relationship with mr. friedman and the influence on his own career. the kansas city public library hosted this event. it's an hour and 15 minutes. good evening and welcome to the kansas city public library. i'm the director of public affairs. i think we have all heard the old saw that the third time is charm. tonight, i have a feeling we're going to see a definitive proof of that assertion when dr. mark scuoson presents his third kansas city public library talk in barely more than 18 months. this time he is offering an original treatise on economist milton friedman, the architect of the free market reform of the post world war ii era. today as it happens, what would have been dr. friedman's 102nd

birthday. have i no doubt it will be mark's best presentation yet. you might ask, why am i willing to go out on a limb this way? well, as an economyism might put it, on the one hand, according to the website superscholar.org, mark is one of the top 20 living economists in the world. i guess that designation is a gentle way of reminding us that as the no longer living economist john keens famously said, in the long run, we're all dead. but i digress. mark's top-ranked status was echos by a can columnist who recently -- and given tonight's subject matter -- fittingly wrote that mark has emerged as

one of the clearest writers on our all matters economic today. the next milton friedman. back to what economists would say. on the other hand, mark comes by his knowledge of milton friedman on a firsthand basis. as he will reveal in his talk, milton's paradise, my friendly fights with milton friedman. they had a dear but occasionally prickly relationship. they argued over issues but always remained cordial. mark was the last person to go out with milton before he died of a heart attack november 16, 2006. in tonight's lecture, mark will recount their friendship, discuss is their differences about money, central education, economics, the nobel price,

religion and a host of other topics. only once apparently did things get a tad out of control. a moment when mark tore up milton friedman's 20 dollar bill. will let him regail you with the details of that story. mark is a jack of many trades and a master of most of them. with a phd in economics from george washington university, he has been a university professor, an economist, an investment expert, an entrepreneur and the author of more than 25 books. his book is for sale courtesy of the university. he will sign copies after this presentation. mark has taught economics and finance at columbia business school, columbia university, mercy college and roll lynns

college. he has been a presidential fellow. then he has been a consultant to ibm, hutchinson technology. in honor of his work in economics, finance and management, grantham university renamed its business school after him. i think though the most interesting thing to me about mark's extraordinary pedigree is that based on one of his major works of scholarship, structure of production, it was published by nyu first in 1990 and then again reprinted in 2007. because of that, this spring the federal government began issuing a broader and more accurate measure of the economy every quarter its termed gross output or go. tonight's program is funded in part by a grant from the

friedman foundation for educational choice. ladies and gentlemen, please welcome mark scouson. >> thank you. set me up very well. this is the 102nd birthday of milton friedman. and i did have lunch with him right before he died in 2006. and he was frail. this is a picture of us together. he was unshaven. he had forgotten about our luncheon. rose his wife reminded him. and i am having some fun with him at this point. i'll show you what i'm actually pointing to here in just a minute. but i did ask him, he was about 94, 95 at the time and i said, wow it looks like you're going

to live to be 100. aren't you excited. and he said, i hope not. so he was a little bit frail and losing his eyesight. for a scholar to lose your eyesight like that is difficult. he had hearing problems. a lot of problems that all of us face as we get older. but wonderful fellow and to have lunch with him, i have a wonderful memory of my very first luncheon with milton friedman in the '80s. in the 1980s. we were at a conference together. i noticed he was on the program. i had met him a couple times before, but we were -- he really didn't know who i was. but i called him an the phone. i said, listen, can we have lunch together. we're here at this conference. and he said, yes, that would be fine. so this was in laguna nigel, i think it was the ritz karltson.

have you ever been there? 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. here i was talking with a nobel prize-winning economist. the premier advocate of free market economics in the 20th century. and we were having a wonderful time together. well, lunch ended and the bill came and i quickly grabbed the bill, paid it with a credit card and said to him, now, dr. frank -- dr. friedman or mr. friedman. he actually prefers mister, which is all professors are called at chicago. so they have no pretense of this ph.d. stuff and so forth. and i said, mr. friedman, all my life i've heard your statement, there's no such thing as a free lunch. this was -- he's actually written a book on this subject. there's no such thing as a free

lunch. i said i don't want to ever hear your statement there's no such thing as a free lunch because i'm paying for yours. and quick as a bat he said, no, no, no, that wasn't a lunch. i had to listen to you for two hours. so anyway, here is the picture that i was showing milton friedman that he got a real belly laugh out of. now this is a picture of george stigler. george stigler who worked with milton friedman for many years. taught at the university of chicago. milton friedman in the middle and john kenneth galbraith, very much a keynesian economist. and george stigler who had a very wry sense of humor said all economists are tall. there are two exceptions. john ken eths galbraith and milton friedman. i mean, that is just a classic

line. i showed this to ben bernanke once, and he just does not have a sense of humor. the man looked at it and said, that's not logical. that was his answer. that's not logical. so anyway, a lot of -- i had a lot of fun times with milton friedman over the years, but our debates got heated from time to time. friedman was a tough debater. in fact, it has been said that milton friedman never lost a debate in his entire career. now rose, his wife, would dispute that. but nevertheless, i saw friedman in action. i certainly never won a debate with milton friedman. i was in the london underground with the keynesian economist,

