative requirement, in quotes, that all able-bodied recipients of the thing have to go to work, have to get a job, is obviously a phony. Nobody's going to enforce it. It's going to be just as enforceable as the current.

24:36I mean, nowadays, in order to get unemployment insurance relief, unemployment benefits, He's supposed to have to work at whatever the employment service sends you to. Of course, it's obviously a phony. I don't know of any case of anybody really forced to work on this basis, because the requirement, of course, is you have to work at a suitable job, a job that you consider suitable, of course. You don't consider any job suitable. That's that. It's fairly simple. So this whole thing is obviously just to sop the conservatives, the whole work requirement to sugarcoat the Guarantee Annual Income Program. And also, there's another point about the handicapped people on welfare, and that is that this reduces the... And some Chicago people have done some good work in, I must say.

25:21The idea of an automatic welfare dole reduces the marginal incentive for a handicapped person to invest in his own vocational rehabilitation, because it means that the net economic return he gets from being rehabilitated is much less. He might even disappear altogether if you put him on a guaranteed income. As a result of that, and Estelle James has done some pretty good work on that, the quantitative importance of this policy. As a result of that, the welfare program and the negative income tax program tends to keep people handicapped. In other words, it tends to subsidize them to continue to be handicapped instead of being rehabilitated. And as a matter of fact, in general, the whole problem of welfare dependency will be aggravated by the Friedman Plan, The proper solution seems to me to the whole welfare question is the libertarian solution, which is voluntary welfare rather than governmental welfare altogether.

26:20The key here is to promote the idea, which of course almost inevitably has to accompany voluntary charity because since voluntary charity has a limited budget, they have to start pushing the idea of encouraging self-help. self-help. In other words, among the recipients. In other words, helping people, the idea of helping them becomes helping people to help themselves, get them on their feet so they can become productive and off the charity roll. This principle was the principle of a famous charity organization society in 19th century England, which was extremely effective. It was the famous laissez-faire principle at the time. And again, the points I may raise about the Albanians and the Chinese are going to come in here because the point is that if people begin to adopt the values of self-help and independence, they will get off the welfare rolls also.

27:07This is a tremendous reinforcement of this. And we reinforce these particular values by abandoning government programs and encouraging voluntary programs. The Mormon Church is a very successful voluntary welfare program, which gives people for their members, which gives members help in order to get them on their feet, and apparently they're very successful at doing this. The whole idea of it and the reason why Friedman falls for it in essence is because it stems from the old Chicago position of first of all being in favor of compulsory egalitarianism or equalization of incomes. This is again the Simons position, more or less in favor of taxing everybody above a certain level and paying everybody below that level.

27:58Now, Friedman doesn't go that far, but the point is that there still is hangover, a remnant of that tradition, in separating the micro and the macro. In other words, the idea is you have the micro out here. This is Alfred Marshall in 19th century England and so forth position. The general Anglo-American tradition. You got the micro over here where individual prices are determined by individual supply and demand. That's one sphere. Then you have the macro sphere over here where total prices, price level, is determined by the money supply. So these two things never really meet. You have the macro out there, you have the micro out there, and that's it. There's no integration. And so the real hidden assumption here of the Friedman position is that you can tax people really as much as you want. It doesn't interfere with their incentives because their incentives are determined by marginal productivity. It's a different sphere out there. And I'm going to get back to this whole separation thing later when I get to money.

28:48Okay, that's the negative income tax. Now we come to a crucial area, I think, where I differ with Friedman, the whole area of money and business cycles, which incidentally is Friedman's major topic of interest. It's the area where he's worst on. It's also his major topic of interest. This incidentally seems to be a sort of a... It happens often in the history of social thought and economic thought and everything else. The area where the particular person happens to be worst on, he sort of pushes for his whole life. for his whole life, and this is a sort of unfortunate development. At any rate, here again, Freeman is essentially almost completely a reversion of Irving Fisher, who wrote, incidentally, from around 1890s to 1920s. Freeman's whole monetary approach, I mean Fisher, excuse me, Fisher's whole monetary approach and his whole business cycle approach, which are very, very closely linked, was based again on this Marshallian Anglo-American dichotomy between the micro and the macro.

