The Polish Disease

0:00I just got to show how the libertarian free market network is expensive and a little pervasive. When I got to Fred's house today and I came in from my plane rides, I was handed a letter from somebody at Stanford who had just seen a newspaper article on Polish economy and wanted me to have it as I spoke. I mean, that's really terrific. With a budget of $2, the libertarian movement is doing pretty well. Socialism is now, I think intellectually, and even as reputation in general, is dead from the neck up. Socialism used to be defined, I would still define it if you wanted to define socialism, as government ownership of the means of production, or at least control of the means of production.

0:52And the interesting thing about the socialist system, since half the world is now socialist in this sense, the interesting thing about socialism is that as one after the other country went socialist, the socialist in the United States said, that's not socialism, that's not what I meant by it, I meant something much more humanistic and lovable. And so each socialism, each record, each empirical record of socialism has been repudiated in turn. So that we have a very peculiar situation where the socialists in the western world keep saying that's not socialism. If you keep, you know, go down the record, okay, let's see what Cambodia did, for example, under Pol Pot, killing one third of the population, etc., etc.

1:45That's not social. That's not what we meant by social. What we meant by social is something where people sit around and read Play-Doh. So, they keep denying the responsibility for the consequences of their own position. Socialism, I don't think, has a very good reputation anymore. And certainly in the Eastern European countries, I'll get to that in a second, in a minute, doesn't have a very good reputation either, probably a less good reputation than it does here. The article I was sent was from the Los Angeles Times for December 26th, which deals with, says, rules bent to work Poland's crazy quill economy. And it's a dateline from Warsaw, Los Angeles Times.

2:30It starts off by saying that the manager of a coal mine on Silesia won official praise and bonuses for the mine's impressive production. But, that was before the authorities discovered he had ordered his workers to mix rock with a coal out of the mine to boost production figures. And this sort of sums things up. In a socialist country you don't have a real price system, I'll get to that a little later too. You don't have a price system, you can't, no profit and loss test. And so almost inevitably the socialist managers decide on quantitative figures, you must produce, Do you produce, you know, X million board feet of lumber, or of coal in this case? Well, okay, if the managers are quite intelligent, they know that their brownie points, if they get, if they produce a lot of board feet of lumber or a lot of coal, they get promoted or get raises.

3:24If they produce less, they get demoted or maybe sometimes go to the rock pile. So they do their best, and the incentive, the economic incentive they have is to boost quantitative figures even if half the people sort of break their leg in the attempt in the case of coal, if you mix rock with coal, you obviously can get more coal per unit effort that's what they did in the case of the soviet union years ago they measured by board feet, you must produce you produce x million board feet of lumber, they produced x million board feet except they were very very narrow pieces of lumber so uh... You don't have a power, they produce nails, and the nails buckle every time you try to hammer the nail. So you have a situation where, if you go by quantitative figures, you always get messed up.

4:13In the sense of the Polish disease. And they go on to say, it's kind of cute, as one Westerner in Warsaw put it, about Poland, about the crazy quote, economic regulations, everybody's ripping off everybody else, and since government agencies are the biggest and most tempting targets, They are being ripped off more than anyone else and they had done this by pure, you know, by mineral quantitative coal production and all that and so this is what happened. So this is just one indication, one small microcosm of what happens in socialist countries in general. The managers take over, indeed there's nobody else to take over, the managers, there's no price system, there's no rational economic allocation.

4:59And so the managers take over and run things on the basis of what the central planners, what rules the central planners lay down, whether it's board feed or funds of coal or whatever. One interesting thing is, and one of my least favorite economists, John Kenneth Galbraith, claims that in the United States the managers have taken over, they're really running things. The stockholders don't matter, the managers are operating the corporations for their own purposes. I think it's a lot of baloney, but the point is, there is an area of the economy both in the United States and the rest of the world where this happens, the managers have taken over, which somehow Galbraith never mentions, namely government, government agencies, government bureaus, the post office, all of Poland, all of Russia, everything else, these are, this is the managerial revolution, managers have taken over, they've messed everything up, quite clearly. I remember, by the way, when I was growing up, there used to be radio debate, and about Socialism versus Capitalism, and they usually have a Socialist, with Socialists

6:04usually Norman Thomas who ran, seems like 20 times for president, nothing less than that, I mean it seems like it, perennial Socialist Party candidate for president, and a Capitalist was always some, well I guess I shouldn't say dumb, but less than articulate congressman somewhere, right, Republican congressman, and these were, this would be, this would This would be the opposition, and the socialists, Norman Thomas or whoever, would say the following, Look, we don't want to threaten anybody. All we want is a world run like a post office.

6:39Government has to run a post office right, right. Of course, the Republican congressman would always say, Of course, the government has to run a post office. And then Norman Thomas or whoever would always win the debate. Of course, nobody would ever say that now. The post office is so messed up that no socialists would dare to say,

7:23The quality is always going down, so the quality of service, I'm old enough to remember, one of the few advantages of being older is you can still remember what happened 40 years ago. I can remember quite clearly that they used to pick up the mail and deliver the mail twice a day in your apartment, twice a day, once at 9 a.m. and once at 1 p.m. Now, of course, that's all shot, and Saturday mail is next to go, of course, and so the constant decline in service along with, of course, the mail takes longer to get there. Friends of mine in Canada are tearing their hair out, and the postal service is even worse than here. Also, of course, socialized postal service, where it literally takes three weeks to get a letter from here to Canada.

8:08I'm not talking about out on the tundra or the Eskimo, I'm talking about in the cities. All right, at any rate, that's another thing, since I'm on Galbraith, I'm tangential, I admit it's a tangent. That's one of my favorite topics. Galbraith in the affluent society is always attacking advertising, the evils of advertising. People get sucked into buying products because they see pretty girls using diet Pepsi. And so they rush out to buy Diapesti, because they think they can win all these pretty girls and keep drinking it. The real... I don't know anybody who buys Diapesti for that reason, but anyway, let's set that aside.

8:53The really fraudulent advertising is government advertising. Politicians who claim they're going to cure this, that and the other thing never do it. And all the rest of it, and Galbraith never mentions that, never. Never in his book does he talk about government advertising, which is a real fraudulent area, Because that's the area where the consumers have no check. See, if somebody holds up Diet Pepsi and says, boy, that's good, and you rush out and say, boy, if this pretty girl likes it, or a too tall Jones likes it, you rush out and buy it, because they like it. If you have your very own moral, maybe you'll think that way. And you rush out and drink it. If you don't like it, that's the last Diet Pepsi you'll ever drink. OK, in other words, there's a market test for Diet Pepsi. If it works in your sense, then you'll keep buying it. If it doesn't work, you won't buy it. There's no market test for government. It's all very cloudy. Every four years, you elect somebody who's about the same as somebody else, and then four years later, you've forgotten what he said, because it's all one big four-year package deal.

9:51The consumer, in other words, the voter, has no chance to vote on specific issues. So there's the real fraud. There's the real advertising problem, and Galbraith never mentions it. Never, ever, ever. Not only Galbraith, but all the other Galbraithians. Okay, that's the end of my Galbraith lecture for today. Okay, the basic, in socialism, getting to the more theoretical aspects of socialism in general, the socialists have always realized that they have a problem. They've always realized, I'm talking about Pol Pot and embarrassing things like that. They've always realized for many years they have a basic economic problem. And namely, it used to be summed up when I was growing up, who's going to take out the garbage?

10:36The social society. If everybody gets equal income, et cetera, et cetera, everybody does what he wants to do, whatever it is, who's going to take out the garbage? That's an interesting question. It's a very profound question. It's essentially the incentive problem. Who will have the incentive to go out there and shovel garbage eight hours a day, or ten hours a day, or whatever? And this is, I'd say this has been recognized by the socialists. The basic socialists' view is, the basic really gut socialists' view is, summed up in the famous Marxian slogan, from each according to his ability to each according to his needs. Now we have to add her ability, her needs to this. So everybody contributes sort of like a common heap.

