Economics and Public Policy

An interview with Yale Brozen


The extent of economic ignorance in America today is staggering. Despite volumes of theory and many years of experience, most people still believe a whole variety of economic myths: that wage and price controls can stop inflation, that government regulatory agencies protect consumers, that "concentrated" industries charge monopolistic prices, that tariffs protect a nation's industries, that minimum wage laws help the poor, that advertising results in higher product prices, etc. The continued belief in this mythology has been abetted, if not fostered, by an economics profession whose basic political premises were heavily interventionist.

Within the last several decades, however, a strong new voice has been heard from within the economics profession. Economists of what has come to be called the "Chicago School" began stressing a rigorously empirical approach to the subject, arguing that questions of moral and political judgement, while important, are not economic questions. Freed from interventionist blinders, the Chicago School pioneers proceeded to re-examine many of the prevailing dogmas, collecting extensive data and subjecting hypotheses to rigorous statistical tests. The result has been a whole new "revisionist" economics that has knocked the props out from under much of the case for government intervention in the economy.

The influence of the Chicago School is growing rapidly; indeed, it might today be called the Chicago-UCLA-Rochester-Virginia Polytechnic-Washington School, to name a few of the economics departments with a heavy Chicago orientation. The JOURNAL OF LAW AND ECONOMICS, of the University of Chicago Law School, has become one of the country's most important scholarly journals. And a number of Chicago economists have served or are serving in high places in the Nixon Administration.

One of the leading lights of the Chicago School is Yale Brozen. Professor Brozen's career as a scholar, researcher, and teacher of economics spans many years, but most of them have been spent at the University of Chicago. He received his Ph.D. from Chicago, taught at the Universities of Florida, Minnesota, and Northwestern University, and returned to the University of Chicago in 1957 where he has been professor of Business Economics at the Graduate School of Business ever since. His contributions to economics are numerous; he is one of the most prolific writers within the profession. His research has covered such wide-ranging areas as automation, capital accumulation, welfare, research and development, government regulation, wage and price controls, minimum wage legislation, deficits, advertising…on and on, through the entire field of economics, micro and macro.

Dr. Brozen is not timid about his political preferences. He is a classical liberal who considers the encroachment of government on people's lives harmful—the more the worse. But he does believe that one's activities as a researcher and scholar should be as free as possible of influences based on beliefs he may have in other areas of importance.

REASON's interview with Prof. Brozen was carried out early in 1973, in the Conference Room of the Graduate School of Business. Prof. Brozen managed to find 2½ hours in his extremely busy schedule—teaching, lecturing, preparing an anthology on industrial organization—to sit down and talk with Senior Editor Tibor Machan and Joe Michael Cobb, former editor of the NEW INDIVIDUALIST REVIEW. Cheerful and energetic as always, Brozen proved an engaging subject, as the discussion ranged over a wide variety of topics.

REASON: The Nixon administration has apparently been trying to phase out wage and price controls, first via the Phase III debacle, and most recently by lifting most of the Phase IV price freeze. What do you think is their motivation for doing this?

BROZEN: Well, they're running into some problems with the fact that the controlled prices have been misdirecting resources. To give a very small example, with the ceiling price on molasses in the U.S., molasses was not becoming available for use in feed for chickens. Instead it was being sent to Japan from the sources around the world which normally would have sent molasses to the U.S., because the price in Japan was 20% higher than the ceiling price in the U.S. The consequence was that it looked like chickens were going to become more expensive for lack of molasses in their feed. That's a small example, but it's the kind of thing that's proliferating and multiplying all over an economy that's beginning to run into bottlenecks in various places. Without prices doing the job of appropriately rationing and directing resources, you're going to get that kind of misallocation.

Another kind of misallocation is what you see in the lumber industry where lumber was being sent from one section of the country to another because that particular lumber supplier was under a price ceiling, such that it didn't pay him to deal with local buyers. The local buyers were then having to "import" lumber from another section of the country where the price ceiling was such that the suppliers there were willing to export lumber. The consequence was a great deal of cross-hauling of lumber because of these different price ceilings, with a waste of the resources involved, and consumption of extra transportation resources.

REASON: Did these events and factors bring about the change of policy on the part of the Nixon administration?

