I see your Milton Friedman, and I raise you James Madison

This video of Milton Friedman espousing greed and self-interest as expressed by free enterprise and free trade is making the rounds again:

Friedman reduces all of human behavior to greed. "You think Russia doesn't run on greed? You think China doesn't run on greed?" "You think the communist commissar rewards virtue?.... Do you think American Presidents reward virtue? Is it really true that political self interest is more noble than economic self-interest? Tell me where in the world you are going to find these angels who are going to organize society for us?"

Professor Friedman, we do not need nor do we seek angels to organize society. While Phil Donahue may have been flummoxed, none other than chief framer of the US Constitution James Madison had a complete answer to your prescription of increasing concentration of wealth and plutocracy, over 200 years ago.

In Federalist #51, James Madison wrote:

Ambition must be made to counteract ambition. The interest of the man must be connected with the constitutional rights of the place. It may be a reflection on human nature, that such devices should be necessary to control the abuses of government. But what is government itself, but the greatest of all reflections on human nature? If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions.

This policy of supplying, by opposite and rival interests, the defect of better motives, might be traced through the whole system of human affairs, private as well as public. We see it particularly displayed in all the subordinate distributions of power, where the constant aim is to divide and arrange the several offices in such a manner as that each may be a check on the other -- that the private interest of every individual may be a sentinel over the public rights....

It is of great importance in a republic not only to guard the society against the oppression of its rulers, but to guard one part of the society against the injustice of the other part. Different interests necessarily exist in different classes of citizens. If a majority be united by a common interest, the rights of the minority will be insecure. ... [I]n the federal republic of the United States[, w]hilst all authority in it will be derived from and dependent on the society, the society itself will be broken into so many parts, interests, and classes of citizens, that the rights of individuals, or of the minority, will be in little danger from interested combinations of the majority. In a free government the security for civil rights must be the same as that for religious rights. It consists in the one case in the multiplicity of interests, and in the other in the multiplicity of sects. The degree of security in both cases will depend on the number of interests and sects.... In a society under the forms of which the stronger faction can readily unite and oppress the weaker, anarchy may as truly be said to reign as in a state of nature, where the weaker individual is not secured against the violence of the stronger; and as, in the latter state, even the stronger individuals are prompted, by the uncertainty of their condition, to submit to a government which may protect the weak as well as themselves; so, in the former state, will the more powerful factions or parties be gradually induced, by a like motive, to wish for a government which will protect all parties, the weaker as well as the more powerful....

Against the tyranny of the wealthy plutocracy, Milton Friedman has no answer; in fact he is the enabler. Against the tyranny of the wealthy plutocracy, as in all other combinations of power, that James Madison DID have the answer: set devils against devils under a system of checks and balances.

It was the genious of the mixed economy initiated by Teddy Roosevelt and later brought to fruition by Franklin Delano Roosevelt, to release the atomized masses from powerlessness in the face of modern mass production, by setting the devils of government bureaucrats against the devils of private industry. The great American middle class did not exist during the laissez-faire Gilded Age nor in Dickens' England. In both cases, the vast middle class only came into being when government stepped in on behalf of the many with regulations and protections, and set them against plutocratic power.
Strip away too much power from either capitalists or the regulators, and freedom and prosperity suffer.

Milton Friedman, your ideas have been tried to the utmost degree, and the more they succeeded in rendering governments powerless, the more they enslaved billions. It is time to restore the balance of economic power that James Madison had the genius to describe.

Meta: 

Comments

well put!

Right now it seems they still are not "dying by the sword they set to live by". In other words when labor is involved we will hear all sorts of nonsense about creative destruction, but when it comes to businesses, multinational corporations the rules of creative destruction do not apply!

Or as we see the TARP it's more socialize the risk, privatize the profits.

Just as a concept, in terms of philosophy this is well said.

I especially like the poker analogy in the title.

BRAVO!

Man I dig a well punctuated rant. Bravo!!

It has always been about class warfare.

Shallow analysis

You refer to Milton Friedman's ideas. I wonder if you have been exposed to any of his ideas beyond a 2-minute video. If you had you would be aware that Friedman did not 'enable' the 'wealthy plutocracy' but in fact understood and warned that businessmen have incentives to manipulate the system to their benefit. Guarding against that is among the proper roles of government. (And it is frankly insulting to the departed Professor Friedman to imply that he was either unaware of or in disagreement with James Madison.)

The more control the government has of the economy the larger the incentive for businesses and other special interests (unions, farmers, etc.) to spend time and money lobbying in their self interest (greed, if you will). A smaller government reduces the incentive to do so.

