hosted this event. it is about an hour and 15 minutes. >> good evening and welcome to the kansas city public library. i'm the director of public affairs. we have all heard the old song, the third time's the charm. i have a feeling we will see a definitive proof of that hisrtion when he presents third kansas city public library talk and barely more than 18 months. he is offering an original treatise on economist milton friedman, the nobel prize-winning intellectual architect of the free market reforms of the post-world war ii era. today would have been dr. friedman's 102nd birthday. i have no doubt it will be mark's best presentation yet.

why am i willing to go out on a limb? as an economist might put it, on the one hand, according to the website, super scholar.org, mark is one of the top 20 living economist in the world. i guess that designation is a gentle way of reminding us that as a no longer living economist famously said, in the long run, we're all dead. but i digress. mark's top-ranked status was echoed by a columnist for scientific american, who that he haste emerged as one of the clearest writers on all matters economic today.

the next, milton freeman -- milton friedman. mark comes byand, his knowledge of milton friedman on a first-hand basis. reveal, they had a dear, but occasionally prickly relationship. the two of them constantly argued over a variety of issues, but always remained cordial. mark was probably the last person to go out to lunch with milton friedman he for he died of a heart attack on november 16, 2006. mark over account their friendship, -- will recount their friendship and discuss their differences over money, education, taxation, the nobel prize, religion, and host of other topics.

only once did things get a cat out of control -- a tad out of control, a moment when mark tore up milton friedman's $20 bill. i will let him regale you with the details of that story. a jack of many trades and . master of most of them a phd in economics from george washington university, he has been a university professor, an economist, an investment expert, entrepreneur, and the author of more than 25 books. mark has taught economics and finance at columbia business school, columbia university, mercy college, and rollins college. he has been a presidential fellow at chapman university. ibm,s been a consultant to

and other fortune 500 companies. in honor of his work in economics, finance, and university lansing renamed it business school. i think the most interesting thing to me about his examiner a pedigree is that -- his extraordinary pedigree is that based on one of his works of scholarship, it was published by again in90 and then 2007, because of that come the federal government began issuing a more accurate measure of the economy. every quarter, gross output along with gdp. that is quite a distinction. tonight's program is funded by a grant from the friedman foundation of educational choice.

ladies and gentlemen, these mark.e -- please welcome >> i love that introduction. you set me up very well. this is the 102nd earth day of milton friedman -- birthday of milton friedman. i did have lunch with him right before he died in 2006. he was frail, this is a picture of us together, he was unshaven, he had forgotten about our luncheon. his wife reminded him. he was about 94, 95 at the time. it looks like you will live to be 100, are you excited? he said, i hope not.

he was a little bit frail and losing his eyesight. it is difficult. he had hearing problems, a lot .f problems i had my very first luncheon with martin frith -- martin friedman in the early 1980's. i met him a couple of times before, but he really did not know who i was. i called them on the phone and i said listen, can we have lunch together? and he said yes, that would be fine. this was then -- this was at the ritz carlton. a beautiful hotel overlooking the ocean. there we were the two of us for

a couple of hours, just the two of us, talking about anything we wanted. i was talking with a nobel prize winning economist, the premier advocate of free market economics in the 20th century. we were having a wonderful time together. lunch ended and the bill came and i grabbed the bill and paid with a credit card. all my life, i have heard your statement, there is no such thing as a free lunch. there is no such thing as a free lunch. cover here again your statement, there is no such thing as a free lunch, as i am

paying for years. he said, that was not a free lunch. i had to listen to you for two hours. [laughter] picture thatis the i was showing milton friedman that he got a real belly laugh out of. this is george stigler who worked with milton freeman for many years. elton friedman in the middle -- milton friedman in the middle. george had a very wry sense of humor. he said all economists are tall. there are two exceptions. [laughter] that is a classic line. i showed this to ben bernanke once and he did not have a sense

of humor. the man said, that is not logical. answer. his anyway, i had a lot of fun times with milton friedman over the years, but our debates got heated from time to time. he was a tough debater. it has been said that milton friedman never lost a debate in his entire career. his wife would dispute that, but nevertheless, i saw friedman in action and i never wanted to debate with him. last year, i was in the london underground with paul krugman. he has quite a high opinion of himself.

