 When I was growing up, capitalism was not something to think about, talk about, or know about. There was no information like capitalism in school. There was none in the library. I was coming in late in life, you know, a young adult before I knew there was such a thing as a free market, and it might be an option, a viable option that a sane or humane or moral person might actually choose. So now we know better, the word is out. We're all concerned with peace, with war, with poverty, with crime. We've come to learn, don't worry about the music, we'll turn it down. You know, we've come to learn that free people did not emit war on one another. We learned that famines are made by people, mainly politicians. Crime is created by politicians. People, acting as people in a free system, a free market, are well off and to the degree they're free in all times, in all places, in all history. To the degree they've been free to trade and commerce, trade of free trade of ideas, to that degree they've been well off by any standard you can name. Now some of the people who informed us of this is not innate knowledge. We had to learn it, and there are a few heroes that got the word out. Haya, monmesas, and in particular one individual who has informed the world of the free market and how it works and what it means, Milton Freeman and Rose Freeman, who have shown us all what freedom means. That is to say it's a matter of survival. People have to survive, they have to have choices, they have to use reason to make their choices, they have to have maximum options, they have to be free to choose, and millions and millions of people now know that thanks to Milton and Rose Freeman. Please welcome Milton Freeman. Thank you Fred, and thank all of you people for that introduction I think. I ought to quit while I'm ahead. I was asked to talk tonight about the future of the free market, but I really want to interpret that title more broadly. I want to talk not about the future of the free market, but about the future of freedom. But before I start doing that, let me make sure, is this mic working alright? Can you all hear me? I hear you're fine. Oh, you're in the front. How about you in the back? Okay, fine. Free markets and human freedom are related, but they are not the same. Free markets are a component of human freedom, but they are not the whole of human freedom. In my opinion, and I think history bears me out, you cannot have a free society without having a very large role for the free market, without having the bulk of resources in that society, or the majority of resources in that society, being organized through a free market. But on the other hand, you can have a society which is largely controlled by a free market in which the bulk of resources are organized through a free market, but at which is not a free society. The most obvious current example is the case of Chile. There is no doubt that if you judge Chile solely in terms of the role which is played by free markets, free markets have at least as large a role to play in Chile as they do in the United States, if not a larger role. Their international trade is probably less restricted than our international trade. Their domestic trade is probably less restricted. And yet by no conceivable definition would you call Chile a free society. It is a society in which you have a military dictatorship which is running it, which is restricting human rights and human liberties and human freedom. And yet it does have a very largely free market. I grant you that that is not the usual course of events, but it is a possible course of events. And that's why it seems to me so important to have a broader construct, to think of freedom as encompassing much more than what are narrowly regarded as market arrangements. It encompasses the whole of human activity and the whole of the interpersonal relationships among people. There is a great deal of confusion about what you mean when you talk about freedom. It's very easy and very tempting to confuse freedom as I use the word or as I think you people would want to use the word with wealth or power. Compare for example a citizen of the United States today and a citizen of the United States 100 years ago. There is no doubt that the citizen of the United States today has much more wealth on the average than the citizen 100 years ago. If as some people do you define freedom in terms of the range of alternatives available to a person, among which that person can choose, then you would have to say that people today are freer than they were 100 years ago. They have a much wider range of alternatives. But that is not a very useful definition of freedom because it confuses two very different things. Robinson Crusoe on an island by himself might be on a very rich island and there might be a neighborhood Robinson Crusoe by himself on a poor island. The Robinson Crusoe on a rich island would have a wider range of choices. He would have more alternatives open to him. The Robinson Crusoe on the poor island would have fewer. But there would be no meaning to saying that one Robinson Crusoe is freer than the other. He is wealthier than the other but he is not freer. And in the same way as I shall develop more fully in a few minutes, the citizen of the United States today is wealthier than his counterpart 100 years ago, but he is by every dimension less free than he was 100 years ago. In the same way in any individual society, a person who has a high income has a wider range of alternatives open to him than a person who has a low income. But are you going to say he's freer? No, he's wealthier. He may be more or less free. That depends on what? It depends on the extent to which he is subject to the coercion of other people. I define freedom for my purposes as referring to relations among people and as referring to the absence of coercion by other persons. And by coercion I mean physical coercion or the threat thereof. I don't mean coercion through being a better arguer or through having more money with which to bid you away. I mean coercion by hitting you over the head or it's equivalent. Now there is of course no such thing as absolute freedom. In the famous phrase of a supreme court justice, my freedom to move my fist is limited by the proximity of your job so that all freedoms are limited. And the limit is that a free society is one in which people are free to make any arrangements they want between themselves so long as two conditions are satisfied. The first is that it's voluntary and the second is that it does not affect more particularly harm third parties. See we've got competition up here. Savatage, yes. There must be a modern liberal as opposed to a classical liberal somewhere around. Now if we're going to talk about the future of freedom, as Santiago, Santiago's famous cliché tells us, we can best judge the future by looking at the past. And the past, if you look at it objectively and broadly, gives very little reason in the first instance for any optimism about the future of freedom. By any, if you look at the history of the world over long periods of time, it's perfectly clear that the natural state of mankind is tyranny and misery. That free societies have been very rare, there have been very few of them, they've been very exceptions. It's hard to find any place in the world where you have had a free society over any long period of time and at no time have more than a minority of the people ever lived in a free society. That's as true today as it has ever been before. We have been extraordinarily fortunate in having been born or having been able to migrate to a relatively free society. As I shall point out, less free