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NOTE The Political Economy of the Chicago School: Libertarian or Jacobin?

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Okay, good morning and welcome to the lecture on the Chicago School, Libertarian or Jacobin.

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Actually, the full title is The Political Economy of the Chicago School, Libertarian or Jacobin.

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Well, I don't think it surprised anyone yesterday that there were fascist tendencies and implications in Keynes' political economy.

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But it is surprising that these implications exist, and it's more than actually implications, exist in the major figures of the Chicago School of Economics, which is known as the leading free market school of thought in the post-World War II era.

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But, where Keynes was an avowed elitist, the Chicago School, and especially its founder, Frank Knight, was a radical egalitarian, and actually was a follower of Rousseau.

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He used the term quite often, General Will, or Volonté General.

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And this is where the Jacobin connection comes in.

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It might be surprising to see the term Jacobin in the title.

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As I'll point out in a moment, Jacobins at least pay lip service to a free market,

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but in the same way that neocons today pay lip service to a free market.

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But their political economy, their overall political economy, certainly undermined what we'd all think as a free market.

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So who are the Jacobins? Very briefly, they were really a network of clubs that were formed before the French Revolution.

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The main inspiration was the egalitarian and utopian philosopher Jean-Jacques Rousseau.

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During the revolution, the most prominent orator and ideologue was Maximilien Robespierre, he of the guillotine.

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The movement evolved and derived its name from a club that met at a Jacobin convent in Paris.

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The clubs were a school, debating society, political organization and church all rolled into one.

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The Jacobins came to power for two years in revolutionary France and ruled from 1792 to 1794 and they ruled with the guillotine.

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And as someone mentioned to me yesterday, they also baked people in ovens alive.

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The Nazis simply use the ovens to get rid of the bodies of the people that they murdered.

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Let me just run down very briefly Jacobin's beliefs.

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They believe in mass democracy as Rousseau's general will.

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That mass democracy would lead to an expression of the general will.

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They believed in politics as the only means of implementing certain absolute and universal moral principles.

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They had a murderous, literally murderous hatred of traditional western society, especially its naturally evolved morality, religious institutions and elites.

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They hated aristocrats, they hated the ecclesiastical hierarchy, and they hated various elements of bourgeois morality.

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There was also a rejection among the Jacobins of the pre-revolutionary view of the nation as comprising property owners who had diverse interests and were sharing the same homeland.

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And they wanted to replace that view with one of an abstract nation. Now we've heard that before from the neocons that the U.S. is some sort of abstract universal nation.

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They wanted to replace it with one of an abstract nation composed of equal and homogeneous patriots or citizens.

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There's a great book on the French Revolution by Schama, and it's called just Citizens.

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And these patriots and citizens would have no independent existence outside the nation.

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Patriotism, quote, was no longer that exclusive love of the plot of land where we were born,

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but embrace the countries whose law embodied the general will, unquote. That quote's from Schama, describing the Jacobins.

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They also had a suspicion, if not an outright hatred, of all mediating institutions between the citizen and the central government, including and especially the family.

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They had, as I said, a rhetorical belief in private property and free exchange, but this was contradicted by the emphasis on a society without barriers, as they called it,

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or sometimes used the term career open to the talents, which led to policies of what we would today call equal opportunity.

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And this was designed to produce an equality in the distribution of income and property.

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If everyone was a citizen equally incorporated in the general will, then for the Jacobins, they ought all to have equal material income and wealth.

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and Wealth. For the Jacobins, the struggle was for social equality and it went beyond the abolition of political aristocracies, monopolies and privileges, which was worthy. That was one of the initial calls made by the original French revolutionaries.

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But when the Jacobins took over, it went beyond that, to a demand for equality of property.

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Thus the Jacobin model of liberty, equality and fraternity.

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Interestingly, the communist revolutionary Leon Trotsky, later murdered by Stalin with an ice pick in Mexico,

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in Mexico, referred to Jacobinism as, quote, the highest degree of radicalism that bourgeois society can provide, unquote.

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So he liked the Jacobins.

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Finally, despite the strongly egalitarian rhetoric, the Jacobin leaders were profoundly elitist.

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Of course, that's always true.

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Someone had to possess the intuition and the virtue that was necessary to articulate and to implement the so-called general will.

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And, of course, it was Robespierre and the other Jacobin leaders who assumed the role of the incorruptible guardians of universal principles.

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And, of course, they were willing to spread these principles, as the neocons are today, through military adventures, through invasions, to spread them beyond the borders of France.

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That is, until they all got their heads chopped off by the same guillotines used to murder thousands of opponents of the general will.

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Finally, and most distressingly, the Jacobins evidently, before and after they seize power, engage in endless discussions, debates, speeches, as a method of discovering and conveying the general will.

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General Will. Well, this emphasis on discussion you're going to see in Knight, this whole idea that democracy is nothing really but an ongoing open-ended discussion in which society comes to agreement again and again on what values, what values are and how they should be implemented.

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Okay, so now we get to Frank Knight, who was originally a philosophy major, or actually a graduate in philosophy at Cornell, before shifting over to the study of economics.

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In fact, James Buchanan referred to the philosophical economics of Frank Knight.

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Frank Knight, James Buchanan, the leader and founder of the Public Choice School, was a student of Knight, and he's an extreme Knightian, and also in his work you'll find many Jacobin policies advocated.

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In any case, in an earlier article, Knight wanted to clarify the relationships between economics and ethics, and in this article he professed the belief in the, quote, the validity and necessity of real, non-scientific, transcendental ethics,

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which would account for, quote, the feeling element inherent in all belief and whose principles will be available through sympathetic interpretation rather than intellectual cognition.

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Now, through all that gobbledygook, what Knight is saying is that ethics are intuitionist.

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They come from within. They don't come from looking at the real world and seeing how human beings naturally develop and flourish and what types of institutions they require for this development and flourishing.

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No, that's not the way ethical ideals were discovered.

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According to Knight, and I'm going to read a quote from him.

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He says that, in the quest for values, minds work internally to an ideal world as subject matter.

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So you're looking within to find these ideal values.

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So he has intuitionist ethics.

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His intuitionist ethics was later developed by Knight into an argument that all social systems must ultimately be evaluated in terms of ideals which can be approached but never finally attained in the real world.

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So that was the very definition, embodied in the very definition of an ideal, that you couldn't attain it, according to Knight.

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And what were these ideals? According to Knight, now where did he get this information from?

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From his own secret intuition, from his own gnosis, secret source of knowledge within.

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There were four ideal social values. Efficiency, freedom, justice, by which he meant equality or distributive justice,

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and the Pursuit of Interesting Activities.

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He thought human beings were game players and they liked interesting games.

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The market economy was not an interesting game.

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That's one of the reasons why he didn't like it and I'll explain why.

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So, in Night's View then, the so-called liberal social philosophy he espouses,

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quote, does not pretend that existing economic conditions are just,

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but recognizes that justice can be approached but never attained,

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and freedom likewise, and any other social ideal in its ideal form.

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So you're always approaching these ideals. The question is what political arrangements leads best to the approach toward these ideals.

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And then he goes on to say that this is logically entailed by the very concept of an ideal.

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Whether we construe it as a moral ought or as a desired goal of action.

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Because according to Knight, an ideal, and I'm quoting him now, is essentially a concept of limits in a mathematical sense.

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According to him once more, he says, ethical ideals have meaning only if what ought to be desired is more or less different from the actual desire.

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What does that mean? Someone desires to assault another person who doesn't like what he's saying.

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He ought not to desire that, but in fact he does desire that.

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Okay, so what if your natural desire is not to assault the other person?

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Then is the ideal desire or the ideal ethic to punch another person that agrees with you?

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All right, well, you know, it's kind of fuzzy.

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He says, an actual goal or intention has meaning only if it isn't perfectly realized.

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Thus we face the paradox, this is very interesting,

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that perfectly economic behavior, which would reduce to a mechanical response to conditions, is not economic at all.

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So what he's saying here is, this is how the notion of perfect competition, in which there is no competition,

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no one cuts prices, no one improves quality, no one introduces new products,

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this is why perfect competition is held up as a standard for the market economy.

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The whole notion of perfect competition comes from Frank Knight.

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It doesn't come from Milton Friedman's positive economics, Milton Friedman says, well, we use perfect competition because the market economy operates as if it's in perfect competition.

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And therefore, by using this model, it allows us to generate hypotheses which are not falsified by tests.

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So this, in some way, this idea of perfect competition is a radically empirical approach to economics.

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Well, in fact, it's not. It came out of Frank Knight's intuition.

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And Friedman tries to cover that up by developing later on the notion of positive economics.

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So he tries to cover up the radical non-imperialism of his mentor through the development.

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He and Stigler and Arthur Burns all developed this whole idea of positive economics.

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So out of this nonsensical, idiosyncratic, intuitionist concept of an ideal,

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Well, Knight hatched his crazy model of perfect competition, okay, that unfortunately has infected mainstream economics since the 1930s.

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Okay, now there's a few other points I want to make about Knight. First of all, he says the ideals of absolute ethics, of intuitionism, are never completely attainable in the real world,

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because we are dealing with ideals and not inquiring whether or in what respects the possibilities of the real world may be harmonious with our moral cravings.

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So that's where our notion of what an ideal is, our moral cravings, our internal cravings, just our feelings, basically.

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He also says human mind is never capable of fully and finally apprehending any absolute ideal.

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Why? Because the ideals themselves are progressively redefined as they are progressively realized.

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So as we reach these ideals, somehow we realize that we really haven't reached them.

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They're continually changing, yet they're absolute.

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To explain this, James Buchanan used the word relatively absolute absolutes.

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So as Murray Rothbard pointed out, muddled language and muddled thinking, or muddled language, really is a cover for muddled thinking.

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Don't think because someone speaks in terms that you can't understand or you can't grasp that it's, for that reason, profound.

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No, it's simply a reflection of muddled thinking.

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Another point he makes is this is especially true of truth itself that is continually changing.

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He contends, truth is an ideal, and I'm quoting him, which we must believe to give meaning to thought and life.

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Okay, so it's going to give meaning to our thought and our life. We're always striving for truth.

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But there is no way of knowing if any particular belief is true.