i'm one point, i said, paul, have you ever lost a debate? he said i really don't think so. i said, it is too bad milton friedman is not alive because he would lose. he humbled himself enough to admit that was probably true. just for those of you who may not know much about milton friedman, let me go over a brief career about his life. he was an academic, he has written some best-selling books, and he was probably the best well-known economist of his age. brooklyn,12 in attended rutgers university,

took a part-time job to pay his way through school, from immigrant parents. he was dirt poor and worked as a waiter. can you imagine? went to university of chicago as an undergraduate. married rose friedman. they had two children, david and janet. in the 1940's, worked for the u.s. treasury department. his claim to fame, perhaps infamy, is that he is the one who proposed to the treasury that to pay for the war, we must begin withholding. tax withholding started with a milton friedman suggestion. one that he seemed to regret after that, being such an antigovernment type of person.

withholding allows a very high level of taxation. buyer to the 1940's, you pay taxes only on april 15. you sent in the full amount. if you are going to become a large government were government is taking 20, 30% of your income, you will have to have withholding. he made that government more efficient as a result. in 1946-1977, most famous for being an economist, a professor of economics at the university of chicago. that is where he did all of his work. birth,, the year of my he was a founding member of the mount pellerin society, which is economic thinkers from all around the world to toher every year or so

discuss and present papers and so forth. i've been a member since 2002. it is by invitation only. we are meeting in hong kong in august. he was the one who not made me to be a member of the society. i consider that a real honor. he started writing books. his two most famous books are capitalism and freedom -- that is this book right here. this is my own copy that i bought in the 1960's, read it as an undergraduate. book, it isat this a well-worn copy. one of my major -- one of my pet peeves is academic books that do not have an index and this one

did not have an index. my claim to fame, i got the university of chicago to put an index and year it is i complained -- in here because i complained. milton, you have to have an index for this book. so he got the university of chicago to do that. that is my claim to fame. then a year later, he came out with a book that really set him on the map. a monetary history of the united states. war all0 at the civil the way through -- after the civil war, 1867 through 1960, he did an exhaustive study of monetary policy, federal reserve

, lots of notes and comments and stuff like that in this book. i will tell you that what made him famous in this book -- and i would love to write a book like chapter.here is one one page -- -- paragraph thatentence in this book changed forever the way people think about the great depression and the federal reserve. want me to read it? maybe i shouldn't. [laughter] you have to go out and buy this

book just to turn to page 292. -- from the cyclical peak in august 1929, to the 1933 -- trough in march that is the great depression, right? the stock of money fell by over a third. the money supply declined by over a third. 1963, prior to the publication of this book, nobody knew that. do you know why? intou heard of him one and -- m1 and m2 definitions of the money supply, prior to this book am a nobody compiled -- to this book, nobody compiled money supply figures.

togetherought them until milton friedman and his co-author put these together and then discovered that despite all the efforts by the federal reserve to do whatever they could to keep the great depression and keep banks from failing, the money supply collapsed by a third. this is what ben bernanke learned in his 2002 -- they had this big meeting honoring milton friedman at the dallas fed and ben bernanke wrote an article about that meeting and said, we want to apologize on behalf of of the fed for the major blunder that we committed and causing the great depression. we have learned our lesson, mr. friedman.

we will never let it happen again. but they came close, didn't they? you do not know how close they came to having another great depression in this country. it was not necessarily caused by the federal reserve. i think they pushed the economy over the cliff. and then held out a lifeline. very interesting experience there. the impact of this book. you cannot discount the impact of this book has had on the way we view dealing with crises in the future. book,en this other capitalism and freedom, those are the two books -- if you go into any barnes & noble bookstore -- do they still have those? you go into any bookstore and

you will find a copy of capitalism and freedom with my index -- [laughter] right along with all of the other classics like the communist manifesto and so forth. -- 1976,another book nobel prize in economics. why do you think you won the nobel prize in economics? is there any book that you can point to, folks? perhaps a single chapter question mark perhaps a single paragraph? perhaps a single line question mark there is hope for any of you in this audience. you can win the nobel prize if you have a sentence that has such an impact like this man did. he won the nobel prize for this work. that catapulted him to a whole new era.

imagine, who would you give the nobel prize to on the bicentennial of the declaration of independence? of course, you will give it to a person who reflects, who single eyes is the declaration of economic independence from which is the wealth of nations, which was published in the very year that thomas jefferson wrote a declaration of political independence. it is all coming together. all of the stars are aligning. 1976, bicentennial celebration , athe wealth of nations declaration of economic independence and the declaration of independence by thomas jefferson, both in the very same year. who better to give the nobel prize to van this man right here -- to this man right here?