29:43The micro is out here and the micro is out there. Here you have individual prices, which are determined by supply and demand. You let those be determined by the free market. It's a heroic concession of the free market. You let that individual prices be determined by the free market. And then over there is the macro level. The macro level, you have this price level, the macro sphere. You have the price level, which is determined by the money supply and velocity. And there, this is a different situation. Here you have, this is a situation ripe for government intervention running to the Fisher-Freedman position. So, the idea is you have a free market in the micro level and you have the government up to its hilt, up to its neck in the macro level, and you think that the two of them will never meet. Now, this whole approach, this separation, this artificial separation of the micro and the macro is, of course, an exquisite contrast to Professor Mises's great achievement in The Theory of Money and Credit, which he began in The Theory of Money and Credit,

30:36which is an achievement which has still not been incorporated into Anglo-American economics in almost any sense of integrating the monetary and the real spheres. In other words, the monetary sphere and the microsphere, integrating them into one system. So, for example, Fisher wrote a famous article in the 1920s which is recently favorably cited by Friedman called The Business Cycle is the Dance of the Dollar. It's a very interesting article. Again, I recommend you reading it because it will give you a clue to the whole Friedmanite position. which set the model for the whole Chicago business cycle analysis. In Harbrower's book, for example, he says that the founder of the purely monetary theory of the business cycle is Ralph Hortry, the English economist, which is true, but Irving Fisher is just as influential, probably more so, in the United States.

31:24In this theory, the business cycle then becomes a dance, almost literally. becomes a kind of a random, uncoordinated, uncaused kind of fluctuation of the price level. And so the key to the whole thing is that the price level is somehow moving around. This is a defect of the free market because the free market allows the price level to keep changing in this kind of peculiar, fancy type manner. And the cure then for the business cycle is for the government to step in to take measures to stabilize the price level. In other words, iron out the fluctuation of the price level to keep the price level constant and thereby, of course, curing the business cycle, because the business cycle is supposed to be a pure creature of these changes in the price level.

32:09And this really remains today, despite modifications, which I'll mention a little later, this remains Friedman's position as well. Friedman is looking for some gimmick, some method of stabilizing the price level. This ideal of stabilizing the price level, which of keeping the price level constant, is again linked to Fisher's peculiar view of money, the view of the dollar and the franc and the pound and the whole monetary philosophy. According to Fisher, the true role of money is to measure values. The idea is the money is supposed to be a measuring stick of some sort and the price level is supposed to be the thing being measured. So therefore, the price level has to be constant, according to Fisher, in order to fulfill money's true function. Now, we know, I don't want to get into the idea of why you can't measure values and all the rest of it. I just want to point that out. They're very different from the Austrian and 19th century position.

32:59Now, this goal, this idea, somehow this moral ideal of a stable price level is in total contrast to the 19th century approach and the Austrian approach of saying, well, of hailing, essentially lauding the results of the unhampered free market, which usually, almost invariably leads to a falling price level, because usually what happens on the free market is that productivity increases, the supply of goods increases, and the price level falls. It's just like TV sets have fallen in price from $2,000 to $60 or whatever over the years. This usually happens for all goods or most goods and services. So Fisher is really standing there in opposition to the system of unhappened free market in the macro sense. In other words, the idea of permitting a falling price level. No, no, it's a terrible thing. It's immoral. It doesn't measure.

33:45You have to have a stable price level. Okay, now this, it was Irving Fisher, and Irving Fisher was extremely influential, by the way, politically and economically. It was his theories and his influence which really provided the main ideological support for the record, the grisly record that Percy Graves mentioned last meeting about the inflation of the Federal Reserve System during the 1920s. Benjamin Strong, who was the head of the Federal Reserve Bank in New York and the main leader of the Federal Reserve System in the 20s, was guided by Fisher and Hortry and his whole economic theory. He's a member of Fisher's nefarious Stable Money Association, which was pushing the idea of a stable price level. And so the idea was they looked at the price levels, and the price level was represented by wholesale prices, and wholesale prices were either constant during the 20s or they were falling a little bit because of the increased productivity of the economy.

34:37And so they said, there isn't any inflation. Why are all these people worrying about inflation? There's no such thing, because if you're looking at the price level, it's falling, that's it. As a matter of fact, they were advocating more inflation. They wanted, they said, it's a terrible thing, price level is sagging a little bit, therefore we have to pump more money into the system to raise it. This was the Fisherite orthodox, this is the position of orthodox economics, we want to put it that way, establishment economics, all during the 1920s. So when people like Professor Mises and a couple of other people warned about the dangers ahead of a recession and economic crisis due to the inflation of bank credit, they said, no, it's not inflation, we're looking at the price level and the price level is falling. That's it. Even in 1930 Irving Fisher refused to recognize that any depression really existed. He said, no, no, this is all temporary jolt in the stock market. Things will bounce up again any minute.

35:24And now in his well-known book, Monetary History of the United States, which Friedman wrote a few years ago with Anna Schwartz, he imposes his whole Fisherine theory, his whole Fisherine views upon the American past. If you look at Friedman's position on the 20s, he thinks Benjamin Strong was one of the greatest people who ever lived, a great price stabilizer, tremendous. And things began to go wrong only after Strong died and his policies were no longer put into effect. And so, Friedman attributes the 1929 depression not to excess inflation which brings about recession, etc. Quite the contrary. He attributes it to insufficient inflation. He attributes it to the Federal Reserve system not inflating enough in the late 1928-29 and not inflating enough, surely, after 1930, after 1929.