BROZEN: Oh sure. The Price Commission was running into these sorts of problems all along, but now that we're getting into a multiplicity of bottleneck situations, they're getting dozens of them coming in at one time and you just can't handle that kind of thing under any sort of general rules or limited decision-making capacity. The free market has the virtue of using everybody's decision-making capacity and using local knowledge that isn't available to any central authority—using dispersed capacity for decision-making that can handle far more problems than any attempt to centralize the handling of problems in one bureau, with one commission.

REASON: Do you think that the Price Commission is serious in seeking "voluntary compliance"?

BROZEN: To talk about seeking voluntary compliance is to suggest that people have control over their particular prices. In fact, there isn't very much control over prices by private organizations in the U.S. You do have public utility commissions that control quite specific prices—you do have a Post Office and Postal Commission to control postal prices—but when you're talking about the price of bread, meat and potatoes, automobiles, washing machines, and television sets, or lumber, steel, chrome, zinc, and nickel, you're not talking about prices where any one person has control over it, though sometimes there's a very visible person who makes an announcement that we're raising prices this week. But he's simply announcing what's really going on in the market. He's not controlling the price and to say that we're going to have voluntary compliance is to act as if there's somebody in each of these things who voluntarily can make the price behave in some particular way. That may be true in some cases, like public utility commissions or major labor unions that have been given power by the government. But where a great deal of power has not been conveyed to somebody by governmental sources of this kind, there just isn't any control, there isn't any such thing as voluntary compliance.

Let me just illustrate this—take the automobile industry. General Motors announces a price increase or decrease. Now let us suppose that General Motors or Ford or Chrysler were to voluntarily refrain from marking up the list prices that they put on the stickers on automobiles, at a time when there's demand for automobiles that's outrunning the supply. What do you think's going to happen? Do you think the market price is going to be affected by what General Motors puts on the sticker? You know they tried that in 1945 and 1946. Ford, General Motors and Chrysler put on sticker prices that were low and at those sticker prices the rate of demand exceeded the rate of supply. So did the market price become those sticker prices? It sure didn't. You'd walk into an automobile dealer and say, "I'd like a car delivered today or tomorrow," and the automobile dealer would look at you and smile sadly and say, "Well, I'll be glad to put you on the waiting list and maybe we'll deliver a car to you in eighteen months." So then perhaps you would bet him $500 he couldn't deliver one that afternoon. And the automobile dealer would smile happily and say, "You just lost your bet," and take an automobile that was going to be delivered to somebody else on the list and deliver it to you for $500 over. And in effect the market price is $500 over those sticker prices. General Motors couldn't stop automobile dealers and people from betting—bidding the price up by $500 in order to get the automobile they wanted, whatever sticker prices they put on.

On the other hand, in times when demand is weak relative to the supply, those automobiles don't sell above or at the sticker price—they sell below the sticker price. The automobile dealer will way, "Well the price is what it says on the sticker," and you say "Well, sorry, I don't want to buy a car at that price," and he being desperate for business will say, "Well, let's talk about it." And so you end up with a price that's been reduced 10% or 15% or sometimes even 20% below the sticker price depending upon the state of demand. They don't control the price—the market controls the price.

REASON: Is it a fair assessment of the Nixon administration that it is more likely to yield to market indicators than say a McGovern administration might have?

BROZEN: Oh, I think just observing behavior in the groups that we have had around I'd say the Nixon administration is more likely to yield or to let the market operate. The fact that we got price controls, mandatory price controls in August of 1971, is, if you like, an indication of that. Sure. Mr. Nixon announced that here we are with price controls, but any other administration would have yielded to the pressure at least a year sooner if not two years. And I'd say that it took a very stiff-backed administration to hold out as long as this administration held out against the pressures to impose price controls.

REASON: The political pressures?

BROZEN: Political pressures, informal pressures, pressures from newspapers, from businessmen, from unions, pressures via the polls taken from the voters—in the polls 75% to 80% are in favor of price controls. Well, should Mr. Nixon be the dictator and resist the will of the electorate? He resisted until the pressures simply got too strong.

REASON: Shortly after the 1971 freeze announcements were made, Professor Galbraith came out in NEW YORK magazine and labeled Mr. Nixon a socialist of a certain sort. Do you think that's a premature comment on the part of the professor?

BROZEN: Well, yes and no. You might say any president today is a socialist of a certain sort because the electorate is socialistic to some extent and any president has to be somewhat of a politician. The electorate gets about the kind of government it wants—more or less.