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And every belief must be held subject to revision.

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Okay, except the belief that there are better and worse reasons for believing.

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Okay, so try to figure that out.

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Okay, so the absolute is, we can tell that there are better reasons for believing and worse reasons for believing,

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but we really never know if those reasons are completely true.

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So ascertaining the proper balance to be struck, oh by the way let me mention one other thing here.

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So somehow Knight manages to combine a system of what he calls absolute ethics with an epistemology of skepticism.

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However he does that, it's unbelievable, but it gets better.

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Ascertaining the proper balance to be struck among these absolute social ideals of efficiency, freedom, justice and the pursuit of interesting activities

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remains forever beyond the capability of the individual intellect.

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So no one of us in particular can figure out what is the proper balance between these colliding and conflicting values,

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which Knight doesn't see them as all complementary to one another, justice, freedom, and so on.

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He sees them as actually colliding and conflicting.

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So, no human mind contemplating in isolation or pondering amid the individualistic exchange relationships of what he calls a politically negativistic laissez-faire capitalism can ever grasp this.

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The proper balance can only be apprehended by what he forthrightly calls the group mind,

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which historically achieves its most perfect formation as the outcome of a rigidly egalitarian political discussion,

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Characteristic of what we today would call a democratic welfare state.

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So while the individual human mind is incapable of discovering a true and workable system of social ethics,

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the so-called group mind emerging from the social democratic politics is practically infallible.

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So this discussion is going to go on among all of us in this social democracy,

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and we're going to come out with a proper balance.

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But once we reach that balance, it's not really going to be completely the right balance, as we're going to find out, and we're going to have more discussion, and we'll change the balance again and again and again.

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Now, let's apply this philosophy, such as it is, to a critique of laissez-faire capitalism, as he does.

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He says, in his critique of the real world market economy, he focuses not only on its failings in attaining ideal efficiency,

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which he believes, since it doesn't live up to perfect competition, and I don't have to go through much of that,

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it fails right off the bat. The market economy is a complete failure because it doesn't meet the ideal of efficiency that stems from Knight's intuition.

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But he also criticizes it very severely because of the inevitable conflict among the various social ideals entailed by its operation.

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It exacerbates these conflicts according to him, the market economy does, when the government doesn't attempt to intervene and ensure a better balance.

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So the group mind can allow the economy to work, but it has to monitor, it has to channel the economic processes so that it doesn't exacerbate the inevitable conflict between values.

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He goes on to say that there's a deep sea of conflict between liberty and equality on the one hand and efficiency on the other.

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And also the intricate conflict of values in the market economy includes freedom with order, efficiency and progress,

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so freedom conflicts with order, efficiency and progress, and also interesting activity.

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But the main conflict is between freedom and justice. By justice, again, he means equality.

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Let me talk about this in a little bit more detail, his critique. He says that the assumptions of perfect competition define the concept of ideal efficiency and therefore also must serve as the premises of pure economics.

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So, the premise of his economic system, which is accepted by the later Chicago School, comes out of ethics. It's hardly value for your positive, as Friedman says.

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Friedman says, it's some ideal, some other worldly ideal that we should be moving the

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economy towards.

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Now, Friedman twists the whole thing up and says, well, no, what it is is simply a tool

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for generating hypotheses which can be falsified.

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He also goes on to say that, in his view, economic efficient behavior is ideal in two distinct senses.

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It is what individuals seek to attain and also what they feel they ought to attain,

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keeping in mind that neither case is the ideal actually attainable.

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Does anyone really feel they ought to attain in their business activities the characteristic of being exactly like every other business?

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Because we know under perfect competition, all output is homogeneous.

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Does anyone, and we'll talk about this in a few minutes,

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anyone believe that they should treat other human beings and their business dealings

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as simply vendors with absolutely no personal relationships?

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Now he claims if you don't treat others as vending machines,

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simply putting money in and getting out what you want,

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does any personal relationship,

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Which causes me maybe to go to you and purchase your scarf instead of his scarf, then you've violated the efficiency criteria of perfect competition.

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So I have to treat all of you as nameless, faceless vending machines, according to ideal efficiency.

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So he says, the absolute ideals of efficiency and freedom are inextricably bound together.

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Moreover, the perfect market, by which he means perfect competition, and I'm quoting him, is the embodiment of complete freedom.

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There are no power relations, since everyone has a choice among a number of equally good alternatives.

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There's absolutely no difference between any of the goods in a particular market, nor are there personality differences among their sellers.

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Moreover, in the perfect market there is no bargaining and no effort to manipulate other human beings in any way.

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In other words, there's no advertising, there's no persuasion and so on.

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And now why should that be so? Why does the perfect market require that there's no persuasive power?

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Because according to Knight, all personal association involves power.

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Why? Because you choose one person over another.

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So if I'm your friend, I have power over you in that I can withhold my friendship from your closest friend.

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I can withhold my friendship, and there is no equally good alternative to my friendship.

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So in that way, marriage is a power relationship, according to Knight, in the very same way.

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That because your spouse is the most beloved in your life, she has power over you,

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in that she can withhold, or she can break the marriage up, and you will find no equally good alternative.

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So this whole idea of what power is, infects Chicago economics.

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He's quite adamant on this point, contending that, and I'm quoting him,

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skill in verbal utterance or capacity in any form to influence other persons is a form of economic power,

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for which there is hardly a limit to the distortion it may produce if allowed to work cumulatively.

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Now, the Nidian ideal of freedom is thus realized in the person of Robson Crusoe.

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So, Robinson Crusoe was really the only truly free individual on the face of the earth, or the fictional castaway, he was the only truly free individual.

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Because his choices are unconstrained by interpersonal influences and attachments, the perfect market, so conceived, is never closely approximated.

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There's always personal relationships, let alone replicated by any historical market order.

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and Knight admits this, he says to realize its ideal character the system would have to be operated through vending machines

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this is a quote, avoiding personal contact between the parties through the exchange

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this is nuts, I mean this is completely inconsistent with reality

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natural law gives us ideals that are attainable, that allow individuals to peacefully interact with one another

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with one another, the natural law approach.

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Knight's absolute ethics slash intuitionist approach does almost the exact opposite.

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It gives us ideals which no one can ever reach, which he admits, but who should ever want

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to reach them?

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I don't think that reflects my moral cravings that I think I should deal with you as a vending

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machine.

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It's absurd.

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Now, there are other moral cravings which conflict with these moral cravings.

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I do want to interact with you and play interesting games, so business has turned, in some sense, into a game, to some extent.

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So, using the performance of the perfect market as a standard, Knight presents his most thoroughgoing evaluation of the efficiency aspects of laissez-faire capitalism in his classic article called The Ethics of Competition.

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And I'm not going to go through them. Basically, he goes point by point and shows how the market economy in every instance violates a particular attribute of perfect competition.

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Okay, so tough. I mean, I don't care about that. I don't think that has any ethical or economic implications for the real world.

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Alright, not only does the market fall far short of attaining the ideal standard of efficiency deduced from the perfect market, okay, so it's inefficient.

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Night points out that freedom of exchange gives rise to attempts by sellers to persuade the buyer to purchase his product via advertising.

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Such, quote, efforts to persuade introduce the exercise of a kind of coercive force in the relationship between buyers and sellers that causes it to lose the character of a pure exchange relationship.

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and Exchange Relationship. The latter entails that each individual treats other human beings as if they were slot machines.

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So he varies his terminology from vending machines to slot machines.

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Hence, Knight concludes paradoxically, freedom alone would not produce an approximation to the conditions required for a market itself, the freest possible market.

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Because as soon as you have freedom, people begin to try to persuade one another and establish power relationships, which then causes the market to move away from a free market.

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Knight's philosophical case against laissez-faire or free market capitalism goes beyond identifying its gross shortcomings in achieving efficiency and approaching his ideal concept of freedom.

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He also seeks to demonstrate that it clashes with the ethical ideal of distributive justice, which in his view is pretty much an equal distribution.

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I'll qualify that in a moment.

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So he says, look, even if the historical market was a perfectly competitive market in his sense, even if we achieve that ideal, he says,

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under that ideal, people are compensated according to the value productivity of labor and other factor services they own and contribute to production.

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So in a perfect market, everyone gets their marginal revenue product, and so that's efficient.

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However, people come into the market with different productive capacity,

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And this different productive capacity he means by that human capital, your skills, and capital goods and money capital.

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So that's all unequal when you come into the perfect market.

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And he says that is the result of three factors, inheritance, luck and effort in that order of importance.

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He's very big on inheritance, both genetic inheritance and the inheritance of material wealth as causing gross inequalities among human beings.

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So those are the three factors that ultimately determine how much you earn, as I said, inheritance, luck, and conscientious effort.

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And he says only conscientious effort should be according to justice.

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Now this is conflict with efficiency. According to justice, only conscientious effort should determine how much we receive.

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But even the perfect market will not redistribute capacity, and hence product, to a chord better than the realities do with any ideal norm of justice.

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Atomistic motivation, meaning in a perfect market where everyone is atoms, they're atomistic, they're not connected, tends powerfully towards cumulatively increasing inequality.

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Inequality. For all productive capacity, whether it's own property or whether it's your own inherent human capital, is essentially capital.

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And that is a joint creation of your pre-existing capacity, which as I said is a result of luck and inheritance.

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And those who already have more capacity are always in a better position, I'm still quoting him, to acquire still more with the same effort and sacrifice.

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So in effect he argues capital begets capital.

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So, the inequality generated by a perfect market may also work in the direction of diminishing freedom, the freedom to use power.

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What he means by that is that freedom can only be effective to the extent that the would-be actor possesses the complementary power in the form of control over productive capacity.

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And he goes on to say, unbelievably, quote, economic freedom may in effect become slavery for the person who has little power at his disposal.

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Since life itself requires practically continuous control of a certain minimum of economic power.

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Well, what about, to go back to his example, Robinson Crusoe on his island?

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What if the island is very niggardly in the sense that the resources are very, very, very scarce?

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Is he enslaved as a result? Does he have much economic power?

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And who is he enslaved to himself? The rocks? The fish?

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So there are all these sort of contradictions.

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Right then he goes on and goes into some great detail. People want interesting games.

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Interesting games include luck, skill, and capacity in certain proportions.

