Milton Friedman

An Interview with Milton Friedman

A REASON interview

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In February 1974, Senior Editor Tibor Machan, Joe Cobb, and Ralph Raico visited Professor Milton Friedman at his apartment in Chicago and conducted the interview which appears here, after being prepared for publication by Ms. Marty Zupan.

Dr. Friedman proved to be an extremely interested, willing and intensely involved subject of our interview. Through two and one half hours of uninterrupted exchange, often turning into debate, Dr. Friedman covered issues ranging far over the intellectual continuum. The questions, as readers will detect, were not designed to focus exclusively on his own field. Since his economic theories and contributions in general enjoy coverage in both the scholarly and general media, we attempted to deal with these only as part of a broader exploration of Dr. Friedman's perspective.

For all of us this interview turned out to be a challenging experience. We did not shy away from occasional disputes—Dr. Friedman himself welcomed the controversies that emerged. Undoubtedly some people's questions were left unasked. Nevertheless, the final result is presented to our readers with pleasure.

REASON: We'll start out with a ground level theoretical issue: what is your case for the political system that you advocate? Where do you start from, basically?

FRIEDMAN: I start, I guess, from a belief in individual freedom, and that derives fundamentally from a belief in the limitations of our knowledge—from a belief in the idea that nobody can be sure that what he believes is right, is really right.

REASON: Could you explain why that is your starting point?

FRIEDMAN: I think that the crucial question that anybody who believes in freedom has to ask himself is whether to let another man be free to sin. If you really know what sin is, if you could be absolutely certain that you had the revealed truth, then you could not let another man sin. You have to stop him. Of course people will respond that the only virtue in not sinning is if a man chooses of his own free will to avoid it. That argument has a great deal of appeal, but I don't think it's as persuasive as the argument deriving essentially from ignorance. It seems to me unanswerable that if I'm absolutely certain that another man is about to sin, then I am sinning by not preventing him. Under those circumstances, how can you allow a man the freedom to sin? The only answer I can give is that I cannot be absolutely certain that I know what is sin. When I say, let another man be free to sin, obviously there is appended to that the qualification—provided that in his sinning he is not interfering with the freedom of still other people to do likewise. And that's about where I'd stop on this fundamental philosophical level.

REASON: Well, I will try to pursue this a bit further because, in the context of those who are interested in promoting liberty today, you are in a leadership position, and for that reason a little more scrutiny seems warranted. There is a paradox here at a certain level. You have said that there is at least one thing that you find reasonably certain, that under no circumstances should we interfere with another. But if you admit ignorance in general, then you must yield whenever someone is more certain of a contrary belief.

FRIEDMAN: Subjective certainty is hardly evidence of truth. What you're really saying is you can't get something for nothing. If you're going to have a position you have to stand somewhere. Nihilism would condemn you to suicide—I see no other way to handle a completely nihilistic position. So the question everyone must ask himself is: here I am; I'm an imperfect human being who cannot be certain of anything, so what position can I take? Which involves the least intolerance on my part, the least arrogance, the least expression of belief in my own superior wisdom or knowledge? And it's in this sense that I say that the most attractive position, or the least unattractive position—those are identical—is putting individual freedom first. Because that involves placing least weight on personal views about what's right or wrong. It says every other man has just as much right to his opinions as I have, provided he doesn't try to interfere with my having my opinion, and that I don't interfere with him.

REASON: But that's where the paradox arises. Mill himself has an example of somebody stepping on a bridge about to collapse and he says, am I not caught in a dilemma of either forcing him to save himself if I interfere, or of letting a perfectly innocent person be destroyed. So sincere people such as Nader push for more regulation. They say, OK, even in the face of dire abuses, are we not then justified to make these moves? And there are clearly some emergency cases when we are, and if those are admitted why aren't massive emergency moves admitted? Don't you think, then, that from a point of view of ignorance we may not be as able to defend the value of liberty as from the point of view of a positive thesis that it contributes to good?