REASON: That brings me to an issue that we touched upon one time in a conversation. You had once said that progress towards decontrolling the economy would be very difficult due to the nature of bureaucracy, even if a President and Congress with substantial designs toward that end were to be elected in the near future. Would you elaborate on this observation?

BROZEN: Well. You've got some prime examples of an attempt to make progress. And reactions to those attempts. The President's suspension of the Davis/Bacon Act in February of 1971, for instance. The Davis/Bacon Act in effect has the wage determination unit in the Department of Labor setting minimum wage rates for various crafts working on government-financed or government-assisted projects—and that incidentally is about one-third of all construction in the U.S. In effect then, suspension of Davis/Bacon was an attempt to move toward letting the market operate, and yet Congress' immediate reaction was to start to hold hearings on removing the President's power to suspend the Davis/Bacon Act.

Earlier, George Schultz, when he was Secretary of Labor, had been very concerned about the kinds of wage determinations that were being made under the Davis/Bacon Act—concerned because it seemed to him that the wage determination unit was violating what the law provides. The law provides that the minimum wage shall be the prevailing wage in the political subdivision of the state in which the work is to be done. Well, in fact, the wage determination unit didn't take an average of the wages in the area—what they usually took was the union rates in the area, provided that the union rates were being paid to more than 30% of the work force in the area. Well, Schultz tried to do something about getting the wage determination unit to follow the law. He removed them from reporting to the Solicitor General, Department of Labor and had them report directly to the Secretary. And nevertheless the wage determinations continued to come out in exactly the same way they'd always come out before. That bureaucracy was so thoroughly imbued with this notion that its task was just to get the highest wage rates they could get imposed every time a government contract was let, so it didn't make any difference who was in charge—they went charging on their merry way.

REASON: Would that lead you to a mitigated pessimism with respect to the idea of moving in a more free-market direction?

BROZEN: Well, yes, I'm pessimistic. Until the electorate gets educated we're going to continue to get movements in the same directions.

In a fairly recent move the President suspended the Rural Electrification Administration's right to borrow money from the Treasury at 2%. Much of the money borrowed at 2%, incidentally, they turned around and reinvested in government bonds sold to raise the money. And the Treasury had to sell the government bonds at 6¾% yields. So it's very nice to borrow money at 2% to go out and buy 6¾% bonds. Last time I looked the REA had something like $100,000,000 invested in federal bonds that had been issued to finance this 2% money they were getting. Well now the President has suspended the REA's right to draw money at 2% saying, "You're going to have to sell your own bonds directly through the market, you're going to have to pay the 7½%, 8%, 8¾% depending on the class of bonds, the terms, etc. You're going to have to pay something approaching a market rate for your money and you can go borrow directly." Several senators got a move started in Congress right away to do something about the President suspending the REA's right to borrow the 2%. That's the reaction.

REASON: With respect to educating the electorate, do you have in mind some of the work that has been going on at the University of Chicago?

BROZEN: Yes. Some of the other work required is that you get a bigger subscription list to your magazine. REASON doesn't go to enough people and isn't educating enough people.

REASON: Well, we'll have to consider that piece of advice. Let us turn to the prospects now. What is your assessment of the near term possibility of making some major inroads in disbanding the plethora of regulatory agencies—bodies that abound on all levels of government? What areas of control do you feel would be most susceptible to reform?

BROZEN: Well, in terms of disbanding various controlling agencies, a minor move was made by the Administration introducing a transportation bill last year. The transportation bill was intended in part to cut back on some of the powers of the Interstate Commerce Commission—and they're very minor powers that it would cut back. The Interstate Commerce Commission was to have its power to prevent railroads from abandoning branch lines limited, for instance. It was to have its power to limit the entry of new trucking companies and to limit runs between various cities transporting freight reduced a bit—a few minor changes. Well, the Congressional committees through which that bill was started just sort of threw it in the wastebasket and the American Trucking Association and Association of American Railroads, and American Barge Line Association, etc., proceeded to get together to put in a bill of their own to give the Interstate Commerce Commission additional regulatory powers going exactly in the opposite direction from the powers which Mr. Nixon had proposed. That bill looked like it was going to have a far better chance of passing than the bill that Mr. Nixon had to offer.

