scousen reflects on margin freeman -- milton friedman especially his work to reestablish the american economy following world war ii. he also reflects on his personal relationship with mr. friedman and the influence on his own career. the kansas city public library hosted this event, it's about one hour, 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 assertion when he presents his 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, superscholar.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. [laughter] but i digress. mark's top-ranked status was echoed by a columnist for scientific american, who

recently wrote that he has emerged as one of the clearest writers on all matters economic today. on the other hand, mark comes by his knowledge of milton friedman on a first-hand basis. as he will 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 -- before he died of a heart attack on november 16, 2006. mark 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 tad out of control, a moment when mark tore up milton friedman's $20 bill. [laughter] i will let him regale you with the details of that story. scousen is a jack of many trades and a 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. and barnard college. he has been a presidential fellow at chapman university. he has been a consultant to ibm, and other fortune 500 companies. in honor of his work in economics, finance, and management, lansing university -- grant them business school renamed their business school after him. i think the most interesting thing to me about his extraordinary pedigree is that based on one of his works of scholarship, it was published by nyu in 1990 and then again in 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. it is cosponsored by grantham university and the shelby institute. ladies and gentlemen, please welcome marc scousen. [applause] >> i love that introduction. you set me up very well. this is the 102nd 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 i asked him -- 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. for a scholar to lose your eyesight like that it is , difficult. he had hearing problems, a lot of problems. i had my very first luncheon with friedman in the early 1980's. we were at a conference together i noticed he was on the program. i met him a couple of times before, but he really did not know who i was. i called him on the phone and i said listen, can we have lunch together?

we are here at this conference -- and he said yes, that would be fine. this was in laguna miguel, i think 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. i said to him, 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. he had written a book on this subject burden --. i don't want to cover here again your statement, there is no such thing as a free lunch, as i am paying for yours. he said, that was not a free lunch. i had to listen to you for two hours. [laughter] anyway, here is the picture that 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. milton friedman in the middle. -- aohn kenneth galbraith friend of jfk and very much a kenyan economist. just keynesian economist.

george had a very wry sense of humor. he said all economists are tall. there are two exceptions. john kenneth golf rates and milton friedman. [laughter] that is a classic line. i showed this to ben bernanke once and he did not have a sense of humor. [laughter] the man said, that is not logical. that was his answer. 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. -- you would lose. he humbled himself enough to admit that was probably true. anyway, 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. born in 1912 in brooklyn, 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. -- prior 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. in 1947, the year of my birth,

he was a founding member of the mount pellerin society, which is a group of economic thinkers from all around the world to gather every year or so to 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 -- who nominated 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. if you look at this book, it is a well-worn copy.

i was enamored with this stuff. 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 here it is 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." from 1860 at the civil war all 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 this -- there is one chapter. one page -- one paragraph -- one sentence in this book that 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. monetary -- from the cyclical peak in august 1929, to the cyclical trough in march 1933 -- that is the great depression, right? the stock of money fell by over a third. the money supply declined by over a third. prior to 1963, prior to the publication of this book, nobody knew that. do you know why? if you heard of m1 and m2 definitions of the money supply,

prior to this book, nobody compiled money supply figures. nobody brought them together 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. and then this other book, "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. there is another book -- 1976, 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? perhaps a single paragraph? perhaps a single line? there is hope for any of you in this audience. [laughter]

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 -- symbolizes 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 of the wealth of nations, a 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? milton friedman. it was a tremendous source of pride to him and that catapulted him to 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, bluff your way through cricket. they have one in economics, can you imagine? if you know the five most famous economists 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 marx, john maynard keynes, number four is -- john kenneth galbraith. the 6'9" economists, you cannot miss him. and the fifth one is milton friedman. sorry, george stigler, you did not make the list. now you all 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 economics. isn't that great? in 1980, he did a pbs program that several million people --

some of you may have seen this -- it was called "free to choose." it was a wonderful program and it in energized both milton and rose friedman. producer, 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 and these panels and this was a great program. he put it together in a book. milton friedman holding a pencil and rose friedman on the back. another wonderful book that has an index. "free to choose." i should tell you, if you came to my home in new york, i have a library.