it was a tremendous source of pride to him and that catapulted become a very famous person. certainly among economists. there is a book called bluff your way in economics. it is sold in england. bluff your way through opera, love your way through -- bluff your way through cricket. they have one economics, can you imagine? if you know the five most famous economist today, you can bluff your way through economics. you can pretend to be a phd economist because you know these five individuals of these famous economists. and they are -- adam smith, karl keynes,hn maynard

number four is -- john kenneth galbraith. and the fifth one is milton friedman. sorry, george stigler, you did not make the list. -- you all can become can bluff your way in economics. you can walk out of this meeting , you do not even have to buy my book, and you can be a knowledgeable person in a comics -- in economics. isn't that great? program he did a pbs that several million people -- it was called "free to choose." it in energized both milton and rose friedman.

it took them all around the world. he began each program with a short 10 minute speech. and then he invited people into disagree with him. wonderful debates annie's panels and this was a great -- and these panels and this was a great program. pencilfriedman holding a and rose friedman on the back. that hasonderful book an index. i should tell you, if you came to my home in new york, i have a library. i will have a book called rising asia and right next to it will be falling asia. books, theners of my

also strategy. and in the omega strategy. -- how one is how to get to win friends and influence people. but i have one right next to it, how to alienate people. it is a wonderful combination. i put the two books together. i have free to choose and right next to it, free to lose. an introduction to marxist economics philosophy. that is so true. here is the difference.

who was the optimist and who is the pessimist? choice, youve in will make mistakes, that most of the time, you will make the right choice according to elton friedman. -- milton friedman. he is the optimist. have you ever met a marxist who was optimistic about capitalism and the world question mark no -- world? no. philosophyrence in and personal attitudes. twilight of his life, from 1977-2006, he was at the hoover institution at stanford university. he had this beautiful home on the 17th floor of this skyscraper apartment in the san francisco and he bought it with the money he got from the nobel

prize. i spent some time visiting him there. a wonderful experience. that is a little bit of an overview of milton friedman's life. this is a picture of milton and rose friedman. i picked this because he had always said he and stigler had some interesting points of view. stigler was always saying that competition is a tough we, not a delicate flower. competition can get you to produce what you want. it is a tough weed. friedman would always say, freedom is a delicate flower. who did he marry? rose friedman. [laughter]

listen, can you get me a photograph of rose holding a rose? and then i would have the quote, freedom is a rare and delicate flower. can you help me? nope. rose hates roses. roses, so ie her got the picture, but it is not in color. abi could have it, rise to -- colorized.ld have it there are two free-market schools of economics. friedman -- i mentioned the mount pellerin society. his colleague who taught at the university of chicago, he was an .ustrian economist

you can see -- this is about the austrian school of economics and the chicago school of economics. are they friends or are they froze? -- or are they foers? a little bit of rivalry between these two schools. both of them won nobel prizes. milton friedman won the nobel prize. stigler won the nobel prize as well. can you notice some differences between the austrian-european economist on the left-hand side and the american economist on the right-hand side?

hair.s and that is true. i will tell you the austrians are supreme pessimists, as they suffered from two major world wars and a great depression in between. the two americans are very upbeat and optimistic. a lot of differences between the two. i will spend a little bit of time -- if you have questions, are we going to have a microphone? if you have a question in mind, i would be glad to talk to you about those. this is one of my favorite -- this was a fun book to write. what i did what i did is in the book, i talked about the different schools.

the austrian school, the major players, and so forth. who are chicago school, the major players there, the background, and so forth. a nice summary in the beginning part of this book. the last five or six chapters is about the differences. their differences were over a number of issues, methodology, there was a discussion of philosophy. can you test there is -- theories? that sort of thing. the chicago school was in favor of fiat money, paper money standards. the austrian school was in favor of the gold standard. major difference in the two. there's a difference in the attitude regarding the great depression and the federal reserve and so forth, whether they should even have a federal reserve. differences on the great economists and so forth.

i go into a great deal of detail. at the end of each chapter, i say either advantage be in a -- vienna or advantage chicago. the genius of this book, if i may say that, is i was able to offend both sides equally. [laughter] two of the chapters were advantage chicago. two of the chapters were advantage fiona -- vienna. i had one foot in both schools. let me tell you something. you do not please either one when you do this, and yet i was able to do it. i will tell you a very funny story. became president of the foundation for economic education. this is the oldest free-market think tank. it started in 1946 before the mont pelerin society. they put out a publication called "the friedman." it is still around even today.