"the new york times" columnist, and krugman has quite a high opinion of himself. and at one point i said, so paul, no mr. krugman. it's just paul, have you ever lost a debate? and he paused for a minute and he said, you know, i really don't think so. and i said, that's too bad milton friedman isn't alive because you would lose. and he humbled himself, krugman humbled himself enough to admit that that was probably true. so anyway, just for those of you who may not know much about milton friedman, let me go over a brief career about his life. it's funny. friedman was an academic. he'd written some best selling books. and he was probably the best well known economist of his age. born in 1912 in brooklyn, new

york, attended rutgers university, took up part-time jobs to pay his way through school. from immigrant parents. so he was dirt poor and worked as a waiter. can you imagine milton friedman coming up to you? may i have your order, please? it's just amazing. went to the university of chicago as an undergraduate. graduated there. married rose friedman. they had two children, david and janet. in the 1940s, back in washington, worked for the u.s. treasury department. his claim to fame, perhaps infamy, if you will, is that he is the one who proposed to the treasury that to pay for the war we must begin withholding. so tax withholding started with a milton friedman suggestion. one that he seemed to regret after that being such an

anti-government type of person. but if anyone is responsible for the high level of taxation, it's milton friedman because withholding allows a very high level of taxation. because prior to 1940s, you pay taxes only on april 15th. you sent in the full amount at that time. so you can see, if you are going to become a large government where government is taking 20%, 30% of your income, you are going to have to have withholding. and so he was -- made that government more efficient as a result. then in '46 through 1977, most famous for being an economist, a professor of economics at the university of chicago. that's where he did all his work. in 1947, the year of my birth, he was a founding member of the mt. pillar society which is a group of political and economic

thinkers from all around the world who gathered every year or so, every two years and then in between at regional meetings to discuss, present papers and so forth. i'll be attending -- i've been a member since 2002. it's by invitation only. we're meeting in hong kong in august. so it's been -- and he was the one who nominated me to be a member of the society. so i consider that a real honor. he started writing books. his two most famous books are "capitalism and freedom." that's this book right here. this is my own copy that i bought in the 1960s. read it as an undergraduate. was enamored with the stuff. and if you look at this book, you can look at it afterwards. it's 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. so my claim to fame is i got milton friedman -- i got the university of chicago to put an index in here because i complained. i said, milton -- we were on first name basis at that point. i said, you've got to have an index for this book? how am i supposed to find things. so he got the university of chicago to do that. so that's my claim to fame. contributing to his success. and then a year later he came out with the book that really set him on the map. and that is "a monetary history of the united states." so from 1860 -- civil war all the way through -- actually after the civil war, 1867 to

1960, he did an exhaustive study of monetary policy, federal reserve when it got started in 1913, lots of notes and comments and stuff like that in this book. now i will tell you that what made him famous in this book, and i would love to write a book like this. so there is one chapter -- one chapt chapter, one page, one paragr h paragraph, no, one sentence in this book that changed forever the way people think about the great depression and the federal reserve. you want me to read it?

all right. no, maybe i shouldn't. leave you guys in suspense. you all have to go out and buy this book just to turn to page 292. all right. i'll read it to you. monetary -- no. from the cyclical peak in august 1929 to the cyclical trough in march 1933 -- so that's the great depression, right? 1929 to 1933. the stock of money fell by over a third. the money supply declined by over a third. and prior to 1963, prior to the publication of this book, nobody knew that. nobody knew that. and you know why? because if you heard of m-1 and m-2, definitions of the money supply, prior to this book, nobody compiled m-1 and m-2

money supply figures. yes, they gave coin and currency and bank notes and checking accounts and they had them here and there. but nobody brought them together until milton friedman and anna schwartz's co-author put these together and then discovered that, despiteabñ all the efforty the federal reserve to do whatever they could to keep the great depression and keep things from failing, the money supply collapsed by one-third. and you see, this is what ben bernanke learned in his -- in 2002. they had this big meeting honoring milton friedman at the dallas fed and ben bernanke wrote an article about that meeting and said -- he said we want to apologize. on behalf of the fed, we want to apologize for the major blunder that we committed in 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? they came close. and you don't know how close they came to having another great depression in this country. and it wasn't necessarily caused by the federal reserve. i think they pushed the economy over the cliff to some extent. and then held out a lifeline, but 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. and then, this other book capitalism and freedom, those are the two books. and if you go into any barnes & noble book store -- do

they still have those here? you go into any bookstore and you will find a copy of "capitalism and freedom" with my index -- my index. you will see that book there. right along with all the other classics like the "communist manifesto" and things like that. now there's another book there -- oh, by the way, 1976, won the nobel prize in economics. now why do you think he won the nobel prize in economics? is there any book you can point to here that got him the nobel prize? perhaps a single chapter. perhaps a single paragraph, page, a single line gave him the nobel prize. there's hope for any of you here in this audience. you, too, can win the nobel prize if you have a sentence that has such an impact like this man did. so he won the nobel prize for this work basically.