36:13In other words, during the recession, they should have inflated much more. They only inflated a little bit and they should have inflated a tremendous amount and that would have solved the whole problem. So, while it is true that we monetary malinvestment people have to hail the fact that Friedman has brought money After the discussion, once at last, after 30 years of being ignored by the Keynesians, we talk only in terms of expenditure, government expenditure and so forth, after hailing this and after saying, yeah, it's a great thing that money is now back in style, so to speak, or back in fashion, we don't have to record the fact that freedom has the exact opposite of the correct theory on money. It's true, he talks about money a lot, but the theory is the reverse of the correct one, because, as I say, he holds that the stabilization of the price level is the goal of macro policy, And therefore, strong was right and the successors were wrong for not inflating enough.

37:05During the 1930s, after the Depression hit, the Fisher View and the Chicago position, Knight and Simons and all these people at the University of Chicago, took the position that the way to cure the Depression was to reflate, quote, reflate, unquote, the price level back up to the 1920s levels. In other words, somehow keeping the price level constant was no longer good enough. You had to raise the price level back to the 1920s and doing it in two ways. In other words, during the early 1930s, if you read the literature in the early 1930s, Fisher and the Chicago people, Knight, Hardy, Simons and so forth, were considered pretty leftish. They were considered sort of socialistic because they were in favor of big government deficits, inflationary program, public works and so forth, and indeed they were. In short, during the early 1930s, they were in favor of big government deficits, Public Works, and so forth, and indeed they were.

37:58In short, during the early 30s, Fisher and the Chicago School were pre-Keynesian Keynesians. They had the entire Keynesian position without the Keynesian theory behind it. They had another theory behind it, but the political program was virtually the same. So what happened was, some journal article recently said, the reason why the Chicago School was immune to the Keynesian Revolution when it finally hit is that the Chicago people were Keynesians anyway. It wasn't a big thing to them about expanding, inflating the money supply, expanding deficits and so forth. So they didn't buy the whole Keynesian theoretical apparatus, as the other people did, because they already were Keynesians politically. They favored the compensatory, monetary and fiscal policy and so forth and so on. Although they always stressed money is more important than fiscal, but they had both, really, as both arms of it.

38:46Now we know, of course, about Friedman's famous position of calling for a continuing, steady expansion of the money supply by three to four percent a year. He changes the percentages every once in a while. It's a little vague about what percentage he really wants. Somewhere between three to four percent per year to be expanded by the Federal Reserve system. We know that is his position, but what we don't realize, many of us, is this is simply a continuation of this older Fisher Chicago policy with a modification. The only clarification was he realized that the older policy didn't work very well in practice. In other words, Friedman now says, well, compensatory fiscal policy doesn't work too well, and compensatory monetary policy doesn't work too well because it suffers from these inevitable time lags. You look at the statistics and you see there's a recession in January, let's say.

39:32So first of all, it takes about three, four months for the statistics to come in. You don't know what's going on until four months later. Then it takes about six months to decide on what to do. And after you decide what to do, it takes about 6-7 months before the effect takes place in the economic system. So it's about a year, a year and a half between the time you start doing, between the time you see a crisis developed and the time when the actual policy to counteract the crisis really takes effect. By that time, you're usually in a different phase of the business cycle. So if you're trying to pump in money to counteract a recession, you wind up pumping in money to aggravate a boom and vice versa. The price level in the short run, we can't have a fine tuning of the system. But what he wants to do then is to stabilize the price level in the long run. In other words, over the long period, the supply of goods and services goes up something like two to three percent per year.

40:19Therefore, he pump in the money supply, pump in an increase in money supply by two to three percent per year, and we'll get, in the long run, a stable price level. This glorious ideal of a stable price level will be fulfilled in the long run. So, therefore, Friedman is really plainly and simply, to put it very plainly, is simply an inflationist, Friedman's played a very pernicious role, because what happened was that by June, after the Nixon administration fumbled around for quite a while, by June of 1969, they finally stopped increasing the money supply, Happy Day finally arrived, the first year of the Nixon administration, the second year of the Nixon administration, the third year of the Nixon administration, the fourth year of the Nixon administration, the fifth year of the Nixon administration, the sixth year of the Nixon administration, The first time, God knows how many years, money supply was no longer being increased.