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And if people come into a game, if you come into a game of monopoly with a lot more money than everyone else, let's say,

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well that's not fair and it's not fun and people don't like it, and the market economy is like that.

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Okay, and so it's not fair and it's not interesting.

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Okay, that's according to Mike.

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So, the real world market economy conflicts with every single absolute ideal that we intuit, okay?

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And he says, even if business competition measured up perfectly to the absolute ideal of a fair and interesting game,

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the economic system remains also a want satisfying mechanism

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and therefore the ideal of a competitive game is in constant conflict with the absolute ideals of efficiency and distributive justice, okay?

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Because even if you get the ideal game, some people are going to win, other people are going to lose,

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which means that some people are going to have more money now in the next round than other people,

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and so that this is unjust because it creates inequity.

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So even the fair game, an interesting game, creates inequity.

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Basically, what he's trying to do is to show that everything is so screwed up on a free market that only massive controls by government can rectify the situation, make it tolerable.

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Now, Knight maintains that the rigorous elaboration of the assumptions of perfect competition combined with an inquiry into the absolute science of ethics goes far to discredit laissez-faire as a policy.

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So we look at ethics and the ideals, we look at what an ideal market is, and we find out that free market or laissez-faire capitalism is completely inadequate.

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He goes on to say, by the way, he includes that freedom, and it's all because of freedom.

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He says that freedom is not enough, was carried too far in the Western world, and must be sweepingly limited by political measures.

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Now, let's look at his view of social evolution. It's very, very interesting. He says the original liberal revolution resulted in what he calls the dual order of negativistic political democracy, where rights are negative, and economic laissez-faire.

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and laissez-faire. Those are the two products of early liberalism.

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And he claims that this was an extreme reaction to the, quote,

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medieval authoritarian ecclesiasticism, which marked the pre-liberal epoch.

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In other words, it's the church that's the real enemy.

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It's authority, it's not power. Something else is very interesting.

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Under the latter system of medieval authoritarian ecclesiasticism, whose archetype was Western Europe in the Middle Ages,

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the Roman Catholic Church enforced conformity to a moral law viewed as given, eternal and immutable, and not open to question.

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Now this is power, according to him.

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The Church was able to compel obedience to a static conception of moral law by the exercise of power.

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Now, he goes on to say, it's true that the church and state was combined during that period, but that's not what he's talking about.

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He says mainly by the power to persuade was because the church was persuasive, not because it had used the state to do its bidding in some cases.

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And then he goes on to say that persuasion ranks as, quote, perhaps the most important form of coercion.

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So advertising is immensely coercive.

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The arch enemy of freedom and justice was therefore not the arm might of the medieval kings, but the moral authority of the church.

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Basically because they didn't understand that values are something that aren't fixed and eternal, and that they're something that we continually move towards,

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towards, and that they should not be given to people or persuaded, or you shouldn't have

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people being persuaded to follow these values or adhere to this moral code by a hierarchy.

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What you should do is have everyone involved in this huge democratic discussion and arrive

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at these tentative agreements about what values should reign in society.

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So laissez-faire capitalism was thus tonight a confused attempt to implement the liberal

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principles in economics and politics.

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According to Knight, quote, many of the vicious aspects of laissez-faire were put into effect

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in the legal system here in the United States through judicial review under the Bill of

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Rights.

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So he's not a big fan of the Bill of Rights, very interesting, at least like Bush in that

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respect or other presidents.

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Let me mention something else, going back to the church as being the primary enemy here.

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It's a well-known fact, Knight used to insult nuns and priests and drive them out of his classes.

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And you can see why. Precisely because he thought that they were the archenemy.

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Now, he goes on to say laissez-faire was for doom to break down.

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He's writing in the 1930s now, when he thought it was breaking down.

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Because it was dynamically unstable for three reasons.

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First, wealth once acquired gives a powerful advantage in acquiring additional wealth causing a growing disparity in economic power

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and the elimination of perfect competition and of freedom itself for much of the population.

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The elimination of freedom again in the sense of economic freedom or disposal over goods.

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Secondly, personality power, the ability to persuade and organize, is one of the most unequally distributed in society

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Society, and the one most likely to be aggrandized through repeated exercise reinforcing the

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tendencies towards monopoly and inequality of wealth and power.

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And finally, three, economic activity is undertaken not only to satisfy wants but as a social

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contest whose goal is a differential accumulation and exercise of power in the form of wealth

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and personal influence.

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The very playing of such a game under the rules of laissez-faire implies a systematic

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destruction of ideal competition and freedom.

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Okay, so the breakdown comes then when the market economy becomes shot through with monopoly and inequality becomes intolerable and the losers of the contest become ideologically disillusioned and turn to democratic socialism.

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Okay, and he includes under that term the New Deal, Fabian Socialism and Social Democracy in Germany, Fabian Socialism in Great Britain and New Deal in the US.

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However, he says democratic socialism is not a real New Deal.

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He's against democratic socialism because political democracy, as it works in practice, is like free enterprise, competitive and individualistic.

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Hence, it is incapable of initiating ideal democratic discussion that will at last awaken the social mind and succeed in, quote, ascertaining a real general will.

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So he doesn't like this negativistic political democracy, even where the state would own the means of production under democratic socialism.

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So he goes on to say that politics and economics under liberalism are the same game.

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The fundamental fact in both is the moral fact of rivalry, competitiveness and the interest in power.

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In fact, he says that politics may even be worse in some sense than economic power.

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Why is that so? Well, because he believes that persuasion and prestige power,

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which people compete for when they run for office in a political democracy,

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is actually stronger than wealth power is, which you achieve in under laissez-faire capitalism.

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So therefore, he does conclude that both wealth power and persuasion and prestige power will exist and be utilized under democratic socialism to acquire more power of both kinds and the predominance of politics under democratic socialism will render it susceptible to an even quicker self-destruction than laissez-faire capitalism because now the people who are at the top have economic power because they control the means of production and they have the prestige power

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at least under laissez-faire capitalism, that split, okay.

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So what has the liberal game, what he calls the liberal game, degenerated into?

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Well, by the 1930s, according to 1935, he says, it gives rise to a real New Deal.

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Now, guess what the real New Deal is?

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It's fascist nationalism, okay, the term he uses.

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That's the next stage in the political evolution of the liberal democracies, quote unquote.

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Fascist nationalism is, and I'm quoting him,

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a natural, although extreme, reaction to economic individualism

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as a movement from crushing competitivism to a worship of emotional unity,

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and from, quote, intolerable insecurity to morbid craving for security.

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Now, despite, unquote, despite the fact that he professes hatred for nationalistic dictatorship,

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Knight perceives in the emergence of fascism the first stirrings of the consciousness of the social mind

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and identifies in nationalist philosophy, meaning German Social, National Socialism in Germany,

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okay, he identifies in National Socialism a central core of profound truth, quote unquote.

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The truth is that there can be no human life without group life and no group life without real devotion

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in a religious sense of the members of the group as a more or less mystical entity

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and beyond it, there's some set of values, these absolute ideals,

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for which the group is supposed in a special way to stand.

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It goes on to say that the position of the leader on their fascist nationalism, the Führer or Ilduche,

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their power and position relies partly on power in the forms of both armed might and persuasion,

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which is as bad if not worse than armed might,

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but it also rests in part on deliberate acceptance by the group,

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based on failure to secure adequate unity by democratic methods.

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So what he's saying up to this point is that political democracy and laissez-faire capitalism have been a failure ethically and efficiency-wise,

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and that fascist nationalism is a reaction to this and it's a step up because it does contain a core of truth.

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And then he goes on to say, coolly considered, I'm quoting him,

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The ethical ideal of fascists, red and circuses, cannot be considered inferior to the ideal of economic man.

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Although Knight does personally regret, quote, the passing of freedom as an ideal to be striven for and to an important degree in actuality.

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So in a way, he's admitting that there was some amount of freedom under laissez-faire, despite the persuasion power, despite the economic power.

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So what's his ideal system? He doesn't really tell us much.

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This is where the other Chicago economists come in.

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He basically advocates two types of interventions.

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One he calls interventions that are designed to solve mechanical problems and improve the efficiency of the market.

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And the other are those that are going to address the balance between competing ideals, freedom, efficiency, justice, and so on.

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And he's very, very skimpy on what he says about these things.

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Basically he says that in the case of the first type, this tendency towards monopoly that's inherent in all real-world markets should be corrected, okay, because they cause misallocation of resources and by pervasive externalities that are generated by voluntary exchange.

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So, what he wants is, he wants, you know, he mentions very strict enforcement of the antitrust laws.

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He also wants the government to take measures to alleviate the business cycle, which he sees as an inherent feature of the market economy,

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which is attributable to the fact that action on the market tends to be too speculative.

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People take too many risks and don't understand the risks they take.

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and because action on the market is decentralized.

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Then he says the second type of intervention where you're balancing the various ideals,

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the way to cure that is through progressive taxation, especially of inheritance.

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He hates inheritance, right, because that breeds inequality.

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As the main instrument for simultaneously improving the balance between freedom and justice,

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so when you tax someone, when you tax away inheritance,

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You start everyone in the next round off equally, or at least you move towards that, so that's just.

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But also, the people in the next round don't have more power than other people, so everybody's power is equal.

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So you're moving towards the ideals of both justice or equality and freedom.

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and he also says the quality of opportunity is important in the interest of a fair and interesting game.

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By leveling incomes you're also starting everybody off with an equal opportunity to win the game.

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So that's something else he says.

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So basically he says enforce antitrust, take measures to mitigate the business cycle

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and heavily progressive taxation and in taxation of inheritance.

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Finally, in the long run, he believes progressive taxation solves what he considers to be the main social problem.

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Determining what types of people and primary social units, that is families, will be produced.

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So he looks on somehow the state as having to go to the root of all the problems, which is the family itself.

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The family, remember, is the one that is responsible for the individual's inheritance.

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So he wants to manipulate things so that he can strike at the root causes of all these departures from these ideal values.

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And he sees one of the main root causes, the family.

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of the Family.