You are also on the wrong side of history, as Friedman points out in your video:

"In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history are where they have had capitalism and largely free trade. If you want to know where the masses are worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear: that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system."

This brings me out of retirement.

I have to disagree. I know of at least 4 alternate economies in which the masses have escaped from grinding poverty. But I'm not surprised that your Milton Friedman didn't know about them, because THEY ARE NOT IN RECORDED HISTORY. In fact, two of them even failed to invent writing- because there is no need for writing if there is no property.

I'm also coming back to make clear that rebel capitalist isn't me under an assumed account, playing closer to the rules. I believe my latest post on on economics as religion and the correct response to heresy in that religion is outside of this blog's rules, and that's still the level of anger that I'm at, so my posts here will be rare until something happens to fix that anger (either internally, or externally).

Oh, and as far as I'm concerned, Milton's just another heretic, and if he were still alive would deserve what all heretics should get.

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Moral hazards would not exist in a system designed to eliminate fraud.

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Maximum jobs, not maximum profits.

Welcome back from retirement.

In addition to the US, the British middle class also was a creation of the reining in of 19th century laissez-faire economy also.

I was thinking more of alternate examples

Such as the Incan Empire, which was so rich that gold was just another metal to them; the Chinook Trading Society, which was so wealthy that they used charity as a weapon of shame and many of the individual tribes claimed to be "wealthy peoples"; the Apostolic Communes of the first century (though one could say they could only exist being supported by the capitalism and slavery of the Roman empire); and of course, the Greek and Roman empires themselves where it was better to be a slave than a king in your own country.

I'm shocked that Professor Friedman wouldn't know of these four examples of alternate times in history when the masses gained power and wealth. But he's got the same blinders as most people do to the past, I suppose.

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Moral hazards would not exist in a system designed to eliminate fraud.

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Maximum jobs, not maximum profits.

let me get this straight...

So there are at least 4 cases in 'unrecorded' history that Milton Friedman was unaware of, but YOU somehow know allowed the masses to escape poverty? I guess I could point out that I am aware of at least 6 cases in unrecorded history that prove Friedman was right, but I hate to show off.

"There is no need for writing if there is no property."
- Plus then we wouldn't have had to memorize all that Shakespeare, either.

I don't think Milton Friedman was entirely unaware

But rather, like most economists today, is just biased towards progress and technology. Anyway, I don't think he could have been *entirely* unaware of such examples as the Chinookian Trade of the Pacific Northwest, the Incan Empire of South America, the Apostolic Communes of first century Christianity, or the Roman Empire itself.

But like most, he had a modernist bias that prevented him from seeing the truth about these earlier cultures.

Today, we have an equal bias against the Gross National Happiness indicator put forth by such nations as Bhutan and Vanuatu. But these are merely biases against other forms of measuring wealth, just as modernists such as Prof. Friedman choose not to see the different measures of wealth used in hunter-gatherer societies, and thus ended up making the mistake of claiming that only through the sins of greed and fraud can we have progress, as if the laws of physics only respond to greed and fraud.

Ok, I'm now skirting the "rules" of this blog, since to some here, h/g economics is as much "fiction" due to our current worldwide population as any other economic fiction, but here goes:

Any system that fails to separate sin from virtue, punish evil and reward good, is a system that will eventually fail under it's own weight. The late professor may not have known that he was practicing moral relativism to the point of confusing good with evil, but that is EXACTLY the outcome of his theories today.

And I'd point out that on the Happy Planet Index, which was put forth by the British Conservative party, the United States ranks a mere 150, and ALL the countries below us have one thing in common- they confuse good with evil, and their leaders both economic and political are engaged in fraudulent behavior.
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Moral hazards would not exist in a system designed to eliminate fraud.

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Maximum jobs, not maximum profits.

Friedman was wrong

I rebutted the quotation you cite in the bodgy of my diary.

The Great American middle class did not arise out of the laissez-faire capitalism of the 1800s. It only arose after the New Deal reforms of the 1930s. Left to their own devices, laissez-faire economies concentrate wealth at the top, and drive the rest of society towards poverty.

the fact that business etc., may try to engage in regulatory capture only means they have to spend a lot of time and effort trying to get to the power they would otherwise have without it.

As to me being on the wrong side of history, you just woke up and didn't experience the last ten years, right?