41:11As soon as that happened, almost to the minute, Friedman and his disciples immediately launched an hysterical campaign, attacking it, saying, no, no, it's a terrible thing, we'll get a recession, if you don't increase the money supply immediately, increase it by 3 to 4% per year, don't keep it constant, and so forth and so on. Finally, after months of this, around February, I'm afraid, Friedman's campaign bore fruit and we've begun to loosen up the money supply once more, even though prices are still going So, what Freeman doesn't understand, and the same thing that Fisher didn't understand 40 years ago, it's still part of the same struggle. What he doesn't understand is the insight that Professor Mises' so-called Austrian business cycle theory provided. And the insight was that, the insight which finally integrated the monetary sphere and the real sphere, and the real sphere, and the real sphere, and the real sphere, and the real sphere, and the real sphere, and the real sphere, And the insight was that the insight which finally integrated the monetary sphere and the real sphere

42:06and said the following, and very simply. What he doesn't understand is that when you expand credit, this distorts the structure of production. In other words, it distorts relative prices, distorts production. It leads to over-investment in the higher orders of production in the capital goods sphere and under-investment of consumer goods. Therefore, the Freeman people, along with the whole Anglo-American tradition, think that inflation doesn't cause any maladjustments of that type. It simply raises prices, period. It simply raises the price level. However, since we know, as Austrians, we know that it distorts the price level, at least the wasteful malinvestments and overinvestment in the capital goods sphere, this means that according to what Mises and Hayek have shown, this means that the malinvestments generated by the boom have to be liquidated.

42:53They must be liquidated. And that once the boom and its wasteful investments have been launched, The recession becomes the only, not only inevitable, but a healthy, forms a very healthy role, performing the function of cleansing the economy of this wasteful malinvestment, and getting us back to free market production. So therefore, according to the Austrian theory, recession is a healthy consequence of the evil malinvestment, so to speak, generated by the inflationary boom. And so what the government policy should be is not to do anything. In other words, allow the recession, first of all, stop the inflation if you're inflating, And if you're in a recession, allow the recession to run its course as quickly as possible because the more quickly it runs its course, the sooner we get back to a healthy economic situation. So this means that the Austrian prescription is the exact opposite of both the Keynesian and the Friedman prescription for recessions.

43:42Not to inflate more, not to keep inflating three or four percent per year, but to stop inflating, period, and keep stopping it. Now, the problem is here, again, Friedman, just as Fisher did 40 years ago, really has no business cycle theory, has no conception of why a boom leads to a bust, it's all sort of a random fluctuation, a random dance of a dollar, and therefore no conception of the healthy function of the recessions performed, and so he simply said, wow, there's a recession, you pump money in, in essence, if there's too much of inflation, you stop pumping money in. Professor Mises' theory is the only theory I think has ever been coined, which explains this phenomenon, which we've gotten in the last couple of years, which has really hit us during this recession, the phenomenon of prices going up, consumer goods prices going up, at the same time we have recession and unemployment.

44:43This phenomenon puts the establishment economists in a real bind because all the establishment knows, whether it's monetary establishment or fiscal establishment, all they know is if it's a recession you pump money in and you spend more, and if it's an inflation you stop pumping money in and take some money out. What do you do if both are happening at the same time? What do you do if consumer goods prices are going up at the same time as business failures and unemployment and all the rest of it? and the rest of it. And one time during the 1958 recession I had the occasion to attend a lecture with Professor Burns who in those days was head of the Council of Economic Advisers and I asked him this question because at that time this phenomenon had appeared already so I asked him this question. I said, what would you do? What would you recommend doing in this situation?

45:28He said, well, don't worry about it because we're getting out of the recession very quickly in a couple of months and we'll be over. I said, okay, I can see that. What happens if some future time we don't get out of it very quickly? And what he said then, I've stayed with me ever since, he said, in that case we all have to resign, unquote. But I'm calling upon him and the rest of the people out there in Washington to resign, to fulfill this role, resign post-haste. Actually, of course, consumer goods prices always did rise during the recession. The only thing is, none of us knew about it, none of us really cared, because oil prices, prices in general, were falling, because there was a monetary deflation, every pre-war recession, pre-World War II recession, the money supply would fall and prices would fall, consumer goods prices wouldn't fall as much as the other prices, and this would form the same function, the same role of consumer goods prices, in other words, would rise relative to other prices, but nobody worried about it, obviously. Nowadays, of course, with our new, modern, developed scientific system, we don't have any deflation anymore,

46:33is impossible. The government has arranged the banking system in such a way that the money supply can never ever fall and so we don't have prices falling anymore and so we have a phenomenon in recession of consumer goods prices starkly going up and it of course upsets everybody as well at night. Now the reason for the reason why consumer goods prices go up during a recession again has been explained by the Austrian Professor Mises' theory which is that during a recession resources have to shift from capital goods to consumer goods and in doing that, In doing that, reflecting this higher consumption investment ratio than actually the economy had been working on And in doing that, resources shift from capital goods to consumer goods Consumer goods prices go up and capital goods prices go down Reflecting this different shift of demand-supply So this, as I say, has always been taking place It's only now that it's been starkly revealed Now we've been saved from deflation The starkly revealed, we get the worst of both worlds now