You know, I think back to 1929…Mr. Hoover proposed and offered a bill in Congress to reduce American tariffs. If you remember your history, the net result was the Smoot-Hawley Tariff Bill which raised American tariffs on practically everything across the board and brought additional things under tariff protection that had been on the free list before. Now that's the kind of thing that can happen when you propose to decontrol—the interests get together and you end up going in the opposite direction from where you intended to go. That's why I'm a little frightened of trying to move in the direction of saying, "Well, we at the top know what should be done and are going to go ahead and push through the appropriate changes in Congress or by presidential directive or what have you," because you create, call it a backlash if you will, and you end up in a worse situation than you were in before. You've got to begin down at the electorate first.

REASON: In reference to reaching the electorate at colleges and universities, since the Chicago School of economics now has a substantial reputation, would you summarize the basic difference between Chicagoans and Keynesians?

BROZEN: Well I suppose the basic difference is that any time somebody puts forth a hypothesis we say, well, how do you know that's so? And we go and try to find out if that hypothesis seems to check with the way in which the world operates. Now Mr. Keynes put out a hypothesis, for example, that business cycles are generated by changes in the levels of spending, in particular by changes in governmental deficits and business investment, and also by changes in the rates at which people save. And so, the reaction around Chicago is "Well, how do you know that's so?" And we go out and we'll look at some data and try and see if the world behaves in the way that's postulated by the specific hypotheses offered.

REASON: Are you saying that Keynes didn't look hard enough? Or that he didn't even consider looking as part of his approach?

BROZEN: Well, any economist, you know, is aware of things going on. And Mr. Keynes was certainly aware of that and the relations that were involved in a sort of general, nonspecific way. You know, he obviously wouldn't have offered hypotheses to account for unemployment, for instance, if there wasn't any unemployment around. But he's noticing that in fact there's a hell of a lot of unemployment around and he's noticing some other facts like the rate of investment's very low, etc. So he puts some things together in what seems to be a reasonable assemblage, in a way that can be accounted for by some sort of hypotheses that tend to make order out of this melange of data, impressions, etc.

Well you might say that we're just a little more systematic about checking, so we proceed to systematically assemble the data in meaningful ways to see whether or not it accords with what has been predicted by that hypothesis. And it turned out that what the data said was that the world wasn't acting anything like the way Mr. Keynes had suggested, at least not the U.S. world. Mr. Keynes had been observing the English world and the English world was behaving in that way, although we've been doing some checking, and although the English world seems to have behaved that way somewhat during the 30's it certainly hasn't in more recent years.

REASON: There is a dispute, which we understand you are not directly party to, between the Chicago economists (or Chicago hangers-on) and the Austrian economists (or Austrian hangers-on). Now one of the contentions of the Austrians is that there are certain a priori laws; basic, fundamental principles of economic analysis, which the economists can't do without, and there're no ifs, ands, or buts about it. Do you believe anything like that enters in at all within the methodology of empirical economists, such as the Chicagoans?

BROZEN: Well, empirical work doesn't mean a damn thing without theory to formulate the kind of regressions that you're going to be using. You know, what would you expect to have a relationship to something else? You don't expect the number of seals in the Bering Straits to have a relationship to the amount of bread that somebody in Atlanta, Georgia is going to be buying for dinner tonight. So you've got to have some theory—you just don't muck around with all the data and try to assemble what we call ad hoc relationships that are totally meaningless. Sure, you can find ad hoc relationships that get very high correlation coefficients. But what you find out about these ad hoc relationships is that they turn out to be lousy predictors of next week because there's no reason for these particular ad hoc relationships—

REASON: You mean, no explanatory capacity?

BROZEN: Yes, so you've got to have some theory to begin with to lead you to know what to look for. What pieces of data are relevant. There's no disagreement between Chicagoans and Austrians on the power and importance of theory. And as far as that's concerned perhaps there's even no disagreement on the importance of tautological kinds of definitions. The thing is that as far as doing any testing is concerned, the tautological relationships are next to impossible to test except by introspection. And I'm very leery of an introspective approach to trying to discover how the world is going to behave because I find somehow my gut doesn't react exactly like everybody else's gut.

A friend and I were sitting around the other night talking about the economics of advertising and I was saying that it just seems to me to be perfectly obvious that if I as an advertiser am going to spend some money on advertising that I'm not interested in advertising to the customers I've already got. I expect I have those customers because they're satisfied with the product that I'm producing here. And so I'm going to use my money as an advertiser to create disloyalty whereas the standard textbook description is that advertising creates loyalty of customers to a company and then that becomes a barrier to the entry of other companies. I just can't see that for beans because it seems to me that as an advertiser, introspecting myself as to how I'm going to behave, I am going to spend my money trying to get the customers I don't have. And my friend responded, "Oh, but you know when I hear an advertisement for the car that I'm driving that makes me proud of the fact that I've got that car that I'm driving, or that I'm shaving with the electric razor they're talking about in that ad, that makes me more loyal." But you know I just don't react that way.

