Interview. There s No Such Thing as a Free Lunch Ever! Hillsdale Collegian, 4 December 1975, pp 6 8. Collegian: Do you feel that the University of Chicago is considered the most conservative school in the United States? Friedman: No, the University of Chicago is not a conservative school at all. I am not a conservative. I am a liberal, in the true sense of the term in the sense of believing in individual freedom, not in the corrupt American sense of the term in which liberal means spending someone else s money. The University of Chicago is a great University which has many different views represented. The economics department of the University of Chicago has over many, many years had a strong core of believers in the free market and free institutions, and probably has done more than any university in this country to keep alive a belief in freedom and to train people in the fields of freedom. I want to emphasize that the University of Chicago is a top institution with a wide range of diversity. The economics department has always had a strong group of people believing in the free market but it has also had a strong group of people of other views. I think this point was best made in 1964 during Goldwater s campaign for the presidency. George Stigler, a colleague of mine, made the comment that the University of Chicago was the only major university in the country that could staff a highly competent council of economic advisors for either Goldwater or Johnson. Collegian: Do you think that the battle for freedom is being won or lost? Friedman: It is being lost at the moment. People talk about it in an unrealistic fashion. It is always talked about like it is a future battle, or a football game: as if there is one decisive moment in which one team is victorious and the other team is the loser. This is not the case. The battle for freedom is a continuous battle and it is one in which some freedom is lost each 1
day, each week, each month, or some freedom is gained each day or month; it can be a matter of degree. For instance, if one asks himself about freedom of speech in the United States in the year 1975, the fact of the matter is most people do not have freedom of speech. Consider different groups -- there is no major businessman in this country who has freedom of speech. There is no businessman in this country who has the freedom to stand up and oppose major governmental policies. When President Ford, in the fall of 1974, brought out a program supposedly aimed at fighting inflation and recession, which could have been attacked on valid grounds, not a single American businessman stood up and criticized it. Why? Let me be more specific. The Food and Drug Administration is a terrible organization that has enormously retarded progress in pharmaceuticals and medicine, yet no major pharmaceutical company would dare stand up and say, That ought to be abolished. Why? The next day he would have the FDA holding up his applications for approval. If he didn t have that, he might have the IRS on his neck looking into his tax returns, or be subjected to antitrust suits. Now let s consider academicians. Do you suppose any professor at an American medical school would feel free to stand up and criticize federal grants in aid of medical research? Would he feel free to stand up and criticize the extension of federal control over medicine? He knows that a large fraction of the funds for his medical school are coming from the National Institute of Health, criticism of which might very well cause a reduction in the amount of money his university is getting. Do you suppose that a network commentator would state on TV that the Federal Communications Commission ought to be abolished? I have tried it when I have been on TV programs. I always try to make some nasty comments about the Federal Communications 2
Commission. The interviewers and the producers are embarrassed as the devil! This is a very threatening thing; their license depends on the FCC. The only people in the United States who have effective freedom of speech are people like me who are tenured professors at major universities on the verge of retirement; we don t have much to lose. Suppose one wants to go out and ride a motorcycle without a safety helmet, is he free to do it? No. Why shouldn t one be? It is his life, isn t it? What business is it of the government saying that one mustn t threaten his life by NOT putting on a helmet? Remember that if an individual goes out on a motorcycle without a helmet and splashes himself all over the pavement, a government subsidized ambulance will come to pick him up and take him to a government subsidized hospital and bury him in a government subsidized cemetery and provide government subsidies of welfare and relief to his wife and children. The government has a real vital interest in how you handle yourself. You don t belong to you. You belong to the government. When you say is the battle of freedom being lost there is just no doubt. If you want to put the matter into crude quantitative measures the ordinary individual in the United States is a slave about 40% of the time. One works from January 1 to roughly the end of May for the government. Of all the income that is earned in this country, 40% is being spent by government. Of course, you will say to me, and correctly, I am not the slave of the government, I voted for all this. This is true. I am not questioning the fact that these measures were arrived at by democratic procedures. However, the consequences are not entirely what people anticipated. I think that the American people have sold themselves into involuntary servitude. Sam Peltzman, a former student of mine and now a professor at the University of Chicago, has written an article on the effect of auto safety devices. He points out that the 3