than it was, but certainly free by comparison with most of the countries of the world. And therefore we tend to underestimate the fragility of a free society and the difficulty of maintaining it. We think of the... It's not only that free societies have been rare, but they have been largely a result of accidents rather than of any natural predetermined forces. There is no natural force that leads to freedom. I have often thought, using economic analogies, that it may well be that a free society is an unstable equilibrium position. A position which, if achieved, can be maintained, but which if slightly disturbed will tend to move toward its opposite. I hope that's not right, and I think it need not be right, but it's not something that history lets us dismiss. But consider the question of how our own free society arose. In my opinion, the extent of freedom in our society owes an enormous amount to two accidents. The first accident is particularly appropriate to speak about today, because tomorrow we celebrate the birthday of George Washington. He wasn't really born on February 16th, as you all know, that's a fake, that's a government fake. He was born on February 22nd, but because the Congress deemed that it was in the general welfare that it would be celebrated on a Monday, we now celebrate it on whatever Monday falls nearest to that. Have you ever considered the fact that of the various revolutions that have taken place in the world, the United States Revolution, the American Revolution, is almost unique in having given birth to a free society. The Russian Revolution did not give birth to a free society. The French Revolution did not give birth to a free society. The Chinese Revolution did not, and you can go down. It's very hard to find any revolutions that did. Our own revolution almost went the way of all other revolutions. At the end of the Revolutionary War, when there was great dissatisfaction among the armed forces and particularly the officer corps because they hadn't been paid, a group formed a conspiracy. Among that group, I may say, was Alexander Hamilton, who was a very leading member of it. I have a great admiration for Alexander Hamilton as an intellect as having done a great deal to get the adoption of the U.S. Constitution. But I don't have much respect for his report on manufacturers, which was an attempt to show that Adam Smith was wrong. At any rate, to go back to that story, because I think it's a fascinating story. This group of dissatisfied military officers wanted to set up a military junta to take over the country and run it so they could get their pay. And they wanted to have George Washington lead their junta. And it was only because of the personal character of George Washington, his resistance to the idea that he should become essentially a military dictator, but equally important to the love which his troops bore for him and for his calling together a mass meeting and getting up and making a speech in which he urged him not to go that route. I may say there were other generals around who were only too willing to assume that task in the United States. And it was only because of those personal characteristics of George Washington that the United States did not go the way of the other revolutions and become a military junta. If you're interested in that story, it's a fascinating story. It's told extraordinarily well in James Flexner's biography of George Washington, which is a marvelous four-volume book that reads like a novel. But there was a second later accident that I think was equally important. In the 1820s, 30s, there was no ideological resistance in the United States to state socialism. On the contrary, one state after another was setting up a state bank. The state of Indiana had the Bank of Indiana, the state of Illinois, had a state bank of Illinois. The various states were building canals which were state-owned. They were setting up businesses which were state-owned. There was a great emergence of essentially state socialism. Now, that wasn't eliminated or reversed by anybody writing a good book showing that it was all nonsense and it didn't conform to Adam Smith. What ended it was that you had a financial panic in 1837 as a result of things I won't go into and need to say monetary influences. But you had a panic in which all of these state enterprises went broke. And that gave state socialism a bad name. And I have no doubt whatsoever that on any objective reading of history, that episode deserves a great deal of credit for the fact that for the rest of the 19th century, it was taken for granted that government had no business getting involved in producing goods and services, setting up banks and things like that. Obviously, there were still movements and attempts to do it. There were still activities of that kind, but it was largely a free society. So our own freedom was largely a result of accident rather than of any inevitable forces. But moreover, look at what's been happening in the last 60 years in this country. By whatever dimension you take, the extent of freedom in this country has been going down. And you today are fundamentally less frig than your fathers and grandfathers were. If you look at it in terms of government spending, which is the easiest thing to get a handle on, in 1930, total spending by federal, state and local governments was less than 15% of the national income. Spending by the federal government alone was about 3-4% of the national income. Spending by state and local governments was about over twice as large as spending by federal governments. I may say about half of federal government spending was on the military. About half of state and local spending was on education, on schooling. I shouldn't say education, schooling. By 1950, 20 years later, that percentage had risen from 15% to 25%. By 1985, the last year for which I have the figures, it had risen to 43.8%, 44%. That means that every individual in this room and in this country works from January 1st to sometime in June to pay the expenses of government. That part of his income, that part of his product is being spent supposedly on his behalf by people who are supposedly his servants. I think neither the people who spend it nor the people on whose behalf it's spent would regard that as an appropriate description. At any rate, that is a situation that from 15% the fraction of the people's resources that have been spent by the government has gone up to 45%, 44%. And what's worse has become more centralized. Instead of two-thirds being state and local and one-third federal, it's now two-thirds federal and one-third state and local. So you have had both an expansion and an increase. And with respect to that part of your labor, your work, you are in the same state as a course as a slave. You are working for someone else, not for yourself. Now, to some extent, that's necessary. That's a necessary cost of a society. I am a libertarian, but a limited government libertarian, not a no-government libertarian. I disagree a little with my son in this respect. You know, the second generation should carry the good things of the first generation too far. At any rate, we don't have to argue because we're so far from where we both want to be. I won't live long enough, I'm sorry to say, to see when we have to argue about it. At any rate, well, that's one definition that understates the extent to which freedom has been restricted. Because over and above the use of resources, the spending of funds, the government imposes restrictions on what we can do in a variety of ways. It doesn't cost very much to enforce or to enact, to run the collection of tariffs at our borders. But