HAHAHAHAHAHAHA

questions

OK, so a couple of questions:

1. To what do you attribute the increase in living standards in the US prior to the New Deal?

2. Considering the poor in America live better than the wealthy did 100 years ago, how does laissez-faire 'drive the rest of society towards poverty?'

gator80

This is the last post I enable as an anonymous drive-by. If you wish to participate, create an account.

The answers to these questions are obvious, technical innovation. The invention of the sewing machine increased the productivity of cloth, the invention of the automobile increased mobility, commerce, transport, fresh produce, etc...

Finally, there is no statistic evidence the poor in the United States are "better off" than the wealthy 100 years ago.

On EP, you need to back up your claims with accurate statistical data....
or suffer the consequence.

technical innovation, statistical data

OK, Robert, no problem. I created an account. (It was easy - you have an efficient blog!)

I agree with you that the obvious answer is technical innovation. Well, to be a bit more precise, innovation. Not all innovation is 'technical.'

In any event, to what do you attribute technical innovation? Don't you think there is a correlation with free enterprise? Do you think the inventor of the sewing machine you mentioned did it because he felt sorry for people sewing manually? To paraphrase a question Milton Friedman would ask, do you think he did it in response to some decree from the Department of Labor?

As for statistical data, here again we agree. I'm a big believer. I don't happen to see any statistics in any of your posts so far in this thread, just a series of unsupported claims such as, "the vast middle class only came into being when government stepped in on behalf of the many with regulations and protections, and set them against plutocratic power."

Are today's poor better off than the wealthy in the past? Let's just take a few 'qualitative' examples comparing Kings and Queens of 100 years ago or more with today's poor:

- How long did it take to travel 100 miles? How about 1000 or 3000 miles? Even if the poor can't afford an air flight, buses or trains are much faster - and more comfortable - than horses and carriages. And a majority of today's poor have their own cars, according to the Census Bureau.
- How were they treated for illnesses? Leeches? Bleeding? Can you even think to compare with health care today?
- Living conditions - no air conditioning, heating only by fire. The vast majority of today's poor have air conditioning.

The list could go on.

Brad DeLong, with whom, as an 'economic populist, I am sure you are familiar, wrote: "Today the average American possesses a degree of material comfort that in many ways outstrips the reach of even the richest humans of previous centuries."

Without any doubt that is primarily due to capitalism. I'm not sure why people are reluctant to recognize that fact.

gator80

I forgot to mention

trolls will get eventually autobanned.

James Madison, upon which this post is based is talking about mixed economies and frankly at this point I have no idea what you are bothering to say except maybe to spew something you heard on some radio talk show or maybe Glenn Beck.

James Madison is a capitalist and we are talking about checks and balances as unfettered capitalism has brought us where we are today. No one is arguing against free enterprise.

and if you do not understand how the industrial revolution and other technological innovations raised all standards of living, well, crack a few textbooks at your local library and get back to us after you have learned a thing or two about innovation throughout the ages.

confused

If you somehow infer that I 'do not understand how the industrial revolution and other technological innovations raised all standards of living' than I can only conclude you did not read my post, where I made that exact point.

I provided examples of how the poor are better off and you have ignored them. You say ‘no one is arguing against free enterprise,’ but earlier you said that the ‘middle class only came into being when government stepped in.’ I believe that ignores history. In fact, I believe the middle class would be much better off with less government. (But I not saying there should be no government.)

It looks like we both agree that a framework of government stability and regulation is necessary. You seem to think, however, that it is the framework itself that leads to prosperity while I believe it simply enables free enterprise to create prosperity. A subtle difference, perhaps, but it makes all the difference.

Finally, you warn against trolls but then you accuse me of knowing only what I hear from talk radio. Considering you don’t know anything at all about me, other than the few dozen words I have posted here, that is an unwarranted ad hominem attack. I hope you’re not so rude to your other guests.

gator80

then you misunderstand NDD's post

if this is what you are saying, that is what his post is saying as well. One must have a regulatory framework, a check and balance system with capitalism.

In terms of politeness well, now you are all offended when you attacked NDD's post originally, with out any justification.

I've got slightly different answers

1. Protectionism (TARIFFS! were the primary method of funding US Federal Government up until the Income Tax), and progressiveness (increase in technology).

2. I'm not at all sure the poor in America DO live better than the wealthy did 100 years ago, and they're certainly worse off when you remove the thin veneer of technology than certain Native American tribes were in the 1700s, at least in terms of real security and being able to count on your kids having a better life than you did. The wealthy 100 years ago didn't need to go to the bank to beg money for every little expenditure, they didn't have to budget their food stamps to make it through the month, they had trains, steamships, and chauffeurs to travel. In many ways, the wealthy 100 years ago were much better off than the type of unemployed yokel you'll find in rural America today. Perhaps you've just lost touch with what it *really* means to be poor and in debt you can never repay.
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Moral hazards would not exist in a system designed to eliminate fraud.