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So, for Knight, the ideal is to produce individuals equally equipped with productive capacity,

382
00:43:44.680 --> 00:43:49.880
especially in the area of human capital, which means everyone with the same education, basically,

383
00:43:49.880 --> 00:43:56.040
and skills, and whose value scales accord a very high place to the realization of Knight's

384
00:43:56.040 --> 00:44:00.120
ideal of democracy by discussion.

385
00:44:00.120 --> 00:44:03.520
And so as far as we can see what he's in favor of, he's against democratic socialism, he's

386
00:44:03.520 --> 00:44:10.000
against laissez-faire capitalism. He wants some sort of neocon social democracy or what

387
00:44:10.000 --> 00:44:17.840
would say called in America democratic capitalism. Now the person who really spins out the implications

388
00:44:17.840 --> 00:44:27.560
of Knight's philosophy is Henry Simon, who was also Freeman's teacher. He was a colleague

389
00:44:27.560 --> 00:44:32.340
of Knight University of Chicago, one of his closest disciples. He worked explicitly within

390
00:44:32.340 --> 00:44:37.380
in the framework of Knight's philosophical economics and he greatly clarified what Knight's

391
00:44:37.380 --> 00:44:42.380
objections to the free market economy were. He also elaborated a comprehensive program

392
00:44:42.380 --> 00:44:48.060
for a large welfare state that would provide remedies for market failures. In the ethical

393
00:44:48.060 --> 00:44:56.380
realm, I'm sorry, Simon says that equality is nearly equal with liberty in the hierarchy

394
00:44:56.380 --> 00:45:00.620
of absolute social values. I mean, I don't know how he knows that. He must have consulted

395
00:45:00.620 --> 00:45:21.620
He says freedom without power to dispose of resources has no substance or meaning, marked inequality of income or of power, according to Simons, is perceived as unlovely by all but medieval minds.

396
00:45:21.620 --> 00:45:26.620
So if you don't hate inequality of income and inequality of power, meaning economic power,

397
00:45:26.620 --> 00:45:31.620
you don't hate Bill Gates, or at least hate his position, then you have a medieval mind.

398
00:45:31.620 --> 00:45:36.620
So consequently, in quoting him,

399
00:45:36.620 --> 00:45:40.620
a substantial measure of inequality may be essential as an incentive,

400
00:45:40.620 --> 00:45:48.620
but it should be recognized as evil and tolerated only as far as it dictates of expediency are clear.

401
00:45:48.620 --> 00:46:03.620
The source of inequality of property among individuals in the form of external property and human capital, both skills and capacities and aptitudes, as well as material property, is mainly the family.

402
00:46:03.620 --> 00:46:08.620
That's the cause of inequality. So he's even more anti-family than knight.

403
00:46:08.620 --> 00:46:14.620
He says, both kinds of property are the result of investment. Both are largely inherited and hence are bound up with the family.

404
00:46:14.620 --> 00:46:20.620
Both are largely acquired by luck, and each is subject to deliberate transfer from parents to children.

405
00:46:20.620 --> 00:46:25.620
Thus, Smith urges government assumption of responsibilities, and I'm quoting him,

406
00:46:25.620 --> 00:46:31.620
once largely or exclusively those of families, notably as regards to health and education of children,

407
00:46:31.620 --> 00:46:34.620
and also substantial restriction on family accumulation of wealth.

408
00:46:34.620 --> 00:46:36.620
So he wants to smash the family.

409
00:46:36.620 --> 00:46:42.620
He wants to limit the amount of wealth they can accumulate, and he wants to take the children away and educate them all equally.

410
00:46:42.620 --> 00:46:46.620
Now, this is a free market economist, supposedly.

411
00:46:46.620 --> 00:46:53.620
Now, he says, although a commutative justice, which is simply freedom to exchange,

412
00:46:53.620 --> 00:46:57.620
is thus in conflict with distributive justice or equality,

413
00:46:57.620 --> 00:47:01.620
on the free market they are in a large degree reconcilable by government intervention.

414
00:47:01.620 --> 00:47:04.620
So, as long as the government can intervene and make everything equal,

415
00:47:04.620 --> 00:47:07.620
well then, commutative justice won't lead to bad results,

416
00:47:07.620 --> 00:47:25.620
He recommends sharply modifying the distributional results of free exchange, but he doesn't want to abolish the market process.

417
00:47:25.620 --> 00:47:29.620
What he wants is a progressive taxation of income and inheritance.

418
00:47:29.620 --> 00:47:41.620
In the short run, progressive taxation will suppress inequality of incomes while in the long run, these expenditures of the tax proceeds will expand health and educational services for children,

419
00:47:41.620 --> 00:47:46.620
which will result in leveling accretions of capacity, capital and possessed power.

420
00:47:46.620 --> 00:47:57.620
Now, he doesn't want to level people's material income, he wants to level their capacities and their power in the sense of persuasive power and so on, and prestige power.

421
00:47:57.620 --> 00:48:11.620
Then he says, according to the night, once equality of opportunity is assured by the state, the market may then be trusted to operate without precipitating a collision between the ideals of freedom to exchange and distributive justice.

422
00:48:11.620 --> 00:48:18.620
Now there's a second problem that night, Simon's attributes to the market economy, and this is caused by monopoly.

423
00:48:18.620 --> 00:48:22.620
He sees, he's really got a bugbear about monopoly.

424
00:48:22.620 --> 00:48:28.620
he sees a free market as a breeding ground for monopoly, because monopoly is purely and simply a problem of bigness, that's all it is.

425
00:48:28.620 --> 00:48:31.620
If a firm is big, it's per se monopolistic.

426
00:48:31.620 --> 00:48:38.620
And this violates the assumption of atomistic individualism, of the perfect competition.

427
00:48:38.620 --> 00:48:46.620
Thus, for example, he writes, business monopoly is largely and basically a problem of excessive corporate size,

428
00:48:46.620 --> 00:48:55.620
of corporate imperialism run mad, of the fantastic monstrous aggregation of businesses we mistakenly regard as monuments for economic efficiency.

429
00:48:55.620 --> 00:48:59.620
Now this is a supposedly positivist economist speaking here.

430
00:48:59.620 --> 00:49:09.620
He also says that every departure from perfect competition represents an encroachment of power on freedom and it requires remedying by the state.

431
00:49:09.620 --> 00:49:15.620
Because according to Simons, the ultimate liberty obviously is that of men equal in power.

432
00:49:15.620 --> 00:49:17.620
and Power.

433
00:49:17.620 --> 00:49:21.620
Simons also said that monopolies, or even large organizations of any type,

434
00:49:21.620 --> 00:49:24.120
quote, are not merely an economic evil.

435
00:49:24.120 --> 00:49:29.120
They are also an impairment or usurpation of the state monopoly of coercion

436
00:49:29.120 --> 00:49:31.620
and of individual freedom of association.

437
00:49:31.620 --> 00:49:39.620
So, churches, large clubs, he even says cities, and I'll quote,

438
00:49:39.620 --> 00:49:42.620
in fact, let me actually quote him here because it's right here, he says,

439
00:49:42.620 --> 00:49:48.420
He would actually have, in order to achieve the Knight's ideal of what he calls ultimate liberty,

440
00:49:48.420 --> 00:49:52.820
Simons would have the state literally crush into atoms, or atomized individuals,

441
00:49:52.820 --> 00:50:00.020
all other institutions capable of exercising power, meaning having a persuasive power over their members.

442
00:50:00.020 --> 00:50:08.220
And he includes churches, corporations, trade associations, labor unions, granges, professional associations, universities,

443
00:50:08.220 --> 00:50:13.820
Large organizations of any kind and even what he calls cancerous metropolises, large cities.

444
00:50:13.820 --> 00:50:18.820
He even forced them to disperse or to become smaller somehow.

445
00:50:18.820 --> 00:50:21.820
He doesn't exactly say how.

446
00:50:21.820 --> 00:50:28.820
So according to Simons then, there can be no other organization with power of any type except the state.

447
00:50:28.820 --> 00:50:36.420
So it's just the atomized individual, the perfectly free in his sense, atomized individual and the state.

448
00:50:36.420 --> 00:50:51.420
So this is, really, this is a neocon vision, where the central government has all the power and the mediating institutions between the individual and the central government are completely shorn of any power whatsoever.

449
00:50:51.420 --> 00:50:59.420
So it's just a citizen versus this Jacobin centralized government, which is supposedly a democracy.

450
00:50:59.420 --> 00:51:06.020
All right, now, Simon's laughably wrote an article, or wrote an article laughably entitled,

451
00:51:06.020 --> 00:51:11.020
A Positive Program for Laissez-Faire, Some Proposals for Liberal Economic Policy.

452
00:51:11.020 --> 00:51:14.020
Let me very quickly mention some of the things he says in here.

453
00:51:14.020 --> 00:51:17.420
If this is laissez-faire, then I'm a radical Protskist.

454
00:51:17.420 --> 00:51:25.820
All right, with regards to the methods of controlling monopoly, Simon recommends that every industry in the economy

455
00:51:25.820 --> 00:51:33.820
should either be rendered perfectly competitive by vigorously enforcing antitrust laws or in the cases of industries that enjoy certain economies of scale,

456
00:51:33.820 --> 00:51:40.820
which benefit consumers of course, such as railroads and utilities, they should be subject to outright socialization.

457
00:51:40.820 --> 00:51:47.820
In the former case, this should result in outright dismantling of our gigantic corporations,

458
00:51:47.820 --> 00:51:54.820
persistent prosecution of our producers who organize for price maintenance, or outright limitation.

459
00:51:54.820 --> 00:52:01.820
Also, corporation law should be completely changed, so as to specify a limit on the total amount of property that a corporation may accumulate.

460
00:52:01.820 --> 00:52:08.820
So, no matter what industry you're in, there'll be a limit on how large a corporation can grow.

461
00:52:08.820 --> 00:52:11.820
I guess in terms of either sales or assets or whatever it is.

462
00:52:11.820 --> 00:52:19.820
In addition to this general limit on the size of the corporation, he wants the Federal Trade Commission to mandate a limit for each particular industry.

463
00:52:19.820 --> 00:52:23.820
And all horizontal mergers would be prohibited.

464
00:52:23.820 --> 00:52:30.820
Now, secondly, he regards retailing as a racket, engaged in wasteful competition of merchandising and advertising.