REASON: Would you summarize for us your criticisms of the various popular characterizations of advertising as a general economic phenomenon?

BROZEN: Well, here's one of the advantages of data, at least, as far as the empirical approach is concerned. I can say till I'm blue in the face that advertising does not add to the cost of the product, that advertising decreases the cost of the product, and these are simple assertions that I think there are very good a priori reasons for believing. And I think that if the Austrians and I were to sit down and talk together about my a priori reasons for believing that, I could perhaps convince them that that's true. But I couldn't do that with 90% of the economic profession who are not Austrians and who believe to the contrary, that advertising does raise the cost of products, that it does cause prices to be higher than they otherwise would be, and that it causes the people to spend money foolishly for higher priced products. And so I'll say, "All right, let's look at the data and see what it has to say." My colleague, Professor Lee Benham, says OK, let's look at the states where no advertising is allowed for eyeglasses and eye examinations and see what the prices are in those states, and then let's look at the states where, as it happens, there are no laws against advertising eyeglasses and eye examinations and see what prices we find in those states. And so here we'll get a test of whether advertising causes prices to be higher, etc., than they otherwise would be, because now we've gotten a couple of "laboratories" where they either do or do not permit advertising on the same product. And he goes and takes the data that happened to have been assembled in a national sample of medical costs in various states and what the people are paying for lots of things, including eyeglasses and eye examinations. And he finds that in his sample of thousands of people, in the states where there's no advertising allowed for eyeglasses plus eye examinations, they're paying $49.00. In the states where the advertising is allowed, they're paying $28.00. And then I cite this piece of empirical evidence, you see, "Here's some advertising and in the advertised case the price is $21.00 less than where advertising is not allowed."

Incidentally Benham did go around asking a bunch of economists, "Now what do you expect will happen, what will I find when I look at the states where they do advertise and don't advertise?" and the great majority told him that they expected in the states where advertising was allowed the prices were going to be higher—that's what they expected. Turned out to be the reverse. Data then does something for helping you to demonstrate that your a priori reasoning is correct.

REASON: Last year the NEW YORK TIMES MAGAZINE ran an article by a zoologist who maintained a "spaceship earth theory" and argued for zero-growth type of economy. There are many books and articles that turn up here and there by people who are always wiser than the economist, advising the economist that his theories no longer hold because the world has changed. Do you have any thoughts on this view?

BROZEN: Oh, it's an old problem. Malthus worried about it a couple of centuries ago, that since population has a geometric rate of increase and production has only an arithmetic rate of increase, the population would tend to outrun the means of subsistence. And you had this more modern version being touted in the 1950's when it was projected that at the current rates of population increase, by the year 2300 the population would outweigh the earth—an obvious physical impossibility—so therefore something had to be done about it. It leaves out the fact that we've got an adaptive mechanism such that, for example when people find that they're running out of living space so that living space is getting very valuable, the price of living space goes up. Then as the price of living space goes up maybe you choose to have fewer children because you don't have the space in which to comfortably live. We've got a pricing mechanism that gets people to adapt whatever preferences they have to whatever resources are available for satisfying those preferences.

REASON: That is, provided the pricing mechanism is allowed to function—in other words, when there is relatively greater freedom in the market than with central planning and controls.

BROZEN: Well, free markets keep breaking out of the controls that people try to impose on them. Pricing controls, when they get too far out of line with what the market wants to do, break down. And price controls generate the kind of market adaptations that force the breakdown. For instance, in 1945 there was a price control system in France that would have caused the people of Paris to starve to death if it had been allowed to go on. Well, in effect, the black markets took over and fed the people of Paris—the market assisted in the adaptation to prevent starvation in Paris.