47:26In our current scientifically organized recession session, we have prices going up and unemployment. Of course another thing is that Friedman again really again is very mechanical kind of mathematical statistical approach tends to ignore the fact that the demand for money is not really stable it varies and varies really in accordance with expectations of prices going up and people now come finally come to inclusion you know we're now at Professor Mises talk about the various stages of inflation you have the first stage and people think the prices will go back to in a normal pretty soon, it was the old naive days, prices are going up, well it's purely war time or something, it'll go back soon, we've abandoned that, the public has now begun to realize that prices will keep going up forever, every year we have a 5% increase or something, once they begin to realize that, the demand for money falls drastically and prices really begin to skyrocket, and we're just about at that point, we're just about reaching phase two of this inflationary process, and this is something Friedman really doesn't take into account, he doesn't take subjective

48:27Okay, now to get to the last big part here, again in monetary policy, fiat versus commodity money, another criticism I have of the Friedman position. One of the reasons the Fisher and the Chicago School in the 30s were considered to be radical was because they were always against the gold standard, always chafing under the strength of the gold standard. Friedman, of course, frankly wants to abolish gold altogether as a monetary commodity and replace it with totally fiat currencies. The dollar will be totally fiat, the franc and the mark and so forth and so on. And all of these currencies are supposed to fluctuate freely in relation to each other.

49:13Now this change, again, supposedly this would be more efficient in the present system. You wouldn't have to worry about the balance of payments all the time. It wouldn't be a pound crisis every two years and all the rest of it. It would be more efficient in the sense that the exchange rates would then fluctuate in accordance with the monetary issue of each currency. However, even though it would be more efficient, it would be a lot worse. For one thing, it would cut completely every tie to gold, every tie to the commodity money we have now, as weak as the tie is. And for one thing, at least now we have this check on the government that they can't inflate too much because the balance of payments will be pretty embarrassing. The gold will keep flowing out in this kind of embarrassing situation. So at least this has provided a fairly good check on the government in the last few years on inflation.

49:59Because one thing that the Freeman, of course, doesn't realize is that the government is not sort of a neutral agency, not sort of a neutral instrument for social action. It's essentially a Chicago position. Sometimes they're efficient, sometimes they're inefficient. You sort of take the thing on an ad hoc basis. The government is essentially inherently an inflationary instrument. In other words, my contention is that the inherent tendency of the state is inflation. If you give to the state, without any check at all, without the gold standard check, the total power, the gift of the government, the total power to inflate money at will, they're going to do it, they're going to use it. Reasons I'll say in a minute. So what Freeman then advocates is to leave the total absolute dictatorial control of the money supply in the hands of the central government without any check, without any commodity money check, without any international money at all.

50:51Placing all power on the hands of the government and then trusting the government, urging it to bind itself by these 3% rules, you know, 3-4% per year rules, they're not gonna do it. I mean, it's just utopian and unrealistic and kooky to expect that the federal government is gonna do this, is gonna first get total power and then hardly use it. And I think we know about power by this time in the 20th century, we know this sort of thing isn't done. The great thing, the major point, the great thing about the gold standard, the critics of the gold standard all say that those of us who are in favor of the gold standard are sort of gold fetishes. We like to stay there in the closet at night and run our hands through our gold coins. Ah, gold! It's a lot of nonsense. I've unfortunately never seen a gold coin. I'd like to. The main reason why we are in favor of the gold standard is because gold is a commodity

51:43In order to get it, it's costly to get it. You have to dig it out of the ground. That costs a lot. You have to produce it, sell it, and so forth. This is all costly to discover and mine it. And it creates this market check, an automatic market check on government tendency toward inflation. Whereas fiat paper, government paper, doesn't have this check of high cost and so forth. It's very easy to, it's almost costless to print money. Also, another point is, I think a very important one, is that money is really a key command post of the entire economic system. Money, of course, is used in every exchange, every transaction, as money is one part of it. So money is the most important single commodity, and he who controls the money supply, I think, is a long way to controlling the whole economic system, regardless of whether you say, well, yes, we're in favor of the free market, we're against any intervention except in money.

52:30But if you allow intervention in money, you've really got the whole system in your hands anyway. As I say, Friedman would not only leave this power in the hands of the state, he welcomes it, he's in favor of it, he sort of would shove the power in the hands of the state, this unlimited power to print money. The state printing of money, and of course there's a bank credit based on the whole banking, the controlled banking system, which is really a government operation by this time. This whole system is really nothing more nor less, I think very bluntly, simply legalized counterfeiting. The reason why I think the inherent tendency of the state is inflation is simply this. If you, or I, or any one of us, or any group of us, were given an absolute power, you know, somebody came to us and handed us the printing presses, and said, okay, you guys from now on have a complete control of the printing presses. You have a compulsory monopoly of the printing presses.

