MOLDOVAN STATE UNIVERSITY
on the History of economic doctrines, on the topic:
« MILTON FREEDMAN»
Completed: 2nd year student,
group 19-1 Peeva Veronika
Checked:
Chisinau 2002
Introduction
1. Milton Friedman. Short description biographies.
2. Monetarist recipes for economic recovery
3. Milton Friedman's criticism of the International Monetary Fund
References
Milton Friedman is an American economist and winner of the Nobel Prize in Economics in 1976, awarded "for research in the field of consumption, the history and theory of money."
The name of M. Friedman - Nobel laureate in modern economic theory is usually associated with the leader of the "Chicago monetary school" and the main opponent of the Keynesian concept state regulation economy.
M. Friedman is multifaceted in his work and, what is very important, his scientific interests also cover the field of methodology of economic science.
1. Milton Friedman.
Brief description of the biography.
| Milton Friedman |
Milton Friedman was born July 31, 1912 in New York to a family of immigrants from of Eastern Europe. Shortly after his birth, the family moved to Rahway, New Jersey. His mother worked in a dry goods store, and his father, as Friedman later recalled, "tried unsuccessfully to achieve results in hopeless trading operations." The family had small and unstable incomes and could not get out of poverty.
At the age of 16, Milton Friedman was admitted to Rutgers University by competitive selection with the right to receive a partial scholarship.
In 1932, he was awarded a bachelor's degree in two disciplines at once - economics and mathematics. M. Friedman continued his specialization in economics at the University of Chicago. After receiving a master's degree from the University of Chicago in 1933, Friedman went on a postgraduate internship at Columbia University (New York).
At the end of 1934, he began working at the University of Chicago as a research assistant. In the summer of 1935, M. Friedman took part in a large large-scale project consumer budget research for the National Committee for natural resources USA.
During World War II, Friedman was involved in the development tax policy under the instructions of the Ministry of Finance, conducts research on military statistics.
In 1945-1946 he teaches economics at the University of Minnesota. Then M. Friedman returns to the University of Chicago and becomes an assistant professor in economics, remaining in this position to this day.
With the assistance of the NBEI, Friedman begins many years of work on the creation of monetary theory. His subsequent contribution to the theory and practice of economic science is accompanied by unexpected results, he becomes a fruitful researcher, leads the so-called. "Chicago School" of economists.
In 1950, he worked in Paris as a consultant on the implementation of the "Marshall Plan", which provided for the restoration of the war-ravaged economies of countries Western Europe. In his book "The Theory of the Consumption Function", published in 1957, M. Friedman formulated and substantiated his theory of "permanent consumption income".
Friedman was awarded the John Bates Clark Medal of the American Economic Association in 1951.
In 1956, under his editorship, a collection of articles "Research in the Quantity Theory of Money" was published.
In 1963, Friedman published the fundamental work "The Formation of monetary system USA". In this book, he defends the position that in long-term periods major changes in economic life are associated primarily with the money supply and its movement. upheavals, including the Great Crisis of 1930, are attributed by Friedman to the consequence monetary policy rather than instability market economy. According to Friedman, the influence of money on economic activity is not an external (exogenous) factor of the economy, but, most likely, on the contrary, an internal (endogenous) factor. Following the monetarist school, he considers the demand for money to be one of the most important drivers of the economy. Friedman's monetary concept, in the words of the American economist G. Ellis, led to the "re-discovery of money" due to inflation growing almost everywhere, especially in the recent period.
Friedman's views on the importance of government laissez-faire in economic policy became widely known through his book Capitalism and Freedom (1962) and his continual publications in his dedicated (beginning in 1966) column in Newsweek magazine.
In 1967 M. Friedman was elected president of the American Economic Association.
In 1969-1973 He was an economic adviser to US President Richard Nixon. He earned recognition as an adviser to President Richard M. Nixon, despite their differences with him on the establishment of strict control of prices and wages in 1971. the column of the magazine "Newsweek" ("News-week") reserved for him since 1966, and also thanks to the earlier publication of the book "Capitalism and Freedom" ("Capitalism and Freedom", 1962). His popular book "Free to Choose" (1980) even gave the name to the television screensaver of his series of talks on social and economic issues.
In 1976, Milton Friedman was awarded the Nobel Prize in Economics "for his achievements in the field of consumption analysis, history monetary circulation and the development of monetary theory, as well as the practical demonstration of the complexity of economic stabilization policies."
In the Nobel lecture, he returned to a topic that had been raised back in 1967 when addressing the American Economic Association - to the rejection of Keynes's remark about the stable relationship between the rate of inflation and unemployment. He came to the conclusion that in the long run, the Phillips curve still shifts upward, subject to a natural increase in unemployment.
In his opinion, the reason for this phenomenon was the acceptance of the growth of unemployment as an increasing parameter, instead of interpreting it as a constant numerical constant. For the short term, in his opinion, inflationary monetary and fiscal policy could only temporarily reduce the unemployment rate, since workers and corporations habitually seek to increase income levels, which ultimately cannot but contribute to an increase in the price level (and, accordingly, an increase in unemployment).
Despite the fact that many views of M. Friedman on economic theory and public policy considered controversial, he, as the English economist John Barton put it, "provided us with the foundation for future research in macroeconomics."
In 1977, M. Friedman left the University of Chicago, where he taught for many years, and began working as a senior researcher at the Hoover Institution at Stanford University in California.
In 1980, his (and popular) book Freedom of Choice was published, which gave its name to a series of television talks he conducted on social and economic issues.
In 1981-1984 M. Friedman was an economic adviser to US President Ronald Reagan.
Milton Friedman has received honorary degrees from many American and foreign universities and academies.