i have opposite title book. i will have a book called "rising asia" and right next to it will be "falling asia." or i will have the two corners of my books, "the alpha strategy." and then "the omega strategy." another one is "how 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? if you believe in choice, you will make mistakes, but most of the time, you will make the right choice according milton friedman. he is the optimist. americans tend to be optimists. have you ever met a marxist who was optimistic about capitalism and the world? no. a big difference in philosophy and personal attitudes. the 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.

it's hard to get rid of it in the capitalist system. friedman would always say, freedom is a delicate flower. who did he marry? rose friedman. [laughter] i said, 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. [laughter] that was his answer. somebody gave her roses, so i got the picture, but it is not in color. maybe i could have it colorized. 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 austrian economist. you can see -- this is about the austrian school of economics and the chicago school of economics. are they friends or are they foes? a little bit of rivalry between these two schools. they agreed on some things and disagreed on other things. both of them won nobel prizes. milton friedman won the nobel prize. hayak won a nobel prize on business cycles in the stigler 1930's. won the nobel prize as well.

meeses should have won a nobel prize. can you notice some differences between the austrian-european economist on the left-hand side and the american economist on the right-hand side? glasses and hair. 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 was, in the book, i talked about the different schools. the austrian school and who the major players were and then the chicago school were the major players there and what is the background. it was a nice summary in the then chapters about their differences, 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 fiat money, paper money standard. 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 we should even have a federal reserve, differences on who are the great economists and so forth. i go into a great deal of detail. 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 two 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 this. in 2001, i became president of

the foundation for economic education. this is the oldest free market think tank it started in 1946. started by leonard reed. they put out a publicication called the freeman. it's still around even to this day. and i was made president of this fine organization that milton freedman and others, all these people, had been involved in. hey had all spoken in new york , in a mansion i got to live in blissfully for one year. so anyway, i was at the very there oard meeting and was this annual board meeting and i met with everybody. after the board meeting, as soon as it ended, a gal by the me of graves came up to me

and she said, listen, 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 freedman and his views? i said, well, thank you very much. i'll take that into conversation. no 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, said, mark, i just want you to know that i'm in full support of you as the new president. but i have only one suggestion. can you stop being so critical of milton freedman? so i told this story to

freedman and he had a belly laugh he thought it was hilarious. so i want to talk about two examples of the differences between the austrian school and the chicago school. and this regards the issue of money. of what is sound money? now, i mentioned to you 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. friedman was a strong advocate of the federal reserve as a system that would deal with the economy on a better basis. in 1999, milton fried plan and rose freedman both were invited to come to new orleans for the new orleans investment conference. the new orleans conference was so known as a haven for gold

bugs. so all of the austrians and the gold bugs were there and i was one of the principal speakers and they had invited milton and rose to come. it was just a delight to have them there. i said listen, can i take you and rose out to the finest restaurant in new orleans? commander's palace? have you ever been to commandor's palace? boy, what a wonderful restaurant. the louisiana cajun food and so on, creole and so forth, just fantastic. anyway, so they agreed. and so i invited two of my friends gary and van, who is a coin dealer. so the five of us went out to dinner. they took us to this really nice spot, very quiet. and after the little bit of discussion milton turned to me and said mark can you please explain to me why you gold bugs are so adamant, so fervorish

about gold? what is it that's driving you, 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 mint back in the 1920's. look u how large it is compared to the $20 bill today and look who is on it. see it right there. george washington. so it's not andrew jackson. which by the way, andrew jackson would be furious that he is on paper money because he hated paper money. but anyway, george washington was on these bills bigger than life. i think they were all mint 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's a contract between the holder of this bank note and the government. and here's what it says. this certifies, 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 ware house receipt. this is a -- this 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 in into his pocket and pulled out a $20 and handed it to me. 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. now, understand my wife is not with me at this time and i would never have been able to get away with this if she had been there. she couldn't believe that i proceeded to tear up his $20

bill. right then and there, the conversation totally changed. e was furious. he turned to me and he said, mark, you had no right to destroy my personal property. and rose, nodded her head and said, yes, u you had no right to do that. and i kind of him hawed around and i sead 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 ok if i gave you your $20 back? and he said that would be great. and 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. and meanwhile, my two friends 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, ok, 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 up 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 the coin dealer went to great lengths to get this. he got it flown in from fedex ex from switzerland today because this coin is so rare. you are the golden milton freedman 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 to me and he said, 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. e said you and i have an ideology of gold and milton friedman has an ideology of paper money and last night you attacked his ideology.