53:16You can print whatever you want, whatever money you want, you can use it for any purposes you want. Anybody else who prints it gets shot, or gets 30 years in jail. And, you know, then it's handed to us. What will we do with it? We print it. We use it. I think it's, you know, it's inevitable. And this is what happens with the government. The government has allocated to itself, and arrogated to itself, the compulsory monopoly of the use of the printing press, and so they use it. It's as simple as all that. And they use it more and more, and it's very easy. You don't have to work, you make money without working for it, without even taxing for it. Taxes are kind of, working is a pain in the neck, and taxing is kind of onerous, it's a pain in other people's neck, and they start complaining. Print money is very simple, you know? Nobody knows about it, it's sort of done in the dark of night, nobody understands monetary theory anyway.

53:59They understand taxes, they don't understand monetary theory. And so, it's a very easy, you know, a very easy ready thing to do. And then after, when the state inflates the money supply, and then six months later, a year later, prices start going up, the state can always blame other people. Everybody else gets blamed, of course. This is, of course, a characteristic. Speculators get blamed, businessmen, unions, consumers in general. We all know, of course, about these monstrous commercials about, don't be piggy, you know, inflation is glorified. All of us are evil because we're piggy, we like to eat. Everybody is to blame. Everybody under the sun has been blamed in the past years, except the government itself, of course. The government is the shining knight in armor, manning the ramparts, always checking inflation, and so forth and so on. Actually, of course, they're the ones who are doing it.

54:45They're the ones who are inflating. Gold also provides an international money, another, I think, important point. provides a money for a world market, which we hope someday at least will be in being, world division of labor, free trade and so forth, it's really the basis of it. If you have the Friedman ideas that each government prints its own money without any kind of world balancing item or world money, the logic of it, see it doesn't look so absurd if you look at it just as a hundred countries, whatever it is, each one prints its own money, a hundred countries isn't so bad. What happens if you pursue the logic of it a little bit further? It happens that every province produces its own money, every state, every county, every borough, every municipality, every little village printed its own money, its own currency that is, I don't mean it just has a printing press, it means that the village, the town, the city of Plainfield prints Plainfieldianna notes or whatever, Plainfield, they print eight Plainfields a week or something like that.

55:46and each block for the printed zone money, each house, each person even, I print ten Rothbards and you know, that's issuing it. Right, not worth much. Now the point is, if you have this kind of situation, this is really chaos, I mean people accuse the market of being chaos, this would really be chaos. You have millions of exchange rates all over the place, you have to consider, let's see, what would ten Rothbards be worth in terms of 80 plain fields, that sort of thing. In addition to trying to run a price system, et cetera, so what you really have with this kind of system is a breaking up of money as a general medium of exchange, which is what money is supposed to be. It's supposed to be a commodity which everybody uses in exchange. Instead of that you have every little locality printing its own money and so forth.

56:31You have the breaking up of a price system, a crippled price system, and really a chaotic situation. I don't think there's any question about it. And the Friedman Plan is logically similar, although not quite as absurd, because it's quantitatively not as bad. You're only dealing with 120 governments or something instead of 2 million. The principle is still the same. You're still breaking up the world market. You're still ending the days when you had one commodity or two commodities, gold or silver, being used by every country, which provided a world money for everybody, and you're busting up an international division of labor and so forth. And again, I think Friedman arrived at this idea of fluctuating fiat money because he, just like Fischer, 50 years ago, 40 years ago, doesn't understand the true nature of money. They think of money as simply a name.

57:17The name is there, the money is the dollar or the franc or whatever. They don't understand that money is really basically a commodity. These currencies are units of weight of gold or silver. This is how all these names originated. Where do the names come from? People didn't all sit down one day in 1790 and say okay, from now on we call our money dollars and we start printing them. Dollars were units of weight of gold or silver, and so were francs and so were pounds and so forth. As a matter of fact, even now, even in this benighted age, if you look at the statutes of the United States, you see what dollar is defined as. The dollar says, the dollar is defined as being 135th approximately of a gold ounce, whereas that is the definition of the dollar. for the Dollar. So even now, we're far from a true gold standard, still, these currencies are defined in terms of units of weight of gold.

58:08As a matter of fact, it was characteristic, it was Fisher's beloved colleague, J. Shield Nicholson, distinguished economist, who wrote a book where he said that money is essentially like dodo bones. In other words, he tried to pick the most useless commodity, useless thing you could think of, dodo bones. He said, well, money is like dodo bones, it's really useless, it's just a name and so forth. Friedman is carrying on that tradition. Now whether or not, I admit that there's no economic theory that doesn't decree that certain given commodity must be money. It could be gold, it could be silver, it could be platinum, it could be something else. The point is, we are now in a specific historical situation that gold was our money before 1933 and then it was seized from us, it was confiscated. I keep mentioning this, nobody seems to be even perturbed about this point, it seems to be a rather important one.