yet, protective tariffs, duties and so on, are as much of a restriction on our freedom as the taxes. And indeed, they are a form of taxes. Anybody in this country who buys sugar, and most everybody does directly or indirectly, pays five times the world price for sugar. Well, in a very relevant sense, four-fifths of what he pays for sugar is a tax pay to the government, which the government in turn uses to subsidize the people who grow sugar. That could be done explicitly by explicit taxes and then it would show up in the government budget. That's why it doesn't. So what government spends is a great underestimate of its total restriction on our freedom. Consider over the recent years the new government agencies that have been created that didn't exist 40 or 50 years ago. Department of Energy, Department of Education, the National Foundation of the Arts and Humanities, the EPA, the OSHA, the CPSC, the CFTC, and you add any other four letters and you'll have another one. 25 years ago, my wife and I published Capitalism and Freedom. And in that book, we listed 14, quote, activities currently undertaken by the government that cannot validly be justified in terms of the principles of a liberal society. I use in that book, we use in that book the word liberal in its true original sense, not in its current corrupted sense. And we added that this list is far from comprehensive. Of all that list, only one has been terminated. That one was a very important one and I don't want to underestimate its importance. The one which was terminated was military conscription. It always reminds me of the time when I had a debate at the University of Wisconsin with Leon Kaiserling. He was at one time, as you know, the head of the chairman of the council of economic advisers. And in this debate, he was absolutely ridiculing the position I was taking. This was before a large student audience and he ridiculed it in part by taking Capitalism and Freedom and reading all these things, these absurd things which I said were unnecessary, like tariffs, price controls, minimum wages, things like that. And he had the audience all with him until he came to military conscription. And then he lost the audience and I won the debate hands down. Beyond that one which has been terminated, one or two may have been somewhat improved. Some have been unchanged, several have been expanded and many new items have been added. So that over the past 25 years, clearly, there has been a reduction in the range of freedom. Moreover, if this were an academic audience, which it is in part, I gather there are good many students here and even they deserve to be called academics. People would say, well, but you haven't really touched on the real freedoms that matter. What really matters aren't the kind of economic freedoms you're talking about. They're freedom of speech, freedom of writing, freedom of publishing and so on, freedom of the press. Well, let's look and see have those been restricted. Tell me, how many professors at medical schools have you seen giving speeches against government involvement in medicine? Do you suppose it's because they all believe it's a good thing to have the government paying half the total cost to the medical, I don't mean the government doesn't pay, government doesn't pay anything. It's only taxpayers who pay. The government has no money. The only power it has is to take from some and give to others. Well, do you think it's a good thing? Do you think that every person in a medical school believes it's a good thing to have half the costs of all medical care being paid for by the taxpayer? I doubt it. But tell me, how popular do you think one of those people would be if he got up and started talking about the desirability of getting rid of Medicare and Medicaid and socialized medicine? The businessmen are an even clearer case. 100 years ago, you would have businessmen who wouldn't hesitate to get up and say some outrageous things who would talk freely. You had tycoons like Andrew Carnegie and Morgan and others who were perfectly willing to say outrageous things. Today, no businessman will say anything outrageous. Businessmen give us speeches, but mostly, they're about how their industry needs special support from the government. About how the automobile industry is on verge of extinction unless the government comes along and helps them. Or again, my favorite example has always been the savings bond campaign. Not now, but 15 or 20 years ago when it was a bucket shop operation. Here, the government was trying to persuade people to buy bonds paying 4% or 5% interest when inflation was 6%, 7% or 8% so that they were essentially being sold a bill of goods that was going to depreciate in value. That would be worth less 25 years from then than it was when they paid for it. And yet, almost every single bank in the United States would monthly send out in its statement a little slip of paper saying, we urge you to buy U.S. government savings bonds for your own benefit. Heads of major corporations would join, still do, join a national committee with a full page advertisement in the newspaper every year urging people to buy savings bonds. I've asked them, many of them. Do you do that? Do you buy them yourself? Oh, no. Would you recommend to a friend of yours that that's a good investment? Oh, no. Why do you let your neighbor use this one? Oh, the Treasury and the Federal Reserve wouldn't like it if I didn't. Do they have free speech? And you go down the line. Let me emphasize. There's no free lunch and there's no free, free speech. There's nothing wrong with free speech bearing a cost. You ought at least to have to pay for the whole. But it is a serious restriction on free speech. If the cost of speaking freely becomes excessively high. I think the cost of speaking freely is excessively high in the country today and has become so for a very large group of people, indeed. I have often said about the only people in this country who enjoy real freedom of speech are tenured professors on the verge of retirement. I used to say that when I was in that state. Now I'm even freer because I am retired. So we come to the conclusion that if we look at the record of history it offers many grounds for pessimism about the future of freedom. And yet at the same time there are also some grounds for optimism. And the main ground for optimism is the contrast between what has been happening in the world of practice and what has been happening in the world of ideas. If you leave the world of practice and look at the climate of intellectual opinion around the world there has been a tremendous change in that climate of opinion in the last 25, 30, 35, 40 years. Recently when there was a reissue of capitalism and freedom I wrote a new preface for it and in it I said among other things those of us who are deeply concerned about the danger to freedom and prosperity from the growth of government from the triumph of the welfare state of welfare state in Keynesian ideas were at the time the thing was published which was 25 years ago a small beleaguered minority regarded as eccentrics by the great majority of our fellow intellectuals. That was a correct description of the situation at that time. One bit of evidence for it was a treatment of capitalism and freedom. Here was a book which was destined to sell 400,000 copies in the next 18 years published by a major university press by a professor at a major university. It was not reviewed in a single major American publication. It was not reviewed in the New York Times. There was then a New York Herald Tribune, not even in the Chicago Tribune. It was not reviewed in time. It was not reviewed