11:21Everybody works, works very hard for the collective and contributes his or her production of a common heap, whatever the production is. as fast as he can because he's working for the collective, and then he takes out whatever he needs, okay? Sounds terrific maybe, it doesn't sound terrific to me, but maybe to some people it sounds terrific. At any rate, the more sophisticated socialists immediately recognize they had a problem here. Problem? There's kind of a negative incentive here. In other words, if you're a member of a huge collective that's going out and working hard and contributing in a heap, The incentive is not to work very hard, to sort of goof off and snooze behind the tree and then zip in and get in and inquire your needs, okay? Because whatever you do doesn't contribute much to the common heap, contributes maybe one one millionth.

12:08If you work very hard, you contribute one one millionth more to the common heap. It's nothing. Peanuts, on the other hand, you can grab from the common heap, you know, it's 100% your own consumption. That's a real problem, it's an obvious problem. Who's going to take out the garbage in social society? Society. There's a couple of little examples of this I can mention, sort of interesting. When the United States was founded, when America, North America was founded, the first two colonies were Plymouth Rock in Massachusetts and the Jamestown colony in Virginia. Both of them engaged immediately in communism. I'm using communism in a small C, in other words, a in a philosophical sense. In other words, they both had a communal, they were run by a corporation from England, and everybody, there was no private property, everybody was supposed to contribute to the common heap, whatever grain he grew and all that sort of stuff, and then take whatever he needed from the common store.

13:01They engaged in a pure communist system. Not only did it work, but everybody was starving, as a result. And the thing is, it didn't work even though everybody knew they were starving. First of all, there weren't 200 million people in James Downer, there were only a couple of thousand. it still didn't work, even though everybody knew in their gut they didn't produce more wheat, they'd starve everybody knew in his heart despite all the exhortations by the head of a colony all the moral injunctions, they knew what each person knew in their heart I mean, if I could work twenty hours a day, it's not going to contribute much to the common heap so what the hell with it but if I grab from the common heap, it'll contribute a lot to me, so the result is nobody worked much and everybody grabbed, the result, no more wheat left So we have a fundamental situation when both in Jamestown and in Plymouth Rock the colony almost died out from starvation

13:52finally driven to the in extremis even though it went against their ideological preconceptions the heads of the governors of Plymouth Colony and Virginia said Virginia, I'm sorry folks, they used a much more elegant 17th century language I'm sorry folks, I guess we have to have private property and we now have every person having 30 acres or whatever it is Each person will get whatever he grows, and bingo, presto, chango, a colony flourished, salvation was over and everybody was prosperous. This made a tremendous impact, sort of a practical impact on the American colonists, because they saw it right away, communism leads to salvation, private property leads to prosperity. It was a very simple sort of controlled experiment in a sense.

14:39That's one point I will mention. A very interesting point, which is truly fictional, but it's kind of interesting anyway. A beautiful, very, very funny novel appeared a couple of years ago by Sarah McFadden called Serial about Marin County and the crazies who infest it in California. And she went to an urban commune, in other words, lived in a house with 20, 10 people or something, none of whom knew each other, but they were all supposed to be communal. And she noticed very quickly that there's one guy there who never washed his own dishes. Well, he left the rest of the commune to wash his dishes. And when she challenged him on that, he said, I'm not into dishes. I don't know anybody who is into dishes.

15:24But anyway, that commune collapsed pretty quickly too. And this is only like 10 people, it's not even like several hundred. The incentive then is negative, and socialists, I think, have realized for a long time they have an incentive problem. What then to do about it? Well, there are several ways of handling it. In the New Left period, it was quite common to say, well, it's true, everybody should get according to his needs, but we scale down the needs. I don't know who's the we here, and it gets kind of fuzzy. Everybody should have very little needs. See, if everybody was willing to subsist on only yogurt and dried nuts and whatever, and electronic guitars, of course, then we wouldn't need much, and then the whole problem would be sort of eliminated.

16:17I don't think that's going to get very far either. The one problem with that is, you see, who determines who needs what? I was arguing with a socialist one time. He said, we will have a computer. We established a socialist Commonwealth. A computer will figure out what plug-in everybody needs and we assign the needs to everybody. It's very simple. We don't need any prices or private property. I said, yeah, but I need a lot of things, baby. I need yachts and I need 10,000 books and big stereo sets. And how about that? He said, well, of course, needs have to be reasonable. The other question is, who defines the other person's reasonable needs? Obviously, some damn collective at some committee or whatever is going to define you need such-and-such.

17:07Well, I think this guy, he doesn't need to go with such-and-such. And you wind up with a totalitarian system. Okay, but even if you do that, so what about the supply problem? How do you get people to work hard if they know they themselves are not going to benefit much? It's all going to go to the collective. And so the basic socialist answer to that is quite, well, it's simple in theory, it's not so simple in practice. The basic socialist answer to that, the way we overcome the incentive problem is by creating and transforming human nature. Create the New Socialist Man, Capital N, Capital S, Capital M, or New Socialist Woman. The New Socialist Man will be different. He or she won't be acquisitive, won't be interested in, won't be worried about the fact that if he works 20 more hours, he'll get only one peanut.

17:56He will be happy and proud and honored to work for the collective, work his guts out for the collective. And that's the sort of man we have to transform. This is, I think, the basic reason why Soviet Russia and China, etc., Cambodia, whatever, or whatever, tried, when they got in, they tried using every sort of coercive method, because obviously it has to be coercive, how else are you going to do it? They tried to use all sorts of brainwashing torture methods to try to transform human nature fast. They tried to shape everybody up to become, to make, to have this mold of a new altruist man who will then work hard for the collective. I remember, fortunately for us, even that didn't work. I remember I saw a fellow traveling movie about China about 10, 15 years ago where everybody was a chilling series of interviews by the interviewer with a supposed to be a typical Chinese family and they said, well, what do you want your children to be when they grow

18:51up? And they said, we want them to work hard for the collective. The question is, did they really mean it? Were they really brainwashed to that extent? Was the human spirit so deteriorated and Smash, were they really thought this way, were they really robots? Well, fortunately, my friend or acquaintance, Gordon Pollock, who some of you may know as a distinguished economist, he started off his life as a Chinese expert. He was a China hand in the State Department. And he was then prisoner of Chinese Communists when he took over in 1949. Anyway, so I asked him, well, you're a Chinese expert, are these the Chinese really? The 600 million Chinese that really love the State now, now forget it. He says, in ancient Chinese tradition, they always tell the boss, you know, somebody coming from Peking or Nanking, they always tell him what he wants to hear.

19:39On a local level, I think it's all baloney. Of course, it turns out he was right, in other words. It turns out, after 20, 30 years of brainwashing, the free market is making an enormous, remarkable comeback in China. The guy's responsible for the so-called transformation of the socialist man now in jail and being locked up and being in prison or whatever. So this comes right in. If you're supposed to be working hard not to get... In the socialist world, this is the so-called argument between material incentives and moral incentives. The new socialist man will not be interested in mere material income. He or she will work his guts out for moral incentives.

20:24What does moral incentives mean? Well, it means like a medal. Hero of the Hanobite labor, or hero of the Chinese revolution. Well, fortunately, it didn't seem to work. And the moral incentives have always collapsed. This was a big debate in Cuba between Castro and Che Guevara. Che Guevara being in favor of moral incentives and finally they have to get sort of sent them off to Bolivia to get shot and shift over to material incentives. So it seems pretty clear then that the new socialist man hasn't worked. There is no new socialism. There's just a bunch of people who are looking for material incentives and trying hard to get it. Friends of mine who were Russian experts who visited Russia recently said that nobody believes in this junk anymore.

21:09Nobody is a Marxist in Russia anymore, they don't believe in the government, they're all purely cynical, they're just caught in this bureaucratic thing and they're trying to do the best they can within this maze. Which I think links up to all the other information we were getting out of there. At any rate, this New Socialist Man solution, which turns out to be faulty to say the least, is really the origin of the old theory, which you don't hear so much anymore, but I heard when I was growing up, socialism is beautiful in theory, but can't work in practice. Socialism is the moral position, and it's beautiful in moral, but somehow doesn't work in practical.

21:54I mean, after Pol Pot, and Stalin, and Mao and so forth, it doesn't seem so beautiful anymore, or even so moral. But, so you don't hear that much anymore, but this is the origin of that, because the idea is, we're trying to transform human nature, we're trying to get everybody that works at Gutt's out for the collectives, and if we fail, it's because human nature is recalculated for it, and it doesn't seem to work. Okay, without going into the moral critique of Pol Pot, I'm here as an economist rather than a moralist. So I will press on to saying this, that the real problem socialism hasn't even been touched yet.