58:53We were using gold coins for 1933. The government confiscated the coins on the guise of this being necessary to save the banks during this special crisis, the depression emergency. The depression emergency has been over for at least 30 years, maybe 38 or something, depending on what we're talking about here. And nothing has been done, not one step has been made to return the gold to us, and now the emergency is over. It's of course characteristic of governments that pass emergency legislation that lingers on forever as part of the American tradition. But, you know, where is our gold? The banks have been safe, the pressure emergency is over, et cetera, and the gold continues in the hands of the government. It seems to me the libertarian monetary policy must be, in addition to not inflating, et cetera, during inflation and recession, must be, first and foremost, to get the gold back to us.

59:39Make the government disgorge the gold which it stole from us and return it to us. I mean, it seems fairly simple as all that. In exchange for the paper they unloaded upon us, we want the gold back. So the libertarian, it seems to me, must call, not like Friedman does, for the cutting loose totally from gold, but the restoration of gold to us as the free market money or the people's money, whatever you want to call it, whatever slogan you want to bring to it. And so, in conclusion, on some of the most vital economic issues of our day, Milton Friedman stands in flagrant opposition to economic freedom. His neighborhood effect makes a crucial concession, which in other hands can and does justify almost any type of government intervention in the market economy. His negative income tax proposal has, in the name of efficiency, paved the way for a disastrous measure, guaranteed annual income, that bids fear to wreck our entire economic system.

1:00:29His monetary view, seemingly close to ours, actually provides a rationale for an open invitation to inflation as well as an apologia for total governmental control of the money supply. Finally, Milton Friedman stands the thwart of our path, blocking us when we call for restoration of the gold money that was stolen from us in the Depression emergency. In all these crucial cases, Friedman stands in direct opposition to the libertarian solution and the libertarian policy. No, Milton Friedman is not our leader.

1:01:05That was brilliant, Murray, and I think you buried him, only I'm afraid it won't be in the print pages of the papers. and it's probably announcing his death in advance, unfortunately. We do have time for a few questions, the evening is late, and of course we could discuss this for a whole semester, as you covered so many things so well, but we'll entertain a few questions, yes? Oh, Murray, with regards to your division of the world into a single state, could a freedom-night look at the following objections? And if this were to happen, the way to get down to that point, The money of these little tiny, the Rothbard and so forth, would not find acceptance and would be gradually driven out of existence until the point was reached, let's say, where you weren't necessarily restored to the hundred states.

1:02:25I don't think it could carry on for a long, long time. I don't think it would be true of me, but I don't think it would be true of local governments. I mean, how local government bonds or exists, that sort of thing. So I don't think that... There wouldn't be a... Subway token. Yeah. There should be a natural limit to the possibility. Well, the natural limit would only be the fluctuating exchange rates. That would be the only limit. In other words, the sense that if New York City inflated New York City money to a great extent, then this exchange rate would fall in relation to other cities and states, etc. Assume something very unrealistic, admittedly, that the government accepts Friedman's ideas and inflates the money supply at a given point every year, that is, let's say 3%, and everybody knows this and anticipates that this will happen from year to year because it does happen and the anticipation proves correct what is the consequence on the economy of that kind of continued situation assuming it wasn't the end for a period?

1:03:50Seemingly everybody knew this, instead. Well, people get to know. Everybody knows this. The policy of the government is always to increase the money supply by a given percentage every year. It announces that and assumes that the government sticks to that. I say it's unrealistic, but just for the sake of argument, what is the effect of that? Well, at the very least, you have this effect. You have the business cycle will be at work again. In other words, you have the credit expansion, overinvestment in the higher orders of production, capital goods, and recession because of it. Now the, you know, what the government would then do after a recession hits. Your interest rate would be discounted permanently. It would certainly be that. In other words, it wouldn't be roses either, because it would still be this business cycle effect.

1:04:35As it was in the 1920s, really, when the price level remained. Just think of what had happened to 100-year bonds under such a situation. Is there a question over here? Yes, are you familiar with the Korean argument of quantum money as I was saying, where he dwells very briefly on the probable beneficial aspects of having no inflation and having no money printing whatsoever? I understand he does, I didn't read the article, but I think what he does, I'm just quoting from reviews, He concedes that, in theory, it might be better to have a falling price level. His argument is kind of peculiar. It's that you're saving resources that will be tied up in cash holdings, I think.

1:05:22I think that was the argument. It's kind of an odd argument, man. It's all right, I mean, if he wants to accept that policy, okay. But then he says, of course, and politically it's not practical, and he goes back to his 3-4%. But it's true, I think he seems to have receded there. Who knows, maybe in another 15 years he might accept the whole idea of a falling price level. In the 1930s, Roosevelt took our gold. Do you foresee that they appear to law outlawing the ownership of silver and eventually all the metal? Do they have plastic coins?