We've got an energy crisis right now because they're controlling the price of natural gas, for instance, so you get such foolish activities as companies forced to sell domestic natural gas at 30 cents a thousand while at the same time making arrangements to buy it abroad at $1.10 a thousand and import it to make up for shortages. Well, if you're going to give things away, of course you're going to have shortages, because you don't have enough of everything to satisfy everybody's want for it. Now this situation on natural gas can go on for a long time and in effect you're going to get rationing to "preserve the price," by controls—mucked-up controls loaded upon more controls—trying to keep the price down, and the shortage getting worse and worse because a lot of people who want to buy gas can't get it and they'll be ruled as unworthy buyers who shouldn't get it.

But, to me, the more difficult problem is the case where you have a lot of property that is not being properly preserved because nobody owns it. Now take the Grand Banks Fisheries off Newfoundland. Because nobody owns the Grand Banks, nobody is administering them in such a way as to use them efficiently, nobody is there charging fishing boats for the privilege of coming in to fish for the cod on Grand Banks. The consequence is that you get too many boats fishing and the total catch then becomes smaller than it would be if you had an efficiently operating pricing mechanism. And so the Grand Banks are being very much misutilized.

You get somewhat the same thing by using the air as a pollutant sink. As long as there were few enough pollutants being emitted that the air could efficiently take care of these various pollutants, it was a free good; there was no point in establishing property rights in the air. But now, air is becoming scarce for use of the pollutants, and so it's becoming a valuable piece of property which we've got to learn to use efficiently. Unfortunately no property rights are being established and nobody's charging for the use of the air and instead we're getting a law saying "Thou shalt keep thy emissions below a certain level." That's a terribly inefficient way of managing this. The result is that a lot of plants are closing down that should be allowed to operate but can't because it's too expensive for them to put in pollution control equipment. We could just charge for the use of the air and people could then sort themselves out as to whether it's cheaper to pay the price or cheaper to put the pollution control equipment in. So we could get our pollution control done very efficiently at the prices charged if somebody owned the air—or, if you like, if the government took over ownership and charged a price, called a tax if you want to, in those areas of the country where pollution is a problem.

REASON: Another area that many people are concerned about is the Ralph Nader syndrome. Those who consider themselves interested in the free market see a paradox with Nader. On the one hand, Nader seems to be pointing out the failings of the FDA, FCC, FTC, ICC and the various other regulatory agencies. On the other hand, he suggests, despite these evident failings, the agencies should be made stronger, more virtuous and more efficient. So, on the whole, how do you see the contribution of Nader and his investigative groups to the overall progress toward deregulation?

BROZEN: Well, it's unfortunate that people listen to their policy conclusions. As you suggest, I would think that the appropriate policy conclusion to draw from his reports on the ICC, the FDA, etc., is to abolish these agencies. And I think it's misleading for him to try to make that logical leap with the consequence that, in effect, all the work he's done is going to worsen the situation rather than improve it.

Another instance from Nader where the policy conclusion that he suggests tends to worsen the situation, rather than improve it, is the seat belt issue. You know, he wrote his book UNSAFE AT ANY SPEED with his big pitch for making automobiles safer, etc. Now this should have been essentially a pitch at consumers saying to people, "Look, when you buy an automobile, buy a set of seatbelts with it and strap yourselves in so you'll be safer operating the automobile." But instead the conclusion comes out: Pass a law compelling every automobile to have sets of seat belts in them. Well, if all the effort at getting the law passed and getting the seat belts put in had been put into education—into informing the public as to the virtue of seat belts—you would have gotten greater usage of seat belts, then, out of that same effort. As it is, the number of people using seat belts now that all automobiles have them is exactly the same proportion as used seat belts before these laws were passed. Something like 25% of those who ride in automobiles put on their seat belts. The other 75% find them uncomfortable so now the government says all right, we'll pass a law compelling the manufacturers to put on buzzers and flashing lights to make it uncomfortable sitting in the car without the seat belt on so that you'll fasten the seat belt. So people have proceeded to fasten the seat belt under them and sit on the thing fastened, in order to keep the lights from flashing. And you know this is the kind of nonsense that you get then, an enormous amount of resources is spent to install seat belts that aren't being used. I can give you examples of other sorts of that type of thing too, whereas the same efforts spent on educating people to make them aware of what the differences are in accidents with and without seat belts would have gotten maybe 50% of the people using seat belts instead of 25% and done something. Instead of accomplishing the net effect of zero.

REASON: I assume that one of the goals, or at least hopes, of the Chicago School is that eventually more of its people would be getting closer to federal policy makers, and then their decisions would be a little wiser. Which brings me to ask you, what do you think is the overall influence of the Chicago School?