i was made president of this fine organization that milton friedman and friedrich hayek and mises and all these people had been involved in. at aall spoke in new york 35-imagine which i got to live in, blissfully for one year. i was at the first board meeting. they had this annual board meeting. i met with everybody. after the board meeting, as soon by the name a gal of graves came up to me and said, listen, mark, i support you in every way with you being the new president, but i have only one suggestion. can you please be more critical

of milton friedman and his views? i said, well, thank you very much. i will take that into consideration. another boarder, member came up to me who is the founder of the school in guatemala, a wonderful man, former president of the mill pelerin society. he said i want you to know i am as the support of you new president. but i have only one suggestion. can you stop being so critical of milton friedman? i told the story to friedman. he had a belly laugh. he thought it was hilarious. i want to talk about two examples of the differences between the austrian school and the chicago school. this regards the issue of money, what is sound money.

austriansd before the , of which i was more biased at , was in favor of the gold standard. a firm believer in the gold standard. advocatewas a strong of the paper money standard and the federal reserve as a system that would deal with the economy on a better basis. milton friedman and rose friedman were both invited to come to new orleans for the new orleans investment conference. the conference was also known as a haven for gold bugs. all the austrians and gold bugs were there. i was one of the prints will speakers. milton and rose friedman to come. it was a delight to have them there. , can i take you and rose

out of the finest restaurant in new orleans, commander's palace? ,hat a wonderful restaurant cajun food and so on. just fantastic. they agreed. i invited two of my friends, gary north and van simmons, a coin dealer. the five of us went out to dinner. they took us to this nice spot, very quiet as we talked. after a bit of discussion, milton turned to me and said, mark, can you please explain to me why you gold bugs are so adamant, so for version -- fer verish about gold? what is it about driving you? you have to be a firm believer in gold. this was the perfect opportunity. thisled out of my pocket

gold certificate. this is not a greenback. this is a gold certificate. this is the paper monday -- money minted back in the 1920's. look how large it is compared to the $20 bill today. see who was on it. george washington. it is not andrew jackson. andrew jackson would be furious he is on paper money. [laughter] he hated paper money. anyway, george washington was on these bills bigger than life. i think they were all minted in texas. i said let's read what the contract reads. i will tell you why we gold bugs are so adamant and believe in this, because it represents honest money. why is it honest money? because there is a contract between the holder of this banknote and the government. here is what it says.

it is in small print that there. been intifies there has deposited in the treasury of the united states of america $20 in the bearerayable to on demand. i said anyone who has this banknote, this is a warehouse receipt. this represents property. you may present this to the treasury or to your bank, and you are going to get a return what? a gold coin. a $20 gold coin known as a double eagle. he said -- here i am lecturing the number one authority on monetary policy. he obviously knew all of this. milton, do you, possibly have on you a $20 bill? andeached into his pocket,

he pulled out a $20 bill. and he handed it to me. i said let's see what the contract reads today. it says federal reserve note. it does not even pay interest. milton, this is not worth the paper it is printed on. i proceeded to tear up his $20 bill. now understand, my wife was not with me at this time. [laughter] i would never have been able to get away with this if she had been there. ie could not believe proceeded to tear up milton friedman's $20 bill. let me tell you something. right then and there, the conversation totally changed. he was furious. he turned to me and said, mark, you had no right to destroy my personal property.

and rose nodded her head and said yes, you had no right to do that. hem-hawedhim hard -- around and made some excuse. i could see things were heated. i reached into my pocket and said, i tell you what. would it be ok if i gave you the $20 back? he said that would be great. i reached in my pocket and a $20 double eagle gold coin. it did not help. [laughter] he was furious. he pushed it back and said i don't want it. now i am really worried. meanwhile, my two friends are sitting there saying, i am here just for a free dinner.

[laughter] no help at all. i was really stuck. finally, i reached back into my pocket, pulled out my $20 bill. i said ok. why don't i give you my $20 bill that i have not torn up? he said that would be acceptable. he put it in his pocket. got up the strength to pull out the $20 gold coin again. i said milton, this is a gift to you. look at the date. he looked at the date. his birthas 1912, year. van simmons over here, the coin dealer, he went to great lengths to get this. he had it flown in fedex from switzerland today because this coin was so rare, but we wanted

to give it to you because you are, for us, the golden milton friedman. and he took the coin. reluctantly, but he did take the queen -- coin. then we had a very pleasant dinner afterwards. but the next morning, finally gary north came up to me and said i really enjoyed last night's dinner. i thought all through the night what happened last night. penalty what happened. -- i will tell you what happened. he said you and i have an ideology of gold, and milton friedman has an ideology of paper money. last night, you attacked his ideology. i thought that was an interesting observation. perhaps that is true. the six or seven years milton friedman and i knew each other afterwards, and i had dinner with him, the last person