in Newsweek. It was reviewed in The London Economist and in the professional journals the American Economic Review and so on. 25 years later my wife and I wrote Free to Choose and it had an altogether different reception and it had that different reception not because it's a better book, it isn't. In my opinion capitalism and freedom is a better book but whether that be true or not the reason for the difference in treatment, the reason why capitalism and Free to Choose got front page reviews and cover stories and a great deal of attention was because the intellectual climate of opinion had changed. The ideas which were held by a tiny minority in 1960 had come to be acceptable to very, very much larger groups of people and that change is not only true in the United States, it's a worldwide change. It's a change that manifested itself in politics and the election of Thatcher in Britain and the election of Reagan in this country and the change of government in France and the developments in China and solidarity in Poland wherever you go you have had a drastic change in ideas. Whereas 30 or 40 years ago it was taken for granted by the major part of the public and certainly by the intellectual classes that if there was a social problem the way to solve it was to have the government throw money at it. There is nobody today who really believes that to be true. There is nobody today 25, 30 years ago you could have had people telling you that the way to get things produced efficiently was to have a nationalized industry. Tell that to anybody now and they'll laugh at you. So there has been a tremendous change in people's ideas but there's no need especially for this audience to belabor the obvious that there has been that change in ideas. The much more interesting question is why there has been such a change. Now I'd love to say that the reason there has been such a change is because Friedrich Hayek and Iron Rand and Ludwig van Mises and Milton Friedman had written such good books. But I don't think that's the reason at all. That isn't the reason. The reason there was such a change was not because of the persuasive power of ideas but because as the so-called neo-conservatives put it the public was mugged by reality. It was just impossible in light of the experience that they were having to continue to believe in the beneficence of government intervention in the efficiency of nationalized industries and so on. The intellectuals of the 30s and the 40s and even the 50s placed great hopes first in Russia and then in China and in both cases those hopes were disappointed. This great experiment that was going to be the future should show the road to the future turned out to be a gulag instead of an experiment and it didn't even have the virtue of producing goods and services. The public was poor not rich but so also were the great hopes that had been placed in Fabian socialism in Britain and in the New Deal in the United States. One great program after another did not produce the results which its well-meaning sponsors had hoped for but turned to ashes. Urban renewal turned into Negro removal. The welfare program turned out another war on poverty turned out to be accompanied by an increase in the number of people officially labeled poor and so on down the line. There was no major program that had the successes attributed to it. More in the United States a particularly important feature I think was the Vietnam War which did a great deal to undermine the belief and the faith and the beneficence of government particularly among the young and this was regardless of their prior ideological views and most important of all as the great English constitutional lawyer AV Dicey predicted some 75 years ago there was a tremendous reaction against the rising burden of taxation. When people felt it in their pockets that produced a change in their intellectual ideas to a greater extent than when they read the books. Now I don't mean to say that ideas played no part at all but of course ideas played their part but they played their part not so much by bringing about the revolution and ideas. They played their part in two different ways partly by giving people sensible explanations for why their hopes had been disappointed but mostly by determining the direction that the reaction against the establishment took by determining the fact that we moved in the direction of trying to free markets instead of in the direction of a still tighter control over society. Now the next question you want to ask and the final question which I really want to examine to some extent is given this major change in the world of ideas how come there has been so little effect on the world of practice? Now part of the answer is as I've already made clear that the change in ideas was a result of the change in the world of practice. It was the fact that the world became less free that produced a movement in the intellectual climate of opinion toward a greater belief in respect for freedom and for a free society toward the role of free markets and I think there's a much more important answer to be given to that question and one which gives much greater grounds for optimism about the future. The contrast between ideas and practice that we have been observing in this country in the last 50 years is not an exception. It's not contrary to prior history. Again, I referred to A.V. Dicey whom I've already referred to. I may say those of you who have not read his book, The Relation Between Law and the Public Opinion in the 19th Century. Second edition published in 1913. I recommend it very highly to you. It's a great book. And I quote one passage from there. Quote, the opinion which changes the law is in one sense the opinion of the time when the law is actually altered. In another sense, it has often been in England the opinion prevalent some 20 or 30 years before that time. It has been as often as not the opinion not of today but of yesterday. What history suggests is that both the climate of ideas and the course of policy move in very long swings with a course of policy lagging long behind the course of ideas. Adam Smith wrote The Wealth of Nations in 1776. And I may say David Hume developed the basic ideas some decades before that. But The Wealth of Nations was the book that made those ideas available in pomp. It took 70 years in Britain before you had the repeal of the Corn Laws. As you know, The Wealth of Nations was primarily abstract against protectionism, against mercantilism, which is just another word for protectionism. Corn was a word used by the English, by the Europeans to refer to all matters of grain. It didn't mean what we call corn. They referred to that as maize. It meant wheat, rye. Anything you can think of was corn. And the corn laws were tariffs against the importation of corn. It was widely regarded that they were maintained where they were by the greedy, filthy landowners who wanted to maintain the rents on their land. And there was a great popular movement against them. And Adam Smith, of course, was a great proponent of free trade. But you didn't get free trade in the repeal of the Corn Laws until some 70 years after Adam Smith's book was written. Now, the intellectual climate, the intellectual tide in favor of laissez-faire, of free market, start at which you can date from Adam Smith's wealth in Asia, lasted about 100 years until about the 1860s or 70s. The change in the world of practice, the movement toward laissez-faire in practice in Britain, also lasted for about a little less, probably 75, 80 years, from some time in the 1820s to the end of the century. At the time of the Queen Victoria's Golden Jubilee, which