i thought that was a pretty interesting observation and perhaps that is true. i can tell you that we the six, seven years that milton fried man and i knew each other afterwards and i had dinner with him, the last person to have lutch with him and so forth, we never discussed the gold coin. i was kind of hoping when he died that i would get it back or something. i'm just kidding. so anyway, i carry rooped with me milton friedman's $20. he's got the gold but i have up $20 paper money ripped 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. now, the other issue i want to bring up and then we can open it up to questions is the american economy depression

is d -- now, this was paper that milton friedman presented in 1954 a lecture in stockholm and it was a very interesting lecture because basically this was at a time in 1954, blove it or not there were a lot of economists who said a great depression is just around the corner. it could have happened. a lot of people were saying that. a lot of people who thought we're going to be in trouble. so friedman presentd this lecture that the american economy is depression proof. and he gave four reasons why. umber one, fdic insurance. he said bank collapse is history. we're not going to see that again. we're not going to see runs on banks.

number two we've gone off the gold standard. a lot of people if you were on the gold standard you were forced into a depression from time to time. but if you go off the gold standard you can print your money, you can 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. 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 lifetime. and i asked him about this article from time to time as we knew each other in the 80's and

90's when we were facing some serious problems. and he said, look, we've gone through an s and l crisis, we've gone through 9/11 attacks, we've gone through the boom-bust cycle of the.coms and so on. we went through the collapse of the economy in the early 80s with inflation and the tight money policies and 21%. we've been through wars and so orn and you've yet to see a 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, and boy it's knockdown dragout fight dealing with this crisis up until 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.

and this was despite tarp and throwing quantitative easing and lowering interest rates to 0 and everything else. we went through a very tight period where banks were imploding, city bank, bank of america, mortgage companies, all around the world. so it was a really tough time. and so we don't know what friedman or even if he would have anticipateded this. i will tell you that he was quite positive about alen 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. increase the money supply at a steady rate. but we don't really know what he would do in that regard. but this book, the great contraction by milton friedman

and shaurts, this is that chapter that starts with the famous line about the money supply, that was printed separately as a little book. it's about 100 pages long and it was a new introduction by an na who was alive in 2007-2008 when this was written. she wrote the introduction the coauthor 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 were predicting crises every year. aren't they? so always have to be a little bit careful about who predict it had 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 fact for the currency of a major depression. so that suggests that if you're adopting easing money, if you're increasing the money 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 ten percent in 2008. it did not collapse. of et we were on the cusp

another great depression even despite easing 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. that the keynesians and the monitors have advocated. and this is why there's a lot of interest in the austrian school. because the austrian school was the only school of economics that said asset bubbles can have macro economic effects. asset bubbles like real estate or stock market bubble can have rep cushions 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 hat, yes, you can have asset bubbles, you can have real estate bubbles. but it's not going to have is the major impact to bring the whole system down. so this was a very important telling point. friedman had passed away, shaurts was still around. but i would say that milton friedman looking back if he were alive today looking back would have to amepped his title to say why the american economy is depression resistant. it's depression resistant and has for many years but is not depression proof. we have to be -- we have to guard against a collapse in the system. because our system is leveraged. we have a banking system, the austrians are always talking about. the fact that in your bank you can go -- if everybody tried to

withdraw all the money from the bank right now what would be the impact? you couldn't all get your money. you couldn't get the cash. 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 have been since 1986 this is an american eagle coin. one ounce coin. do you know how many were minted last year? 40 million of these were minted. and how many of you have seen one? show of hands. 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 i pull out four quarters and drop it -- i don't think i have four quarters here. that's what it sounds like compared to real money. this is real money, folks. everybody should be buying these coins. go to.com you can't buy these from the u.s. mint. they sell them through dealers. so you have to buy them through a coin dealer. everybody should have these.

i use them i give them away as anniversary gifts birthdays, going on some special event you graduate you get a coin that has the date you graduated. and i said you put this in your pocket you 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. exactly. ok. so anyway, that's the story there. so great milton friedman quotes. if a tax cut increases government revenues you haven't cut taxes enough. my favorite tax reductions. under any circumstance for any excuse any reason at any time. e was a radical. competition is a tough weed. friedman said freedom is a rare and delicate flower.