FRIEDMAN: In the first place, no principle whatever is really going to give one an unambiguous guide to acts in individual circumstances, because every one is a complicated situation, and it's naive to suppose that you can derive from fundamental principles complete rules to conduct. What can be derived from principles are criteria by which to judge conduct, but not decisions about conduct. This is one of the places where I have a good deal of criticism of many who call themselves libertarians, who believe that from that single principle they can decide all practical circumstances without knowledge of the particular issues. The second point is that relations between people and individual behavior present separate problems. The belief in freedom provides no guide whatsoever to individual conduct. Robinson Crusoe on an island, with nobody else around, is perfectly free, but that doesn't say what action on his part would be regarded as good by him or you or anybody else. Now the positive case for freedom as opposed to the negative case has to do with individual behavior and it has to do with the argument that in a free society each individual will have to formulate, and act in accordance with, his own personal values and beliefs and ethics. That's the positive case for freedom.

REASON: Would you consider a hypothetical case which might illuminate something about your basic values? Most economists have been associated with what would generally be considered a utilitarian position…

FRIEDMAN: I myself have never accepted utilitarianism.

REASON: All right. But suppose that the Soviet economy was as productive as capitalism and vice versa, but the capitalist society maintained the individual freedom that you value. Would it be a problem for you to select between those two societies?

FRIEDMAN: It would not be a problem for me to select, only to predict. I would predict that under those circumstances capitalism would not survive, which doesn't mean that I wouldn't personally prefer it.

REASON: Would you prefer individual freedom even if it meant foregoing a higher material standard of living?

FRIEDMAN: Of course, but there's no dilemma, because the only circumstance under which a communist society would have a higher material level of living than a capitalist society—in my opinion—would be one in which the participants preferred other things to a higher material standard of living. But I would go on to predict that a capitalist society under those circumstances could not possibly survive, because there are a lot of people who are in favor of free enterprise and a capitalist system only because it delivers the goods. It's fortunate that the capitalist society is more productive, because if it were not it would never be tolerated. The bias against it is so great that, as it is, it's got to have a five-to-one advantage in order to survive.

REASON: And it's touch and go at every moment.

FRIEDMAN: It's touch and go. In fact, I have long believed that there's a strong argument to be made that a free society is a fundamentally unstable equilibrium, in the language of the natural sciences. From a purely scientific point of view, and now I'm going away from philosophy, there's a great deal of basis for believing that a free society is fundamentally unstable—we may regret this but we've got to face up to the facts.

REASON: Do you mean that it's a dynamic system?

FRIEDMAN: No. A stable system can be dynamic—all "dynamic" means is that you have a system in which the variables you are interested in do not have constant state values, but are changing all the time. No, I mean something which is much more elementary and simple. I'm not trying to make a very sophisticated point. How often and for how long have we had free societies? For short periods of time. There was an essentially free society in 5th-century Greece. Was it able to survive? It disappeared. Every other time when there's been a free society, it has tended to disappear.

REASON: Perhaps that's an accident.

FRIEDMAN: But if you stop and think, there are certain features about society that give you reason to worry. An authoritarian society has a kind of stability which derives from its monopoly of power and authority. Let me illustrate this in one simple way. We observe, and are always asking ourselves the question, why it is that in the Western world intellectuals tend to be collectivists. Certainly one reason is that by nature their whole interest is in questioning things, including whatever society they're in. But in a collectivist society they can't speak up because of suppression, whereas in a free society they can. So the only intellectuals heard from tend to be collectivists. This is an illustration of the kind of forces that make a free society an unstable equilibrium. That doesn't mean we oughtn't try to achieve a free society, to ask ourselves how we can introduce a greater degree of stability. But I think it's the utmost of naivete to suppose that a free society is somehow the natural order of things.

REASON: What about the current situation? How would you assess things today in broad terms and perhaps with some specific recommendations?

FRIEDMAN: Things have been working against us, of course. The direction has been away from freedom and not towards it. There isn't any doubt about the fact. Look at the role of government in the U.S., for example. Today government spending at all levels, state, Federal and local, amounts to 40 per cent of the total national income. And that's an underestimate of the extent of control which government has over our daily lives. There has been an accumulation of restrictions on individual and human freedom in the past 30 or 40 years. Consider the situation right now in Great Britain. Great Britain in the 19th Century was an essentially free society. It certainly had moved a great deal in the direction of a free society. It's now moving in exactly the opposite direction. It's not at all clear whether Great Britain will be able to remain a free society. If you look over the world as a whole the dominant feature has been the decline, not the growth of freedom. I may say that the most discouraging is West Germany. Since the end of World War II Germany has had a tremendous success in every direction by pursuing essentially free enterprise lines. It has done extremely well economically, and also in terms of individual freedom. Moreover, there's no other country which has had more experience, of its own and from its neighbors, of collectivists. Yet what do we find? The intellectual community in West Germany has become predominantly collectivist. In West Berlin we see the so-called Free University facing into the Wall which was set up in protest against the West, largely taken over by collectivist groups. Now I find that a very discouraging situation.