and that catapulted him to a whole new era. now imagine who are you going to give the nobel prize to on the bicentennial of the declaration of independence? of course, you're going to give it to a person who reflects, who symbolizes that declaration of economic independence, which is the wealth of nations by adam smith, which was published in the very year that thomas jefferson wrote a declaration of political independence. it's all coming together here, you see. all the stars are aligning. 1976, bicentennial, celebration of the wealth of nations. a declaration of economic independence and the declaration of independence by thomas jefferson. both in the very same year celebrating it in the

bicentennial and who better to give the nobel prize to than this man right here, milton friedman. it was a trooms it w-- tremendous. it was a great sense of pride for him and it catapulted him to become a very famous person. and certainly among economists, i mean, there's this book called "bluff your way in economics." i should have brought a copy. it's sold in england. these little books, "bluff your way through opera." "bluff your way through cricket." "bluff your way through economics." can you imagine? and so if you know the five most famous economists today, you can bluff your way into economics. you can be in a social environment among economists and you can pretend to be a ph.d. economist because you know these five individuals of these famous economists. and they are, number one, adam

smith, number two, karl marx, number three, john maynard keynes and number four is -- john kenneth galbraith, 6'9" economist. you can't miss him. and, of course, the fifth one is milton friedman. sorry, george stigler, you didn't make the list. so now you all can become -- you can bluff your way in economics. you can walk out of this conference, this meeting. you don't even have to buy my book, and you can be a knowledgeable person in economics. isn't that great? all right. so then came out 1980, he did a video. he did a pbs program, 10 series program that several million people, some of you may have seen this called "free to choose." it was a wonderful program that

energized both wilton and rose friedman. the producer took them all around the world. took them to hong kong and so on. and he began each program with a short little ten-minute speech and then he invited people in to disagree with him. and they had these wonderful debates in these panels, and this was a great program. he put it together in a book called "free to choose." free to choose. milton friedman holding a pencil and rose friedman on the back. "free to choose" by milton and rose friedman. another wonderful book that has an index. and i should tell you, at home, i have -- if you came to my home in new york, i have a little library there. and they are opposite title books. like i'll have a book called "rising asia" and right next to it will be "falling asia."

or i'll have the two corners of my books is the alpha strategy and then the other one is the omega strategy. got these on book ends. and another one is "how to -- what's the famous -- "how to win friends and influence people." but i have one right next to it. "how to alienate people." so it's a wonderful combination. so i put the two books together. i've got "free to choose" by milton friedman. right next to it "free to lose." "free to lose." an introduction to marxist economic philosophy. by john romer. taught at harvard and yale. ever wonder what's wrong with those schools? that's where he teaches. no, now you know. but anyway, "free to lose." but, see, that's so true.

here's the difference. look at the difference. who is the optimist? who is the pessimist? you see if you believe in choice, you're going to make mistakes but most of the time you're going to make the right choice, according to milton friedman. that's his optimism. and he's an american. americans tend to be optimists. "free to lose," have you ever met a marxist who was optimistic about capitalism and the world? no. it's "free to lose." most people are going to choose the wrong thing. they need government to keep that from happening. there's a big difference in philosophy here in personal attitude. well, and the twilight of his life for the last -- from 1977-2006 he was at the hoover institution at stanford university. they had this beautiful home on like the 17th floor of this

skyscraper apartment in san francisco. and he bought it with the money he got from the nobel prize. and so i spent some time visiting him there and so forth. just really a wonderful, a wonderful experience. all right. so that's just a little bit of an overview of milton friedman's life. now this is a picture of milton rose friedman in the middle there, and i picked this because friedman had always said he and stigler had some interesting points of view. stigler was always saying that he said competition is a tough weed. not a delicate flower. competition can really get you to produce what you want. it's a tough weed. it's hard to get rid of it in the capitalist system. friedman would always say freedom is a rare and delicate

flower. and who did he marry? rose friedman. and i said to milton at one point, rose wasn't there. i said, listen, i would love to have a photograph of milton -- i mean of rose holding a rose. and then underneath it i would have the quote, "freedom is a rare and delicate flower." rose friedman. milton, can you help me have this happen. he says, nope. rose hates roses. that was her answer. that was very -- but here it is. someone gave her roses so i got the picture, but it's not in color. maybe i can have it colorized. all right. so i have written this book called "vienna and chicago, friends or foes." i'm going to talk a little bit about this because there are really two free market schools of economics that friedman was very much involved in. i mentioned the society that friedman was involved with.