I think was 1899, maybe 1898, at that time, total government spending in Great Britain was 10% of the national income. That's a good number. I've always believed that the right fraction was about 10%. The Church says to tithe. Britain had its greatest degree of freedom when government spending was about 10%. The United States had its greatest freedom in prosperity and growth when spending was about 10%. That's like a good number to an empiricist. And especially to a taxpayer. At any rate, you have here, then, the one movement in ideas, the other movement in practice, the one lagging behind the other, both lasting 7,500 years. Beginning in about the 1870s, you had a very drastic change in the tithe of opinion. Fabian socialism started to develop. It took over. It started to replace, let's say, fair capitalism as the dominant intellectual idea. And it lasted for about 100 years, until about the little less, maybe, until about the 1850s, 1950s, 60s. But what about practice? It wasn't until, oh, in the decade before World War I, about 1908, that you started to have a movement in Great Britain away from free trade and away from, let's say, fair society and toward the welfare state. That's when they first introduced various, what we would call social security measures. And then it took off. And the Fabian socialist movement in Britain dominated the next 50, 60 years in Britain. In the United States, the intellectual climate of opinion had started to shift a little later, 1880s, 1890s. Edward Bellamy's book Looking Backward is published in the 1890s. By 1929, the great bulk of the academic community was socialist in its orientation. But the movement in practice didn't start in reaction to the Great Depression. It didn't start until the New Deal in 1933. And then it took off. Again, you had this long lag at 20 or 30 years of ideas and practice. By today, every single plank, economic plank in the 1929 socialist platform has been enacted. It's now law. The most influential political party in the 20th century was a socialist party. No question. That was because it was a party of principle and not a party of expedience. The major parties have to be parties of expediency and it's a good thing they are. That's a different story. And I'll leave that to another time. But again, look at what has happened now. So in the world of practice, that lasted for 50, 60, 70 years. Now, we had a change in the world of ideas beginning about the 1940s or 50s, starting in the 60s, retarded by the Vietnam War episode and then taking off again. And we are going to have a move in the world of practice that will follow it in the direction of a greater degree of freedom, of a reduction in the role of government. We haven't seen much yet. But even in the last 5 or 10 years, we have started to see some results. If we, if instead of looking at the last 50 years as a whole, we just look at the last decade, there are some grounds for optimism. You have, in the United Kingdom with the election of Margaret Thatcher, you did get rid of exchange control. You did get rid of wage and price control. You have had a good deal of privatization. You have not, unfortunately, had anything in the way of a reduction in government spending as a fraction of income. In the United States after the election of Ronald Reagan, you again, unfortunately, the movement has been disappointing to all of us who thought that that would usher in the new era. It's been disappointingly slow, but there has been movement. Government spending has continued to increase, but at a slower rate, more important. The fraction government spending on non-defense, non-welfare programs has gone down fairly sharp. That's thanks to the rise of interest and to the beneficial effects of the deficits. That, again, is another subject. But the most important thing to me is a different thing. Then in the past six years, there has been no major new spending program enacted. Now, we may, that record may be broken with this terrible proposal for catastrophic health insurance. I hope not. But even that is more of an extension of an earlier program than it is a major new spending program. So it isn't that people don't have ideas for that. Of course they do. But the climate of opinion is that way. More important. There is no appetite for raising taxes. Mondale demonstrated that if anything did. And as long as that is the case, as long as you cannot raise taxes, you have an important pressure on keeping government spending from continuing to go up. So there has been progress in that area. There has been some deregulation, not enough, some re-regulation. The area in which we have made least progress and regressed is in the area of international trade, which I regarded as the greatest failure of the Reagan administration. However, let's look beyond the United States and let's not be so parochial. Look at the change that has occurred in France where a socialist government made a 180-degree turn under Mitterrand and then elected a conservative. Go beyond that. It's clear, it's a fascinating thing that the more left-wing the government in terms of ordinary political concerns, the greater the extent to which it has been willing to move in a free market direction. New Zealand is the most recent example among the free societies. You had a labor government replace a conservative government. The labor government abolished exchange control, abolished wage and price control. It has made a tremendous deregulated banking entirely. It's made really a greater movement in the direction of free markets than any other country I know of in the so-called Western world. But then, the solidarity movement in Poland, although it is very far from a free market movement, it's a socialist movement, but nonetheless it would not have arisen, it would not have existed except for this change in the world-wide climate of opinion. The movements in China toward introducing free market arrangements in agriculture where they have been tremendously successful, the tentative attempts in Russia. Let me hasten to add that I distinguished early on between free markets and human freedom. I'm not saying there's been any movement toward human freedom in China or in Russia. I am saying that the ideas at markets work better than government arrangements. That basic intellectual idea has penetrated everywhere and it's having its effects everywhere. So there are some reasons for optimism. We are no longer an isolated remnant. We now have much more support among a much larger group of the population at large. In fact, I think that the most effective way one could possibly move toward greater freedom in the United States toward a smaller role of government would be if we could only have a more democratic society. I don't mean a capital D, I mean a small D. That is, I mean if we could have referendum. The public at large in its referendum has almost always shown itself to be more libertarian in its views than have their elected representatives. But nonetheless, we are still fighting against the odds, against the businessmen, the business community who are all in favor of freedom for everybody else. But all want special treatment for themselves. They're all special cases. The most extreme example I came across recently was a letter I received from some head of a B association, BEE, telling me about how he really agreed with me on almost everything except, and especially on free trade, except for one exception. And that was that we had to have a national policy of protecting bees because of the external benefits they conferred by pollinating the fruits. He had never read a famous article by Steve Chung on how that has become