1:06:11The point I'm getting at is that you can't keep on inflating the economy and it's an item, because you'll have your penny with the intrinsic value of the metals worth more than the penny, actually. Yeah, right. And that will have to be called. Yeah, you have to pull in little tough paper tickets. What are Rothbard's? Are they metal or are they... I wouldn't have the money to have them level. It's paper tickets. Yes, Mr. Hertz? Wouldn't you say that if the inflation were continued at a steady annual rate, you'd have something, as a matter of fact, that you have right now, which is a recession with rising prices, and that if you continue the inflation now at the same rate as before, the recession wouldn't go back to a boom.

1:06:56You'd simply have a long-range continuing recession. But in a sense, the addictive effect of the inflationary policy we've had up till now, which causes the government to have to continue to expand the inflation at a greater rate in order to maintain a boom. So the Frequent Theory of 3% per annum wouldn't accomplish the purpose of eliminating or flattening out the business cycle. The only way you can do it, considering the malinvestment problem, is to increase the rate of inflation year by year so that eventually it reaches a point where it's 10, 15, 20, 30, 40, 50%, and where the interest rates eventually disappear, where people just don't even have a use for money. That's a very good point. I should have mentioned that. You have to keep accelerating the rate of inflation in order to keep it at the same level.

1:07:43It's like a treadmill. You have to keep going faster and faster, keeping the same pace. We'll crack things up in that way. What these fellows don't recognize is the one time that they came nearest to achieving their goal was the period 1927-1928. And it's what brought on 29. Is it true that under a completely free market, if the elasticity supply of gold was greater than the elasticity supply of all the goods, we'd have an increasing price level rather than a decreasing price level as you said?

1:08:32The supply of other goods is much greater than the increase in supply of gold. I mean, gold has to be mined and so forth. You don't find that many new sources. Then you're strictly limiting us to having a gold money. It doesn't matter if we had flat or what have you. Strictly speaking, you're dedicated to the theory of the supply line being the way you are. It seems that we need a lot more evidence of the way they would be. We don't need any evidence. The market takes care of all that. If the market came to gold and silver as the best monies, because gold and silver had all these various qualities, they were divisible and durable and they were more stable in supply than other goods and a higher value per unit weight and all the rest of it.

1:09:17And so if gold, if alchemists suddenly discovered a way to increase the supply of gold by a million times, they'd shift to some other metal. Market conditions changed, you'd have a changed commodity. The freedom wants to make the Union subject to antitrust law. What would you do about the labor unions so that we might have a declining wage level along with a declining price level so that we're not forced, the Federal Reserve is forced to always choose to inflate? I'm not sure if Friedman is in favor of anti-trust law for unions, he might be, but I certainly doubt it. But that's going the wrong way, rather than have more intervention to curb the power of the union. It would be better to go the other way and repeal some things like the North American Act.

1:10:03Yeah, right, I mean, we have to use repeal of the Wagner Act and the North LaGuardia Act. That would be a subtle union question. Mr. Johansson? If you were to get back to the gold standard, would you recommend a higher price?

1:10:42You have to set the definition of gold, the definition of a dollar or a Rothbard or whatever you use. Unless you started pricing in quantities of gold, this is worth a half ounce of gold or something like this. So the first step has to be sort of arbitrary, you can sort of pick your own definition. You could follow what Mises recommends and get a market. Or you could simply make it $100 an ounce or something like that. But that wouldn't last very long. If we were as smart, as we are now, in 1929, would a continued expanding inflation of the are part of the Federal Reserve system, have prevented the depression and put us into a long-range rising inflation instead, something like Germany had in 2021, 2022, or what have you.

1:12:06Part of a market system, so the banks folded pretty often. I think it was before the days of bank deposit insurance, which incidentally Friedman loved. I think it's the greatest innovation in the banking system. I should have mentioned that. There's a monstrous system of bank deposit insurance, which means it gives the banks carte blanche. The government underwrites every deposit up to $10,000, $15,000 now. So nobody thinks the banks are unsafe, and that's it. The banks are given a blank check. In those days, banks were collapsing pretty quickly. They couldn't have inflated more. You would have had to... Well, I mean, yeah, I mean, the people were calling in the bank deposits. People would line up in the morning, you know, at six in the morning or something to try to get their money out before the banks would collapse and the precipitated bank runs. So you would have had to go off the gold, do what Roosevelt did, go off the gold standard, impose bank deposit insurance.

1:12:52That was completely renovate and state-ize the banking system before you could have this permanent inflation. On the day before Roosevelt took office, I was in the Bowery Savings Bank, and people were all lined up on all the windows right out to the street, taking their money out and their gold certificates and putting it down in the safe deposit vaults where they thought it was safe. Those were good old days. Yes. Well, I think we're closed now, Murray. We're all indebted to you. I wish we could have had more, but we've had a very good order. Very good one. Thank you.