his colleague frederick kayak who taught at the university of chicago for a number of years was an austrian economist and hayak, which is -- his picture here you can see the two -- vienna and chicago. the austrian school of economics and the chicago school of economics. are they friends or are they foes? because they agreed on many things, but they also disagreed on other things. so there was a little bit of rivalry between these two schools and both of them won nobel prizes. hayak won a nobel prize in 1974 for his work on business cycles in the 1930s. and then you had milton friedman win the nobel prize. stigler won the nobel prize as well. ludwig von meses also deserved the nobel prize. now can you notice some differences between the

austrian, european economist on the left-hand side and the american economist on the right-hand side? [ inaudible ]. >> glasses and hair. >> that's true. and mustaches. but i will tell you, the austrians are supreme pessimists, as they suffered from two major world wars that were very destructive and a great depression in between. while the two americans are very upbeat and very optimistic. there are a lot of differences between the two. now i'm going to spend a little bit of time -- by the way, if you have questions, are we going to have a microphone here so we can have -- if you can -- want to ask questions? have a question in mind, be glad to talk to you about those. but this is one of my favorite -- this is a fun book to write. an absolute fun book to write. because what i did was, in the

book, i talked about the different schools. the austrian school. i gave their history. who are the major players. meses and hayak and so forth. rothbard. and the chicago school, who are the major players there. what is their background? nice summery, in the beginning part of this book. and then the last five or six chapters is a book about their -- the chapters about their differences. and their differences were over a number of issues, methodology. there was a discussion of philosophy. can you test theories, that sort of thing. over the gold standard, the chicago school was in favor of fiet money, paper money standard. the austrian school was in faufr 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 who are the great economists and so forth. i go into a great deal of detail. and at the end of each chapter, i say either advantage vienna or advantage chicago. now the genius of this book, if i may say that, is that i was able to offend both sides equally. so a few of the chapters were advantage chicago. two of the chapters were advantage vienna. and so i had one foot in both schools. and let me tell you something, you do not please either one when you do this. and yet i was able to do it. and i will tell you a very funny story. so in 2001, i became president of the foundation for economic education. this is the oldest free market think tank started in 1946, before the mt. pilliard society,

they put out a publication called the friedman. it's out still today. i was made president of this fine organization that milton friedman and frederick hayak had been part of. they all spoke on hudson, a 35-room mansion which i got to live in blissfully for one year. so, anyway, i was at the very first board meeting, and fee had this annual board meeting. i met with everybody. after the board meeting, as soon as it ended, a gal by the name of graves came up to me and she said, listen, mark. i support you in every way with you being the new president of

fee. 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. that was -- i'll take that into consideration. so sooner, 15 minutes later, another board member came up to me, the founder of the university in guatemala. wonderful man who is a former president of the society. he said, mark, i just want you to know that i'm in full support for you as the new president. but i have only one suggestion. can you stop being so critical of milton friedman? so i told this 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? i mentioned before that the austrians, of which i was more biased at this time in that camp. was in favor of the gold standard. firm believer in the gold standard. meanwhile, friedman was a strong advocate of the paper money standard as a system that would deal with the economy on a better basis. now in 1999, milton friedman and rose friedman both were invited to come to new orleans for the new orleans investment conference. the new orleans conference was also known as a haven for gold bugs. so all of the austrians and gold bugs were there and i was one of the principal speakers and they invited milton and rose friedman to come.

it was just a delight to have them there. i said can i take you and rose out to the finest restaurant in new orleans, commanders palace? have you ever been to commanders palace? what a wonderful restaurant, the louisiana cajun food and so on. creole and so forth. it's just fantastic. anyway, so they agreed and so 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 really nice spot. we sat around and talked. and after just a little bit of discussion, milton turned to me and he said, $rúñmark, can you please explain to me why you gold bugs are so adamant, so feverish about gold? what is it that's driving you that you have to be a firm believer in gold.

well, this is a perfect opportunity. i pulled out of my pocket, which i happened to have this very gold certificate. this is not a greenback. this is a gold certificate. and this is the paper money that was minted back in the 1920s. look how large it is compared to the $20 bill today. and look who is on it. you can see it right there. george washington. so it's not andrew jackson which, by the way, andrew jackson would be furious that he's on paper money. he hated paper money. but anyway, so george washington was on these bills. bigger than life. i think they are all minted in texas. but i said, let's read what the contract reads. i'll tell you why we're -- we gold bugs are so adamant and we believe in this because it represents honest money. and why is it honest money? because there is a contract between the holder of this bank

note and the -- and the government. and here's what it says. this certifies, it's in small print but it's there. this certifies that there has been deposited in the treasury of the united states of america $20 in gold coin payable to the bearer on demand. and i said, so anyone who has this bank note, this is a warehouse receipt. this is -- represents property. and you may present this to the treasury or to your bank and you are going to get in return what? a gold coin. a $20 gold coin known as a double eagle. and he said -- i mean, here i am lecturing the number one authority on monetary policy. he obviously knew all of this was happening. but then i said, so milton, do