M. Friedman is multifaceted in his work and, what is very important, his scientific interests also cover the field of methodology of economic science. Indeed, for many years, in their discussions on this problem, economists have not done without analyzing Friedman's essay "Methodology of Positive Economic Science" (1953), as well as without an essay on a similar topic written by L. Robbins (1932), R. Heilbroner (1991) and M. Alle (1990), or the famous lecture delivered by P. Samuelson at the ceremony of awarding him the Nobel Prize in Economics (1970 ), and etc.
However, it is precisely from M. Friedman's positivist methodological essay that extraordinary judgments can be drawn that economic theory as a set of substantive hypotheses is accepted when it can "explain" the actual data, only from which it follows whether it is "correct" or "erroneous" and whether it will be "accepted" or "rejected"; that, in turn, facts can never "prove a hypothesis," since they can only establish its fallacy. At the same time, his solidarity with those scientists who consider it unacceptable to present economic theory as describing, not predictive, is obvious, turning it into just mathematics in disguise. According to M. Friedman, to assert the diversity and complexity of economic phenomena means to deny the transient nature of knowledge, which contains the meaning of scientific activity, and therefore "any theory necessarily has a transient character and is subject to change with the progress of knowledge." At the same time, the process of discovering something new in familiar material, concludes Nobel Laureate, it is necessary to discuss in psychological, not logical categories and, studying autobiographies and biographies, stimulate it with the help of aphorisms and examples
What is monetarism? What are its postulates, causes of influence?
Monetary - means monetary (money - money, monetary - monetary). According to the definition of Bernard Yves and Colli Jean-Claude, monetarism is a current of economic thought that assigns a decisive role to money in the oscillatory movement of the economy. Monetarism is a science not only about money. The focus of the representatives of this school are monetary categories, monetary instruments; However, they are not only interested money mechanism, banking system, monetary policy, currency relations. Monetarists look at these processes to reveal the relationship between money supply and output. In their opinion, banks are the leading instrument of regulation, with the help or with the direct participation of which changes in money market are transformed into changes in the market of goods and services.
One of the most influential contemporary economists, Milton Friedman and his wife Rose Friedman, Freedom to Choose is one of the best-known works of liberal thought in the second half of the 20th century. Defending the values of individual, economic and political freedom, the authors provide convincing evidence of the inefficiency of the bureaucracy and the redundancy of its interference in the life of society on the example of state systems of social security, education, financial regulation, licensing of various goods and activities.
Milton Friedman, Rose Friedman. Freedom to choose: our position. - M.: New publishing house, 2007. - 356 p.
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The history of the United States is the history of an economic, but also a political miracle, made possible by the practical application of two sets of ideas, which, by a curious coincidence, were formulated in documents published in the same 1776. One set of ideas found expression in The Wealth of Nations, the masterpiece that made the Scotsman Adam Smith the father of modern economics. Another set of ideas was embodied in the Declaration of Independence, in which Thomas Jefferson expressed the prevailing mentality of his countrymen. She proclaimed the formation of a new nation, which for the first time in history approved the principle that each individual has the right to be guided by his personal values: “We proceed from the self-evident truth that all people are created equal and endowed by their Creator with certain inalienable rights, which include life freedom and the pursuit of happiness.
Economic freedom is the most important prerequisite for political freedom. By giving people the opportunity to organize joint activities without coercion or centralized control, it limits the scope of political power. In addition, the free market ensures the dispersion of power and thus prevents the state from becoming too strong.
Jefferson's ideal, formulated in his first inaugural address in 1801, was "a wise and frugal government that would keep the people from harming one another and in every other way leave them free to distribute their efforts between labor and perfection."
With the advent of the Great Depression in the early 1930s, attitudes toward the state began to change. The cause of the depression was the failure of the government in the monetary sphere, where it had exercised power since the birth of the republic. Yet government responsibility for the depression was not recognized then, nor is it now. On the contrary, the depression was widely interpreted as the failure of free market capitalism. This myth seduced the public to join the intellectuals' changed view of the mutual responsibility of individuals and government. If earlier the emphasis was on the responsibility of a person for his own destiny, now a person was considered as a pawn, which is influenced by forces beyond his control. The notion that the role of the government is to serve as an arbitrator, keeping people from mutual violence, has been replaced by another, according to which the government should play the role of a father, endowed with the duty to force some to help others.
One policy followed another to "regulate" the "distribution of our efforts between labor and perfection," turning Jefferson's dictum on its head. A person who intends to serve only the public interest through government intervention is “guided by an invisible hand” to promote private interests, although this goal “was not part of his intention.”
We must understand why attempts to replace voluntary cooperation with centralized control can do so much harm. We have the opportunity to push a change in public opinion towards greater trust in private initiative and voluntary cooperation, and not in its opposite - totalitarian collectivism.
Chapter 1 Market Power
No society operates entirely on command principles, and just as none of them relies solely on voluntary cooperation. Big difference is whether voluntary exchange is an inherently illegal activity that thrives on the inflexibility of the dominant command element, or whether voluntary exchange is the dominant principle of organization, supplemented to a greater or lesser extent by command elements. Illegal voluntary exchange can keep a command economy from collapsing, can help it survive for a while, and even make some progress. However, it is unlikely to undermine the tyranny on which most of the command economy. On the other hand, an economy dominated by voluntary exchange has the potential for prosperity and personal freedom. It may not reach its full potential in any respect, but we do not know of any society that has achieved prosperity and freedom in which voluntary exchange is not the dominant principle of organization.
The key idea of A. Smith's book The Wealth of Nations is deceptively simple: if an exchange between two parties is voluntary, then it will be carried out only if each of the parties is sure that it benefits from it. A. Smith's brilliant insight was the realization that the economic order can arise as an unintended result of the actions of many people pursuing their own interests, was amazing in his time and remains so to this day.
The role of prices. In the process of organizing economic activity prices perform three functions: they convey information; create incentives for the introduction of less costly methods of production and, thus, allow the available resources to be directed to the most significant purposes; determine who gets how much, i.e. distribute income. Anything that prevents prices from freely reflecting the conditions of supply or demand affects the accuracy of the information. Private monopoly, i.e. control of a commodity by a single manufacturer or cartel is one example. This does not prevent the transmission of information through the price system, but distorts the information transmitted.