22:39Because the real interesting thing here is, from an economic point of view, even if you transform socialism, even if you created a whole bunch of 200 million robots in Russia, 500 million, 800 million robots in China, and all that, and they're all out gung-ho to work for the collective. They didn't care to let their throats be cut as long as the collective, as long as the sugar crop increased by 2%. Even there, what are they going to do? Even if you got them, even if you transformed them, even if you solved the incentive problem, these poor people, who were 2 billion people at the time, they wouldn't know what to do. How are they going to work for the collective? What are they going to do? Should they grow sugar? Should they grow wheat? Should they make machines of some sort? Should they grow copper? I mean, mine copper? Who's going to tell them what to do? How do they know what to do? They don't know the damn thing about it. All they know is they should

23:31work hard. Don't say they're going to absorb that, right? Well, work hard. What are they going to work hard at? Blank up. Nobody knows. And the problem, the economic problem with socialism is the government doesn't know either. There's no rational way of figuring out what and how these people should be doing. After you've finally brainwashed them and transformed their nature, supposedly, they don't know what to do. They're gung-ho. They, you know, tell me, point me to something. Nobody knows what to tell them to do. Because there's no price system, there's no private ownership of the means of production, there's therefore no price system, there's therefore no way that any government planner can tell what's scarce and what isn't scarce. Care. For example, supposing the United States, supposing the world was collectivist, we're in a world communist state, there's no market anywhere, black markets have been stamped out. Actually, the only reason why Russia exists right now is because they have a vast black market. Anyway, it's a name on the side. And the planners in Washington are trying

24:32to decide what to do. What do we do? What do we allocate resources? And somebody says, I think it'd be a great idea if we built a platinum and gold lined tunnel from New York in San Francisco. Why not? Well, so what's the problem with that? Well, you might say it's too costly. What do you mean too costly? I don't know what the costs are. Nobody knows what the costs are. Nobody knows what the cost of platinum would be or gold or anything else. I mean, no way of comparing. I mean, let's assume it's technologically feasible to do it. There's no way of deciding whether that's better or whether you should build a couple of steel plants somewhere or strip mine something. Nobody knows anything because Because it's all a vast sea and a fog of pure chaos. This insight was first provided to the world by my mentor, Ludwig von Mises, in his article in 1920, and it set the socialists on their ear in Europe, and they had all sorts of very

25:32complex solutions on how to try to solve this problem. We'll create a kind of a market, we'll pretend it's a market, we'll tell everybody it's a plain market. This is what I really amounts to, this is the Longa, famous Longa solution. We order the managers, we tell the socialist managers, go out there and pretend you're only your corporation and play market, right, and then you'll have an exchange and all that sort of stuff. Obviously playing market is sort of like playing monopoly or something, it's really pointless, ridiculous. The market only exists if you're really committing your resources, if you're willing to sacrifice some resources to get something else. If I'm willing to shell out 25 cents for the New York Times, that's a market. If I'm willing to pay $10,000 for some machine, that's a market. Plain money doesn't make it, because anybody can do that. I mean, I can be a whiz that, I can invest $2 million in plain money in the stock market.

26:18I don't care what happens. Okay, so this is, and the longer solution, the longer learner these people are trying The so-called economic market argument for socialism really stuck the consumer good. They kept saying, well, there's no real problem. You produce a certain number of pieces of bubblegum. Then you have a stock of bubblegum. If you wonder what the price is, you raise the price. And if you find out there's too much bubblegum around, you lower the price. And if you find out there's too much that's going too fast, you raise the price. You sort of adjust the price on the basis of inventory. So that's, you know, no problem. What are you bellyaching about? Well, this is fine, provided you've already produced a bubblegum. In other words, on a consumer good level, you can do it.

27:06You can produce a certain amount of bubblegum, a certain amount of year shifts in Wonder Bread and whatever, and then you can adjust the consumer price on the basis of whether the inventory is being cleared or not. But how do you know how much to produce in the first place? How do you know how much bubblegum to produce or Wonder Bread to produce to begin with? You don't know. That's the whole point. There's no producer's goods market. There's no market for capital goods, for raw materials. Everything is chaos until you get to the consumer goods market. So this insight of Mises was never really answered by the socialists. But at one point it always struck me also, and I read the Long Island Learner and these people were trying to say that socialism can calculate. One point that struck me was, if they're so long, I kept saying, well, look, we can duplicate the market, we can make it in such a way it's separate.

27:56And this thing that struck me when I was reading it in college, well, if you're so anxious to duplicate the market, why not have the market begin with, and forget about all the socialism junk? So, it seems simpler to do it that way, and the very best. So, supposing, for example, to make it concrete, let's take allocation of labor under socialism. I've talked about allocation of consumer goods. Let's take labor, because we've talked about that already, working gung-ho for the state. Supposing I come around and the committee, because some committee is going to allocate my labor, right? The Socialist Planning Committee is going to find out what my needs are and where I should best serve society and the collective and the state.

28:44I come and say, look, well, gee, fellas, I really love to shovel garbage for the glory of the collective. I mean, there's nothing I won't do for the collective. But I really think I can serve the collective better by banging the drums, by blowing the kazoo, to do, you know, by acting, by imitating the collective president, whoever it is, right? That's my area of expertise. That's my area in which I can serve the collective best. And so it's not that I don't want to show the garbage. I love to show the garbage, but I really think I'm serving it. What criteria will these guys have to say that I'm wrong or right?

29:30How do they know whether I serve the collective the best by putting on a performance, imitating the collective chairman and vice-chairman, or by blowing the kazoo, or whatever. There's no criterion, there's no real criterion to figure out anything here. And so the whole, whatever decision they make is going to be arbitrary. If they don't like me, they'll say, okay, Rothbard, go and blow the kazoo. If they don't like me, they'll send me on the garbage shoveling detail, okay? So we get, in other words, to the point, since there's no rational criterion, there's no rational criterion in economic calculation, such as we have in the free market under a price system and a profit and loss test, the criterion is all arbitrary. All right, go out there and we don't like you and you're a couple... Who are they going to send, for example, to Siberia or to... Let's see, put them in Siberia here, I don't want to irritate anybody.

30:18Montana? Anyway. Anyway, Northern Alaska, okay? Who are we going to send to Alaska? We have to send somebody to Alaska, we want to have a pipeline. Who are we going to send? Who are you going to send to go build a pipeline in Alaska? Well, who are they going to send there? They're going to send, well, a comrade, someone, he's a troublemaker, he's been belly-aching about the collective recently, let's toughen him up by sending him to Northern Alaska. So in In other words, when you get a system of centralized planning, you almost inevitably have a Siberian solution. In other words, Lenin and Stalin start shipping their opponents to Siberia, which is a non-preferred residential area.

31:05Because, see, somebody's got to be sent to Siberia. Who are you going to send there? You'll send the guys you want to get rid of. In other words, all bets are off in a socialist system. It's all who you know, who you don't know, who hates you, who doesn't like you, all of life has politicized, which is really ultimate horror, I'm concerned. All of life becomes, everything becomes a political decision. So, the, I've got one example I remember the, about how labor is allocated under socialism. The Cuba, I don't know if you remember, but I guess about slightly less than 20 years ago, Castro decided We have to produce 10 million tons of sugar in Cuba, for some obscure reason. 10 million tons is it? He puts on a big 10 million tons campaign.

31:51The world will collapse if we have the rest of 10 million tons. The world will be saved, or Cuba will be saved, with 10 million. And so all these, all the Americans left us, rushed down to Cuba, the so-called Venter Ramos Brigade, to cut cane. And they were, they were ardently in favor of the Cuban collective, they were going to cut cane. I knew a couple of these people. What happened was they didn't know a damn thing about cane cutting, obviously. They spent all their lives in New York City. Not exactly a sugar-growing area. They were chopping each other in the back with machetes. If anything, they were counterproductive. Less sugar was being grown from their efforts than more. Or you have the, in my West China, you have the kill a starling month, everybody go out there and kill a starling month.