you possibly have on you a $20 bill? and he reached into his pocket and he pulled out a $20 bill and he handed it to me. and i said let's see what the contract reads today. it says federal reserve note, and it doesn't even pay interest. milton, this isn't worth the paper it is printed on and i proceeded to tear up his $20 bi bill. now understand my wife was not with me at this time. and i would have never been able to get away with this if she had been there. she couldn't believe it that i 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 he says, 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. and i kind of him hawed around and i made some excuse and so forth and i could see things were heated. so i reached in my pocket and i said, so i'll tell you what. would it be okay if i gave you your $20 back? and he said, yeah, that would be great. i reached in my pocket and i handed him a $20 double eagle gold coin. it didn't help. he was furious. he pushed it back and he said, i don't want it. now i'm really worried. meanwhile, my two friends van

simmons and gary north are sitting there saying, i'm here just for a free dinner. no help at all. i was really stuck. so finally i reached back into my pocket, pulled out my $20 bill. i said, okay. why don't i give you my $20 bill that i haven't torn up. and he said, that would be acceptable. and he put it in his pocket. then i got out the strength to pull out the $20 gold coin again and i said, milton, this is a gift to you. look at the date. and he looked at the date and the date was 1912. his birth year. and then i said, and van simmons over here, the coin dealer, he went to great lengths to get this.

i had it flown in, fedexed from switzerland today because this coin is 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 coin. and then we had a very pleasant dinner afterwards. but the next morning, finally, gary north came up to me and he says, mark, i really enjoyed last night's dinner, and i thought long all through the night, what happened last night. and i'll tell you what happened. he said you and i have an idology of gold. and milton friedman has an ideology of paper money and last night, you attacked his ideology. i thought it was a pretty interesting observation. and perhaps that is true. i can tell you that we, the six, seven years that milton friedman

and i knew each other afterwards, and i had dinner with him, the last person to have dinner with him, we never discussed the gold coin. i was kind of hoping when he died i'd get it back or something -- just kidding. so i carry around with me milton friedman's $20. he's got the gold. but i have his $20 paper money ripped up -- that i ripped up that night. it's 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. now the other issue i want to bring up and then we can open it up to questions is the american economy depression proof? now this was a -- this was a paper that milton friedman presented in 1954, a lecture at

stockholm. and it's a very interesting lecture because basically, this was at a time in 1954, believe it or not, there were a lot of economists who said a great depression is just around the corner. it could happen. a lot of austrians were saying that. a lot of marxists were saying that. a lot of people thought, we're going to be in trouble. so friedman presented this lecture that the american economy is depression-proof. he gave four reasons why. number one, fdic insurance. he said bank collapses, is history. we're not going to see that again. we'll not see runs on banks because of fdic insurance. number two, we've gone off the gold standard. and the gold standard was always a severe discipline. a lot of people, if you were on the gold standard, you were forced into a depression from time to time. if you go off the gold standard you can print your money. you can do a lot of things to

protect yourself against a 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. and so it's a built-in stabilizer. and last, but not least, he said the fed has learned its lesson to inject liquidity if there's ever a crisis in a collapse in the economy. so for those four reasons, we will never see another great depression in our lifetimes. and i asked him about this article from time to time as we knew each other in the '80s and '90s when we were facing some serious problems. and he said, look. we've got through an s & l crisis, 9/11 attacks, we've gone

through the boom/bust cycle of the dotcoms and so on. we went through the collapse of the economy in the early '80s with inflation and the tight money policies and 21% interest rates. we've been through wars and so on and you have yet to see another great depression. i'm staying with my prediction. but he died in 2006, so he never did see what happened in 2008. i've just been reading tim geithner's story "stress test," his biography. it's knock down, drag-out fight dealing with this crisis up until 2:00 or 3:00 in the morning talking to bau ing tinge you and i were sleeping. they were trying to keep this from turning into another great depression. this was despite t.a.r.p. and quantitative easing and lowering interest rates to zero and everything else that 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 really tough time. and so we don't know what friedman would -- or even if he would have anticipated this. i will tell you, he was quite positive about alan greenspan and his activist monetary policy. it kind of surprised the rest of us because he believed that the federal reserve should not manipulate interest rates at all. let interest rates fluctuate. increase the money supply at a steady rate and, anyway, we don't really know what he would do in that regard. but this book, the great contraction by milton friedman and schwartz, this is that chapter that starts with the famous line about the money supply drawing by a third. that was printed separately as a little book. boots 100 pages long.