Today, the government is the main obstacle to the free market system, which it disrupts through tariffs and other restrictions on international trade, fixing or otherwise influencing certain prices in the domestic market, including wages, government regulation of certain industries, monetary and fiscal policy. , causing volatile inflation, and many other measures.
For the organization of production, the most important information is about relative prices, i.e. the price of one product compared to another. High inflation, and especially volatile inflation, drowns out this information with meaningless noise. The manufacturer's income - what he receives from his activities - is defined as the difference between sales and costs. He compares the one with the other, and produces such a volume of output that a small increase in production gives an equal increase in his costs and his profits. Raising prices shifts this limit.
Only people can earn income, and they market it from the resources they own in the form of corporate capital, securities, land, or their own abilities. In countries like the United States, the main productive resource is the personal ability of people, what economists call "human capital." Approximately three-quarters of all income received in the United States as a result of market transactions take the form of employee compensation (wages and salaries plus additional benefits).
The amount of each type of resource we own is partly a matter of chance, partly a choice made by us or others. Chance determines our genes and, by extension, our physical and mental abilities. Chance determines the nature of the family and cultural environment in which we are born, and, accordingly, the opportunities to develop our physical and mental abilities. But choice also plays an important role. Our decisions about how to use our resources, to work hard or not to work hard, to enter this or that job, to start this or that business, to save or spend - all this can lead to waste or, conversely, to the increase and improvement of resources.
In every society, no matter how it is organized, there is always dissatisfaction with the distribution of income. It is difficult for all of us to understand why we should get less of those who we think deserve less, or why we should get more than many others whose needs seem just as great and merit no less. The grass in distant pastures seems greener, and so we blame the existing system. In the command system, envy and dissatisfaction are directed at the rulers. In free market system they are directed to the market. One of the consequences of this was an attempt to separate the function of income distribution from other functions of the price system - the transmission of information and the creation of incentives. Much of the activity of governments in the second half of the 20th century in the United States and other countries that relied mainly on the market was aimed at changing the mechanism for distributing income generated by the market in order to ensure a different, more equal distribution of income.
As much as we would like to, it is impossible to use prices to convey information and create incentives to act on that information without using prices to influence the distribution of income.
The "invisible hand" of Adam Smith is usually seen in relation to the buying and selling of goods and services for money. But economic activity is by no means the only area of human life where the unintended result of the cooperation of many people pursuing their own interests is a complex and delicate structure. Consider, for example, language. The values of society, its culture and customs - all this develops in exactly the same way on the basis of voluntary exchange, spontaneous interaction, the evolution of a complex structure through trial and error, acceptance and rejection. No monarch has decreed that the music that pleases the people of Calcutta should be fundamentally different from the music that pleases the people of Vienna.
Structures created through voluntary exchange, be it language, scientific discoveries, musical styles or economic systems live their own lives. They have the ability to take on different forms under the influence of circumstances. Voluntary exchange can produce uniformity in certain respects and diversity in others. It is a subtle process, the general principles of which are easy enough to grasp, but almost impossible to accurately predict its results. These examples point not only to the wide possibilities of voluntary exchange, but also to the need for a broader understanding of what “self-interest” is. The narrow preoccupation with the economic market has led to a narrow understanding of "self-interest" as short-sighted selfishness, as an exclusive interest in immediate material reward.
Economics has always been accused of drawing far-reaching conclusions from a completely unrealistic concept. economic man”, which is only a computing machine that responds only to monetary incentives. This is a huge mistake. "Self-interest" is not myopic selfishness. These are in fact the interests of the participants, their values, the goals they pursue.
What should be the role of the government. It is difficult to give a better answer to this question than Adam Smith did more than two centuries ago: the sovereign has only three duties to perform, first, to protect society from the violence and invasion of other independent societies; secondly, to protect, as far as possible, every member of society from injustice and oppression on the part of its other members, or the obligation to establish a good administration of justice, and, thirdly, to create and maintain certain public buildings and institutions, the creation and maintenance of which cannot be in the interests of individuals or small groups, because the profits from them can never pay the costs of an individual or a small group, although they can often pay them in excess to a large society.
The main problem in achieving and maintaining a free society is precisely to ensure that the coercive powers provided to government for the sake of maintaining freedom are limited to this function and do not become a threat to freedom. We must improve our methods of examining the benefits and costs of government intervention and require a clear excess of benefits over costs before taking any action.
The fourth duty of government, which Adam Smith does not explicitly mention, is the protection of "incompetent" members of the community.
In 1928, federal government spending was approximately 3% of national income.
Our society is what we make of it. We can shape our institutions. Material and human factors limit the alternatives available to us. But no one can stop us from building a society that relies primarily on voluntary cooperation for the organization of economic and other activities. A society that preserves and enhances the freedom of man, which shows the government its place, leaving it our servant and not allowing it to become our master.
Chapter 2
Considering tariffs and other restrictions on international trade in The Wealth of Nations, Adam Smith wrote: What seems reasonable in the conduct of any private family can hardly be unreasonable for the whole kingdom. If any foreign country can supply us with any commodity at a cheaper price than we ourselves are able to manufacture it, it is much better to buy it from her with some part of the product of our own industrial labor applied in the area in which we have some advantage ... In any country, the main mass of the people is always interested in buying everything they need from those who sell the cheapest. This position is so obvious that it seems ridiculous to prove it, and it would never have been called into question if the cunning, self-serving arguments of merchants and industrialists had not clouded the common sense of mankind.
Today, merchants and industrialists are far from alone in their "self-interest." Indeed, there is hardly a single person who is not associated with "cunning, self-serving arguments" in one area or another. In the immortal words of Poggio, "we have met the enemy, and they are ourselves." We condemn "special interests", but not when it is our "special interest". We lose more from measures taken in favor of other "special interests" than we gain from measures favorable to our "special interests".