nothing is so permnant as a temporary government program. inflation is taxation without legislation. the economy and the stock market are two different things. 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 silization, whether an architecture or painting, in science or 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 ant black laws on the statute books. so he was very much opposed with government interfering th 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 am offering tonight autographed. and let me just say in conclusion and then we can open it up to questions, milton riedman, 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 him, he was constantly peppering you with questions and comments and so forth. a wonderful gentleman to be rooped. john -- around. talk y nards cains, i

about about that in the book. but he made an interesting observation at the end of his work. 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 understood indeed the world is ruled by little else. practical men who believe themselves to be quite exempt from any intellectual influence are usually the slaves of some defunct economists. 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 at the discussion of privatization of social security and government -- i haven't even discussed about his relationship with the chicago boys in chile.

that was a controversial era. but when you look at all of these things about 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 a hundred years from now. to a really is a tribute 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. [applause]

>> you used the word, 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? >> 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. consisted of three things. it wasn't anarchy, it was maximum freedom within the the rules of ce competition and the rules of choice. in other words, maximum choice, maximum competition, to offer rule choices but within a

of law and basically on common lan rather than administrative law. so he would narrow -- the maximized freedom view would have to narrow it so was not an an arkist but some of the austrians were. so that would be as far as i can carry it as far as his freedom.n of >> when the austrian's think about the business cycle they think about the government playing the prominent role. in the recent housing bubble, encouraged the financial system to lend money to people who couldn't afford to pay it back. >> thank you. book e read greenspan's as well as reading geithner's views. and it's clear that especially

the fed did that not do enough. one of their responsibility was not just monetary policy or money supply. it's regulation of the banks. . d they did a very poor job and they never want to talk about canada and australia who did not have a subprime problem. wy? because the regulators allowed the no dock loans. they knew they were happening. geithner talks about it. 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's against he prudent man rule of banking. so it's inexcusable. and the oshtse thing is greenspan i believe did make -- this whole idea of when ever

there's a crisis of injecting liquidity and you usually go overboard in injecting iquidity and the number, the emerging market crises and the dot come bubble crisis, all of those caused the fed to lower rates. and then 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 others they all die ni it that this had an impact. because the real estate boom was worldwide. well, guess what. the dollar is a worldwide currency. and if the fed lowers rates to 1% it's going to have an impact world. nd the and the easy money that flowed

was just ub believable. so there's 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 entrepreneurial 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 o blame. yes? >> yes, sir. if i can have your view on this. as we look at economic strategy, america has been -- spent -- in the past 10 years by foreign powers.

of late, the chinese wanted to 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 up hollywood, rockefeller center. hey have had their head handed to them for engaging that. china may find the same situation, but yes, 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 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 you 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. >> i didn't miss the financial crisis because i read robert shiller's "irrational exuberance." that came out in 2004. >> the the second addition. "irrational 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 s 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 nywhere. what little recovery we have now 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 did follow friedman's rulebook on monetary policy. however, did not follow the laybook on fiscal policy because all of the friedman studies show that fiscal policy is relatively imperfect, unable to achieve the goals that he,

you want to achieve. so friedman would have been very much against tarp. you also 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 back plus more from many of these buyouts that were very controversial at the time. but there's no question that all of the textbooks say any kind of a crisis inject liquidity. the traditional view, which is he view of the classical

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. but bernanke, we don't know if friedman was right about 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, injecting liquidity, and even running deficits, but not activist fiscal policy we spend more. tax revenues would 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 some kind of libertarian views first is the fiat money he endorsed. fiat money tends to be

centralized. >> and friedman, i go into quite 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, he's a passive monitorist in 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 gold's increasing at 1% to 2% a year. so, with the economy growing at 4% or china at 7%, you're going to have deflation up prices uring 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 -- 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 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. >> >> you have to privatize. 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? >> 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. my father was a lawyer. maybe i got it from him. >> your remark about the opposing titles in 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. you should take the view that economic logic and reason provided the answer to whatever particular circumstance you are n. 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 ational. he did at 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 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. nd the chicago school really developed this idea of him. empirically 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 looked 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 views? he said, i have always been an agnostic. my wife, of course, is religious. wanted a jewish wedding, 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. he said, i cannot wait until i die and find out the truth. with that, thank you all very much. national cable satellite corp. 2014] national captioning institute]

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