required devices induced people to drive more recklessly causing more pedestrian deaths. Therefore, the net effect of the auto safety devices is that fewer drivers are killed but the same number of people are killed in traffic accidents because more pedestrians are killed. The law has simply substituted the lives of pedestrians for the lives of drivers. Collegian: You mentioned that it is wrong for the government to coerce one into wearing a helmet. Is it right for the government to print money and not let individual banks do it? Friedman: You have brought up a very complicated issue. No, it is not right for the government to do it, but there are very many cases where one must choose the least evil among some bad alternatives, which is the case with money. However, the fundamental problem is not really money, but taxation the taking of your income. Part of it is taken by income taxes, part of it is taken by social security taxes, part of it is taken by excise taxes, and part of it is taken by a tax in the form of inflation, which rises out of the printing of money. There is no reason why private persons shouldn t do it with gold. But don t let yourself be taken in by the gold bugs. Collegian: How does one stop what is going on? Friedman: It is very difficult to stop what is going on, but I don t think it is impossible. I think people are masters of their own destiny. Now there is the question of how to stop it. I think there are two different elements one wants to speak about: one, the tactical level and two, the strategic level. On the strategic level you will never really stop it until you change people s ideas and opinions. That is the fundamental stage. Then there is the tactical level which considers what measures one takes as he works on these opinions. The most effective tactical measures one can take are those which stop the expansion of government. The critical element is how big the government grows relative to the population. 4
The best move at the moment would be to promote constitutional amendments at both state and federal levels which would set limits on the fraction of income which could be spent by government. In California this was tried a few years ago with the endorsement of Gov. Reagan. For a variety of reasons it was misinterpreted and misrepresented to the public but it almost passed. We mustn t get discouraged though. The enemies of freedom, the people who are pushing for government intervention, continually press for their measures until they pass. We have to have this same kind of persistence. This was the first time it was tried, and 45% of the people voted for it. There is a move in Michigan for such an amendment as well as a national movement. The most important thing one could do is to change the school system, but that s probably beyong the realm of possibility. I have favored for over 20 years a voucher system for schooling which would allow a private enterprise system of schooling. It s made very little progress because of the bureaucracy in the schools. The teachers, the teachers union and the administrators of the schools are wholly opposed to this. They don t want to be subject to the test of the competitive market. Under this system, it is very difficult to avoid having the school system indoctrinate people with ideas that are adverse to freedom. If you had a private school system it would be altogether different. Our present method of running the American school system, if we had a proper Supreme Court, would be declared unconstitutional. In a series of cases that came up before the Supreme Court on conscientious objection to the Selective Service the Supreme Court ruled that religion did not necessarily correspond to a belief in a deity, but that it was possible for people to object to the draft on religious grounds even though they were agnostics or atheists. Religion, they said, consists of a set of ethical beliefs which are not necessarily 5
associated with a deity or organized church. If you accept that view of religion, and I think it is a right view, our school system is an established religion. The state schools are indoctrinating people with a humanistic religion. There is a very systematic, consistent set of ethical beliefs which are propagated by the school system. Our state supported schools system is in violation of the first amendment. Collegian: How are you going to get that across? Friedman: I don t know whether you can get it across. There s one judge who sees this point, that s Rehnquist. The majority of the Court, however, has been adverse to all approaches which would involve vouchers to parochial schools. Those parents who are forced to send their children to state supported schools when they would rather send them to a parochial school, but cannot do so because they have to pay twice for their schooling once thru taxes and once thru basic fees are having their first amendment rights violated. Collegian: To what extent has adverse economic conditions affected the Liberal Democrats programs? Friedman: If you look at the measures proposed by Liberal Democrats, they are not very different than they have been in the past, and they have been getting them through. We are continuing on the same road, and we have had in the past year a number of proposed public employment acts. 1975 is too far away from the election for Liberal Democrats to want to pass such programs. The time for the Liberal Democrats to mount their offensive for these programs is 1976 when they are close enough to the election to get electoral benefits while being insulated from the backlash of the programs failure. I am afraid you are going to see (in 1976) a tremendous push for socialized medicine, which will be a disaster but I don t see any possibility (at the moment) of stopping it. 6