The regulation of foreign trade is usually defended, especially in relation to underdeveloped countries, as important tool ensure development and progress. For poor country freedom of trade at home and abroad is the best way to improve the well-being of its citizens. Economic regulation, which spread to the United States in the mid-twentieth century, not only limited our freedom to use our own economic resources but also had an impact on our freedom of speech, press and religion.
International trade. Today, as always, tariffs have a lot of public support under the euphemism "protection" - a good label for bad deeds. Supporters of import tariffs take it for granted that job creation is always desirable, no matter what the worker in the job will do. This is fundamentally wrong. Another misconception that is rarely questioned is that exports are good and imports are bad. The truth is the opposite. We cannot eat, dress or enjoy items that we have sent to other countries. We eat bananas from Central America, we wear Italian shoes, we drive German cars, we watch Japanese TV. Our gain from foreign trade lies in the goods that we import into the country. Export is the price we pay for import.
"Protectionism" really means exploitation of the consumer. “A favorable trade balance of the country” actually means that exports exceed imports, i.e. the amount of goods exported abroad is greater than that of imported goods. Leading my own household, you would certainly prefer to pay less for more, although in relation to foreign trade this would be called an "unfavorable trade balance."
Another source of "unfair competition" is the subsidies given by foreign governments to their manufacturers, which allow them to sell their goods in the US at below cost. Let's assume it is. After all, who loses and who wins? In order to pay subsidies to their producers, foreign governments must tax their citizens. It is the taxpayers of these countries who actually pay for the subsidies. American consumers are benefiting from this. They get cheaper televisions, cars and other subsidized goods. Should we complain about this kind of foreign aid?
Why was it "noble" when the US sent goods and services abroad in the form of Marshall Plan aid and later foreign aid, but when foreign governments give us indirect aid in the form of selling goods and services below their value, it is "disgraceful"? It is the citizens of these foreign states who have every reason to be dissatisfied. They must experience a decline in living standards in favor of American consumers and those of their fellow citizens who own or work for businesses in subsidized industries. Obviously, if such subsidies are introduced unexpectedly or indiscriminately, this negatively affects the owners and workers of American industries that produce similar goods. However, this is a normal risk associated with doing business. Entrepreneurs never complain about unusual or random events that bring them good luck.
The free enterprise system is a profit and loss system. Any measures facilitating adjustment to unexpected changes must be impartially applied both in domestic and foreign trade. In any case, violations are usually temporary. Suppose that for some reason the Japanese decide to subsidize the steel industry very heavily. Unless additional tariffs or quotas are introduced, US steel imports will rise sharply. This will drive down US steel prices and force manufacturers to cut output, causing unemployment in the steel industry. On the other hand, steel products will become cheaper. Consumers of these products will have extra money that they can spend on other products. The demand for other goods will increase, and hence the employment of the enterprises that produce them will increase.
What we end up with is not a net decline in employment, but a gain in total output from the fact that workers who can no longer produce steel will produce other products. A similar misconception stemming from a one-sided view of the problem is the demand for tariffs in order to increase employment. The imposition of tariffs on textile imports will increase production and employment in the domestic textile industry. However, foreign manufacturers who can no longer sell textiles in the US will receive fewer dollars. Now they will be able to spend less money in the US. Exports will decline to offset the decline in imports. In the textile industry, employment will increase, but at the same time, employment in exporting industries will decrease. A shift in employment in favor of less productive industries will lead to an overall decline in production. In fact, the need to resist foreign competition rather than sitting behind government barriers would do more to develop a stronger and more efficient steel industry than we have today.
Consider the argument about the need to protect the dollar, the inadmissibility of a fall in its exchange rate against other currencies. This is a completely bogus problem. If exchange rates are determined in the free market, they can be set at any equilibrium market level. The price of the dollar, if freely determined, performs the same functions as other prices. It conveys information and creates incentives to act on that information, as it affects the distribution of income received by market participants. Why then all this hype about the “weakness” of the dollar? The immediate reason is that exchange rates are not determined in the free market. Central banks intervene on a large scale to influence the rates of their currencies.
On the international stage economic structures intertwined with politics. Freedom of international trade favors harmonious relations among nations with different cultures and institutional structures, just as freedom of trade within a country favors harmonious relations between people of different beliefs, views and interests.
Wherever we find any discernible degree of personal freedom, a certain degree of progress in the material comforts available to ordinary citizens, and a widely shared hope for further progress in the future, we also find that economic activity has been carried out on the principles of the free market. Where the state assumed the functions of controlling every aspect of the economic activities of citizens, where detailed centralized economic planning reigned, ordinary citizens were in political fetters, had a low standard of living and little opportunity to influence their own destiny. Meanwhile, the state could flourish and create majestic monuments.
The most striking example is the contrast between East and West Germany, once part of one state, and then divided into two parts by the vicissitudes of war. These two parts were inhabited by people of the same blood, the same culture, the same level of education and qualifications. Which one has flourished? Over the past 50 years in the United States, we have come a long way in expanding the role of government in the economy. This intervention was costly in economic terms. The restrictions placed on our economic freedom threaten to end two centuries of economic progress.
An integral part economic freedom is the freedom to choose how to use our income. Currently, federal, state, and local governments manage over 40% of our income on our behalf.
The power of the majority in a number of cases is a necessary and desirable means [of achieving goals]. However, this is very different from the degree of freedom that you have when shopping in a supermarket. When you go to the voting booth once a year, you almost always vote for a package, not for individual points of the program. When you "vote" daily in the supermarket, you get exactly what you chose, just like any other customer. The ballot box creates agreement without unanimity; market - unanimity without consent. That is why it is desirable to use the ballot box only for making decisions for which consent is essential.