465
00:52:30.820 --> 00:52:36.820
Now, in order to limit the waste of advertising and what he calls the artificial separation of wholesale and retail markets.

466
00:52:36.820 --> 00:52:41.820
Now, why is that artificial separation of wholesale and retail?

467
00:52:41.820 --> 00:52:47.820
Because under perfect competition, there's a producer, and as the consumer goes to the producer, buys things.

468
00:52:47.820 --> 00:52:58.820
Now, he calls that artificial, the real world, the emergence of a real world evolved institution of retail and wholesale markets is artificial,

469
00:52:58.820 --> 00:53:07.820
whereas this supposedly ideal that he and Knight has come up with in their cracked brains, that's natural.

470
00:53:07.820 --> 00:53:12.820
Well, how is that natural? To treat people as slot machines and so on. That's absurd.

471
00:53:12.820 --> 00:53:24.820
Right, so thirdly, by the way, we get rid of this artificial separation by punitive taxes, which would be levied on advertisers,

472
00:53:24.820 --> 00:53:34.820
so we punish advertisers by heavily taxing them, and progressive taxes on manufacturers and jobbers in proportion to the percentage of total expenses constituted by their selling expenses.

473
00:53:34.820 --> 00:53:47.820
Selling Expenses, that is, whatever they didn't spend strictly on producing the good, the physical good, anything they spent on marketing, anything they spent on sales, would be taxed, to stop them from that activity.

474
00:53:47.820 --> 00:53:53.820
Then he says to alleviate the business cycle, he argues for absolute federal control over money and banking.

475
00:53:53.820 --> 00:54:01.820
He wants all private bank notes suppressed, all private bank deposits unbacked by 100% reserves, and that's paper money reserves.

476
00:54:01.820 --> 00:54:13.820
He wants that suppressed, he would even, because they're near money, because people tend to hold them to economize their cash balances,

477
00:54:13.820 --> 00:54:19.820
and because he wants the Federal Reserve to completely control the money supply, he would even prevent firms from issuing bonds any longer.

478
00:54:19.820 --> 00:54:29.820
They can only issue stocks, because we know that bonds issued by reputable firms are held as sort of secondary reserves in people's cash balances, even though they're not part of the money supply.

479
00:54:29.820 --> 00:54:35.820
He was a specialist in taxation. He wrote a book on personal income tax.

480
00:54:35.820 --> 00:54:43.820
That was his preferred tool for effecting the radical transformation of the various evolved institutions of the historical market, including family.

481
00:54:43.820 --> 00:54:53.820
He wanted to radically and heavily tax everything that resulted in a departure from what he believed was a free market,

482
00:54:53.820 --> 00:55:00.620
But he wanted to allow the market to operate within that heavy regime of taxation, okay?

483
00:55:01.620 --> 00:55:07.820
What he wanted, he wanted to abolish all taxes that distort the market like tariffs and excise taxes.

484
00:55:07.820 --> 00:55:10.820
But he wanted to close all loopholes, okay?

485
00:55:10.820 --> 00:55:13.620
And drastically increase the progression of taxes.

486
00:55:13.620 --> 00:55:20.620
And he says, really substantial levies upon the so-called middle and lower income brackets.

487
00:55:20.620 --> 00:55:23.020
So he even wanted to heavily tax them.

488
00:55:23.020 --> 00:55:29.820
Then he proposed, he wanted to retain property taxation to represent the established equity of the state in real property.

489
00:55:29.820 --> 00:55:32.420
So the state was going to be a part owner of all land.

490
00:55:32.420 --> 00:55:37.120
Okay, the other thing he wanted to do was, you know, in answer to the question,

491
00:55:37.120 --> 00:55:39.820
well, wouldn't these high marginal tax rates discourage business?

492
00:55:39.820 --> 00:55:44.020
Wouldn't it discourage resource owners from, you know, selling their land?

493
00:55:44.020 --> 00:55:47.820
And wouldn't discuss highly skilled laborers from working?

494
00:55:47.820 --> 00:55:51.420
And wouldn't discourage, rather not discuss, discourage entrepreneurs?

495
00:55:51.420 --> 00:56:00.420
He says, no, no, no, as long as we allow them to keep, as long as the taxes are less than 100%, people will use their land in production.

496
00:56:00.420 --> 00:56:03.420
So, 90%, that'd be fine.

497
00:56:03.420 --> 00:56:10.420
He also says that the same thing is true with the captains of industry, or the capitalist entrepreneurs.

498
00:56:10.420 --> 00:56:15.420
He says, because really, they're not engaged in earning a living, according to him.

499
00:56:15.420 --> 00:56:22.420
He says they're engaged in, quote, playing a great game, whose stakes may just as well be a prominent representation on the income tax rolls.

500
00:56:22.420 --> 00:56:27.420
In other words, the return would be, yeah, I pay high income taxes.

501
00:56:27.420 --> 00:56:34.420
It may just as well be that as outfitting one's wife with sable and diamonds, or what their wives have to say about that.

502
00:56:34.420 --> 00:56:41.420
Hey, look, honey, I'm third on income tax. I pay the third highest income tax in the country. Oh, that's great.

503
00:56:41.420 --> 00:56:49.420
The heavily taxed entrepreneurs would also maintain enthusiasm for the game.

504
00:56:49.420 --> 00:56:54.420
This whole thing about the game, this crazy thing about the game, because it affords them the privilege of exercising power.

505
00:56:54.420 --> 00:56:57.420
Because they're still going to order people around.

506
00:56:57.420 --> 00:57:04.420
Not in the sense that politicians can order people around, but in the sense that they can direct people how to use capital and so on.

507
00:57:04.420 --> 00:57:12.660
All right, so he's crazed, he's certainly not a libertarian, he's out now, Jacobin.

508
00:57:14.660 --> 00:57:24.140
And then he goes even further, he says, granting that confiscatory taxation is non-neutral to capital accumulation and economic progress.

509
00:57:24.140 --> 00:57:33.620
In other words, he does admit that it may have an effect on saving, that maybe we won't progress as rapidly with our material progress, if there's this high taxation.

510
00:57:34.420 --> 00:57:38.020
He says, well, that's just a fact of life.

511
00:57:38.020 --> 00:57:41.540
Progress and justice are costly luxuries when you have to trade one off against the other.

512
00:57:41.540 --> 00:57:45.900
If we want more justice, we're going to have less progress.

513
00:57:45.900 --> 00:57:52.660
He also goes on to say, and if saving becomes too little, we'll just have the state save.

514
00:57:52.660 --> 00:57:56.940
He says, anyway, saving in the past has, and Keynes says almost the exact same thing,

515
00:57:56.940 --> 00:58:02.500
saving in the past under laissez-faire has come at the expense of a lack of consumption

516
00:58:02.500 --> 00:58:15.500
on the part of the lower classes, so he echoes Keynes there, though he hated Keynes, just like Knight did, just like Stalin and Hitler hated one another.

517
00:58:15.500 --> 00:58:24.500
Anyway, as he points out, he says, this will allow us, as heavy taxation, a great opportunity for expanding socialized consumption.

518
00:58:24.500 --> 00:58:34.500
Okay, he loves socialized consumption. He says we may look forward to confidently to continued augmenting of the free income of the masses in the form of commodities and services made available by government.

519
00:58:34.500 --> 00:58:47.500
There are remarkable opportunities for extending the range of socialized consumption, medical services, recreation, education, music, drama, and especially for extending the range of social welfare activities.

520
00:58:47.500 --> 00:59:17.500
Okay, now this is someone who thought he was a liberal and who was one of the founding members of the Mont Pelerin Society, okay, but he simply announced, well I mean he's moving towards socialism there, talking about status, and he goes even further, he says, if there's a real falling off in capital accumulation, okay, and if we're actually going to consume capital because there's so much consumption, he goes on to say, well then the government may accumulate capital, right,

521
00:59:17.500 --> 00:59:29.500
And it can pay off the public debt, and that's a way of accumulating capital, and if additional savings are still necessary, it can begin to operate as a passive creditor to private industry, so it can start to lend to private industry.

522
00:59:29.500 --> 00:59:42.500
And then he goes even further, and he says, the government may gradually abandon its passive creditor role and undertake the actual administration of industries, it may actually take over industries.

523
00:59:42.500 --> 00:59:49.500
He says, this doesn't have to overcome, this may come to pass as socialization of production, but it doesn't have to, okay?

524
00:59:49.500 --> 00:59:53.500
You know, it will only happen if there's not enough capital accumulation.

525
00:59:53.500 --> 00:59:55.500
Okay, let's go to Milton Friedman.

526
00:59:55.500 --> 00:59:59.500
Okay, so does anyone think Knight is a liberal? Or a libertarian?

527
00:59:59.500 --> 01:00:03.500
I mean, Simon is a liberal or a libertarian? Certainly not.

528
01:00:07.500 --> 01:00:09.500
I mean, you have to go back and read these.

529
01:00:09.500 --> 01:00:23.500
When the paper is done, I'll give you all the citations, it really is amazing that Milton Friedman was the one who whitewashed his masters and really painted them as libertarians, he and George Stigler.

530
01:00:23.500 --> 01:00:38.500
And Friedman is much more libertarian, as you'll see, than either Simons or Knight, but there still is a Jacobin streak in Friedman, and it comes out in some of his proposals.

531
01:00:38.500 --> 01:01:08.500
So he was a student of both Knight and Simons, he eventually became the acknowledged leader of the Newer Chicago School, Friedman and other prominent members of the Newer School have openly repudiated or apologized for some of Simons interventionist orientation in economic policy, but George Stigler, well that's Simons, he just went a little too far, I've seen Stigler write things like that.

532
01:01:08.500 --> 01:01:16.500
That's crazy, Henry. I just went too far. That was their attitude. They didn't take him that seriously when he started talking about these types of things.

533
01:01:16.500 --> 01:01:23.500
But they did take the philosophy very seriously, including Friedman. And the philosophy is the root of the rot.

534
01:01:23.500 --> 01:01:35.500
Friedman begins inividian vein and basically Friedman's capitalism and freedom. Friedman's capitalism and freedom is where you get much of this stuff.

535
01:01:35.500 --> 01:01:44.500
He declares freedom of the individual or perhaps the family is our ultimate goal in judging social relations.