32:50It's a monstrous system. I'd say it's the only way you can handle it. I mean, how do you allocate labor if you can't have a free wage system? In other words, if some company wants to build a pipeline now in Alaska, which they did, who decides who goes up to Alaska? And the way they did it, of course, they pay very high wages. You make a fortune. You don't want to go schlep up to Alaska and work on a pipeline. And a lot of people did it, okay? And since there's nothing to spend on in Alaska, you save it all up, all right? That was the free choice of people to go up to Alaska. But in a socialist system or communist system where a free wage market is not allowed, where everything is supposed to be done by moral incentives, Aside from one or two nuts who might really love to go to Alaska and work for the collective, they're shipped out by coercion.

33:36In other words, the dissenters, the troublemakers, the guys who are looking cross-eyed at you, you might boot to get you in the next cell meeting, you get shipped out of Alaska. All right. The calculation problem begins in Russia. When the communists took over in Russia in 1917, what are they supposed to do? They're supposed to inaugurate communism. That was the whole point, right? The first thing they did was they tried to abolish money, abolish the market, and have everybody contribute to the common heap, which is what they were advocating for the previous 75 years or so. This was called War Communism, as Paul Craig Roberts points out in his excellent book, which I recommend everybody.

34:26The War Communism, which lasted from about 1917 to 1921, was not just a war situation, it was a dedicated, ideological thing. The communists get in, they finally achieve power. What are they supposed to do? They're supposed to put into effect their goals, namely, smash the market, smash commodity production and money. Everybody will then contribute to the common heap. The whole thing fell apart. Peasants weren't getting money, so they didn't contribute anything to the common heap. They had to start killing peasants and the whole thing just broke down. Nobody ate any food. So, what then happened was that Lenin, being a very shrewd pragmatist, finally decided that either communist ideology or else we'd all get shot, and so he just gave up, totally retreated and went back to the so-called New Economic Policy, and that really re-established capitalism or semi-capitalism for about most of the 1920s, and so people started eating again, and Russia was saved.

35:26So this was an ideological attempt, which didn't work. Same thing happened in Pol Pot in Cambodia. The difference in Cambodia... First thing, the Cambodian people there, the Cambodians were an interesting group. They were... First of all, they were all about 14 years old. Second of all, they had just come out of the jungle after about 10, 15 years of fighting in the jungle. They were sort of isolated from all other influences. And third of all, they all studied in France, which is always a bad thing to begin with. and they study under French, Marxist, Maoist, whatever, Marcusean, wherever they are there, Althusserians, and so they decided to crush, not only crush all money, but they abolished money, okay? Now you might think this is only, so a lot of money is abolished, after all, just materialism, why should we be so concerned?

36:16Why are we pro-money? Economists, free market economists have always been accused of being materialistic and being pro-money. I'm pro-money mostly because I don't have any. The point about the money thing is that there's a direct correlation between money and freedom. If you earn money, in other words, if you get $10,000 a year, let's say, from your employer or whoever, then you go out and you spend it on whatever you want. You can buy things, you can not buy things, you can save. You have your freedom to allocate your income. But if there's no money, it means you eat or you get whatever is handed out to you by the government authorities, by your cell group or committee or whatever it is. Okay, comrade, three bowls of rice and that's it. There's no way to get around this. You can't buy anything because money's been abolished. It's a diabolic thing. I mean, the total, it's probably the worst thing, single thing that can happen to anybody's freedom

37:03for money to be abolished, because that's it. Because then you accept whatever you can get from the comrades, who are usually pretty short anyway, and if they don't like the cut of your jib or if you look too intellectual to them, you get only half a grain of rice per day, right? So, again, you have a forced labor system The difference between Cambodia and the regular Marxist-Leninist thing is that the Cambodians would absorb Rousseau somewhere along the way in France. So you've got a weird combination of Lenin and Rousseau, but the idea that cities are evil has to be stamped out immediately. Right? So they crushed the city before everybody started starving very, very quickly. It's the back, it's sort of like, actually put it, it's sort of like a, like a back to, the American back to the land movement going completely berserk, right? It's as if the, the back of that people suddenly appeared with arms and machine guns and bazookas and ordered

37:58everybody out of Denver and San Francisco and said, go, go far somewhere. So anyway, I mean, one thing you have to say about Marx, he did not love the land particularly. So it's one, One thing in his favor. At any rate, on the economic calculation problem, by the way, one interesting parallel that comes. If you live long enough, things will go full circle or whatever. Interesting parallel convolutions come up. Norman Brown was one of the most popular writers in the 1960s. I don't know if anybody's ever heard of him here. He wrote a lunatic book called Love Against Death, Mises and Hayek challenged socialism, they pointed out that socialism can't calculate, can't engage in rational economic calculation.

39:07The trouble with socialism in the 20th century is that the longer learning these people took them at their word and they tried to show that socialism can calculate, and that's where socialism went off, went bad. The glory of socialism is it shouldn't calculate, should be totally irrational, and shouldn't worry about calculation, you know, so that's, interestingly enough, fortunately nobody's heard of Brown recently, so I think that's, you know, the world works in wondrous ways. We now have a sort of a slightly reprise of this, a very highly tatted book by George Gilder, who's a right winger, contrast to Brown being an ultra-leftist. Gilder in his new book, Wealth and Poverty, says that the great thing about the free market is, in contrast to government, is the free market is irrational.

39:57And free market can't calculate, and it's free, spontaneous giving and all that stuff. So I would say, one of the interesting things about history is you learn that the same error keeps popping up over decades and centuries, to give you an interesting perspective. The, what's happening in the, I should wind up this thing by talking about what's happening in the thing, favorable, interesting favorable thing in Eastern Europe, the, what, my thing is quite phenomenal about how many Yugoslavia, I don't think a current Yugoslav system in of Granny Great Shakes. If you look at what Yugoslavia is now compared to what it was in 1952, it's almost phenomenal.

40:49PEDO, as we all know, broke with Stalin in 48. That in itself is not that significant from an economic point of view. But in 1952, largely on the guidance of I think of Milamand Yilas, who later broke with PEDO and so forth, they suddenly came to the conclusion that central planning isn't working. There's something wrong with it. And they started moving right rapidly toward the market, which is really phenomenal. And they've gotten to the point at this point, I wouldn't say they have a free market. They've gotten to the point, however, where there's very strong elements of free market economy here. The workers really own the plant. It's truly owned in a producer's co-op manner. The individual worker can't sell his share, which is a big defect. The plants are all owned like a producer's co-op by the workers. They exchange products freely and on a free-price system. The tax rate is pretty low. It's only about 20%, which is a lot lower than American taxes.

41:42This change came about in the mid-60s, it was previously like 80 or 90 percent. So we have a situation now where, and along with this came a change of attitude among the Yugoslav communists. So they started saying, well, you have things like this, especially by the way in Croatia and Slovenia, where the communist economists are almost free market oriented, compared to the rest of Yugoslavia. They say things like this, why should we productive, thrifty, hard-working people in Croatia be taxed, support lazy Slavs and Montenegro? Or why should we keep subsidizing inefficient factories in Albania and the Pusovo region, Albania-type region?

42:31And also they think in terms of the Yugoslav mindset, the American mindset or at least has been for recently, something like this, if there's a problem, there's a social problem, there's lots of social problems, I can find millions of social problems, such as too many redheaded people have hangnails, I mean we could spend $10 million on an NEH grant or NSF grant, find out how many old people have hangnails, redheaded old people have hangnails, They have hangnails. We've got to do something. There's a hangnail gap. There's a hangnail problem. We need a crash program. Ten billion dollars in federal aid. Eliminate hangnails from the face of the earth.

43:20That's the typical Western American mindset. If there's a problem, pass a law. Get a federal grant. If a law creates new problems, such as if you have price inflow, you have shortages, what do you do then? Well, you create a Gestapo to root out the hoarded oil or whatever it is. In other words, you create new laws, new bureaucracies on top of it. The Yugoslav mindset got to be at a point like this. Well, if they ran out of problems, they did and still do, what government intervention can we repeal? Where can we introduce the market to fix this up? This is the kind of mindset I'd like to see us develop.