REASON: Perhaps we can go back to your comment about intellectuals. What do you think of the thesis put forth by von Mises and Schoeck, that envy motivates many contemporary intellectuals' opposition to the free market?

FRIEDMAN: Well, I don't think we'll get very far by interpreting the intellectuals' motivation. Their critical attitudes might be attributed to personal resentment and envy but I would say that a more fruitful direction, or a more fundamental one, is that intellectuals are people with something to sell. So the question becomes, what is there a better market for? I think a major reason why intellectuals tend to move towards collectivism is that the collectivist answer is a simple one. If there's something wrong pass a law and do something about it. If there's something wrong it's because of some no-good bum, some devil, evil and wicked—that's a very simple story to tell. You don't have to be very smart to write it and you don't have to be very smart to accept it. On the other hand, the individualistic or libertarian argument is a sophisticated and subtle one. If there's something wrong with society, if there's a real social evil, maybe you will make better progress by letting people voluntarily try to eliminate the evil. Therefore, I think, there is in advance a tendency for intellectuals to be attracted to sell the collectivist idea.

REASON: It's paradoxical but people might then say that you are attributing to the collectivist intellectual a better feeling for the market.

FRIEDMAN: Of course. But while there's a bigger market for Fords than there is for American Motors products, there is a market for the American Motors products. In the same way, there's a bigger market for collectivist ideology than there is for individualist ideology. The thing that really baffles me is that the fraction of intellectuals who are collectivists is, I think, even larger than would be justified by the market.

REASON: Perhaps we could turn a little bit to your conception of science, because one of the widely discussed problems recently is the nature of social sciences as such. Now you are well known for your path-breaking article in Essays in Positive Economics dealing with the methodological foundations of your field. It is probably an accurate statement to say that you believe, along with many others of course, that social science can evolve without a place for values in its assessment of human affairs and in its predictions and explanations. What would you say to the argument that this is a mistake because the human animal is just that kind of thing which has value?

FRIEDMAN: I think most of these difficulties are semantic rather than real. Obviously one scientific problem in the social sciences has to do with what values human beings have. How do these values affect their behavior? Are there some consistent tendencies for particular values to develop rather than others? Those are all questions in which the investigator is not imposing his own values. Then no doubt the questions which any particular investigator seeks to pursue depend on what he considers important, which depends on his own values. Certainly the values of the investigator will affect what problems he pursues in the physical sciences as well. The fundamental question from a methodological point of view is whether values enter in any different way than they enter into the study of the physical sciences.

REASON: The suggestion has been made that scientific statements about human affairs involve issues that are value laden—that is, the objects one considers are value laden. For instance the concept "President" is tied up with an entire value system. So when one tries to make a political science judgment about the relationship between President and citizen one is necessarily involved in implicit valuations because of the concepts at issue.

FRIEDMAN: But none of this constitutes any difference whatsoever between the methodology of the social and the physical sciences. All you're saying is what I said earlier, that among the objects of study in the social sciences are values. Consider the following—I want to make a prediction about the effect on the political system, 20 years from now, of an impeachment and successful conviction of Mr. Nixon. In order to make an objective scientific prediction, I will have to examine the set of values that is now embodied in the concept of the Presidency, how the impeachment and conviction of Mr. Nixon would alter those values, and how that would alter the political structure of the role of the President. Of course I'm dealing with values at every step, yet the fundamental questions are value free—I'm not saying anything about whether a particular change would be good, bad or indifferent. Once the scientist has generated an hypothesis, wherever it came from, a crucial scientific question concerns the basis for accepting or rejecting it. And in this sense, the natural sciences are on all fours with the social sciences. I've always said that those who maintain a difference between the social and natural sciences are wrong, not about the character of social sciences, but about the characteristics they attribute to natural sciences.