to have lunch with him and so forth, we never discussed the gold coins. i was kind of hoping when he died i would get it back or something. [laughter] just kidding. i carry it around with me. milton friedman's $20. he has the gold. but i have his $20 paper money ripped up, that i ripped up that night. kind of a nice thing to remember him by. so anyway, i thought you would enjoy that story. it was quite an event in my life. the other issue i want to bring up, and then we can open it up to questions, is the american economy depression proof? this was a paper milton friedman presented in 1954, a lecture at stockholm. it is a very interesting lecture

time inthis was at a 1954, a lot of economists said a great depression is just around the corner. a lot of austrians and marxists were saying that. a lot of people thought we were going to be in trouble. lecture presented this that the american economy is depression proof. he gave four reasons why. number one, fdic insurance. he said bank collapses, history. we will not see that again. we will not see runs on banks because of fdic insurance. number two, we have gone off the gold standard. the gold standard was always a severe discipline. if you were on the gold standard, you are [indiscernible] from time to time in the depression. if you go off the gold standard, you can print money and do a lot of things to protect yourself against the great depression.

number three is big government. he argued the keynesian argument that government is big and provides a lot of built-in stabilizers. in other words, during a great depression you get unemployment insurance. you get welfare. that keeps the economy going and pumping money into the system and so forth, so it is a built-in stabilizer. last but not least, he said the , tohas learned its lesson inject liquidity if there is every crisis in the economy. for those for reasons we will never see another great depression in our lifetime. i asked him about this article from time to time as we knew each other in the 1980's and 1990's when we were facing serious problems. he said we have gone through and s&l crisis. we have gone through 9/11 attacks. we have gone through the coms-best cycle of the dot

and so on. we went through the collapse of the economy in the early 1980's with in-flight -- inflation and tight money policies. we have been through wars and you have yet to see another great prediction -- depression. i'm staying with my prediction. but he died in 2006, so he never did see what happened in 2008. i have been reading tim geithner 's biography. it is a knockdown drag out fight dealing with this crisis, up till 2:00 or 3:00 in the morning talking to bankers while you and i were sleeping. they were trying to keep this crisis from turning into another great depression. this was despite tarp and throwing car and -- quantitative easing and lowering interest rates to zero and everything else. we went through a very tight period where banks were imploding. citibank, bank of america, mortgage companies, all around

the world, so it was a tough time. we don't know what friedman -- or even if he would have anticipated this. i will tell you he was quite positive about alan greenspan and his activist monetary policies. it kind of surprised the rest of us because he believed the federal reserve should not manipulate interest rates at all. but interest rates fluctuate. increase the money supply to study rates -- steady rates. anyway, we don't really know what he would do in that regard. but this book, "the great contraction," this was the chapter that starts with the famous line about the money supply. that was printed separately as a little book. it is about 100 pages long. it was a new introduction by who was alive in

2007 and 2008 when this was written. anna swarts wrote the introduction in 2007. you know what she said? she said everything is just fine. nothing is wrong with the system. she missed it. most of us missed it. there were austrian economists and others that predicted it. arethey were predicting -- predicting crises every year. you always have to be careful about who predicted the great recession. but she definitely missed it. the chicago school in general missed it. this is one of the criticisms i have in the chapter on business cycles. the chicago school sees things in terms of these major aggregates. if the money supply -- look at

this statement. there has been no major depression not associated with an accompanied by a monetary collapse. monetary contraction or if collapse is a necessary tradition -- conditioning factor for a major depression. if you are increasing the money supply, you can't possibly have a depression. that is kind of implied in this statement. and yet, in 2008, did you know this? , increasedupply, m2 10% in 2008. it did not collapse. of yet we were on the cusp another great depression, even despite easy money. it was not working. so this is a clarion call to say, wow, maybe our economics we

are being taught, monetary economics, fiscal policy, is not working that the keynesians have advocated. this is why there is a lot of interest in the austrian school, because the austrian school was the only school of economics bubbles can have macroeconomic effects. like real estate or a stock market bubble, can have repercussions throughout the global economy and can bring the system down. they were the only ones to warn about this. the chicago school and even the keynesians argued you can have asset doubles. you can have real estate bubbles. but it is not going to have the whole system down.

this was a very important telling point. friedman had passed away. swartz was still around. she has since passed away. i would say milton friedman looking back if he were alive today would have to amend his title to say, "why the american economy is depression resistant ." it has been for many years, but it is not depression proof. we have to guard against a collapse in the system because our system is leveraged. we have a fractional reserve banking system. the austrians are always talking about the fact that in your bank, if everybody try to redraw -- withdraw all your money from the bank, what would be the impact? you could not all get your money. you could not get the cash. you certainly could not get the gold. there is not much gold among bankers these days.