44:23But each individual worker can own his share. Isn't it unfortunate if a worker retires at the age of 65 or something, why should he be able to keep voting? Why should he be able to pass his share on to his children? And they started talking in terms of a stock market. If they ever get a stock market, we can say that the millennium has arrived, free market. They started talking in terms of a stock market, which of course would send any true Marxist spinning in his grave or cutting his throat. And they said, well, we know that the old-fashioned Marxists won't like this, the idea of a stock market. Let's call it socialist people capitalism. So that's the kind of creative thinking, I think, I find of interest in the... At any rate, there's one joke, by the way, among economists. I don't know if it's still true, but the joke used to be going around in any international economic meeting.

45:14The Eastern economists, the communist country economists, would talk about the glories of the free market and the Western economists talk about the glories of planning. Well, maybe this is a change at this point. I think one of the things we need in the economics profession, In the mathematics profession, the Mises-Hayek side of the economic calculation debate is still not very well known for some obscurity, even among free market economists, even among people opposed to socialism. Their view is that the only problem with socialism, Frank Knight, for example, is an excellent free market economist in many ways. His view was that the only problem with socialism is the moral and the incentive problem, et cetera. There's no problem with calculation.

46:06I think if we realized there was a calculation problem, it would provide a tremendous new insight and new ammunition just on that basis. And the critique of socialism is pretty clear, aside from the moral aspect, which I don't deny. I mean, I think moral aspects are very important. If you also come to the conclusion that socialists can't even calculate what they want to do. In other words, even if you have a socialist planner, even if you assume that he can override consumer sovereignty, if they allocate labor anyplace he wants and he still can't do what he wants, This, I think, is a powerful argument against the socialist position, and it's an argument, which I think has been carried, borne out in practice, in all the socialist countries that we know about, and all those from early Virginia and somewhat from communism to Pol Pot.

46:52It's all been a very similar record, some of course more brutal than others, but a very similar record of total and abject failure. And I think the failure is systematic. It's not just an accident that every socialist experiment has failed miserably. It's inherent in the nature of the socialist system. Okay, I think that's... Thank you. Thank you very much.

47:17Professor Rothbard, I'd be glad to answer any questions. I think I'll start out with Professor Bolding. You got a question? Or a comment? I see you have your Adam Smith tie on, which is very good. There are four Adam Smith ties here tonight. Murray isn't wearing one because they don't make them in bow ties. The only question I'd like to ask you now, in the context of socialism and capitalism and Ludwig von Mises, what we have is a spectrum of societies, and it's a pure essence whenever there's a riot, and the knowledge of science can exist, unless the market is toughened.

48:03I agree that the hatred of the Marxists, the iraqis, is very useful, very useful work. It is as difficult as it is too difficult to talk about it, you see, that person is vulnerable, it's hard to get people to love him. Well, I love it.

48:43I mean, I like it. I like it. I like it. I like it. I like it. I like it. I like it. I like it. I like it. I like it. I like it. But there is a problem that the social connections of the market system, which permits it to function without the element of knowledge. And the market has a policy such that it has everything to go wrong. Well, the Great Depression is a great example of that.

49:19It's a whole lot of time, but that's a, that's a, yeah, that's the, I don't think, uh...

49:43Well, I think, I think there, I agree with you in this sense, there are, obviously, in the real world, there is a whole spectrum of cases, and you know how you have semi-social, I don't deny that, obviously. I think pure market economies have existed in the past, but at any rate, and certainly approximations to them, I just think the more market you have the better it is and the more government you have the worse. And so when you get to the point of socialism, obviously you have an extreme position. I don't see any real market failure though. I think, I really think that all the economic ills we can think of are caused by government. Hong Kong with the idea of society, because if you guys don't have a name, it's Ben's government, and that's all we need.

50:46Hong Kong, by the way, it's an interesting point, because Hong Kong, when I was growing up, the textbooks all said that America is strong and great and prosperous because we have a lot of large natural resources and a big land area and a lot of wheat and, you know, that sort of thing, agriculture and all that, and warm water, whatever. Holocaust is practically nothing. It has no resources. It just has a crummy rock. It doesn't grow anything except a little bit up in the peninsula there. And there's a huge number of people. So in any criteria you think of, it would be an overpopulated area. And yet it's first flourishing and standard living is going up, etc. It's all due to freedom.

51:34Somebody should take the... I don't want to use the favoritism. Do you see any new factors or new grounds that we should be thinking about today, or that might change the situation in the future? I don't think we have a 1929 situation because there are no longer any checks or limits on the Federal Reserve system money expansion.

52:19In those days there were. There was the gold standard. There were various other checks. The Federal Reserve itself could have gone bankrupt, for example. Now we have bank deposit insurance and we have no gold check whatsoever, either domestic or international. The Federal Reserve can theoretically print unlimited amounts of money, so the sky is now the limit. So I don't think we'll ever get a 1929-type depression. Yeah, I think it would be much worse. I think the eventual prognosis would be hyper-runaway inflation. I don't think we have to get there if we have the will. In other words, we rise up and say stop somewhere or another.

53:33For example, in 1923, when the runway inflation was just beginning to take hold in Germany, what happens is prices begin to go up much faster than the money supply. The increase in money supply is the major cause. Again, I can't go into the point out why this is true. The increase in money supply is the cause of increasing prices. What happens is after inflation has proceeded for many years, inflationary expectations then take over and people want to spend money as fast as they can because they know damn well the prices will be 20% more next week. And so, at that point, people experience what they call a shortage of money, what we now call a liquidity crunch, or whatever you want to call it. They haven't got enough money to pay for the high prices. They then call upon the government, the central bank, to supply them with the money. In 1923, Rudolf Havnstein, the head of the central Reichsbank, made a famous speech, which he said,

54:21Don't worry, folks. He said, of course, much more pedantic German than I'm saying here. Don't worry, folks. We realize you're suffering from money shortage. We will print unlimited amounts of money until you can catch up. Until money supply catches up with prices. Of course the result was history. Bingo. Two trillion marks to buy a stick of bubble gum. You think this is crazy. When I tell this to my students, they laugh in superior fashion. Of course we never say that now. In 1973 or 74, I guess it was, when we had our first peacetime double-digit inflation on the Nixon, Walter Heller, distinguished former chairman of the Council of Economic Advisers, wrote an article in the Federal Reserve Bank of Philadelphia's quarterly review, in which he said as follows, Money supply can't be the cause of higher prices, because prices are going up faster in the last year or so than money supply.

55:12Therefore, as a matter of fact, the Federal Reserve has a responsibility to keep pumping more money until real cash balances catch up to the status quo, which means just saying in more sophisticated economic jargon what Chavitch and I said before. Now, if Heller had been running the economy, we might have the hyperinflation right now. Fortunately, he wasn't. Fortunately, he was a harmless professor in the University of Minnesota. But, I mean, it can get that close, you see, when people start thinking in that kind of terms. Yeah. You started out by telling how the post office has gone down and down and down, deteriorating quality. I think it would be interesting to find out what made the post office work so well in the first place, with the ones that have been doing it for a long time.

55:59But that's kind of facetious. But you said that you would think the more capitalism the better, which you can't literally mean, because if you meant that, that would mean no government law. That's right. Yeah, I would make the qualification of what you mean by government, I don't want to be picky about this. I have a question to ask if you would just hold out. No, no, by me, I just want, no, no, by, no, no, I mean by government, I define government as being a tax authority, which acquires its revenue by means of coercion, by taxes, okay?

56:44I don't, by government, I don't mean police, police agencies, guards, Pinkertons, courts, things like that, because that, because they can be obviously one and a half million on a private basis. By government, in other words, I mean a tax-coerced organization, okay? I just want to be very clear, I'm not, it's not something I'm against. I don't understand what you're saying. What government is permissible in your view?

57:34Only the government. The government is the only institution in society. Of all the numerous institutions we have, political, social, whatever, the only institution acquires its revenue by going out there and forcing you to pay up. If you don't pay up, you go to jail. I think there should be no tax. That's right. Okay, so that would be a clear... It's not that I'm opposed, for example, to carrying the mail or fighting fire or all that. I think they can be done much better and more morally on a private market basis. I'm in favor of everything being marketable. We were in China this summer and we found out that the Marxist philosophy is to call for a stand. That now it's for each party's ability to do each party's work.

58:19They had private plots of land until the late 1950s, which was the great proletariat and what was the Great Leap Forward. Before that, it was really a semi-socialist economy in a technical sense. The Great Leap Forward Now, how much will be, I don't know.