REASON: In the approach that you take, say with respect to this impeachment issue, even from your own description there seems to be a model of human beings that enters in—a model to the effect that if something happens in his circumstances, something will happen to the entity, to the individual and his groupings. And those seem to be of a certain kind. Where do you get, in your particular science, that model of man?

FRIEDMAN: Where do biologists get the model of the behavior of the monkey? Predominantly out of the cumulative work in the field. In studying human behavior we have one advantage over the scientist studying monkeys—we are members of the same species that we're studying and therefore have an additional source of information, namely introspection. But that doesn't alter the character of the pursuit or of the finding. Whether our conclusions are accepted or not does not depend on their introspective certainty, but depends on whether in fact they do predict what happens.

REASON: Could you let us know your thoughts about your son's (David Friedman) recent book, The Machinery of Freedom, his anarchocapitalism and his suggestions for the maintenance of justice in a free human community.

FRIEDMAN: Well, needless to say, I'm a biased commentator on that. I think it's an extremely good book, which doesn't mean that I agree, necessarily, with all his conclusions. But I think David has done something which it's very important for people who believe in anarchocapitalism to do, and that is to face seriously the hard problems. Take the problem of pollution. Or the problem of preserving law and order. The problem of enforcing contracts. The problem of defense. These are all real problems. They are not to be dismissed by some appeal that somehow or other the market is ingenious and will solve them. It seems to me that the virtue of David's book is that he does face up to those questions and looks seriously at the kinds of institutions which might be developed. All of the problems of this class, I might say, reduce to having an arrangement under which people do pay for all the costs they impose on others or for all the benefits they receive from others. The market is most effective and most efficient when that's relatively easy to do. It is least effective and least efficient when that's hard to do.

REASON: Do you agree with his anarchocapitalism?

FRIEDMAN: I personally would like to believe that an anarchic society is feasible. I do not believe that it is. But at the moment there's a very long way to go before we really get to the point where we part company. There are so many activities of government today which cannot be justified on any grounds whatsoever, cannot be justified even by potential defects in market arrangements. So we can surely all go a long way down his road before we come to any parting of ways.

REASON: Could you indicate more specifically where you think the weakness in his argument is?

FRIEDMAN: Yes. It has to do with the possibility of developing a substitute for government arrangements to protect against physical coercion. I believe that there must be an ultimate police force. While I think his argument is ingenious—maybe I'm wrong, and I'd like to see somebody experiment with it—it doesn't persuade me that you can avoid the necessity, if you have a community, for an effective government to provide an ultimate monopoly of force.

REASON: Do you think there's a general misunderstanding of your position on gold? It's taken as one of the paradigm cases of your divergence from the general libertarian point of view that you do not believe in a gold-backed money system.

FRIEDMAN: What that reflects is simply a confusion between what I call a real gold standard and a pseudo gold standard. My views on this are stated very clearly in an essay reprinted in my collection of papers, Dollars and Deficits. I do not believe in a gold-backed system when that means having the kind of fake gold standard that we had in the United States between 1914 and 1971. I do believe that every individual should be free to own, buy and sell gold. If under those circumstances a private gold standard emerged, fine—although I make a scientific prediction that it's very unlikely. But I think those people who say they believe in a gold standard are fundamentally being very anti-libertarian because what they mean by a gold standard is a governmentally fixed price for gold. It's price fixing. It's what I call the pseudo gold standard. Undoubtedly there is a great deal of misunderstanding on my position on this.

REASON: Do you think there's any genuine hope that in the next decade the Federal Reserve System will bring the rate of monetary expansion down to the level that a free society could live with?

FRIEDMAN: A high rate of monetary expansion would not be desirable but a free society can live with any rate of monetary expansion, provided there isn't an attempt to eliminate its effects by price and wage controls. What a free society cannot live with is an attempt to repress inflation.

REASON: Do you think that a desirable rate of monetary expansion is very likely to be accomplished?