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Maximum jobs, not maximum profits.

Fair enough

1. What is the timeframe? Absent technological innovation (vaccines, lights, autos) did people live better? The US prosperity in the 1800s was based on the opening up of an entire continent to development, and higher wages than existed in Europe. In the 1920s living standards increased - very temporarily - based on debt, and that vanished in the depression.

2. Is moot, it isn't the issue. If the poor live marginally better now than 100 years ago in a laissez-faire society, but the poor and middle class could live much better in a mixed economy, Friedman is wrong.
In fact there is ample evidence from income and wealth in quintiles that since deregulatory zeal and globalization began in about 1980, almost all of the gains have gone to the top 20% (in fact the top 1%), the bottom half has stagnated, and the bottom quintile has reversed.

1. Answer the American

1. Answer the American System of Economics which is absolutely not "Free Market." Free Market does not exist, have never existed, and will existed in the future. The idea of "Free Market" fraud is 19th propaganga for British Imperialism against sovereign states.

2. If you consider the fact that we have never had British "laissez-faire" economics in this Republic is perfect proof the British Imperial enforced "Free Markets" don't work. Want a Free Market? Visit Mexico where the Drug Cartels reign and the state has no power.

Why don't you actually read Alexander Hamilton, or Friedrich List or any real history of economics?

Uncle Milton

Friedman's flaw, like that of Greenspan, is he believed markets always will naturally discipline themselves. And, he blamed most of history's many imbalances (i.e. the Panic of 1873) on human foibles, not systemic failure. No doubt, he was a brilliant guy, but some of his ideas contributed to this, albeit indirectly.

NDD's point

to me is when one claims because man is greed ridden that is a motivator to have unregulated pure capitalism is missing the point of what greed alone will wrought. Where as Madison also acknowledged the power hungry, greed ridden man but by creating a series of checks and balances, opposing powers it keeps it all in check and government, regulation is that balance, that check to the greed and power of capitalism. In other words regulated capitalism works much better.

The same is true with societies, why we have laws and systems to deal with "out of bounds" behaviors...it's a set of rules with consequences if one breaks those rules to have trust in society so it can operate smoothly.

not really

I wonder if you could provide an actual quote where Friedman claims that 'markets always will naturally discipline themselves.' This is a fashionable claim of those who do not agree with him, but it is completely false.

gator80

Looks to me

Like Prof. Friedman had a "late in life" conversion. Or maybe not so late, he claimed it was just after WWII, in contradiction with this paper he wrote in 1989.

But at any rate, Prof. Friedman never believed in government intervention in the free markets- of any sort. As we now know in this post September 2008 world, that view had really bad consequences for the world's financial markets.

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Moral hazards would not exist in a system designed to eliminate fraud.

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Maximum jobs, not maximum profits.

For Gator08

I once attended an undergrad econ class at Stanford with Dr. Friedman making a guest appearance. He spoke briefly and answered questions. He believed that markets were more rational than any single individual and he believed they had an intrinsic natural discipline that served to operationally rationalize markets. That's why he was such a strong advocate of free markets and minimal government. He was a fan of Adam Smith. However, he felt that money supply was the key factor in determining a society's wealth. Again, always examine the underlying assumptions--this was Greenspan's self-admitted flaw.

well said

And I agree with what you say about Friedman's beliefs, with the exception of your comment about money supply. I think he believed it was the key factor in determining price levels, and was a (but not the) key factor in determining a society's wealth. I think he believed the key factor was how free people are to pursue their self interests.

At the risk of beating this to death, there are two main risks to free markets. First is the risk of excessive government intervention and second is the risk of special interests (including but not limited to businesses) warping markets in their favor. It's difficult to maintain the right balance because politics plays such a large role. Of the two risks, the former is often relatively popular - as is the case today - while the latter is always unpopular but difficult to guard against.

gator80

In today's world

Those two have become the same risk- the centralization of wealth will bring about excessive government intervention in the favor of special interests.

In fact, I'd call it as close to a scientific law as you can get in economics, and the main flaw of free markets in general- that the free market, in encouraging concentration of wealth, contains the seeds of destruction, much like communism, in encouraging the centralization of power into the state, contains the seeds of destruction.
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Moral hazards would not exist in a system designed to eliminate fraud.

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Maximum jobs, not maximum profits.