and it was new introduction by anna schwartz who was alive in 2007, 2008 when this was written. it's published in 2008. anna schwartz wrote the introduction, the co-author in 2007. you know what she said? she said everything is just fine. nothing is wrong with the system. she missed it. she missed it. most of us missed it. there were austrian economists and others that predicted it. but they are predicting crashes and crises every year, aren't they? always have to be a little bit careful about who predicted the great recession. all right. but she definitely missed it. and the chicago school in general missed it. this is one of the criticisms i have in the chapter on business cycles is that the chicago school sees things in terms of

these major aggregates and if the money supply -- look at this statement. there has been no major depression that has not been associated with and accompanied by a monetary collapse. monetary contraction or collapse is an essential conditioning factor for the occurrence of a major depression. if you are adopting easy money if you are increasing the machine supply you can't possibly have a depression. that's kind of implied in this statement. and yet, in 2008, did you know this, the money supply m-2 increased 10%. it did not collapse and yet we were on the cusp of another great depression. even despite easy money. it wasn't working.

and so this is a clairian call to say, wow, maybe our economics that we're being taught, monetary economics, fiscal policy, is not working. but the keynesians and the monitors have advocated. and this is why there is a lot of interest in the austrian school because the austrian school was the only school of economics that said, asset bubbles can have macroeconomic effects. asset bubbles 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 because the chicago school, and even the keynesians argued that, yes, you can have asset bubbles. you can have real estate

bubbles, but it's not going to have the major impact to bring the whole system down. so this was a very important telli ining point. friedman has passed away. schwartz was still around. she has since passed away as well. but i would say that milton friedman looking back, if he were alive today looking back, would have to amend his title to say "why the american economy is depression resistant." it's depression resistant and has been for many years but is not depression proof. we have to be -- we have to guard against a collapse in this 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 you can go, if everybody tried to withdraw all your money from the bank right now, what would be the impact? you couldn't all get your money. you couldn't get the cash, right? certainly couldn't get the gold.

there isn't very much gold among bankers these days. although the u.s. government does mint the american eagle gold coin and the american eagle silver coin. they've been doing it since 1986. this is an american eagle coin. one ounce coin. you know how many of these were minted last year? 40 million of these were minted. and how many of you have seen one? show of hands. one, two, three, four. where are the 40 million coins? they're in safety deposit boxes. beautifully designed coins. this has lady liberty on it. the rising sun. "in god we trust." it says liberty. it has the 13 colonies. talk about american history. it's got the eagle. it says silver on it. it's everything that represents

the greatness of this country. and we are putting them in darkness every day waiting for some day to sell them? what is wrong with this country? this is the kind of stuff we need. one of the things i do with my students is pull out four quarters and drop it. i don't think i have four quarters here. maybe i have some change. that's what it sounds like compared to real money. this is real money, folks. everybody should be buying these coins. you can't buy these from the u.s. mint. they mint them but then they sell them through dealers. you have to buy them through a condealer. everybody should have these. i give them away as anniversary gifts, birthdays, you are going on some special event. you graduate and get the coin that has the date you graduated.

i said you put this in your pocket and keep it with you at all times and it will give you luck. you will be successful in life because of it. that's right. that's right. exactly. all right. okay. so anyway, that's the story there. great milton friedman quote. if a tax cut increases government revenues you haven't cut taxes enough. our favorite tax reductions under any circumstances for any excuse, for any reason at any time. he's a radical. a society that puts equality ahead of freedom will end up with neither equality nor freedom. and this quote from competition, 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 the stock market are two different things. the economy is doing well but

the stock market fell 300 points today. if government is to exercise power better in the county than in the state, better in the state than in washington. the great advances of civilization, whether an architecture or painting, in science or in literature, in industry or agriculture have never come from centralized government. the minimum wage law, which is very much in the news these days is one of the most, if not the most anti-black laws on the statute books. so he was very much opposed with government interfering with labor over the issue of wages. nobody spends somebody else's money as carefully as he spends his own. and 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 have -- that i'm offering tonight

autographed and let me just say in conclusion, and then we can open it up to questions, milton friedman, his death has left an empty chair in the table of ideas. and i often think of times when i would love to sit down and have lunch with milton friedman again. and to get his views on things. he was just such a powerful personality. and a man full of ideas. and when you meet with him, he was constantly peppering you with questions and comments and so forth. a wonderful gentleman to be around. john maynard keynes who friedman was viewed as anti-keynesian in many ways, and i talked a lot about that in the book. but keynes made an interesting observation at the end of his work, the general theory.