FRIEDMAN: Yes, but not in the very near future. I think we're going to go through recurrent inflation arising out of overreactions to temporary recessions. I think we are heading for rates of inflation, perhaps 15, 20, 25 percent. We're not heading for a runaway inflation as in Germany after World War I—that only happens if the government has no taxing power at all. But I think we will get increasing rates of inflation. Now after a while people get fed up with it, and it's only then that there is some hope for a reasonable rate of monetary growth. Probably at this stage, a precondition for a successful tapering off of inflation is the emergence of a much wider range of escalator clause arrangements—not only in wages, but in mortgages, loans, bank accounts, and so on, all over the economy.

REASON: You recently gave a speech here in Chicago in which you said some rather depressing things about our current situation having to do with free speech and the opportunity to speak one's mind on political issues, etc. Will you elaborate on that for us?

FRIEDMAN: Well, many people argue as Hayek did so effectively in The Road to Serfdom, that there will come a time when the extension of the role of the State will threaten personal freedom. I was saying that that's not a future possibility—it's a present reality. Suppose you look at various classes of society and ask who is really free to express his views on a wide range of subjects without fear of paying any substantial penalty. I think the only people who are really effectively free at the moment are a subset of long-tenured professors in leading universities. Only a subset. Consider for a moment the University of Chicago, which I would certainly call a leading university that has always protected individual freedom. Let us suppose that you are a professor of medicine and your research is being financed by the National Institute of Health or the National Science Foundation and you personally believe that it's wrong for government to subsidize medical research. Would you really feel free to get up and make that statement in public? Are the costs greater than you can afford to pay?

REASON: Would you extend this analysis further than academia?

FRIEDMAN: Absolutely. As I said in that speech, the case which is even more obvious is the businessman. There's not a leading businessman in this country who really has freedom of speech. He cannot make a statement and be responsible to the people who hire him, namely his stockholders, without looking over one shoulder at what the IRS is going to do in response to that statement, over another shoulder at what the Federal Trade Commission is going to do, what the antitrust division is going to do, or right now, what the federal energy office is going to do. The restrictions on personal freedom in the strictest sense of freedom of speech, of freedom of political activity, that now bear on people as a result of the growth of government are very real and very far reaching.

REASON: What do you think, in general, of REASON?

FRIEDMAN: I think REASON has done well in maintaining a fair amount of tolerance for a variety of views. One of the problems for the general category of publication in which REASON falls is that they've tended to become too sectarian and as a result they have very little influence outside the range of the true believers. That doesn't mean that you shouldn't have a firm editorial policy, but I think you ought to keep your columns open to views that you may disagree with. The other thing I might say is that some of the most interesting things that I've seen in REASON are articles that offer a substitute for existing policies and not merely philosophical or ideological content. For example the article some years ago on the jitneys was one of the most useful and effective articles you had. We have to keep on pointing out the way in which actual programs work, whether they be governmental or private, and not simply appeal to first principles all the time. I'm not objecting to having theoretical articles. It's a question of mix.

REASON: Yes, the division of labor applies in the intellectual as any other realm. We have tried to bring out practical solution type of articles—when we can get them. But sometimes we wonder—there's a rather crude expression about going against the wind—and we wonder whether our time couldn't be invested in some other activity with greater profit for both our ideology and our pockets.

FRIEDMAN: No. Part of our general philosophy is that everybody pursue those things that he thinks valuable. I'm always getting letters—for example I've written Newsweek columns against social security and one of the standard responses I get is from people who want to be put in touch with groups that will organize and do something about this. They want to get together with me and organize a group. My standard response is that I believe in a division of labor—regard my role and my most useful function as being to write and argue about this.

REASON: But you sometimes wish that there was an ACLU that was vigorously protecting the constitutional rights of businessmen and capitalists?

FRIEDMAN: No. I certainly do not. I often say that the two chief enemies of the free society or free enterprise are intellectuals on the one hand and businessmen on the other, for opposite reasons. Every intellectual believes in freedom for himself, but he's opposed to freedom for others. He thinks that the business world is different, that because of a chaos of competition and waste, there ought to be a central planning board that will establish social priorities. But he's horrified at the thought of having a central planning board to establish social priorities for writers and researchers. So the intellectuals favor freedom for themselves and oppose it for everybody else.

The businessmen are just the opposite—every businessman is in favor of freedom for everybody else, but when it comes to himself that's a different question. He's always the special case. He ought to get special privileges from the government, a tariff, this, that and the other thing. And it's this coalition that's really difficult for us so I think we ought to be careful of according businessmen too much power, or of believing that they are the major source of support for a free society.