536
01:01:44.500 --> 01:01:53.500
He says that as a component of freedom, economic freedom is both a value in itself and an indispensable means for achieving political freedom.

537
01:01:53.500 --> 01:02:00.500
And he points out that competitive capitalism is the embodiment of economic freedom and serves to promote political freedom.

538
01:02:00.500 --> 01:02:05.500
So he's much more pro-freedom than certainly Knight or Simons was or were.

539
01:02:05.500 --> 01:02:14.500
He says the ideal of economic freedom is defined by, or this ideal is defined by freedom in terms of Knight-Simons conception of a perfect market.

540
01:02:14.500 --> 01:02:19.500
Thus, in a competitive market, according to Friedman, the individual possesses, quote,

541
01:02:19.500 --> 01:02:22.500
no appreciable power to alter the terms of exchange.

542
01:02:22.500 --> 01:02:24.500
He is hardly visible as a separate entity.

543
01:02:24.500 --> 01:02:27.500
So he's going back to the slot machine idea here.

544
01:02:27.500 --> 01:02:42.500
He does believe in perfect competition. He slips here. He's talking about this as an ideal. He's not talking about this as some sort of a positive, perfect competition as a positive tool for generating hypotheses that are testable.

545
01:02:42.500 --> 01:02:47.500
That's not what he's doing here. He's defining freedom in a certain sense.

546
01:02:47.500 --> 01:02:53.500
He concludes that the essence of a competitive market is its impersonal character.

547
01:02:53.500 --> 01:02:56.500
He says that a lot throughout his work, quote unquote.

548
01:02:56.500 --> 01:03:00.500
It's impersonal character, i.e. the slot machine vending machine analogy.

549
01:03:00.500 --> 01:03:07.500
He doesn't use that analogy, but that's what he has in the back of his mind, this whole idea about impersonal.

550
01:03:07.500 --> 01:03:13.500
That we treat each other as sort of non-entities when we exchange.

551
01:03:13.500 --> 01:03:18.660
On the other hand, when there are an insufficient number of alternative sellers from whom the consumer can purchase,

552
01:03:18.660 --> 01:03:22.300
or an insufficient number of buyers to whom the seller is able to offer his products,

553
01:03:22.300 --> 01:03:23.700
each is subject to coercion.

554
01:03:23.700 --> 01:03:27.180
He says that in Capitalism and Freedom.

555
01:03:27.180 --> 01:03:30.020
He says each is subject to coercion.

556
01:03:30.020 --> 01:03:35.260
If there are too few sellers, then I, as a buyer, in some sense, in the 19th century sense,

557
01:03:35.260 --> 01:03:38.140
I, as a buyer, am subject to coercion.

558
01:03:38.140 --> 01:03:40.740
He says, exchange is truly voluntary, and I'm quoting him here,

559
01:03:40.740 --> 01:03:44.140
only when nearly equivalent alternatives exist, okay?

560
01:03:45.140 --> 01:03:47.340
So you see the 90-and philosophy there.

561
01:03:47.540 --> 01:03:49.540
Monopoly implies the absence of alternatives,

562
01:03:49.540 --> 01:03:53.140
and thereby inhibits effective freedom of exchange, okay?

563
01:03:53.540 --> 01:03:54.740
That's, I'm quoting him again.

564
01:03:54.940 --> 01:03:58.340
Now, Friedman does admit that the notion of monopoly he is propounding

565
01:03:59.140 --> 01:04:01.140
is really the ordinary concept of competition.

566
01:04:01.140 --> 01:04:03.540
In other words, where sellers are unequal,

567
01:04:03.540 --> 01:04:06.740
and where they're all trying to give you a better package,

568
01:04:06.740 --> 01:04:16.740
So he admits that what he's saying is monopoly is really the common sense notion of competition, which brings us to his view of monopoly.

569
01:04:16.740 --> 01:04:23.740
He goes much easier on monopoly. He's not as rabidly anti-monopoly as Simons and Knight.

570
01:04:23.740 --> 01:04:28.740
Monopoly in the sense of large firms operating on a free market.

571
01:04:28.740 --> 01:04:33.540
of Large Firms Operating on a Free Market.

572
01:04:33.540 --> 01:04:35.620
What he says is the following.

573
01:04:35.620 --> 01:04:38.700
He does not conclude, as do Knight and especially Simons,

574
01:04:38.700 --> 01:04:40.620
that real world markets are fraught

575
01:04:40.620 --> 01:04:43.220
with monopolistic imperfections that

576
01:04:43.220 --> 01:04:47.660
require remedial measures such as antitrust.

577
01:04:47.660 --> 01:04:50.140
The reason why is because of his methodology

578
01:04:50.140 --> 01:04:51.220
of positive economics.

579
01:04:51.220 --> 01:04:53.260
He says, yes, yes, we have large firms.

580
01:04:53.260 --> 01:04:54.900
It departs from perfect competition.

581
01:04:54.900 --> 01:05:05.980
If you look at it strictly in realistic terms, he uses the term ideal types.

582
01:05:05.980 --> 01:05:13.100
He says economic concepts such as competition are, quote, ideal types, like Euclidean lines or points, okay?

583
01:05:13.100 --> 01:05:17.540
The strict lines and points don't exist, okay?

584
01:05:17.540 --> 01:05:24.740
However, he says, their appropriateness are determined not by their ability to provide an accurate description of existing reality,

585
01:05:24.740 --> 01:05:31.240
but by their analytical usefulness in generating hypotheses that successfully withstand empirical tests of falsification.

586
01:05:31.240 --> 01:05:48.740
So now you can see that what he's trying to do is to take this unrealistic conception of competition and revive it and to hide the fact or obscure the fact that it's really just an ideal that has arisen out of Knight's ethics.

587
01:05:48.740 --> 01:05:54.240
He's trying to say it's a tool like a Euclidean line or a point that allows us to do science.

588
01:05:54.240 --> 01:06:00.240
Even though, earlier, he has defined competition and he has defined freedom in 19 terms.

589
01:06:00.240 --> 01:06:08.240
So he's shrewd and he's brilliant in rehabilitating Chicago economics.

590
01:06:08.240 --> 01:06:15.240
And making people forget the fact that it just emanated almost full blown from the brain of Frank Knight.

591
01:06:15.240 --> 01:06:26.240
So Friedman sought to deflect attention from the idealized and radically non-empirical source of the analytical concepts of Chicago economics,

592
01:06:26.240 --> 01:06:37.240
the non-empirical source being Knight's intuition, by arguing that the realism of a theory's assumptions has nothing to do with establishing its validity as a positive explanation of economic phenomena.

593
01:06:37.240 --> 01:06:43.240
Now, Sanderson once described Friedman as a crypto-positivist, which is completely wrong.

594
01:06:43.240 --> 01:06:51.240
Friedman is better described in my terminology as a crypto-idealist. That's in fact what he is.

595
01:06:51.240 --> 01:06:57.240
He's hiding the intuitionist basis of the perfect competition model.

596
01:06:57.240 --> 01:07:01.240
Anyway, now what would he do to rectify monopolistic inefficiencies?

597
01:07:01.240 --> 01:07:06.240
He says, well, in the case of natural or technical monopolies, they're very rare.

598
01:07:06.240 --> 01:07:10.240
The conditions of their existence tend to be eliminated over time by market forces.

599
01:07:10.240 --> 01:07:15.520
And he even comes out and says an unregulated private monopoly is better than a government regulated monopoly.

600
01:07:15.520 --> 01:07:18.240
So he wouldn't do much about them.

601
01:07:18.240 --> 01:07:23.800
He says this would be true unless it is an essential commodity or service

602
01:07:23.800 --> 01:07:27.680
whose technical conditions of supply yield a seller considerable monopoly power.

603
01:07:27.680 --> 01:07:31.320
In that case he would have the government do something about it.

604
01:07:31.320 --> 01:07:35.280
Now he says in the case of monopolies whose sources are private collusion,

605
01:07:35.280 --> 01:07:38.280
not natural monopolies, but ones that result from private collusion,

606
01:07:38.280 --> 01:07:45.280
or government grants of legal privileges, the remedy is the application of antitrust laws or the withdrawal of the exclusive privilege.

607
01:07:45.280 --> 01:07:54.280
So, in 1962, he's in favor of applying antitrust laws and, in fact, he puts collusion into the same category as government privileges.

608
01:07:54.280 --> 01:08:05.280
Collusion on the free market between free individuals and entrepreneurs who have decided that it would be more profitable to make some decisions in unison.

609
01:08:08.280 --> 01:08:15.280
He also said, alright, so he doesn't believe that this whole idea that there's a lot of monopoly justifies a lot of government intervention in the economy, number one.

610
01:08:15.280 --> 01:08:26.280
Number two, also, the attainment of the ideal of, well, that's the attainment of the ideal of efficiency does not afford a justification for extensive government intervention into the free market.

611
01:08:26.280 --> 01:08:33.280
But according to him, neither does the alleged conflict, and these are my words, between the ideals of freedom or efficiency and distributive justice.

612
01:08:33.280 --> 01:08:56.280
In Friedman's view, on a free market, you tend to get a situation in which, if there is inequality, it tends to be as a result of the fact that people put forth different efforts, number one, or they have different amounts of human capital, number two.

613
01:08:56.280 --> 01:09:10.280
But he can't really bring himself, and by the way, he also says that you do tend, and also people take different types of risks in the market economy.

614
01:09:10.280 --> 01:09:14.280
So it's a result of choice to a great extent.

615
01:09:14.280 --> 01:09:21.280
So he thinks that distribution in accordance with product should be the ideal.

616
01:09:21.280 --> 01:09:27.280
He disagrees with Friedman and Simons that it should be equal distribution.

617
01:09:27.280 --> 01:09:33.280
However, he cannot bring himself entirely to put aside Knight's conception of distributive justice.

618
01:09:33.280 --> 01:09:35.280
So he argues that, quote,

619
01:09:35.280 --> 01:09:44.280
Quote, much of the actual inequality observed in the distribution of income is due to imperfections in the market caused by special treatment accorded by government to favored groups.

620
01:09:44.280 --> 01:09:48.280
And he would abolish these monopoly privileges and tariffs, etc.