Another important integral part economic freedom is the freedom to use the resources at our disposal. Today, you cannot freely offer your services as a lawyer, doctor, dentist, plumber, hairdresser, gravedigger, or many other jobs without first obtaining permission or a license from a government official. You may not work overtime on terms mutually acceptable to you and your employer if they do not comply with the rules and regulations set by government officials. Restrictions on economic freedom inevitably have an impact on freedom in general, even on areas such as freedom of speech and the press. Freedom is one and indivisible, and everything that infringes on freedom in any one area of our life affects freedom in other areas. Freedom cannot be absolute. Yes, we live in an interconnected society. Certain restrictions on our freedom are necessary in order to avoid even greater restrictions. However, we have gone much further than this limit. The urgent need today is to lift restrictions, not increase them.
Chapter 3 Anatomy of a Crisis
The depression that began in mid-1929 was a catastrophe for the United States on an unprecedented scale. In the realm of ideas, the consequence of the depression was the public's conviction that capitalism was an unstable system, doomed to increasingly severe crises. The public joined in a view that was gaining increasing acceptance among intellectuals that the government should play a more active role to counter the instability generated by unregulated private industry.
The depression also brought about far-reaching changes in the views of professional economists. The economic collapse has shattered the long held belief, which gained momentum in the 1920s, that monetary policy is a powerful tool for maintaining economic stability. Views have shifted to almost the opposite extreme - "money doesn't matter". John Maynard Keynes, one of the greatest economists of the 20th century, put forward an alternative theory (for more details, see, for example,). The Keynesian revolution not only captured the minds of professional economists, but also provided an attractive justification and recipe for extensive government intervention in the economy.
We have a "fractional reserve banking system." Such a system works perfectly as long as everyone is sure that he can receive money from his deposit at any time, and therefore he goes to the bank for cash only when he really needs it. As a general rule, new deposits of cash roughly equalize withdrawals, so a small reserve is sufficient to cover the temporary difference. But when each depositor tries to get the entire amount of the deposit in cash, the situation changes radically - panic arises.
How can you stop the panic? One of the ways to stop the panic, used during the crisis of 1907, was the agreed restriction of payments by banks. Banks remained open, but they agreed among themselves that they would not issue cash on demand from depositors. Instead, they operated through accounting records. They counted the checks written by some of their depositors to other depositors, reducing the amounts of deposits recorded in their books in the accounts of some depositors, and increasing the amounts in the accounts of other depositors. Another way is to enable reliable banks to quickly convert their assets into cash, not at the expense of other banks, but by providing them with additional cash.
Twelve regional banks, established under the Act and controlled by the Board of Governors of the Federal Reserve System in Washington, were authorized to act as "lenders of last resort" for commercial banks. They could make such loans both in cash, in Federal Reserve Bank notes, which they were authorized to issue, and in the form of deposit loans in their account books, which they could also create with the magic of an accountant's pen.
After the Federal Reserve System failed in the early 1930s to cope with the tasks entrusted to it when it was created, in 1934 an effective way to prevent panic was established. The Federal Insurance Corporation was created bank deposits, guaranteeing the safety of deposits up to a certain upper limit. Insurance gives depositors confidence in the safety of their deposits. Under these conditions, bankruptcy or financial difficulties experienced by an unreliable bank do not cause an influx of demands for the return of deposits to other banks. After 1934, there were bank failures and an influx of demands on individual banks, but they did not cause the previous banking panic.
The Federal Reserve has remained completely consistent in only one respect. She blamed all the problems on external factors that were beyond her control, and attributed all the good things to herself. Thus, it contributes to the myth that the private economy is unstable, although its own behavior invariably indicates that government is in fact the main source of economic instability.
Chapter 4
The 1932 presidential election was a political watershed for the United States. From the founding of the republic until 1929, government spending at all levels never exceeded 12% of the national income. Starting in 1933, government spending was at least 20% of national income, and now it is over 40%, and two-thirds of it is federal spending. By these standards, the role of the federal government in the economy has grown about tenfold over the past half century. The New Deal, which emerged in the 1930s, included programs aimed at reforming the fundamental foundations of the economy. Some of them were abolished when the Supreme Court declared them unconstitutional, most notably the National Restoration Administration and the Regulatory Administration Agriculture. Other institutions still exist, such as the Commission for securities and exchanges, the National Labor Relations Administration, the national minimum wage.
The New Deal was interrupted by the Second World War, which at the same time helped to strengthen its foundation. One of the first pieces of legislation passed in the post-war years was the Employment Act (1946), which made government responsible for maintaining "maximum employment, output, and purchasing power," effectively making Keynesian policy a law. The impact of the war on public opinion was a mirror image of that of the Depression. The latter convinced people that capitalism is flawed, and the war - that centralized control is effective. Both conclusions are wrong. The depression was caused by the mistakes of the government, not by private entrepreneurs. With regard to war, one must distinguish between a temporary increase in the control of the government with one main goal shared by almost all citizens who are ready to make great sacrifices in its name; it is quite another matter for the government to constantly control the economy in order to promote the vague idea of a "common interest" formed on the basis of completely different and significantly divergent goals of citizens.
By the end of the war, central economic planning seemed to be the way of the future. This conclusion was passionately supported by those who saw in it the dawning of a world of equitable abundance. This was no less desperately feared by those who saw it as a turn towards tyranny and poverty. So far, neither the hopes of some nor the fears of others have come true. The government has grown a lot. Today, government expansion takes the form of welfare programs and regulatory activities. As W. Allen Wallis put it on a slightly different note, socialism, which "succumbed to intellectual bankruptcy after its arguments for the socialization of the means of production were refuted one after another for a century, is now striving for the socialization of the results of production."
Hardly anyone can question two apparently contradictory phenomena: the widespread dissatisfaction with the results of the booming social welfare activity and the unrelenting pressure for further expansion of this activity. The goals have always been noble and the results disappointing. Everyone agrees that social security programs are a hell of a mixture riddled with fraud and corruption.