I believe the case for free enterprise, for competition, is that it's the only system that will keep the capitalists from having too much power. There's the old saying, "If you want to catch a thief, set a thief to catch him." The virtue of free enterprise capitalism is that it sets one businessman against another and it's a most effective device for control.

REASON: Do you have sympathies with that argument for the free society which says that it's based on an inherent sort of psychological egotism—that people naturally pursue their own interests and that can be taken advantage of best in a free market situation.

FRIEDMAN: Sure. People do pursue their own interests, and free enterprise is the kind of arrangement which will enable a large number of people, all pursuing their own interest, to do so most effectively. But it doesn't mean that any free enterprise system, or any free market system will do so. People forget the fundamental distinction between Adam Smith's version of The Invisible Hand and what I suppose you could regard as Bastiat's version. The French idea was that there is somehow a harmony in nature so that by natural forces if people were left free to pursue their own interests they would benefit everybody. Adam Smith's was a much more subtle and sophisticated argument, that it is possible to set up institutions under which people pursuing their own interests will benefit everybody. His invisible hand required the right set of institutions and I think that's the case. After all, the distinction between a collectivist society and a market or individualist society is not whether people pursue their own interests. If I take Russia, for example, the people in Russia are all pursuing their own interests but the institutions set up in Russia make what is in each person's own interest different from what it would be in the United States or in Britain. The manager of a factory in the Soviet Union in pursuing his own interests has to count on the possibility that if he does one thing rather than another he'll get shot. That's one of the sanctions that affects his interests. It doesn't mean he's pursuing some other interest. I don't see how you can think of a world in which people are not pursuing their own interests. What kind of world would that be?

REASON: In a way that becomes definitional—everybody necessarily pursues his own interests. The objection is that there are circumstances in which people can choose not to pursue their own, but someone else's interests. Now if you want to say that they are just pursuing their own interests then it becomes an irrefutable thesis about self-interest.

FRIEDMAN: I understand, but it is true that most people, most of the time, in most societies are pursuing their narrow self-interest as immediately perceived, and neither a long-range nor an altruistic self-interest. I've always viewed the argument for a free society from a somewhat different point of view—how to set up a social arrangement under which the minority can be free to pursue a more far-reaching self-interest? The argument has always been made that the trouble with capitalism is that it's materialistic, while collectivism can afford to pay attention to the nonmaterial. But the experience has been the opposite. There are no societies which have emphasized the purely material requisites of well-being as much as the collectivist. A great majority of people is always concerned with material self-interest, but in collectivist societies that great majority dominates the policy and the minority is suppressed. A free society, a market society, permits those in a minority to pursue their own ends, and in fact it is in the free societies that there has been a far greater development of the nonmaterial, spiritual, artistic aspects of well-being. But again, it is only possible with the right set of institutions—a capitalist society can suppress freedom as well. Look at many of the South American societies.

REASON: You would consider them capitalistic?

FRIEDMAN: Sure. Capitalism is a necessary condition for a free society but it's not sufficient. Nazi Germany was a capitalist but not a free society.

REASON: This seems strange because ordinarily capitalism is understood to mean the use and disposal of capital on a voluntary basis.

FRIEDMAN: But that's competitive capitalism. Capitalism simply means the private ownership of the means of production.

REASON: But in Nazi Germany production was fully regulated by the state.

FRIEDMAN: Of course. But that's not a question of capitalism but of how universal are the rights of private property or the right of competion. From the point of view of capitalism as traditionally defined, the people who own the means of production might not be able to use it in all possible ways, but they could dispose of it, they could sell it, they could get the proceeds. In the U.S. every corporation is effectively half owned by the government because the government takes roughly half its profits and shares in half its losses. In that sense you could say the U.S. economy is predominantly socialistic. Even the most purely competitively capitalistic society you can think of would have limitations on what people can do with their property. In the ideal world as conceived by libertarians I would not be free to use my property to hit you over the head.

REASON: For purposes of distinguishing capitalism from other systems, wouldn't the relevant distinction be between use and disposal that necessarily or unavoidably involves somebody else and that which doesn't?