the u.s. government doesn't the american eagle gold coin and the american silver coin. they have been doing it since 1986. this is an american eagle coin. a one ounce coin. not many of these were minted last year -- do you know how many of these were minted last year? 40 million of these were minted. how many of you have seen one? 1, 2, 3, 4. where are the 40 million points -- coins? they are in safety deposit boxes. beautifully designed coins. this has lady liberty, the rising sun, in god we trust. it has the 13 colonies. talk about american history. it has the eagle. it says silver on it. it is everything that represents the greatness of this country, and we are putting them in darkness every day waiting for

someday to sell them. what is wrong with this country? with myhe things i do students is i pull out four quarters. i don't think i have four quarters here. i have some change. you know. that is what it sounds like compared to -- [laughter] real money! this is real money, folks. everybody should be buying these coins. you cannot buy these from the u.s. mint. they meant them that sell them to dealers. you have to buy them from a coin dealer. everybody should have these. i give them away as anniversary gifts. birthdays, going on some special event, you graduate only get acquainted with the date you graduated. i say keep this with you at all times and it will give you luck.

you will be successful in life because of it. that is right. exactly. all right. ok. so anyway, that is the story there. a great milton friedman quote. if the tax cut increases government revenues, you have not cut taxes enough. [laughter] radical. a society that puts equality ahead of freedom will end up with neither quality -- equality more freedom. this quote from george stigler, competition is a tough weed. friedman said freedom is a rare and delicate flower. nothing is so permanent as a temporary government program. inflation is taxation without legislation. the economy and stock market are two different things. economy is doing well but the stock market fell 300 points today. if government is to exercise

power better in the county, than state, that are in the state than in washington. great things have never come from centralized government. the minimum-wage law is very much in the news these days. most anti-black claws on the statute books. he was very much opposed to government interfering with labor over the issue of wages. nobody spends somebody else's money as carefully as he spends his own. the government solution to a problem is usually as bad as the problem. so anyway, those are some great quotes. this is my book that i am offering tonight autographed. conclusion,say in

and then we can open it up to questions, note and friedman -- milton friedman's death has left an empty chair in the table of ideas. i often think of times when i would love to sit down and have lunch with milton friedman again to get his views on things. he was such a powerful personality and a man full of ideas. when you would meet him, he was constantly peppering you with questions and comments. a wonderful gentleman to be around. , friedmanrd keynes was viewed as anti-keynesian in many ways, i talk about that in the book. keynes made an interesting observation. he said the ideas of economists and political philosophers both when they are right and wrong

are more powerful than is commonly understood. indeed, the world is ruled by little else. practical men who believe themselves to be exempt from intellectual influence are usually the slaves of some economist. when you look at the movement toward a constitutional amendment to limit government spending and taxation, when you look at the battle over school choice, when you look at the discussion of privatization of disgust withty, in his relationship with the chicago boys and chile. that was a controversial era. when you look at these things about what federal policy should be, milton friedman's hand has been there. his book, "capitalism and

freedom." is a book that will be read 100 years from now because of the ideas he had. i hope someday my books will be read 100 years from now. man.ally is a tribute to a i am pleased to be here tonight to pay tribute to my good friend milton friedman for the great work you did. thank you very much. [applause] go ahead. yes, ma'am. please. you used the word and he used the word in many quotes, i wonder what you think his definition of the word "freedom" was. it tends to be a buzzword people used to mean different things. when he used it, what did it mean? >> he used the term, "free to

choose." he was a firm believer in the adam smith model. the adam smith model called the system of natural liberty. it consisted of three things. it was not anarchy. it was the maximum freedom thein the rules of justice, rules of competition, and the rules of choice. in other words, maximum choice, maximum competition to offer those choices. but within a rule of law. basically, based on common law primarily rather than administrative law. to maximizerow -- freedom, you would have to narrow it so it is is not anarchy. he was not an anarchist.

some of the austrians were. that would be as far as i can carry it as far as his definition of freedom. >> thank you very much. >> when the austrians think they the business cycle, usually point to the federal reserve is playing the most prominent role. in the recent housing bubble, how much weight would you put on the fed versus regulatory policy, which essentially encouraged the financial system to lend money to people who could not afford to pay it back? >> thank you. autobiographyan's as well as tim geithner's right now. it is clear especially with geithner that the fed did not do enough to regulate. the federal reserve, one of their responsibilities, not just monetary policy or money supply, is regulation of the banks.