59:15Certainly, their doctrines now are pretty good from that point of view. In other words, capitalism, that's what happens in capitalism, from each according to his ability to each according to his ability. That's what happens on the market. So, I don't know how far they'll get, because if you allow one separate elite to run everything, obviously they can go off again, they can decide next year, well, you know, the other, Menem Chang was really a great, Menem Mao is really great, Chung Ching is really great, and then she's back again and crushes everybody. So you can't trust them. Certainly, the course they're on now is infinitely better than they were two years ago. It's really sort of a heroic thing, considering Deng Xiaoping, the current chairman, has totally reversed the Chinese system from a total slave state to an only partial slave state, with parts of market in there, which is a big change.

1:00:01You look at an historical process, and it was kind of a heroic act. It was also a heroic act of Mao to try to crush everything, and it was totally nutty and crazy. Sometimes heroism sort of slides over into being nuts.

1:00:24Consumer goods are good. They wrote an article a couple years ago after Deng Xiaoping came in that But we really like to have this sort of society, and they spell it out, it sounds like New York in 1970 or something like that. So in other words, they really change their philosophical orientation tremendously, and obviously the social pattern hasn't changed that much, but the direction, of course, is much better. I don't know if Shirley MacLean will go out there and love them again like she loved the Mao people.

1:01:09And what? You're paying 45% for public goods and taxes for countries. This is in part coming from the head of the household. You know. A lot of the, I don't know, a lot of the, in most of these communist countries, there's this enormous black market, you have to realize, statistics are shaky, because, I mean, I understand that Russia, for example, would not really operate without a black market. What happens is the managers have to fill their quotas. My guy, I haven't filled my quota, I've got 60 days to go, I'm way behind. A heroic entrepreneur pops up. Domadish, you want to fulfill your quota, I've got 30 good men here, we'll work, you know, 50 hours a week to fulfill your quota, all you have to do is to pay me 100,000 rubles out of the till. Thank God, or thanks Brezhnev or whatever, he takes the...

1:01:57He takes 100,000 out, he pays them and that's it, it's all under the table, it's all very illegal, but it's done all the time, it's called blot. Blot, I can't pronounce Russian. And so the whole system is rife with the black market, and that's the only way they can really accomplish anything, if I can say it like that. But I mean, in Yugoslavia too, by the way, the philosophic, when they started shifting the economic picture, they started saying philosophically, the individual is more important than the collective. They say things like that, which is total heresy from the communist point of view. So that's very interesting. I think it's an inspiring development. development. One of the problems I find with conservatives in general is that when a country goes communist, they figure that's it. The iron door is closed and it's ruined forever more and we may as well nuke them. It's all hopeless. It's not true because since socialism falls apart and doesn't work and since it goes against the human spirit, I'm not very

1:02:50optimistic that freedom will pop up and I think it has in these countries. The direction starts changing rapidly again. How does this come about, the Polish disease? Well, the Polish disease is a general term for socialist planning. Failure of socialist planning. And failure to allocate labor, right? I mean, what are they going to do with the workers? The Polish disease is a general problem. What do you do with unions of government employees? If you have a union in a private company, if the union demands a 20% wage increase, The wage increase, the private companies say, well, gee, we can't do that because it will bankrupt us. You can only get 10 percent, they agree on 12 or something. But in the government situation, when a taxpayer pays, how do you know how much to pay a co-worker or whatever?

1:03:37There's really no criterion. And so, how do you know how much to pay the Polish miners or whoever? How do you know how much to pay some clerk in the civil service in Washington? There's no real, certainly in a socialist country there's no market guide, it's all arbitrary. So in a sense they have an insoluble problem in Russia. There's no way to combat unionism in a socialist country. Interestingly enough, even though the company is supposed to be the vanguard of the working class, the government is supposed to be handling everything and paying out money and getting production. How do you deal with a union? What's there to bargain about? It's a little thin air, hot air. There's no profit, there's no loss. You can't say what people lose money. Nobody loses money. It's all very vague.

1:04:26Well, I don't know. It's a big mess. I'm not really an expert on the Polish economy per se. When I'm met by the Polish disease, it's sort of a general problem of socialism. So I really have to defer to somebody else in that. Yeah.

1:04:45I don't want to get into the entire national defense problem now, as you can imagine, it's fairly complex. But I don't think there are such things as public goods, ever. First place, supposing I'm a pacifist. I know some of my best friends are pacifists. And to a pacifist who thinks all violence is evil, it's not a public good, it's a public bad, it's a public evil. He's being taxed to increase what he thinks is evil and destructive and death-dealing. So, and if you have at least one pacifist in any country, I think we can indicate there's at least one pacifist in the United States, and the whole thing gets shot, and you're out. Yeah, up there.

1:05:33No, no, no, I love black markets. Yeah, yeah, I love black markets. I'm just using a common term. It's the problem of communication. If I talk about white market, nobody will know what I'm talking about. I think black markets are great. The black markets are the markets popping up under terrible oppressive conditions. The market pops up again, vanyantly. I think it's great. What do you think about what was called a few years ago, the energy crisis, Jimmy Carter talked more about it when he was in the war.

1:06:15What do you think about that and the climate crisis, the government crisis?

1:06:32government, about 1% are the Arab governments, and it's all government in a bench, there is no energy shortage, it's all nonsense, it's all government, it's total, it's unbelievable mess, I mean just unbelievable, you just go on and on, so like talking about an Alice in Wonderland picture, like a parody of government planning, and so it's yeah, by the way the phrase the moral equivalent of war is pure evil, next time you hear a politician say it, head for the bunker, because when they talk Welcome. And what they mean, exactly what they say, they mean totalitarian, high taxes, regulations, and all that sort of stuff. They mean things like, I mean, for example, just by the way, the energy crisis. I may as well get this off my chest, because not too many people have really belly-eaten about this.

1:07:17They talk about price control and oil and natural gas. One of the things that really sets me up the wall, and I'm a great fan of, I hate heat, okay? I'm a great fan of cool weather. One of the things that set me off the wall is Jimmy Carter's total smashing of air conditioning in this country. When he said air conditioning may not go above, may not go below 78 degrees, which is, of course, nothing. It's like, you know, you may as well not have it at all. I think he was successful in that. I think he really, when I crossed the country last summer, even in Nevada, even the casinos in Nevada were hot. I mean, it's really going pretty far. So he was successful in crushing air conditioning. The idea is to make everybody feel the sacrifice, feel the pain.

1:08:03By the way, with Jimmy Carter, there was one constant leitmotif in Jimmy Carter's administration which started in his acceptance speech and continued on through the energy talk you're talking about ever since. It's one of my favorite topics. The theme and the leitmotif was, by the way, philosophically incorrect, to say the least, but very kindly. I feel your pain, I love each and every one of you and I feel your pain. He said that in his acceptance speech, when he said I was ready to punch this TV screen in. Obviously he doesn't feel my pain, what is he talking about? And he kept saying, he said that in the energy speech, and what he really meant was, I'm glad I got that off my chest. Yeah, back there.

1:08:51I'm wondering if, you know, you said you were anti-Deaf, but I'm trying to correct you. Blacks has rejuvenated coercion to the form of taxes. Right. But you've also stated that you are still a favor of the government services that they provide, such as police, the buyer. There's nothing in the paper that pleases the way that you write about the government services. Right. But you've also stated that you are still a favor of the government services that they provide, such as police, the buyer. No one is going to pay the police in the way that you write a ticket to Sweden. How do you represent us? No, no, no, hold it. Look, look. San Francisco has a private police department, or the section, which works very well. It's paid by private people in the neighborhood, right? They pay for the route so somebody patrols your neighborhood.

1:09:36And even in New York, which is demoralized at this point, there are blocks in New York and Manhattan which hire their own private policemen I'm talking about a policeman because he's mugging constantly, so they have this private cop there, he doesn't, he's not allowed to carry a gun because of the stupid government regulation, but he's at least there under the booth, and so this reduces crime almost to zero on that street, okay? So when I'm talking about people who will pay for services, means they will pay to defend themselves. They will not pay to be beaten up because they're carrying pot, okay? That's obviously not going to pay for that. In the case of traffic, traffic is not a police function. You don't have to have cops running traffic. You can have meter maids and all that. Traffic regulations are made and have to be made by whoever owns the roads. If you have a government on the roads, you have to have somebody in the government, some traffic officer, making sure there's no tie-up and all that.