FRIEDMAN: Yes. But this is one of the areas where libertarians are most guilty of not facing up to hard problems. There are no natural rules and definitions of property. There is ultimately an essentially arbitrary element to where we draw the line. What one man may regard as an infringement on property rights, another man may not. Let's take the case of the air space above your land. Is there really going to be any other than an arbitrary decision about how many feet above your house a man can fly before he's violating your air space?

REASON: This becomes a very pragmatic issue because it is by allowing this wide use of the term capitalism—because of its historical association, at least in America, with a free society—that indictments of capitalism qua relying on capital become indictments of the free society. Anything that is bad about the society gets to be called capitalist.

FRIEDMAN: Sure. There's no way of avoiding that. The best remedy is to state clearly what you are in favor of. I'm not in favor of capitalism as such—I'm in favor of competitive capitalism. I'm in favor of free enterprise capitalism, and I'm in favor of laissez faire subject to general rules, and so on. You mustn't get sucked into the trap of defending capitalism as such, including those aspects of it that you don't agree with. After all, getting tariffs was primarily an activity of people you would in every sense call capitalists and they were promoting their private interest by doing so. There's no inconsistency in saying that you're in favor of competitive capitalism and saying, as I did before, that one of the major threats to a free enterprise system is the businessmen.

REASON: Do you think that a negative income tax and a voucher system are viable for purposes of increasing human freedom and opening up the marketways, given the political facts of life?

FRIEDMAN: If they are not, I do not know what are. The basic political fact of life is that we must start from where we are now. You cannot hope to get to your ideal except by some intermediate route which will take you from where you are now to where you want to go. If I were starting with a clean slate, in my ideal society I've no idea whether I would be in favor of either the voucher or the negative income tax. Well, actually, with respect to the voucher I would not be in favor of it. In this area I have changed my views somewhat because of evidence that has come up. At one time I thought a strong argument could be made for compulsory schooling because of the harm which the failure to school your child does to other people. In principle one cannot reject compulsory schooling as a desirable thing. But the work which Ed West and others have done on the actual development of schools makes it abundantly clear that in the absence of compulsory schooling there would nonetheless be a very high degree of literacy—that self interest would be sufficient to yield a degree of schooling which would satisfy the social need for a literate society. Consequently, I am no longer in favor of compulsory schooling. If you're not in favor of compulsory schooling there's no reason to have a voucher system.

REASON: What about starting from where we are now?

FRIEDMAN: The voucher scheme is the only one I've come across which offers some improvement, which introduces a larger degree of market forces and, more importantly, offers a possible route to getting rid of governmental financing altogether. Because once the voucher—fixed sum—is introduced and market schools are introduced—which would have to be done under a sensible voucher scheme—then there's a chance that the voucher will wither away, that the size of the voucher will stay the same while through inflation and real income growth, it will come to constitute a smaller and a smaller part of the total cost of schooling.

REASON: Would you also hold that in a free society there would be no place for the negative income tax?

FRIEDMAN: There I'm not so sure what my attitude would be if we were starting from a clean slate. I do believe that a case can be established for joint action to help people in dire distress. This is one of these problems of external effects where I am benefited if you help somebody who is poor, just as I benefit from your educating your child. It might be that joint action such as the negative income tax is unnecessary and my own belief is that voluntary charity would probably be more than sufficient to eliminate acute distress. But that's a practical conclusion; it's not grounded on principle, in that a free society would not necessarily rule out arrangements under which 90 percent of us agree to impose taxes on ourselves to keep the other 10 percent from dire distress.

The fundamental underlying principle of a free society has to be unanimity—but it is not capable of being achieved. The virtue of a market arrangement is that unanimity is achieved without any measure of coercion and wherever that's feasible through a market arrangement, fine. But it isn't always. How does one deal with the case where what literal unanimity requires is that I agree to contribute on the assumption that everybody else agrees? The fundamental problem in achieving unanimity is transaction costs. The argument often given is that if everybody is in favor of it then they can voluntarily come to agreement, but this avoids the hard issue of the cost of making such an arrangement. That's why I say that my concept of a free society does not exclude the use of governmental arrangements in those cases where transaction costs are so high that we are willing to accept, as it were, being overruled in some cases in order to avoid the transaction costs involved in achieving true unanimity.