he said the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly rnd stood. indeed, the world is ruled by little ls. practical men who believe themselves to be quite exempt from any intellectual influence are usually the slaves of some defunct economist. and 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 about the discussion of privatization of social security and government services, i haven't even discussed about his relationship with the chicago boys in chile. that was a very controversial era. but when you look at all of these things on what federal reserve policy should be, milton friedman's hand has been there. and he is somebody, in other

words, his book -- capitalism and freedom in particular will be a book that will be read 100 years from now because of the philosophy and the ideas that he had. so i hope some day my books will be read 100 years from now, but it really is a tribute to a man. i am pleased to be here tonight to pay tribute to my good friend milton friedman for the great work that he did. thank you very much. go ahead. yes, ma'am, please. >> all right. you used the word, and he used the word in many quotes, i wonder what you think his specific definition of the word "freedom" was because it tends to be a buzz word that people use a lot to mean a lot of

different things. when he said freedom, what did he mean? >> well, he used the term free to choose. i think that to him, he was a firm believer in the adam smith model. the adam smith model called the system of natural liberty. system of natural liberty consisted of three things. it wasn't anarchy. it was maximum freedom within the rules of justice, the 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. and basically, based on common law primarily, rather than administrative law. so he would narrow -- to maximize freedom you would have to narrow it so that it's not

anarchy. was not an anarchist which some of the austrians were. so that would be as far as i can carry it as far as his definition of freedom. >> thank you very much. >> yeah. >> when the austrians think about the business cycle, they usually point that the federal reserve is playing the most prominent role. and 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 really couldn't afford to pay it back? >> yeah, thank you. and i read greenspan's autobiography as well as reading tim geithner's views right now. and it's pretty clear that especially with geithner, that the fed did not do enough to regulate the banks. you have to remember the federal reserve, one of their responsibilities is not just monetary policy or money supply.

it's regulation of the banks. and they did a very poor job. when you compare -- and they never want to talk about canada and australia and some of these other countries that did not have a subprime problem. and why? because the regulators allow the -- they knew they were happening. geithner talks about it in his book. they knew it was going on, and they allowed it to take place. you go up and talk to the canadian authorities. they said, are you kidding? we don't allow that. that's against the prudent man rule. the basic prudent man rule of banking. so there's just -- it's inexcusable. it's inexcusable. and the other thing is, greenspan, i believe, did make -- you know, this whole idea of -- whenever there's a crisis of injecting liquidity and you usually go overboard in injecting liquidity. and the number, you know, the emerging market crises in the

'90s and the dotcom bubble bursting, all of those caused the fed to lower rates. and then, of course, 2004 comes along, and that's when greenspan woke up some morning saying, oh, my gosh, we're japan. we're japan. we're heading for deflation. we need to lower interest rates to 1%. now you can't tell me bernanke the -- they all deny it that this had an impact because the real estate boom was worldwide. guess what? the dollar is a worldwide currency. and if the fed lowers rates to 1%, it's going to have an impact all around the world. and the easy money that flowed during that time period was just unbelievable. so i blame -- there's a lot of people to blame here. and you also have to blame wall street. i mean, wall street just walked

into it. and they were in a deregulatory environment which was there at that time. wall street has to be held accountable for their excessive entrepreneur creativity, but ultimately, my argument is that bad government policy creates bad business practices. and a government sets the right rules, like they did in canada and australia and other places, you're not going to have -- you wouldn't have had this crisis like you did. so there's plenty of people to blame here. yes? >> yes, sir. if i could have your view on this. as we look at economic strategy, america has been bought up in the past ten years by quite a few foreign powers. and here of late, the chinese want to buy in our area 50,000 acres of farmland. do you see the shift from trying to conquer america to control it

with economic system? >> yes, and this has been an issue that's gone around for years. certainly was one that i remember very well when japan was the powerhouse in the '80s and sony and everyone else coming along buying up hollywood, buying up rockefeller center and so forth, and they've had their head handed to them for engaging in that. china may find the same kind of situation but any country that has a lot of foreign reserves and is growing very rapidly, you have to diversify. i am very much a supporter of open capital markets. the minute you start restricting capital and so forth, you better be careful because you'll get unintended consequences. so it can be a very dangerous game. so i wouldn't want to impose capital restrictions at all, but

you could send out a few warn g warnings about, maybe you ought to look at the japanese as an example of something. do you really want to go down that route because it's happened before. >> yes, i didn't miss the financial crisis because i read robert schiller's irrational excubance about the housing crisis. i think that came out in 2004. >> 2005, the second edition. >> "irrational exuberance" came out in perfect timing, early 2000 right at the top of the stock market and his second edition came out in 2005, just two days before the real estate bust really started. >> okay. so but that information was out there. but that's not my question. my question is about federal reserve policy. in particular, ben bernanke. ben bernanke followed the friedman play book because he was a big fan of the monetary history and injected all this

liquidity into the banking system. >> friedman would have done the same thing. >> but the money didn't go anywhere. what got us -- what little recovery we have now came about because of the automatic stabilizers and the stimulus and have been $1,400 billion instead of $700 billion. i think ben bernake changed his iu1um but can't get it through the congre congress. >> first of all bernake did follow freedman's rule back very on monetary policy bute1 did not follow the fiscal policy because all the studies though fiscal policy ise1 relatively imperfe imperfect. unable to achieve thexd goals tt you want to qachieve. so he would have been very --