621
01:09:48.280 --> 01:09:51.280
And that will tend to diminish inequality.

622
01:09:51.280 --> 01:10:00.280
He also proposes and defends the possibility that a large part of the existing inequality of wealth can be regarded as produced by men to satisfy their tastes and preferences for risk.

623
01:10:00.280 --> 01:10:02.280
People take risks and they lose money and so on.

624
01:10:02.280 --> 01:10:12.280
So, he's not really upset about the fact that we have some inequality and he believes it tends to be diminished on the market as opposed to other arrangements like socialism.

625
01:10:15.280 --> 01:10:22.280
Now, Friedman argues that freedom and distributive equality are complementary rather than antithetical.

626
01:10:22.280 --> 01:10:35.000
Antithetical, and this rests on Adam Smith's assertion that differences among individuals in labor skills and productivities are not the result of innate human differences, but reflect an inequality of educational and vocational training opportunities.

627
01:10:35.000 --> 01:10:39.720
So here he becomes a Knightian. Here he thinks that there's a better way to get rid of inequality.

628
01:10:39.720 --> 01:10:43.920
After saying basically there's nothing wrong with it, he comes up with a better way to get rid of it.

629
01:10:43.920 --> 01:10:49.440
And this would be his ideal of what he calls equality of opportunity.

630
01:10:49.440 --> 01:10:55.440
So he uses the Nidian terminology and also the terminology of Jacobins, he wants the equality of opportunity.

631
01:10:55.440 --> 01:11:01.440
Now what does that mean? According to him, equality conceived in this manner is an essential component of liberty, quote unquote.

632
01:11:01.440 --> 01:11:07.440
In describing equality of opportunity, Friedman adopts a phrase coined by the Jacobins during the French Revolution.

633
01:11:07.440 --> 01:11:17.440
Quote, a career open to the talents, unquote. So anybody should be able to get any job who has the requisite qualities and aptitudes.

634
01:11:17.440 --> 01:11:28.440
And this implies, according to Friedman, not birth, nationality, color, religion, sex, nor any other irrelevant characteristic should determine the opportunities that are open to a person, only his abilities, unquote.

635
01:11:28.440 --> 01:11:41.440
On the other hand, Friedman mentions private barriers to competition, and even social practices, which yield special advantages to individuals depending on their family, race or religion, as constituting an impairment of equality of opportunity.

636
01:11:41.440 --> 01:12:11.440
So, he doesn't come out in capitalism and freedom, or anywhere else, in favor of equal opportunity laws, or affirmative action laws, but he does mention that racial discrimination, or discrimination according to family background or religion, he sees that, even though it's voluntary and purely private, he does see that as a violation of equality of opportunity, but he doesn't, to his credit,

637
01:12:11.440 --> 01:12:16.440
come out and suggest any corrections to that.

638
01:12:16.440 --> 01:12:24.440
So basically he's demolished the two major intellectual props for government intervention that his mentors had developed.

639
01:12:24.440 --> 01:12:34.440
So what is his reason for promoting, in some cases, extensive government intervention?

640
01:12:34.440 --> 01:12:47.440
And basically, he introduces the scientific concept, which Sanderson had pioneered, or actually before that, Pagu, of externalities, okay?

641
01:12:47.440 --> 01:12:49.440
He calls them neighborhood effects, right?

642
01:12:49.440 --> 01:13:03.440
So now what he wants to do is, he gets rid of these other fuzzy reasons for intervention, and he comes up with what he believes is a scientific bedrock for the Knight-Simon welfare state, okay?

643
01:13:03.440 --> 01:13:14.440
And that's neighborhood effects. And what do we mean by that? Well, he says, external benefits and costs are widespread, just like Knight believed, in a system of voluntary exchange.

644
01:13:14.440 --> 01:13:19.440
And a large degree of government intervention into the economy can be justifiable on these grounds. And those are my words.

645
01:13:19.440 --> 01:13:31.440
However, Friedman points out that government action also generates externalities, to his credit, so that the task of determining the exact extent of government intervention is a matter of comparing the costs and benefits of such intervention.

646
01:13:31.440 --> 01:13:41.440
So now, in Friedman's estimation, there are three areas that require significant involvement of the state, and they are education, alleviation of poverty, and the monetary system.

647
01:13:41.440 --> 01:13:51.440
In the area of education, he says that all members of society benefit from an educated child, who is likely to develop into an informed voter and better citizen.

648
01:13:51.440 --> 01:14:00.440
Now, that generates neighborhood effects. People are benefiting from this. You and I are benefiting from someone else's educated child, but we're not paying for the benefits.

649
01:14:00.440 --> 01:14:07.440
That's not good. That violates commutative justice. We're getting benefits that we're not paying for.

650
01:14:07.440 --> 01:14:17.440
So, what would he do? He says, because the potential third-party beneficiaries of the individual's education cannot be efficiently identified,

651
01:14:17.440 --> 01:14:22.440
Because you can't identify how much benefit each of us gets and therefore charge us separately.

652
01:14:22.440 --> 01:14:27.440
Educational services will tend to be under-produced on the free market.

653
01:14:27.440 --> 01:14:35.440
So for Friedman, this state of affairs justifies compulsory attendance laws and state financing and certification of schools.

654
01:14:35.440 --> 01:14:41.440
Although not necessarily state administration of any, let alone all schools. In other words, he didn't believe in public schools.

655
01:14:41.440 --> 01:14:51.440
In 1962 he believed that you should have compulsory attendance laws, all children should be forced to attend and the government should finance that education through vouchers, for example.

656
01:14:51.440 --> 01:14:55.440
But there doesn't have to be government or socialistic running of the schools.

657
01:14:55.440 --> 01:15:10.440
So what he did favor as a practical program in 1962 was a hybrid, some public schools and sort of a hybrid public-private system of primary and secondary schools financed by vouchers.

658
01:15:10.440 --> 01:15:16.440
It's a massive intervention into family decision making and how much they want to spend on their kids' education.

659
01:15:16.440 --> 01:15:19.440
A massive intervention into an important area of the market.

660
01:15:19.440 --> 01:15:28.440
He also argued that state vouchers for professional and vocational training may also be defended on grounds that imperfections in the capital markets

661
01:15:28.440 --> 01:15:33.440
lead to underinvestment in human capital relative to the investment in physical capital.

662
01:15:33.440 --> 01:15:39.440
And the Chicago School always stresses this, that there's not enough investment in human capital.

663
01:15:39.440 --> 01:15:44.040
In fact, there's underinvestment and there's too much investment in physical capital.

664
01:15:44.040 --> 01:15:49.440
Now, why would that be? What's the imperfection in the capital market that they identify?

665
01:15:49.440 --> 01:15:51.440
We don't have slavery.

666
01:15:51.440 --> 01:16:03.040
So, you can't make a contract with the bank for a loan to finance your vocational and professional training.

667
01:16:03.040 --> 01:16:08.140
And if you default on the loan, the bank isn't able to enslave you and force you to work for them.

668
01:16:08.140 --> 01:16:16.540
Because of this imperfection in the capital markets, therefore, that justifies government financing these activities, okay?

669
01:16:16.540 --> 01:16:23.140
I don't think it's an imperfection of the capital market. I think that's the real world, the real world of a free market economy, okay?

670
01:16:23.140 --> 01:16:32.340
Your will is inalienable. You can't be taken, if you default on a loan, they can seize your assets, but, you know, they can't force you to work for them, okay?

671
01:16:32.340 --> 01:16:37.140
Or maybe they could if you made a contract that, you know, you would work for them.

672
01:16:37.140 --> 01:16:49.140
In any case, he says existing imperfections in the capital market can restrict the more expensive vocational and professional training to individuals whose parents or benefactors can finance the training required.

673
01:16:49.140 --> 01:16:54.140
He's talking about doctors, lawyers, advanced scientists and so on.

674
01:16:54.140 --> 01:17:02.140
They make such individuals a non-competing group sheltered from competition by the unavailability of the necessary capital to many able individuals.

675
01:17:02.140 --> 01:17:05.140
The result is to perpetuate inequalities in wealth and status.

676
01:17:05.140 --> 01:17:11.640
So, it's hard for him to prevent himself from slipping back into nightian terminology, right?

677
01:17:11.640 --> 01:17:15.140
Because as I said, it's this philosophy that's at the root of all of this, okay?

678
01:17:15.140 --> 01:17:22.640
Thus, for Friedman, the ideals of economic efficiency as well as equality of opportunity dictate significant control over the supply

679
01:17:22.640 --> 01:17:27.140
and ultimately the quality of education from kindergarten to medical school, okay?

680
01:17:27.140 --> 01:17:37.140
Friedman felt compel to record his increasing doubts about the efficiency of compulsory attendance laws in 1980 and free to choose, okay,

681
01:17:37.140 --> 01:17:47.140
and even in tax financing for elementary and secondary education, because he had come to believe that the cost of such political remedies of market failure no longer exceeded their benefits.

682
01:17:47.140 --> 01:17:56.140
So there were still neighborhood effects and so on, but the costs of government running the system were much higher than the benefits that all of us received, so we shouldn't do it.

683
01:17:56.140 --> 01:18:09.140
So he was trying to put a scientific veneer over every program, a positive veneer of economic science over every program that he advocated.

684
01:18:09.140 --> 01:18:16.140
Finally, regarding alleviation of poverty, Friedman argues that donations to private charity will tend to be inefficiently small.

685
01:18:16.140 --> 01:18:23.140
Now why? Well, because each would-be donor will be tempted to free ride on the beneficial effects generated by the donations of others.

686
01:18:23.140 --> 01:18:29.140
I don't really see that. I see generous people all around me, giving to their churches and their communities and volunteering.

687
01:18:29.140 --> 01:18:33.140
Where he comes up with this, I don't know.

688
01:18:33.140 --> 01:18:40.140
And also, what about people, as Murray Rothbard pointed out, that think that charity goes too far in some sense.

689
01:18:40.140 --> 01:18:45.140
If you're William Graham Sumner, an able-bodied person maybe shouldn't get charity.

690
01:18:45.140 --> 01:18:48.140
He's out of work, but maybe it was his own fault or something.