REASON: But aren't you opening the flood gates for comprehensive entry of government when you argue that because this is a distress situation we should allow the government to come in? Every time Ralph Nader stands up and makes a case it's something "very distressing and upsetting…."

FRIEDMAN Well, first of all, you're empirically wrong. Consider the American experience. We had a limited government which, from the Revolution to 1930, did not in fact expand greatly. Except for a period of major war all governments, Federal, state, and local, never spent more than 10 percent to 15 percent of the total national income. The flood gates had been opened and there was no flood. Secondly, you can't avoid opening those gates. The empirical experience is that when voluntary arrangements were relied on people objected to that so much that government got into the act. Isn't it better to recognize that we're going to live in a mixed world than to say, "Oh, my God, we won't do anything through government because once we do any little thing we have a flood."

REASON: The alternative is not anarchism.

FRIEDMAN: But it is.

REASON: No. The proper role of government would be adjudication and crime prevention, because there force is involved. But where there's no force involved—the crippled children are unfortunate and not made crippled by criminals—then there is no place for the government because no injustice has been done to those people and there is nothing for the government to adjudicate or prevent.

FRIEDMAN: But your flood gate is opened.

REASON: No, because prevention of coercion is a very limited area of operation which is specifiable and the criteria for which can be ascertained. The distinction is voluntary/involuntary.

FRIEDMAN: You are kidding yourself, as you would find out if you tried to pin down precisely what actions constitute coercion, what actions are voluntary, and what actions are involuntary. But, in any event, we've gone a long way away from the issue of the negative income tax.

REASON: But it all ties together. A number of people who oppose that program maintain that you are introducing government in an area where no force exists, and that the only justifiable role for government is where there is coercion.

FRIEDMAN: If we go back to the negative income tax, the argument you're now making is relevant only to whether, starting from a clean slate, it should be introduced. But it's utterly irrelevant to the present question, which is how to get government out of an area where it's already strongly entrenched.

REASON: One of the objections offered against your suggestion is that to introduce negative income tax measures allows for the development of another bureaucracy that is going to be self-perpetuating and it's illusory to think that it's going to put itself out of business.

FRIEDMAN: The question is, how do you substitute for the present bureaucracy one which there's at least some chance of reducing in the future? And the fundamental tactic in all of these cases is the same—you cannot move from where you are now to where you want to go by abolishing what you nowhave. So the method is to get the present bureaucracy to operate a system which has some self-destructive features—give that bureaucracy a different function, but a function which there is at least some chance will wither away. I don't see any alternative tactic and I wonder what alternatives the critics of these schemes can come up with.

REASON: One of the alternatives that they might raise is to tackle the problem from a different direction, something like law, referenda, politicians, etc. Get some free market congressmen and free market senators…

FRIEDMAN: But what do we want them to vote for? The negative income tax and the voucher scheme are both devices for enabling the free market to play a larger role and it's not an answer to say we want to get free market congressmen. Do you really think that there's any possibility that a Congress, even one including people who oppose the negative income tax, would vote to eliminate welfare overnight? Entirely aside from the force of the bureaucracy, it would be an utterly inhuman thing to do. We, through government, have induced millions of people to be dependent on welfare who would never have been dependent on it if we hadn't started out on this line 30 or 40 years ago. Can we overnight throw them on the streets?

REASON: Some people would probably say yes and their argument is, "It's not my responsibility—I never voted for those things, I never induced anybody to go on welfare. Maybe I will help these people once the laws are off the books, but as long as they are living off these coercive laws I'm going to do everything to eliminate the laws and then take care of the problem when it arises later." That may be heartless in your view, but it's a firmly held position by some.

FRIEDMAN: Well, I understand the position but I think that is not an effective way to achieve their own objectives. I don't think a revolutionary, once-and-for-all approach will succeed. As I said earlier, I think the odds are that a free society is on the way out but that doesn't mean that we shouldn't fight for it, or that sulking in our tents explaining to one another how nice it would be if we could only wipe the slate clean and get our way is an effective means of fighting for a free society.

A Reason Interview Joe Cobb, Tibor Machan, Ralph Raico

In February, 1974, Senior Editor Tibor Machan, Joe Cobb, and Ralph Raico visited Professor Milton Friedman at his apartment in Chicago and conducted the interview which appears here, after being prepared for publication by Ms. Marty Zupan.