a private industry in which there are private beekeepers who go around with bees and rent out their use to pollinate the fruit crops. So you don't need, there are no external effects at all. At any rate, he's a very obvious example, but in general I have always said that the two major enemies of a free society are the business community on the one hand and the intellectuals on the other for what look like opposite reasons. Every businessman is in favor of freedom for everyone else, but wants special privileges for himself. Every academic is in favor of freedom for himself, but wants to control everybody else. Now I exaggerate when I say every academic, and I don't really mean that, and it is less true today than it was 30 or 40 years ago, but certainly over time it is the intellectual community that has provided the greatest support, the greatest rationalization for the growth and extension of government. But more important than either the business community or the intellectual community, in my opinion, is the economic inertia, a simple inertia that derives from the interest we all have in retaining our own special privileges. We all, every one of us, knows that what's good for us is good for the country. That's the easiest thing in the world to persuade yourself of. And nobody is a hypocrite when he does it, he really believes it. That gentleman who wrote me about bees, I'm sure he was sincere, he believed what he was saying. He wasn't just deliberately falsified. The automobile people, when they go around and say they need government assistance to keep from going out of business, they don't, and that that's in the best interest of the country, they believe what they're saying. But nonetheless, I think that the greatest danger comes from those of us, all of us, who seek to protect whatever benefits we've managed to get. We're always willing to cut other people's government programs while we retain our own. To come close to home, I gather there are a lot of students in this room. How often have you observed students going around and protesting about what I think is the most disgraceful government-spending program in existence, namely government subsidies to higher education? There is no program in the United States which so clearly imposes burdens on low-income people to benefit high-income people. None whatsoever. And yet, how many students do you have going around saying it's a bad thing for the country to have government to vote so much money to higher education? Now, don't misunderstand me. If there is a government program of benefits or of loans, there's nothing wrong with taking advantage of it. You're a citizen of a country. If that country votes a law you disagree with, it's not in any way wrong or immoral to take advantage of that law. Provide it. Provide it. It doesn't keep you from trying to get the law repealed. So I think the prospects for the future of a free society can be bright. But only if we continue to try to spread our ideas but most importantly of all to persuade ourselves more importantly than anyone else to be consistent with the beliefs we profess. When you are tempted, every time you are tempted to blame somebody else for the growth of government or the decline in the freedom, first look in the mirror and see where the real fault lies. Thank you. It's been suggested that I answer some questions and I'll be very glad to do so for a few minutes. Who would like to throw the first stone? Yes. The question is, what is my opinion that the new tax law will do the economy the Tax Reform Act? Well I think the Tax Reform Act, the tax reform bill is a vast improvement over the tax we had before. Although it's a very far away from an ideal tax system. I think it's, therefore I think on the whole the effects will be very good. However, I think it's very easy to overestimate any effects. The main harm which is being done to the country is by the level of government spending. By the fact that government is spending an amount equal to 45% of the national income. So long, there is no good way to raise that money. There are only ways that are bad or less bad. And while reform in the tax system is a benefit. You cannot, so long as total spending is not reduced it will only reduce to a minor extent the harm which is done by the spending itself. As I said, I think it is an improvement. There's no question that it is. But I think you should not overestimate the effects. I may go on to say that I think it's very interesting to understand why we got that law and what the prospects for it are. People think of taxes as being imposed to pay for the expenses of government. They are, that's one reason. But there's another very important reason why it will function, which taxes provide. Not only to provide money to pay for the expenses of government, but also to provide campaign funds for congressmen. That's the only reason why we have a new tax bill every year. From the point of view of the public good it would obviously be far better to have one tax bill for ten years so you knew where you stood. And then if you're going to make a change make it once every five or ten years not every single year. The only reason you make it every year is because that's the only way you can keep the lobbyists coming and keep the money coming out. And that's how you got the crazy system we have by imposing all these special privileges. Now what happened this time is that they started to do the same thing. The Senate Finance Committee started to put in more special privileges. But lo and behold they discovered the blackboard was all filled up. There was no more room. You couldn't put anything more in and still raise anything like the amount of revenue necessary. What do you do under those circumstances? You wipe the slate clean and start over again. And that's what's happened. And that's why I think that we better enjoy this while we can because it isn't going to last long. Yes. Sounding some very good arguments without quoting you directly. Sure, that's right. We have some ideas. We've sensed that you have any about the likely to organize labor increasing the minimum wage law. The question is Manny Klausner refers to the fact that the New York Times had an editorial opposing the minimum wage law and saying the proper minimum wage should be zero. Not minimum wage. The proper legal minimum wage should be zero. The proper minimum wage should be infinite. But at any rate and he asked what do I think is the chance that organized labor will be able to raise the minimum wage? Well, despite the very good arguments against the minimum wage the minimum wage obviously has political reasons for existing. I do not think it will be eliminated and I suspect it will in the course of time be raised because I think the political constituency for it remains. And therefore I'm not very optimistic about getting rid of it. The most effective thing in getting rid of it has been inflation. Yes, way back over there. Go ahead. So, beyond economic freedom that would be so. After all, we do have a situation now where under the regular administration virtually every financial transaction is now reported to the IRS. You can't export money cash from the country without reporting to the U.S. customs. You can't hire anybody without getting passport checks. Then we have your analysis and lie detector tests in the government and is this really clear? The question is whether we have for those who can't hear I'm repeating these because the people in the back can't hear you. The question is that I emphasize that economic freedom was only a component of a broader concept of human freedom and while I had been saying we had gotten