691
01:18:48.140 --> 01:18:52.460
I mean, in other words, you don't know if everyone, I'm not saying that that should be your attitude,

692
01:18:52.460 --> 01:18:55.180
I'm saying that you don't know if everyone has the attitude that,

693
01:18:55.180 --> 01:19:01.340
oh yes, I'm glad that Simon gave Lauren five dollars for lunch.

694
01:19:01.340 --> 01:19:02.420
Oh, it makes me feel good.

695
01:19:02.420 --> 01:19:08.860
I might not, you know, I might think that Lauren is too heavy and shouldn't be eating much more.

696
01:19:08.860 --> 01:19:09.940
But you get the idea.

697
01:19:09.940 --> 01:19:15.620
All right, so finally, so he says he comes up with a massive welfare state program.

698
01:19:15.620 --> 01:19:18.100
What do you think comes out of all of this?

699
01:19:18.100 --> 01:19:22.540
Because all the Chicago economists always want to run their welfare state efficiently,

700
01:19:22.540 --> 01:19:26.140
that's a big thing, they want the market to do as much as possible,

701
01:19:26.140 --> 01:19:33.980
he comes up with, once again, with all welfare programs, the whole panoply of welfare programs that had grown up by the 60s and more by the 80s,

702
01:19:33.980 --> 01:19:38.380
and simply institutes a very simple negative income tax.

703
01:19:38.380 --> 01:19:44.220
So, if you have less than a certain income, the government would send you a check in the mail.

704
01:19:44.220 --> 01:19:53.220
This is basically implementing a minimum living standard and this has tremendous effects, economic effects, on people's incentives to work and so on.

705
01:19:53.220 --> 01:20:02.220
And it's inefficient, for example, for the Chicago School, it's inefficient to give somebody food stamps, it's inefficient to pay somebody's rent.

706
01:20:02.220 --> 01:20:11.220
Why? Well, because from the point of view of the individual, we know that money, they may have better uses for the value of those benefits.

707
01:20:11.220 --> 01:20:16.220
They may want to spend it on drugs or alcohol. That may have a higher utility to them.

708
01:20:16.220 --> 01:20:21.220
So it's inefficient to actually give them in-kind transfers.

709
01:20:21.220 --> 01:20:26.220
That's one of the reasons why he's against in-kind transfers and just wants to give sums of money.

710
01:20:26.220 --> 01:20:29.220
Well, now that's true in gift-giving.

711
01:20:29.220 --> 01:20:34.220
A person would always, now apart from special occasions, birthdays and so on,

712
01:20:34.220 --> 01:20:38.220
you'd get killed if you gave your wife or girlfriend, here's $100.

713
01:20:38.220 --> 01:20:40.220
I think Seinfeld did that once to Elaine.

714
01:20:40.220 --> 01:20:53.220
You can't do that because it's not purely the act of giving a sum of money that is involved there.

715
01:20:53.220 --> 01:20:58.220
There, a person derives a further benefit from the thoughtfulness that goes into the gift.

716
01:20:58.220 --> 01:21:00.220
But where you don't know someone, you want to help them.

717
01:21:00.220 --> 01:21:05.220
The best way to help them, certainly, is to give them a sum of money because they know their interests best.

718
01:21:05.220 --> 01:21:08.220
That's true in a voluntary charitable relationship.

719
01:21:08.220 --> 01:21:14.220
But, why should it be inefficient, you know, if you want to help somebody, you know, why not just...

720
01:21:14.220 --> 01:21:19.220
Look, I know this guy drinks all the time, but I don't want him to starve to death, so I'll buy him a meal.

721
01:21:19.220 --> 01:21:28.220
I think that's efficient, okay? Or, you know, I don't want him to spend the money on drugs, so I'll pay a month's rent for him.

722
01:21:28.220 --> 01:21:41.220
Chicago economists are economistic, where they substitute economics for ethical judgments in certain situations.

723
01:21:41.220 --> 01:21:50.220
And finally and lastly, he defends the monetarist program of a national fiat currency monopolized by a central bank

724
01:21:50.220 --> 01:21:57.220
because he believes that there's a large savings in resource costs of gold or

725
01:21:57.220 --> 01:22:01.580
another commodity money, okay, and not only that he believes that that gold

726
01:22:01.580 --> 01:22:07.740
doesn't effectively meet changes in the demand for money and therefore can cause

727
01:22:07.740 --> 01:22:10.860
deflation and inflation. Okay, I'll stop here, I'll take any questions that you have.

728
01:22:10.860 --> 01:22:26.860
It is ethical theory to deny the assignment ever trying to give any kind of objective content to people, because it seems like if ethical ideals are inherently unattainable, if we attempt to use the word evil, then you mean...

729
01:22:40.860 --> 01:22:46.860
Inequality is evil, has a medieval mentality.

730
01:22:46.860 --> 01:22:50.860
So that is interesting. I think, no, they don't talk about anything as evil.

731
01:22:50.860 --> 01:22:54.860
They just talk about moving toward or away from these ideals.

732
01:22:54.860 --> 01:23:00.860
Because it would seem like everything is inherently evil.

733
01:23:00.860 --> 01:23:03.860
I don't think you could say that.

734
01:23:03.860 --> 01:23:15.860
because it's almost a Marxian notion of stages of history where you're moving towards the social mind becoming conscious of itself.

735
01:23:15.860 --> 01:23:25.860
I actually don't fully answer your question, but that would be an interesting research problem or a minor research problem or a note.

736
01:23:25.860 --> 01:23:32.160
I think what has to be done is, I'm not a philosopher, I think someone else, a philosopher,

737
01:23:32.160 --> 01:23:39.360
to go back and look at Knight, he's written so much more than even I could look at, it's unbelievable how much he wrote on philosophy and ethics.

738
01:23:39.360 --> 01:23:46.560
I think a trained philosopher could go back and look at this stuff and try to come up with a coherent explanation and critique of what he's saying.

739
01:23:46.560 --> 01:23:55.760
I was just giving a critique of the economic implications of these ethics, but something more thoroughgoing has to be done.

740
01:23:55.760 --> 01:24:11.120
other questions comments yeah well I'll have to look at that yeah I'll take a

741
01:24:11.120 --> 01:24:17.240
look at that yeah let me mention one other thing the the philosopher Eric

742
01:24:17.240 --> 01:24:35.240
Connell Ledeen, well, I won't give the exact quote, but he didn't think much of Milton Friedman's philosophical profundity or his breadth of education.

743
01:24:35.240 --> 01:24:39.240
He thought he was very, very narrow, let's put it that way.

744
01:24:39.240 --> 01:24:47.240
And it's interesting, in one of the, two things, there's a couple of Friedman interviews in which he really lets himself go.

745
01:24:47.240 --> 01:24:52.240
In one interview, he says, someone asks him, who was the greatest philosopher?

746
01:24:52.240 --> 01:24:59.240
And he says, L. Jimmy Savage, who was a probability theorist who worked at the University of Chicago and helped with probability theory.

747
01:24:59.240 --> 01:25:05.240
He really didn't, he himself read Knight, but he didn't really want to know much about philosophy.

748
01:25:05.240 --> 01:25:10.000
and secondly very interestingly someone asked him well what do you think about

749
01:25:10.000 --> 01:25:14.160
the influence of the Catholic Church in Poland in the bringing down of communism

750
01:25:14.160 --> 01:25:20.760
and he says well you know they should be credited with what they did but he says

751
01:25:20.760 --> 01:25:25.600
now that communism has been falling he says I'm very very uncomfortable with a single

752
01:25:25.600 --> 01:25:29.800
church I'm very uncomfortable with a single organization in any area of life

753
01:25:29.800 --> 01:25:33.800
of Life, including in spiritual matters.

754
01:25:33.800 --> 01:25:45.800
And what does that go back to? This whole idea of night, that a church is very persuasive, and persuasion is a form of power.

755
01:25:45.800 --> 01:25:56.800
And there's a little bit of that, as I mentioned earlier, in capitalism and freedom, where he says if the opportunities facing you aren't absolutely equal,

756
01:25:56.800 --> 01:26:01.800
Then there is a power in the exchange relationship.

757
01:26:01.800 --> 01:26:06.800
This is completely contrary, by the way, to the Austrian way of looking at things.

758
01:26:06.800 --> 01:26:10.800
Austrians take human beings as they are.

759
01:26:10.800 --> 01:26:21.800
And competition is a realistic concept that relates to how human beings interact in dynamic market processes.

760
01:26:21.800 --> 01:26:28.800
and Market Processes. In other words, in some sense, Austrian ideals are existential.

761
01:26:28.800 --> 01:26:36.800
Austrian welfare ideals emerge from looking at how people choose.

762
01:26:36.800 --> 01:26:42.800
That is, if two people are better off, then the welfare criterion to be applied to the market is

763
01:26:42.800 --> 01:26:50.800
any policy that permits people to freely exchange is an ideal.

764
01:26:50.800 --> 01:26:55.800
The ideal comes from the objective process itself.

765
01:26:55.800 --> 01:26:58.800
There's more to be said on that, and that's why I originally wrote this paper.

766
01:26:58.800 --> 01:27:07.800
I was trying to paint Austrians as Aristotelians and the Chicago School as Platonists, but those parallels didn't really hold.

767
01:27:07.800 --> 01:27:14.800
I think it's better to focus on the political economy and talk about Jacobin connections.

768
01:27:14.800 --> 01:27:24.800
What's that? I'm going to rewrite it this summer and reorient it a little bit and then probably by the end of the summer, early fall.

769
01:27:24.800 --> 01:27:31.800
And I would appreciate it if anyone else has any thoughts on this or any comments to write to me about it because I think it's really important.

770
01:27:31.800 --> 01:27:37.800
It's really important to tear the veil away from the Chicago schools as a school of libertarian political economy.

771
01:27:37.800 --> 01:27:39.800
I really think that's important.

772
01:27:39.800 --> 01:27:46.800
And these writers such as Knight and Simons are much worse than anyone has really ever conceived of.

773
01:27:46.800 --> 01:27:53.800
And all Chicago economists, whenever they write about Knight, it's almost in a way of deifying him.

774
01:27:53.800 --> 01:27:57.800
Okay, I'll stop here. Thank you.