1:10:32Everybody, you know, crosses it green and red. That's perfectly legitimate. That's part of the road-owning function. There are places in the United States which have private roads, like shopping centers and things like that, or private islands, and there you have private guards who run the roads and make sure this happens. That's part of the road-owning function. Unfortunately, in the United States, most roads are owned by government. It doesn't have to be that way. When you have private roads or private highways, Would you like to speak briefly on a few libertarian parties and get involved in what is the role of the libertarian party? Where's what? Where is the role of the libertarian party? I think there's good news and bad news about the libertarian party.

1:11:25The good news is that we've grown a lot. The ideas are being spread quite a bit. Ideas such as I've been emitting tonight. You see them in places you didn't see before. Thirty years ago, I said these same sort of things. I was called either a fascist or a neanderthal or crazy, or all three. And now the usual reaction is, well, gee, I agree with a lot of it, but I don't think it's really practical. That's a big step forward from the previous reaction. So, on the other hand, we have certain problems in the party, in the movement of the party. We have a certain deficiency in knowledge, a certain lack of reading and things like that. The sort of thing which afflicts the general education system in the United States. It afflicts the libertarian party, a certain inattention of ideas and books and things like that.

1:12:16And if you do that, you can easily get off the track. because that was one powerful person and one powerful state party just said, let's have, why don't we have temporary rent control? Now this is, it's that sort of thing, if you don't have a firm grip on the principle, it's easy to sort of slide off, especially to see the sugar plum fairies of a lot of votes and a lot of money and things coming in. That's something you have to be guard against. But as Jefferson said, eternal vigilance is the price of liberty, right? I'm trying to be eternally vigilant. I said the major problem was that they were not willing to work for the common good. I don't think they were, but even if they were, it wouldn't solve the problem.

1:13:19and Socialist Problem, no way of calculating, no way of telling them what to do. You see, when you're talking about helping the poor, solving a marginal problem, that's something else. I'm talking now about a general social institution, economic system, where you don't know what to do, but you're told, go out and work for the collective. How do you know how to work for the collective? What are you supposed to do about it? Are you supposed to spend all the time helping the blind? Are you supposed to work on producing steel? What are you supposed to do? And if the market doesn't tell you what to do, so to speak, then some committee, some arbitrary totalitarian committee doesn't tell you what to do, and they don't know what to do either. That's essentially what I said. As far as things like special problems in the market, the market solves them much more readily than any kind of government. First place, the market creates a much more productive system. Standard living goes way up.

1:14:07If you have a generally affluent society, as we basically have in the United States today, it's much easier to solve problems of poverty or handicap or something. If you're back in 1500, everybody's starving. If everybody's starving, there's not much surplus left over to help blind people or anything else. So the more affluent society is, the much more likely you'll have to have these problems solved. Also, private groups are much better at this than government, to say the least. Government welfare is set up on the basis... First of all, government has unlimited funds. I mean, they get funds from the taxpayer, okay? So the government social worker's position is They essentially want to maximize their own income and power, and so they go out there, they want to keep, they want to find clients and keep them there, so they keep their income and power up.

1:14:55And so you have a situation where welfare people are sort of sucked into the system and kept there in order to give power and income for the social workers, or the anti-poverty workers, whatever you want to call them. whereas a private charity system tries to get these people to help themselves as quickly as possible, get them on their feet and out of this thing as quickly as possible, which was the pre-1933 system, basically. I have a rather thought on this question. I've lived for 17 years in a communist country, so I must completely agree that 99% of people hate the system. Now, after that I came to England, I lived there for 10 years, I've been here for 4 years now, Now, it's actually terrifying how much support I've found for socialists in England and England here.

1:15:40The question is, why is it that people are attracted to the doctrine? I think they're stupid, aren't they?

1:16:05money and power out of it, the ruling class, we call it, and there are the dupes who are sucked into this, who are fooled into thinking this is really a great system. And then, of course, there's a minority, a third group of people who know what's going on, who are too correlated to say anything about it, and so it takes care of most of the population. Now, specifically, I'm not sure what motivates them, and who knows what motivates other people, the very chancy kind of analysis. But I think some of it, obviously some of it is error and others of it is deliberate. I can't imagine, for example, let me just give an instance, go back to John Kenneth Galbraith. John Kenneth Galbraith has made a literal fortune, millions and millions of dollars, made a career and a fortune out of denouncing affluence.

1:16:52The guy has got, it's true, the guy has got mansions in three or four countries. He skis a Gestag for three months every year, and he's done it out of attacking affluence. Now I can't believe this is only honest error. I just can't believe it. So you have, in other words, a conscious ruling class who's raking in the shekel. One other thing, I'm trying to write a book on the progressive period, which is the origins of statism in this country, basically, 1900 and 1920. I mean, one of the interesting things about this period, moments of the origins, you sort of see the thing happening in embryo, all these evil things starting at that point. One of the interesting things is that the science of public relations hadn't really been invented yet. These people were pretty out front in what they wanted to do. They were pretty honest and candid.

1:17:38For example, somebody would be the president of the American Society of Civil Engineers, and he'd say, we are civil engineers, this is a complex economy, therefore we should run the society. We should have power. And the physicians said that, and psychiatrists said that. Everybody's out to grab power and wealth, and they were pretty honest about it. So, nowadays, of course, you don't say things like that because your PR person will say that's a no-no. But I think that the thing is a lot involved in that. It was said that Lyndon Johnson's war against poverty, the only poverty he relieved was the poverty of the anti-poverty social workers. We've got a huge amount of grants and God knows what, jobs, grants and the whole thing flowing into their coffers. and so I think I think it's pretty clear I'm obviously a lot of misguided idealists who are taking the wrong path no question about that we shouldn't overlook one of my criticisms of Hayek for example in his great book The Road to

1:18:35Serfdom he starts off by saying that he really starts off by saying well socialists are all just the great people they engage in this error and it's too bad they have his own he's trying to convert all of them I don't think that's That's really the whole story, not just pure error. So, I think he now admits that. I'm confused with that question. I think you just answered it. Isn't it possible that, I guess many Americans who are sympathetic, they don't really understand Marx. They're caught up in the so-called idealism without knowing what's involved. And very often they're intellectuals. Within the context of democracy, there is a certain amount of illogic also, of course, involved.

1:19:21For example, I like to think that both conservatives and liberals want to put people in a cage with different kinds of cages. In other words, liberals want to outlaw tobacco smoking, conservatives want to outlaw pot smoking. And that really doesn't make much difference. I mean, there's a whole set of cages that each one wants to put people in. And really the logical conclusion is that of all this stuff, you have the outlaw eating of sugar and all that sort of stuff. The real conclusion of all this stuff is everybody should be put in a cage and dole out the proper balanced diet of vitamins and yogurt and whatever. And whatever each group wants to dole out to them, because that's better for them. Even if it is better for them, which is a dubious question, people have the right to pursue their own life, run their own life, whether they do well or badly at it.

1:20:10That's the basic libertarian position. Once you get the idea that you know best, not only know better than the other guy, but also have the right to tell them what to do, then you're in big trouble. How can you expect the personal market system to take care of somebody that is a poor, socially inadequate or more hard-to-do man? I understand that government is very impersonal and you've got to move through committees and set up committees. Well, at least there's been a direct aim, a direct drive for it to get you into that problem. How can you expect that the commercial market system to take care of that?

1:21:18The point is that the market provides the affluence and the information to make it much easier to do that.

1:21:40No, no, no, it's not a carrot. I mean, look, the point is, presumably there's a charitable impulse in most people. Most people express the same sort of sentiment you do. And it has, and if you look at past history before the New Deal, before government relief came in, there was lots of private charity and relief, etc. The point is, as affluence becomes greater under a free market system, this provides more room for this kind of behavior, for activity. And also you don't tax away everybody's incomes, they can do that. So there's no absolute guarantees, but it certainly seems very plausible that would happen. Because it's always been happening in every other country that can do it.