and they did a very poor job. talk aboutant to canada and australia and some of these other countries that did not have a problem and why. because the regulators allow the -- they knew they were happening. timothy talks about it in his book. they knew it was going on and they allowed her to take place. you talk to the canadian authorities. they said, are you kidding? that is against the prudent man rule of banking. and so, it's inexcusable. it's inexcusable. the other thing is, greenspan did make, this whole idea -- whenever there is a crisis of injecting liquidity. you usually go overboard and injecting liquidity. and the number, the emerging-market crises in the bubble and the dot com

bursting, all of those caused the fed to lower rates. along and that is when greenspan woke up so morning saying, we're japan. we are heading for deflation. we need to lower interest rates to 1%. you cannot tell me -- bernanke all denies it. that this had an impact because the real estate boom was worldwide. will guess what? the dollar is a worldwide currency. if the fed lowers rates to 1%, it is going to have an impact all around the world. flowed easy money that during that time was just unbelievable. so, i blame. there are a lot of people to blame here. and you also have to blame wall street. wall street just walked into it. in a deregulatory environment, which was there at the time,

wall street has to be held accountable for their excessive creativity, but ultimately, my argument is that bad government policy creates bad business practices. if government sets the right rules like they getting canada and australia, you would not have had this crisis like you did. so, there are plenty of people to blame. yes? >> yes, sir. if i can have your view on this. as we look at economic strategy, america has been -- spent -- in by foreign years powers. of late, the chinese wanted buy 50,000 acres of farmland. do you see the shift from trying to conquer america to controlling it through an economic system? >> yes. and this is been an issue that

has gone around for years. certainly it was one i remember very well when japan was the powerhouse in the 1980's and sony and everyone else coming along, buying a polup hollywood, rockefeller center. they have had their head handed to them for engaging that. find the same situation, but yes, any country that has a lot of foreign growing veryis rapidly, you have to diversify. i am very much a supporter of open capital markets. the minute you start rejecting capital and so forth, you had better be careful because you will get unintended consequences. so it can be a very dangerous game. so, i would not want to impose capital restrictions at all, but yo ucu send out a few warnings about maybe you ought to look at

the japanese as an example of something. do you want to go down that route? because it has happened before. yes. the financialss crisis because i read robert shiller's " irrational exuberance." that came out in 2004. >> the the second addition. exuberance," perfect timing. it came out in early 2000, right at the top of the stock market. the second edition came out in 2005, just two years before the real estate bust started. >> with that in mind, but that is not my question. my question is how federal reserve policy and ben bernanke, because ben bernanke followed the friedman playbook because he was a big fan of monetary history. he injected all of this liquidity into the banking system. >> friedman would have done the same thing.

>> but the money did not go anywhere. we have nowrecovery came about because of the automatic stabilizers and the stimulus. -- said the stimulus should have been $1400 billion instead of$700 billion. i think that ben bernanke changed his mind when he went before congress and said we need to get stimulus but we cannot get stimulus to the congress. >> first of all, ben bernanke didn't fol-- did follow friedman 's rulebook on monetary policy. however, did not follow the playbook on fiscal policy because all of the friedman studies show that fiscal policy imperfect, unable to achieve the goals that he, you want to achieve. so friedman would have been very much against tarp. you also to talk about waste.

most people agree that tarp was wasted in many ways, although, some purchases of securities by the fed and tarp have been paid off and that has been a positive thing that came out of that. so, let's not forget that the government got all their money from many ofe these buyouts that were very controversial at the time. that all's no question of the textbooks say any kind of a crisis inject liquidity. the traditional view, which is classicalf the economists was that you bailout but you charge them a very high interest rate. and we certainly have not follow that rule for some time. if bernanke, we don't know aboutan was right

quantitative easing, but these were extraordinary times. there is no question that friedman, if you read his discussion of the great depression, he was very much in support of easy money policies, nnjecting liquidity, and eve running deficits, but not activist fiscal policy we spend more. revenues wouldax decline, government would continue to spend the way they do and you will run a deficit that he would not be in favor of any kind of a tarp. >> i was just wondering how mr. friedman might reconcile what appears to be what kind of -- some kind of libertarian views first is the fiat money he endorsed. bet money tends to centralized. go into quiten, i a bit of discussion on friedman