An attractive alternative to the current welfare system is a negative income tax. The idea of the negative income tax was widely supported by people and groups of various political orientations. In one form or another, the idea of a negative income tax has been put forward by three US presidents, but this idea does not seem to be politically feasible in the foreseeable future.
Unemployment insurance is, in fact, the recognition by the state of its obligation to insure a person against the damage associated with the lack of work. The national insurance law is consistent with the doctrine of socialism and hardly compatible with liberalism.
England and Sweden, long exemplars of prosperous welfare states, began to experience ever-increasing difficulties. Dissatisfaction grew in both countries. England encountered ever greater difficulties in financing the growing government expenditures. Dissatisfaction burst out in dramatic fashion in the form of a massive Tory election victory in 1979, won by Margaret Thatcher's promise to fundamentally change the government's course.
Today in the US, nine out of ten people who work pay taxes to fund payments to those who don't work. Each individual worker does not "earn" social protection for himself and his family in the sense that a person making contributions to a private Pension Fund. He "earns" protection for himself only in the political sense, by satisfying certain administrative requirements that make him eligible for benefits. Today's retirees receive far more than the actuarial equivalent of the taxes they have paid themselves and have been paid to them by their employers. To young people who now pay social taxes, will be promised far less than the actuarial equivalent of the taxes they and their employers paid. Social Security is in no way an insurance program under which individual contributions you can buy the equivalent insurance compensation. As even its most zealous proponents admit, "the relationship between contributions (i.e., payroll taxes) and benefits received is extremely small." Rather, social insurance is a combination of a special tax and a special social transfer program.
Long-term financial problems of the system social insurance stem from one simple fact: the number of social security recipients has increased and continues to grow faster than the number of employees paying insurance premiums from their earnings. The social insurance program involves the redistribution of income from the young to the elderly. To a certain extent, this redistribution has occurred throughout the history of mankind: children provided support to their elderly parents or relatives. Indeed, in many poor countries with high infant mortality rates, such as India, the desire to secure offspring to support them in old age is the main reason for high birth rates and livelihoods. large families. The difference is that the social insurance system is compulsory and impersonal, while the former practice was voluntary and personalized.
The country is increasingly divided into two classes of citizens: those who receive benefits and those who pay for them.
Starting small during the New Deal years, government housing programs have grown rapidly. Ministry housing construction and urban development was established in 1965. It now has 20,000 employees and spends over $10 billion a year. Houses of public housing stock often turn into slums and centers of crime, especially youth. The most notable example is the Prutt-Igo public housing project in San Luis. It degraded to such an extent that part of it had to be blown up. At that time, only 600 of the 2,000 apartments were occupied, and it looked like an urban theater of war.
How can you expect young people to acquire good inclinations and values if they live in an area full of broken families, and almost everyone lives on welfare?
Dr. Gammon, in his report, developed the theory of bureaucratic repression: the more bureaucratic the organization, the more useless work crowds out useful work - an interesting extension of Parkinson's laws. Why are the results of all welfare programs so disappointing? Without a doubt, their goals were humane and noble. Why were they not achieved? When you spend money, it can be your own or someone else's money; you can also spend them on yourself or on someone else. Connecting these two pairs of alternatives gives us four possibilities (Figure 1).
Category I: you spend your money on yourself. Suppose you are shopping at a supermarket. Obviously, you are very interested in spending money sparingly and getting the most value for every dollar spent. Category II: you are spending your money on someone else. For example, you are shopping for Christmas presents. You are also interested in spending money sparingly. Category III: you spend other people's money on yourself, for example, you dine at the company's expense. You don't care much about cutting costs, but you're interested in getting as much for the money as possible. Category IV: you spend other people's money on another person. You pay someone's lunch at the company's expense. You don't care about savings, and you don't care about how to feed your guest dinner.
All welfare programs fall under category III. In our opinion, it is this feature of welfare spending that is the main source of their failure. Legislators vote to spend other people's money. Program bureaucrats also spend other people's money. Not surprisingly, program costs are rising rapidly. But that's not all. The temptation to get other people's money is great. Many, including program bureaucrats, will try to spend money on themselves rather than on someone else. This temptation to succumb to corruption or fraud is strong and will not always be resisted or suppressed. This explains why so many programs benefit middle- and high-income groups, rather than the poor for whom they are supposedly designed. In addition, the net gain of the recipients of a particular transfer will always be less total amount transfer. Costs associated with lobbying legislators and regulators, contributions to political campaigns, etc. are pure losses that harm taxpayers and benefit no one.
These two consequences of the chase for subsidies explain the reasons for the pressure to increase spending, to increase the number of programs. The initial measures did not help achieve the goals set by the beautiful-hearted reformers who promoted social programs. From this they conclude that the measures taken were not enough.
Qualities such as independence and the ability to make decisions independently are atrophied in recipients of subsidies.
You can only spend other people's money by taking it away, as the government does. The use of force is thus at the heart of the welfare state - an unsuitable means of perverting good ends. What needs to be done? It is worth outlining the main elements of such a program, not in the vain hope that it will be adopted in the near future, but to give a vision of the direction in which we must move, a vision that can guide the accumulating changes.
The program has two major components: 1) reforming the current social security system by replacing the patchwork of specialized programs with a single comprehensive cash income supplement program, i.e. the introduction of a negative income tax combined with a regular income tax; 2) the curtailment of the social insurance system without refusing to fulfill current obligations, which will gradually force people to take care of their own future.
Reform will provide a guaranteed minimum to all people in need, regardless of the reasons for it, and at the same time cause as little harm as possible to their character, independence or interest in improving their situation. Just as importantly, a negative income tax will unleash a huge army of bureaucrats running many welfare programs.
A negative income tax will help eliminate the current demoralizing situation in which individuals, ie. the bureaucrats who run the programs control the fate of other people. This will help eliminate the existing division of people into two classes: those who pay contributions and those who receive support from social funds.