1:22:27Any country that has, I mean, the Red Cross and the Community Chest, my God, I mean, go down a whole list. I mean, American Cancer Society, not that I think they're so great, but the point is there's a whole group. There's a fantastic number of private welfare agencies in other countries of the England and Western Europe in particular, and in other countries which are more affluent. There's not much private welfare agencies going on in Zambia, because in Zambia everybody's sort of scrambling along trying to survive, okay? The more affluent of the country, the more it tends to be private welfare agencies. Yeah? Okay, they don't have to look at anything. They forget all this. They can just stop buying assets. It's very simple.

1:23:24Tell the Federal Reserve, give them an absolute commandment, don't buy any more assets. That's it. You don't have to look at anything, you don't have to worry about M1 and M3 and all the rest of it. Just don't buy any more assets, just get out of our lives. That's all they have to do. I mean, eventually I think they should be abolished. I mean, as a short-term immediate solution, just tell them, don't pass a law, give them an order, don't buy any more assets, don't buy any more government securities, Don't buy any more bank advances and loans. Just get out. Shut up and get out and leave and then...

1:24:04I know you were a little bit unfair to George Gilder, who wants me to burn my tan-stable button. I wonder if you would give us your critique of supply-side economics in five minutes. All right. In the first place, supply side economics is a very peculiar rubric. It's sort of a portmanteau term. It's applied to almost anything. In the very broad sense, supply side economics means being concerned with increasing production, or being concerned with the supply side of the economy, with production rather than demand or money or fiscal policy. Well, in that sense, we have a lot of left-wing supply-siders, the income policy types like Mary Bosworth. Supply-side means we have to have an income policy, have wage price control and foresee people, blah, blah, blah.

1:24:51There's also the guys that want to have $200 billion subsidies to this industry and that industry. It's also supply-side. So these guys, of course, are outside of the pale. But they're around everywhere. It's very confusing. The term supply-side covers all these people. Reindustrialization, we do it by having government subsidies and planning. We think, we sit here in Washington, we think that the SIMFuel program should go and the other programs shouldn't, and Chrysler shouldn't, you know, the big bailout, whatever it is. So we ignore that, but I just want to say that's a big thing in the supply side field. It's sort of a fashionable term now that everybody rushes into it. Okay, now the narrow supply side, I suppose, is the Laffer curve, a concept that a big tax cut will increase government revenue proportionally, so that, even more, so that, because it will free the economy and increase saving and work and so forth and so on, so that you wind up with even greater total revenue than you have before.

1:25:52The Laffer Curve is essentially the way out, it was a tan-staffel way out, it was a way by which the Republican candidates last election could square the circle. The thing that always impressed me was Mary McGrory. I don't watch, I hate to watch politicians ever, but I happen to watch the Iowa debates, if you remember, the eight guys or whatever it is, the Republican candidates. Mary McRoy gets up and she gives an excellent question. She says, Mr. Bush, or whoever she addressed it to, and to everybody, you're all promising the following things. A big tax cut, right? A balanced budget, right? And keeping the same level of government services, right? Sounds like a contradiction to me. How are you going to do all of this? Aha, and they all brought in a Laffer curve. They didn't mention Laffer, of course, but they said, well, you see, if you cut tax rates, the revenues would be so great over in Washington with that.

1:26:40Now, first place, there's no evidence for this, alright? I mean, I'm not saying it's inconceivable that would happen. There's no evidence for it whatsoever. I don't think it would really happen. I think, see, so far, some smart leftist economist. We don't seem to exist anymore, but some smart leftist economist. You know, the way he or she could rebut the lava curve would be as follows. Okay, let's test the lava curve, fella. Let's do it the other way around. Let's raise income taxes by 20% and see if revenue falls off. I'll bet your bottom dollar that wouldn't fall off. But see, that's the way they could outfox Laffer. They haven't done it yet. But I don't want to, I shouldn't really publicize because somebody's going to take that away. That's right. Now I personally am in favor of any tax cut, anytime, anywhere.

1:27:26I'm in favor of cutting marginal taxes, total taxes, depreciation allowances, anything of any size. So I'm sympathizing with Laffer people in that respect. Am I in favor of cutting taxes regardless of what happens to the budget? On the other hand, because for one thing, even if there's a bigger deficit, which I think there would be, why should a tax be better than a deficit? If a tax is pure evil, a deficit is just half evil. In other words, even if the deficit were inflationary, at least, even if your Wonder Bread would now cost $2 a loaf instead of $0.70 a loaf because of the deficit, In other words, at least you're still getting wonder bread. The taxes are getting nothing, except heartache. So in other words, the tax is the worst possible thing. On the other hand, I think the Laffer Curve is pure demagogy. I think they know it. I think these people really know it.

1:28:13I really do. I think it's pure political demagogy. So, because I've asked Laffer, I met him in Chicago, and I asked him, well, look, supposing it doesn't work, supposing you're on the other side of the Laffer Curve, and also, you know, there's no time to mention the Laffer Curve. In other words, He really says it's instantaneous. You can't gear up and produce twice as much in two weeks. Maybe you work in five years. No, it's supposed to be instantaneous. So I asked him that, and this is the position Urban Crystal takes as sort of the guru, the political philosophy guru of a supply of Laffer people. And they both have really the same answer. They really say it's all dumb and good. Laffer really said, look, by the time they get the tax cut, they'll love it so much they wouldn't care about the deficit.

1:28:58The Revenue and all that. That's really what I'm asking. It's all a shock. It's a scam. The whole thing is a scam. And even though in a sense I'm sympathetic, and I like to see taxes cut anyway, it really redounds against you. I don't want to be a cliché preacher here, but some people might remember it. Public memory might be short. I remember it for six months. Boy, God, if it didn't work, we'd cut taxes and revenue fell off, and then we're sunk. So I, that's, yeah. I want to talk about taxes. An institution of public education which is supported primarily by local taxes. What would you propose? I assume what you're saying, you know, no taxes or those taxes are there.

1:29:43How would we find something like, I would say private education, but isn't it a long tradition? What would you propose? Private? Private is a long tradition. Private education is a long tradition too, fortunately. But you would think that this could replace our public education. Sure, it'd be beautiful. And look, public education, I mean nobody, I don't know how it is here. I come from New York. I admit it's sort of a skewed sample because in New York nobody says that kids get educated at all. That's out. That's something else though. Well, but I mean it's a multi-billion dollar school system. I attended an education conference a couple of years ago which included liberals, leftists, right-wingers, a whole spectrum of people. And they started off by stipulating, they admitted, all of them admitted that public schools don't educate.

1:30:30They stipulated, okay, we admit they don't educate. However, what was the argument? The argument of the liberals, the last people left really in favor of the public school system, the argument they gave in favor of public education was that it was a massive babysitting device. You get the kids out of your hair for eight hours or whatever, and the taxpayers pay for it. That's really even an answer to it, but they burn in the public school, they can pick up in three weeks at burlitz or at some course or whatever. So, now of course my answer to that is in New York City, where we're on the cutting edge of America, it's no longer a babysitting function, it's worth your life to enter the public school system in New York. So anybody who can possibly do it gets their kid out of the public school and gets them into private school, But that is due because it's tax-supported, that's because something has happened to our teachers, our teachers and staff.

1:31:41You know, it all fits in. Look, look, if, let's put it this way, supposing if you have, there's all sorts of controversial things about education, I mean, there's a whole bunch of topics which you can go either way, you can have traditional or progressive education, sex education or no sex education, religious education or no religious education, a whole bunch of things, right? Whichever way any public school system decides, somebody's going to be hurt, some large group of parents and children will be hurt because their witches will be overridden. If you have a private school system, anybody would go to any darn school they want. You have a whole spectrum of schools fulfilling the desires of the various groups of parents and students. You can't have that public school system however way they decide some large group of people are going to be smashed, or feel they've been oppressed by the decision.

1:32:29Even if you have a great public school system, even if everything else is great, you still have an inherent nature of the public school system that is coercing a whole bunch of people, either a majority or a large minority of parents and students. It's as if there's only one bread in the world. The tradition has always been the government always makes bread. Everything else is free, but the government has to make bread. And then the question is what kind of bread do they make? And there's a big conflict. There's only one bread for each city or each town. Should it be Wonder Bread type? Should it be Pepperidge Farm? Should it be this health crap and all that sort of thing? And there's a big conflict over this, right? However, whichever way the government decides, a lot of bread users will be oppressed by this, they won't be able to get the bread they want.

1:33:15So as soon as you have government, you have a coercive decision almost automatically. Amen.