freer under the regular administration is it not true that we become less free in some components such as the need to report the transactions of cash the export of cash abroad financial transactions and your analysis and lie detector tests. Well, let me take first of all the laws and the regulations about the money predate the regular administration. They were not introduced in the regular administration. They were introduced much earlier supposedly as a way of preventing crime of various kinds. So that I don't believe you can attribute those. So far as your analysis is concerned there's been talk so far but so far as I know no action with respect to compelling such your analysis on the part of the government. And the same thing I think is true of the lie detector test you're talking a great deal about talk and not about action not about what actually has happened in various areas. Now, as I said before I don't believe it's all been one way in the last six years at all. I'm not saying that. You have a movement and this is typical in all of these cases in which you have something going this way it doesn't start going this way it first slows down and then gradually comes around a curve takes a long time to change it and all I would argue for the last six years is that the rate of growth at which government controls have been expanding has been somewhat reduced and that most of the increase in spending and so on derives from earlier loss. As I say in the area as I did mention in the area of international trade I believe we have become less free in the last six years than we were before I agree but you know you have to you have to look at things as they are and you must not let the best be the enemy of the good yes recent study Buchanan what are you referring to Jim Buchanan hasn't done anything about monetarism there's no conflict whatsoever I don't understand the question was do I have some conflict with Jim Buchanan's public choice perspective on taxation decisions about monetary policy you know none whatsoever I agree completely with them in fact I have learned a great deal from I have been led to alter some of my views on the basis of them so I don't have any conflict I think that the Federal Reserve behaves the way it does not because it's a group of of people or any more public spirited than the people in this room but a random sample of the people in this room put into the Federal Reserve system would behave the way the Federal Reserve system has behaved because it's reacting to the political forces that act on it it's reacting to what is in the self-interest of the people who are in that system just as you people were if you were so unfortunate as to be put in that position yes way back there I'm sorry can you talk a little louder when you abolish the FDA where is the FDA where does the FDA step in to protect the consumers against the short term effect of market technology I am in favor of abolishing the FDA have always been the question is that I have always been outspoken against the government stepping in to protect the consumers but where would I draw the line of the question is somehow that there is some role for the government in protecting the consumers. Now there is a role for the government in protecting consumers from somebody else but not from themselves. That's their problem. And I don't believe, as I say, I am in favor of abolishing the FBA, DA. I think it's the Slythomite scandal that you talked about was much more than counterbalanced insofar as there were any benefits from it. I'm not sure there were, but if there were it was much more than counterbalanced. But the tens and tens of thousands of people who have unnecessarily died because of the delays in approving beta blockers, etc., etc., all down the line. So I don't believe there is any case. Now, as I say, I'm not prepared to rule out some government action in respect to external effects. But I think you've got to make a case for it and a very strong case because I think you have to realize that the government action itself has bad external effects. And the question is, which of two bad situations is worse? You do have cases in which private actions influence third parties and in which it is difficult for them to protect themselves against it. And there is an argument in such cases for governmental action. But then you have to recognize that the government action is going to be imperfect too. And it's only therefore I think there has to be a very strong presumption. Now, I don't know if you had any specific case in mind. See, I don't believe, let me take a more extreme and current thing. There is a, the government professes to be protecting people against hard drugs. I think that has done an enormous amount of harm. And I have always been in favor of the legalization of drugs precisely on the ground that I don't believe, first of all, I don't believe that I have the right, I have the right to prevent you from committing suicide. I have every duty and every obligation to persuade you not to do it. I have every obligation as if I'm a friend of yours to try to prevent you from doing it, to try to see that you are not in a position where you do it. But if you insist on committing suicide, that seems to me ultimately. When I get down to it, that has to be your problem. But second, even for those who believe that it is appropriate for some people to interfere with other people for other people's benefit, the fact is that the rendering of drugs illegal does far more harm than it does good. It's the prohibition problem all over again. You have tremendous profits in this industry and the result of the rendering of it illegal is in addition to the harm which is done to the addicts. There is enormous harm which is done to everybody else in society through the crimes that are encouraged, through the corruption of governmental officials, through the deterioration of the police forces and so on and so on. It's a terrible thing. So I don't know how to answer your question. Go back way there. I have repeatedly expressed that view in print. It's not something I've kept under the closet. I wrote a Newsweek column on it many years ago. We've expressed the view in the various books. I'm not a crusader on particular issues that way. I don't have any plans to go on a crusade on that. If anybody ever asks me about it, I always say the same thing. Yes. Do you have any data that by holding taxation down to 5% the economy is hindered? The question is, do you have any data that by holding an economy's taxation down to 5% the economy is hindered? That's one of these questions like when did you last meet your wife? Do you have any evidence that by keeping it 5% an economy is helped? The fact of the matter is that we have almost no evidence on that. We do have evidence, however, that the level of taxation and the rate of economic growth are inversely related in general. I had no question about that. I said earlier that we are much richer than we were 100 years ago. We are also less free. However, I would go on to say that if 100 years ago we had had the range of government restrictions that we now have, we would now be poorer than they were. So I'm not questioning the fact that it's not tax. Again, let's be clear. You must not fall into the trap of thinking the problem is taxation. The problem is government spending, because what government spends is all taxation. Where does it come from? It doesn't matter whether they call the tax an income tax, whether they call it a sales tax, whether they call it a deficit. It's taxation. So that high levels of government spending have been associated. There is a study by, as it happens, a