BROZEN: Well, I certainly think that there's already been an enormous shift among Keynesians, for instance, who now think that money has importance, too, along with the size of the deficit. And no self-respecting Keynesian today would ever take the kind of stance that the neo-Keynesians took in the 40's and early 50's, for instance, where in effect they just waved away the whole notion that money had any importance. Money was strictly a dependent variable, responding to other things in the economy. Now there's some recognition that there's some independent element in the money supply. The Keynesians did have some important things to say about the dependent aspects of the money supply—but nevertheless they went too far, you might say, in saying no independent aspects existed in the money supply. Now they recognize that there are independent effects, so Chicago theory has already had its influence on the neo-Keynesian school. It's also had its influence in that no self-respecting Wall Street firm can do without a Chicago graduate student in order to keep them tuned in on where the world is likely to go, because they found that the Keynesians they hired to tell them where the world was going to go led them pretty far astray, and they found the Chicagoans they hired—their pictures at least landed inside the ball park.

REASON: Would you say that the Chicago students on the whole are aware that they are close to or even within the classical liberal tradition?

BROZEN: Well, you know, you're mistaken to think that the Chicago School per se is in the classical liberal tradition. The Chicago School is in a look-in-the-horse's-mouth-and-count-the-teeth tradition rather than sit-in-the-library-and-argue-about-it tradition. We are interested in doing respectable research. And it happens that respectable research often comes out with classical liberal conclusions. That's, you might say, purely fortuitous, except to the extent that the classical liberals had a pretty good sense of what the world's all about and having a pretty good sense of that, developed an economics that's a pretty good device for explaining how the world operates. And so it turns out that people who are doing respectable research now come out, on a lot of things, about where the classical liberals came out.

REASON: Who are classical liberals at Chicago?

BROZEN: Oh. George Stigler, for sure. Milton Friedman, three-quarters of the way. Milton is not completely in the classical liberal tradition. I'm in the classical liberal tradition in terms of when it comes to making decisions about what's an appropriate role for government—on the other hand when it comes to my economics, my economics are completely in terms of knowing what's efficient or inefficient and that's the value orientation of any economic advice that I have to give to people who ask me to do consulting—how do you do this more efficiently than less efficiently—and as an economist I don't have any values other than efficiency.

REASON: You know, one of the things that puzzles me, is that when, outside of the economic profession, people talk economics or pseudo-economics, almost inevitably certain Marxist overtones emerge. Today the Marxian overtones by the general intellectual community and the political community are clearly evident say in such journals as COMMENTARY or HARPER'S or SATURDAY REVIEW, certainly more so than classical liberal overtones. How do you account for that?

BROZEN: Well, that's not just today—take a look at some of the 19th century journals on some economic area. Some of them were quite avowedly socialistic at the time Marxism hadn't quite caught on—and I would say that Marx is a "product" of his age. His age was, as far as intellectual circles were concerned, pretty much a socialist age—the founders of the American Economics Association themselves were socialist. They wanted the Association to be devoted to propagating socialism.

REASON: Let me suggest this: I think it is true to say that Chicago and the few other places that favor the free market and classical liberal approach are probably the only places in the world right now that carry on one of the most unique discoveries in the history of human thought. Do you ever ponder the fact that you are in this tradition?

BROZEN: Oh sure. Look, any place that's had Frank Knight and Henry Simons around is going to be aware that they are in the classical liberal tradition. They thoroughly taught that. Of course, Chicago isn't the only place in the world where you're going to find strong elements of classical liberalism.

REASON: You have two children—Yale, nine and Reed, six—will they enjoy a culture of greater freedom than we now have or is there something one ought to do to prepare young children for dealing with the caprice and malice of the state?

BROZEN: That's a very difficult question to answer, because on the one hand we can say the government is moving in more and more, and your range of choice in every area is being restricted by government intervention. On the other hand, the whole system is developing more and more opportunities that were impossible for 19th century man—just through the fact that technology is improving and opening up a wider range of choices, and due to the fact that as our incomes go up we have the means by which to choose a much wider range of things. How do you balance these off? I don't know. And so how you answer that question as to what my children will enjoy in the way of freedom—the kinds of freedoms that the government can impinge upon they'll have less, but the kinds of freedom that are provided by our technology, our ability, our managing to use our resources more efficiently—they'll have more freedom.

REASON: Thank you. You are very busy these days and we really appreciate your giving us this time. Thanks very much.