freedman was very much against tarp and getting congress involved. we ought to talk about ways -- i think most people agree that the tarp was wasted in many ways although some purchases of securities by the said and tarp have been paid off. that's been a positive thing that came oute1 of that. government got all of their money back plus more from man]k of these buy outs that were very controversialxd at the time. there'sfá noe1 question thatw3 crisis inject liquidity. the traditional view which is the view ofe1wnk classical ecs r(t&háhp &hc% a!nigh interest rate. he wouldn't followed that rule

for sometime. >>t(i] bernake, welp don't know quantitiately easing and that sort of thing. these are extraordinary times. there's no question. there's no question that freedman if you read his discussion of the great depression. he was very much in support of easy money policies injected liquidity, and even runningok deficits but not activist fiscal policy where you spend more. it's just the taxw3 revenues wod decline. government would continue to spend the way they do and you're [ yoing to run a deficit but yo would not be in favor of any kind of participate thing. >> i was justñi wondering how m1 freedman might reconcile what appears to be lib ertariane1 vi saying that money tends to be centralized as farxd as the definition versus coinage. >> yes.

and freedman, i go into quite a bit of discussion in chicago on his evolutionary views because he did serious$ya consider the value of the gold standard and actually spoke rather positively about the goldt( standard that )jtj were more stable under the gold standardqq than under e money banking system. he's not anok activist monettoristist.5a he's a passive monettorist in adopting rules rather than authorities. he's in favor of replace the 9ñ don't influence interest rates at all. letn them fluct. his problem with the gold standard is how expensive it way to dig all of this gold out of the ground and put it back in fort knox and in the new york

bottom of the new york fed. that sort of thing.e1ww/soke1okf

with all the liquidity that's been built into the system, are you confidence that we can gracefully unwind? >> so i think we are gracefully unwinding right now. the federal reserve is every month is reducing the amount of quantitative easing to the point -- basically the idea is that the economy is back on its feet. a little wobbly. it's not growing as fast as it could but the idea is that yes, we can get back on our feet. now, think about it. what have companies done? what have banks done? 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 cash position. they are being very conservative both banks and corporations. so that is a very positive thing. 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. >> well, you have to cut back on benefits. you have to privatize a lot of it. social security has to be privatized. you can call it whatever you want but it has to be done or you just take a huge haircut. >> i think we have time for two more. >> two more questions. >> just a question on your background and credentials. if i remember right you have your doctorate from george washington.

>> correct in monetary economics. >> what do you have your law degree from. >> i don't have a law degree. >> are you sure? >> i was under the impression that only a lawyer would have the knowledge not only to not use his own money but to borrow the other guys before he tore it up. >> very good. my father was a lawyer. maybe i got it from him. >> your remark about the opposing titles in your library reminded me that milton freedman was among other things a collector of contradictory bits of folk wisdom. he was very much a believer in reason versus unreason. he had the belief that for every folk saying along the lines of haste makes waste, there was undoubtedly a contradictory

saying he who hesitates has lost. of course his view was that neither one of those things was to be followed automatically. you should take the view that economic logic and reason provided the answer to whatever particular circumstance you were in. so his idea of contradictory folk sayings seemed to go with your idea of opposing titles that you kept in your library there. >> well, i don't think -- i think freedman was very rational. he did at times in extreme situations like the great depression, advocate things that you kind of wonder about. you know, he favored the deficit spending and sounded like a new dealer. he was a canzina for quite sometime when he worked for the treasury. didn't even mention the money supply as a way to control

inflati inflation. he was amazed how much of that he was at that time. he advocated some things that you wonder about in withholding and that sort of thing. but you know, one thing i admire about freedman is that you can call that flip flopping or changing his mind or being contradictory but to me it was a man who was open to the evidence. the chicago school really developed this idea of empirically testing theories. the model said that money supply -- easy money policy would not work during a recession because it's like pushing on a string. you can't get people to spend just by loaning them money. well, he said -- that was the

canzian argument against monetary policy that it was impotent. so he said well, let's look at the evidence. so he actually looked at empirical case studies and found that canes was wrong. that you do inject money into the system and you can turn things around that it 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 views and he said well, i've always been annignos and my wife is religious and wanted a religious jewish wedding and we had that bxbdñ i not a religious person because i didn't see enough evidence. he said i can't wait until i die and find out the truth. so would that, thank you all very much.

[ applause ] >> you're watching american history tv. all weekend, every weekend on cspan 3. to join the conversation like us on facebook at cspan history. >> next on american history tv, we will hear from a panel about the personal and political consequences of his long term love affair. the affair predated the 29th president's administration. surviving love letters detailing the relationship with until very recently kept under seal. the former president's grandnephew richard harding explains why his family insisted on keeping the letter's sealed and how the family continues to deal with the fall out from the affair and the impact on hard g harding's legacy. this is about two hours. >> my name is jim hudson. i'm the chief of the library's manuscript