While potential adverse economic consequences have not dampened the taste of the Liberal Democrats for this, there are many individuals who have been disillusioned by the lack of success of a whole variety of programs that have been adopted. Collegian: With the current tax structure for corporations most corporate profits being 5% or so, do you think that research and development has been so curtailed that the US is falling behind other nations in quite a few areas? Friedman: No, I don t believe so. There is a great propaganda campaign on and one mustn t be mislead. Business enterprises and corporations are not defenders of the free market nor are they defenders of the private enterprise system. They are among its greatest enemies. I, personally, am in favor of a free enterprise system, because I believe in the old adage that if you want to catch a thief you set a thief to catch him. If you want to prevent businesses from having too much power you have other businesses discipline them through competition. The problem with government regulation of business or control of business is that it is the business that takes over the regulation instead of the other way around. I would abolish corporate taxes, and, instead, would require businesses to attribute undistributed earnings to the individual stockholder and require the individual stockholder to pay taxes on them. This big business complaint about the over-taxation of profits has a very important element of truth though, which affects the individual taxpayer. Inflation tends to make the tax burden on the corporation and also of the individual heavier than the burden that Congress intended to place upon them. If prices rise and businessmen are permitted to depreciate their capital only in accordance with original cost, their tax load goes up by more than was intended. In the same way the individual is driven into a higher tax bracket with a graduated rate scale, and his actual burden goes up. If prices rise 10% each year and your income rises by 7
10% you might think you are in the same place, but you are not. Your tax will go up by 20% (on the average). The correct solution to this problem is not special investment credits or special depreciation allowances, but to introduce a system of indexation for both corporate and individual taxes so that both are insulated against the effects of inflation. Collegian: How did you view the rebate plan? Friedman: Terrible. I m in favor of cutting taxes at any time, under any circumstances, for any excuse. However, the rebate wasn t a cut of taxes. It was simply a distribution of subsidies to people in the past year on an entirely arbitrary basis. The whole thing was a fake. Taxes weren t cut, taxes were increased. The true tax that is imposed on the people is the amount government spends. If government spends more but supposedly collects less from the people in taxes, where does the difference come from? It has to be paid somehow, doesn t it? If government spends more there is less available for you and me to have. What was actually involved in the so-called rebate was a substitution of a tax via inflation for a direct tax. I want a reduction in true taxes and the only way is through a reduction in government spending. Collegian: What would be your outlook for the fourth quarter of 1975? Friedman: My prognosis is that we will have a very vigorous expansion given the monetary explosion that we ve had over the past six months, and the high level of government spending. Inflation will remain at something like a 6 or 7% rate which is much too high in terms of past standards but is low compared to 1975. In 1976 77 there will be a resumption of rapid inflation. 8
Collegian: What exactly has been done with Economics and Law at the University of Chicago? Could you briefly explain that? Friedman: There is a long tradition going back at least 40 years of a considerable admixture of economic analysis into the law school at Chicago. Perhaps the first important teacher of economics in the law school was Henry Simons, who was a member of the department of economics and was also associated with the law school. Ever since then the University of Chicago Law School has maintained a kind of link with economics. They ve had somebody on the staff who has been an economist. This teaching has occurred particularly in courses on anti-trust. It has been recognized, and correctly so, that legal problems in the United States have increasingly had an economic element. Therefore, it is very important for people who are going to be good lawyers to know a little bit about economics. This took shape some 15 years or so ago with the establishment of the Journal of Law and Economics, which has contained a series of articles dealing with legal and economic problems. Collegian: Where did you pick up your liberal outlook? Friedman: I find it very hard to answer that. I m not by nature a highly introspective person so I really haven t tried to explore that issue. I would suppose that I was partly influenced by teachers I had as an undergraduate at Rutgers, some of whom were responsible for my going to the University of Chicago, particularly Homer Jones, who later taught and was at the Federal Reserve Board in Washington and then was a Vice-President of the Federal Reserve Bank of St. Louis. He was really responsible for my going to the University of Chicago 43 years ago. It is clear from my experience that the influence of the University of Chicago was very great. Particular people there who had that influence were Henry Simons, and Frank Knight. They had a tremendous influence on a lot of people. 9