's evolutionary views, because he did seriously consider the value of the gold standard and spoke positively about the gold standard, that things were more stable under the gold standard than under the fiat money banking system. but he's kind of a halfway house. he is not activist monitorist, ins a passive monitorist adopting rules rather than authorities. he is in favor of -- replace the federal reserve with the computer. don't influence interest rates at all. let interest rates fluctuate. that's pretty close to a gold standard in modern society. his problem with the gold standard was how responsive it was. you dig all of this gold on the ground and put it back in fort knox, and in the bottom of the new york fed and that sort of thing. he was worried that gold

production would not stay. you would have a deflationary environment. most people agree with that. the studies i have done on gold show that even in times of the gold rushes, the amount of gold, world gold production increase no more than 4% in one year. that is an extremely severe monetary policy. and most of the time, right now ald's increasing at 1% to 2% year. so, with the economy growing at 7%, you're going to have deflation up prices during that time. question is, how do you handle that with creditors and debtors and that sort of thing? he examines all of those sorts of things and came to the conclusion that a central bank system is a better way, if they

adopt rules. >> thank you. >> free markets are a lot like -- [inaudible] squish it here, it pops out there. with all liquidity built into the system, are you confident that we can gracefully unwind? >> so, i think we are gracefully unwinding now. the federal reserve every month is reducing the amount of quantitative easing to the point of basically the idea is that the economy is back on its feet, little wobbly. not growing as fast as it could. but the idea is that yes, we can get back on our feet. think about it. what have companies and banks dones? their balance sheets are very strong now. they are in much better shape than they have ever been. so, they are controlling their costs. they are building a large cast

position -- cash position. they are being very conservative, both banks and corporations. so that is a very positive thing. the danger, the biggest danger is the unfunded liability problem. of all the baby boomers in this audience and everyone else who is now taking social security and medicare, that has to change. that is going to be a crisis that is inevitable. that's the real danger, in my opinion. udible] privatize. to social security has to be privatized. you can call it whatever you want, but it has to be done or you take a huge haircut. >> we have time for two more. >> two more questions. >> a question on your background and credentials. if i remember right, you have your doctor from george washington? >> correct in monetary economics. >> where do you have your law degree from? >> i do not have a law degree.

>> are you sure? [laughter] >> i was under the impression that only the lawyer would have the chutzpah not only to not use little or many but to borrow other guys before he tore it up. >> very good. r was a lawyer. maybe i got it from him. >> your remark about the opposing titles and your library reminded me that milt friedman was, among many other things, a collector of contradictory bits of folk wisdom. mentally, he was very much a believer in reason. he had the belief that for every folk saying along of the lines of haste makes waste, there was undoubtedly a contradictory saying he who hesitates is lost. of course, his view was that neither one of those things was

to be followed automatically. thathould take the view economic logic and reason provided the answer to whatever particular circumstance you are in. so his idea of contradictory folk saying seems to dovetail with your idea of opposing titles which are kept in your library there. >> um, well, i don't think, i think friedman was very rational. times in extreme situations like the great depression advocate things that you kind of wonder about. he favored the deficit spending. he sounded like a new dealer. he was a keynesian for quite some time when he worked from the treasury. did not even mention the money supply as a way to control inflation. he was amazed how much of a

keynesian he was at the time. he advocated some things that y you wonder about in withholding in that sort of thing. but you know, one thing i admire about friedman is that you can call that flip flopping or being contradictory and so on, but to me, it was a man who was open to the evidence. and the chicago school really developed this idea of him. quick testing theories. empircally testing theories. the keynesian policy said that in easy money policy would not work gearing a recession because it is like pushing on a string. you cannot get people to spend just by loaning the money. he said, and that was the keynesian argument against monetary policy. monetary policy was evident. so he said, let's look at the

evidence. so he actually looks at him." at case studies and he found that the keynesians were wrong and that you do inject money into the system and you can turn things around. that may not be immediately but eventually they will. so i admired his attitude of prove it to me. even when we talked about religion at the end of his life, and i said, so what are your religious use? have always been an agnostic. my wife, of course, is religious. wedding,anted a jewish and we had that, but i am not a religious person because i did not see enough evidence for god's existence but i have an open mind. said, i cannot wait until i die and find out the truth. with that, thank you all very much. [captions copyright national cable satellite corp. 2014] [captioning performed by national captioning institute] >> you are watching american

history tv, all weekend, every weekend on c-span 3. to join the conversation, like us on facebook. >> you are looking at archival footage released by the kennedy library this summer of president kennedy vacationing in his family home in massachusetts. we are joined on american history tv by lawrence knutson, author of "away from the white house: presidential escapes, retreats, and vacations." andcover the white house washington for many years. it's a president every really away from his job? >> never really. george washington broke off from his desk in philadelphia. to mt. vernon.