former student of mine at the World Bank who has done a comparison among various countries on the level of taxation on the one hand and the rate of growth on the other. And there is no doubt the higher the rate of taxation, the lower in general, has been the rate of growth. You see, it's a complicated problem to investigate because the higher the rate of growth, the higher the subsequent rate of taxation. You have a country that does very well, that provides a pot which you can take. And so therefore you have a high rate of taxation. So that you have to be very careful in analyzing the data not to let post-Hoke-Ergo-Hoke dominate it. Yes? The question is how would be the best way to come up for the money we decide to spend on national defense? What's the best way? No, you didn't. You said, need. You can be sure there's a fallacy hidden in that sentence. So I'm going to rephrase this question. How do we come up with the amount of money we decide to spend on national defense? What's the best way? No, you didn't. You said, need. That's a four letter word. The least bad way, there's no best way, but the least bad way in my opinion would be a flat rate tax on all spending, not income, but on all spending above a minimum. A spending tax, not a value added tax. Value added tax would come to the same thing, but it's a very bad tax because it tends to be invisible. And therefore, from a political point of view, it tends to be overdone. I'd like an open and above direct spending tax, a flat rate tax on all expenditures above a certain amount by each family. That's the least bad tax. There's no good tax. Yes? I'm sorry, are we what? I'm sorry. I have difficulty hearing. You said that the American people are reaching an absolute sense of where to stand, and are we in the picture relative to other people, if we don't take our neighbors in the picture, or what the difference will be in the distribution of income? What's the government role in the distribution of income? The question is, I said that the United States was richer today than it was, or the people in the United States are richer today than they were 100 years ago. How about are we richer relative to other groups, to other countries, neighboring countries, neighboring societies, and so on, and what is the government's role in the redistribution of income? In the distribution of income, I'm sorry. It's very hard to say. You can't make it. You know, you've asked a question which doesn't admit a simple answer. With respect to some particular countries, we are relatively richer than we were 100 years ago. Certainly that's true with respect to Great Britain. It's true with respect to all of the European countries. We are much richer relative to them than we were 100 years ago. It's not true with respect to Japan. We're less rich today relative to 100 years ago than we were 100 years ago. We were much richer relative to Japan than we are dead. But I don't know why that's an interesting question. I think the ideal state of the world in which everybody around the world has the opportunity is to have a higher standard of living and to become more prosper and richer. So I don't think we ought to look at things in terms of keeping up with the Joneses of finding out whether we've done better than Argentina or Australia or Germany or Japan. We ought to look in terms of how well have we done relative to our own standards and to our own potentials. Now, on the question of what is the role of government in the distribution of income, I don't think it's anything. I don't believe that government ought to be involved. Now, I hasten to add that given that you have government, given that it is going to have to collect funds to pay for its expenses, it's going to affect the distribution of income. But so far, but I do not believe that affecting the distribution of income by itself is an appropriate goal of government. I believe we may as a people want to help people who are in dire distress. We may want to help poor people, not as a means of redistributing income, but as a way of helping people who are in trouble and to poor. If possible, the ideal way to do that would be through private activities and private charities which are more efficient in that area than they are in others. But I cannot object, I cannot in principle say that I would be against having some governmental activities directed at helping people who are poor. I shouldn't say who are poor. I don't like that. Who are in dire distress or in trouble? We now have programs, welfare programs, which are a terrible mess, which do an enormous amount of harm, which cost a great deal of money, most of which never trickles down to the people whom you would like to help, has served to create a bigger class of people in trouble than you would otherwise have. So there's very little to be said for our efforts in that direction today. And many years ago in capitalism and freedom, I recommended as an interim measure the replacement of that collection of welfare measures by a negative income tax as a way which would more effectively help those who needed to help without creating a big bureaucracy and without having all the other bad effects. I have never thought of that as an ideal. I thought of that as a way to go from here to there. The place I would really like to go to is a situation in which the relief of difficulty in a poverty was handled almost entirely by private charitable means. Yes. I am not willing to make a comment. I am not a member of the libertarian party. I am not involved in its political activities. I have only one comment to make about the libertarian party. I hope it will try to be a party of principle and not expediency. That is not a comment directed at any person. And now I think I will auction off the last question. How much am I bid? Yes. Really okay. Good. I didn't see it. I'm sorry. You see, we need a free market here. One of the words is capitalism. Now over the course of time, is there a synonym or a euphemism that fulfills all the things of capitalism that they see? Well, first of all, I don't believe that capitalism by itself is a correct description of what any of us favor. The Soviet Union is a capitalist society. Every society in the world is a capitalist society because all production is from capital, whether physical capital or human capital. The Soviet government is a state capitalist society which we don't want. What we want, and the words I have always tried to use, is that we want a competitive capitalist society. Now if you don't like to use a word competitive capitalist society, you say free markets. If you don't like to say free markets, you say individualism. The thing you want to emphasize, I've often said the constitutional amendment I'd like to see adopted is that government shall make no law. I'm not going that far. Government shall make no law restricting voluntary agreements among consenting adults. I would go most of the way. So I don't really think the problem, I don't think we ought to be worried too much. There are some real semantic problems. You mustn't beg issues by semantic problems. For example, it begs an issue to talk about progressive taxes. When what you mean are graduated taxes which in fact turn out to be regressive in their impact. I think it begs a question. When you talk about labor wants, when you mean labor union leaders want. And only and fewer than 20% of the laboring population. So there is something about the language you use. But so far as a word capitalism is concerned, I think if you use competitive capitalism, that's a good pair of words, it's even alliterative. And I don't think there's any objection to it. Thank you.