Chapter 5
In the early decades of the US, "equality" meant equality before God; "freedom" meant the freedom to manage one's own life. Then equality was more and more interpreted as "equality of opportunity" in the sense that no one should be arbitrarily deprived of the right to use their abilities to pursue their goals. Neither equality before God nor equality of opportunity conflicts with the freedom to control one's own life.
A completely different understanding of equality has emerged in the United States in recent decades - equality of outcomes. All people should have the same standard of living or income. Equality of outcome is in clear conflict with freedom. Attempts to ensure this equality have been the main reason for the increasing role of the government and the restrictions imposed by the government on our freedom.
The key to what T. Jefferson and his contemporaries understood as equality lies in the following provision of the Declaration: "All people are created equal and endowed by their Creator with certain inalienable rights, which include life, liberty and the pursuit of happiness." Equality before God, i.e. personal equality is important precisely because people are not the same. Since people have different values, tastes and abilities, they choose completely different lifestyles. Personal equality requires respect for people's right to control their own lives, not the imposition of someone else's values or judgments on them. Jefferson had no doubt that some people are superior to others, that they constitute an elite. But this did not give them the right to dispose of others. If the elite did not have the right to impose its will on others, then neither did any other group, even the majority.
The government was called upon to protect this right both from its fellow citizens and from an external threat, and not to grant unlimited power to the majority.
Chapter 6. What is wrong with our schools?
We have always been justifiably proud of the wide availability of school education, as well as the role played by public schools in creating favorable conditions for the assimilation of new members of our society, preventing fragmentation of society and discord, creating conditions for people of different cultural and religious backgrounds lived together in harmony.
Professor West has convincingly shown that the transition of education under government control in England, as in the United States, was the result of pressure from teachers, bureaucrats and well-meaning intellectuals, not parents. He concludes that government control over education has led to a decline in the quality and diversity of school education.
In the middle of the 19th century, the state school system was interpreted not as "socialist", but simply as "American". The US Constitution greatly limited the powers of the federal government, and therefore it did not play a significant role. State governments have largely left control of schools to the local community. Close parental control over the political leadership of the school system partly replaced the competitive environment and ensured that the most widely shared wishes of parents were realized.
After the Depression, there was a rapid shift of power from the local community to the larger entities—the major city, county, state, and, more recently, the federal government. Dr. Max Gammon proposed the theory of bureaucratic substitution; in his words, “in a bureaucratic system, an increase in spending is invariably accompanied by a reduction in production… Such systems act like ‘black holes’ in the economic universe, sucking up resources and reducing ‘output’ at the same time.
This theory is fully applicable to the analysis of the consequences of the growing bureaucratization and centralization of the public school system in the United States. Between the 1971/1972 and 1977/1978 school years, the total teaching staff in US public schools increased by 8%, and the cost per student in dollar terms increased by 58% (11% inflation-adjusted). Costs have clearly risen. The number of students decreased by 4%, the number of schools also decreased by 4%. At the same time, the quality of education has decreased even more.
In the field of school education, parents and children are consumers, while teachers and school administration are producers. The centralization of school education led to the consolidation of departments, a decrease in the ability of consumers to choose and an increase in the power of producers. In the field of school education, only people with high incomes retained the freedom to choose. We can send our children to private schools, essentially paying their school fees twice: first by paying the taxes that fund the public school system, and then a second time by paying tuition fees.
School education should not remain in this state. One way to significantly improve learning is to give all parents more control over their children's learning. Vouchers are a simple and effective way to provide parents with more choices while maintaining existing sources of funding.
Suppose the government tells you, “If you release us from the cost of your child’s education, we will give you a voucher, a sheet of paper that can be exchanged for the amount of money indicated on it, but only on the condition that you use it to pay for your child’s education.” child in one of our approved schools." This gives each parent more choice. Public schools will be forced to compete with each other and with private schools. One of the benefits of the voucher plan is to encourage a gradual transition to direct parental funding of education.
There will be a vast market that will attract many participants, both those who now work in public schools and those who are employed in other areas. Many new schools will be created by non-profit groups. Others will be created for profit. It is impossible to predict the final structure of the school industry. It will be determined by competition. There is only one assumption that can be made: only those schools that can meet the needs of their customers will survive - just like restaurants and bars. The competition will take care of that.
The obvious selfish interest of education officials is the main obstacle to the introduction of market competition in the field of school education.
In contemporary America, in the sphere higher education the problems are the same as in primary and secondary: quality and fairness. However, the absence of a mandatory requirement for higher education changes things dramatically. Students have a wide choice of colleges and universities if they want to continue their education. A wide choice mitigates the problem of quality, but exacerbates the problem of fairness.
Quality. Since no one attends a college or university against their will, there is no educational institutions that do not meet, at least to a minimal extent, the requirements of students. However, at government-funded universities, enrollment is low and only 50% of students graduate. In private schools, the picture is quite different. The college sells the tuition and the students buy it. As in most private markets, both parties have an interest in being helpful to each other.
Private colleges also receive income from memorials and academic activities. Donors make donations because they want to contribute to the development of desired directions. In addition, buildings named after them, personal salaries of professors and scholarships also perpetuate the memory of these individuals, and therefore we consider them memorials. In our impression, the overall educational performance of universities is all the more satisfactory the more the market plays a role.
Justice. Two main arguments are commonly used to justify taxpayer funding for higher education. One is that higher education provides "social benefits" that outweigh the benefits received by the students themselves. The second argument is that public funding is necessary to ensure "equal educational opportunity".
If higher education increases people's economic productivity, they also reap the rewards of higher wages, so they have a vested interest in getting vocational training. Adam Smith's "invisible hand" makes private interests serve the public interest. Subsidizing education distorts private interests and thus runs counter to the public interest. It is the extra students who would go to college if the tuition is subsidized who feel that their benefit is less than their cost. Otherwise, they would pay the costs themselves.
It is highly desirable that every young person - regardless of the income of his parents, social status, place of residence or race - should have the opportunity to receive a higher education, provided that he is ready to pay for it either immediately or after graduation from his higher incomes, which will be received through higher education.
Spending on education is like investing in a start-up small business and is an investment in a venture. The most satisfactory way to finance such enterprises is not a fixed loan, but investing in shares, i.e. “buying” a share in an enterprise and receiving a share in the income in return. In the case of education, the counterpart to this would be "buying" a share in an individual's future earnings, advancing him with the funds needed to finance his education, provided he agrees to pay the investor a predetermined share of his future earnings. Thus, the investor will be able to get back from relatively successful people more than his initial investment, which will compensate him for the losses he will suffer due to the losers. Although, in our opinion, there are no legal barriers to entering into private contracts on this basis, we believe that they have not gained popularity due to the difficulties and costs of obtaining money from debtors over a long period of time.
In 1955, Milton Friedman published a blueprint for "equity" financing of higher education by government agency which could provide funding or assistance in funding vocational training to any person who meets certain minimum requirements. He will provide some limited annual amount for a specified number of years, with the condition that this money be spent on education in one of the recognized institutions. The recipient will promise in return, in each successive year, to pay to the state a certain percentage of earnings in excess of a certain amount for each thousand dollars received from the state. These payments can be easily combined with the payment of income tax and thus minimize additional administrative costs.
Chapter 7. Who Protects the Consumer?
It is not from the benevolence of the butcher, the brewer, or the baker that we expect to get our dinner, but from their self-interest. We appeal not to their humanity, but to their selfishness, and we never tell them about our needs, but about their benefits. No one but a beggar wants to depend mainly on the goodwill of his fellow citizens.
Adam Smith. An Inquiry into the Nature and Causes of the Wealth of Nations
Can we fully rely on the "invisible hand" of Adam Smith? A succession of economists, philosophers, reformers, and social critics say we can't. Selfishness will cause sellers to deceive their buyers. They will take advantage of the ignorance and ignorance of their customers to cheat them and sell them worthless goods. In addition, critics argue that if market forces are to be trusted, then the consequences of the transaction could be felt by people who were not involved in it. The air we breathe and the water we drink can be affected. It is argued that the market should be supplemented by other mechanisms that would protect the consumer from himself and from selfish sellers, that would protect each of us from the side effects of market transactions.
This criticism of the "invisible hand" is true. The question is whether the mechanisms recommended or adopted in addition to the market serve their purpose, or, as is often the case, the cure will prove to be more dangerous than the disease.
Whatever the proclaimed goals, all the social movements of the last two decades have one thing in common. All of them are directed against economic growth. Agencies created in response to the demands of social movements impose heavy costs on one industry after another in order to meet the ever more detailed and extensive requirements of the government. They oppose the production and sale of certain goods; they require investments for non-productive purposes in accordance with the conditions developed by government bureaucrats.
The history of the Interstate Transportation and Commerce Commission is a clear illustration of the natural logic of government intervention. Real or imagined evil entails the requirement to take appropriate action. A political coalition is being formed that includes sincere, well-intentioned reformers and no less sincere interest groups. The incompatibility of the goals of the members of the coalition is misinterpreted using lofty rhetoric. The coalition is pushing Congress (or the state legislature) to pass legislation. The preamble pays homage to rhetoric, while the body of the law grants the power to "do something" to government officials. Magnanimous reformers celebrate their triumph and turn their attention to new things. Stakeholder groups are set to work to benefit from these powers. As a rule, they succeed in this. Success breeds more and more problems that require more government intervention. The bureaucracy takes its toll in such a way that even the original special interests no longer benefit. Ultimately, the results turn out to be completely opposite to the goals of the reformers and, moreover, the goals of the interest groups themselves are not achieved. However, this type of activity is so firmly rooted and associated with so many legal interests that it is almost impossible to repeal the legislation originally enacted. Instead, demands are made for more and more laws to be passed in order to overcome the consequences of the previous law, and a new cycle begins.
Without a doubt, the protection of people from harmful and useless medicines is desirable. However, it is equally desirable to stimulate the development of new drugs and to make new drugs available to those who need them as quickly as possible. As is often the case, one great goal comes into conflict with another great goal. Safety and caution, on the one hand, can mean death, on the other.
There is now considerable evidence that FDA regulation is harmful, that it has done more harm by hindering progress in the production and distribution of useful drugs than good by shielding the market from harmful and ineffective drugs. For the FDA, risk avoidance is a top priority, which is why we have safer drugs, but none more effective.
It is no coincidence that the FDA, despite its best intentions, discourages the development and marketing of new and potentially useful medicines. Put yourself in the shoes of the FDA official responsible for approving or disapproving a new drug. You can make two mistakes: 1. Approving a drug that has unexpected side effects that will cause death or serious ill health in a relatively large number of people. 2. Deny approval of a drug that could save many lives or alleviate great suffering and that does not have adverse side effects. If you make the first mistake and approve, for example, thalidomide, your name will appear on the front pages of all newspapers. You will fall into severe disgrace. If you make the second mistake, who will know about it? Even with the best intentions in the world, you would unwittingly ban many good drugs or delay their approval in order to avoid even the remotest possibility of missing a drug that would have side effects in the form of newspaper hype.
There is a widespread misconception that the behavior of social organisms can be shaped at will. This is the fundamental mistake of many so-called reformers. This explains why they so often believe that the people are to blame, not the "system"; that the problem could be solved by "kicking out the crooks and putting in their place well-meaning people". This also explains why reforms, once their goals are clearly achieved, often do not go in the right direction.
Consumer Product Safety Commission. Obviously, the goal of making goods more secure is noble, but at what cost is it achieved and what are the criteria for achieving it? "Unjustified risk" is hardly a scientific term that can be objectively defined. A more "safe" bike may be slower, heavier, and more expensive than a less "safe" one. By what criteria can Commission bureaucrats determine how much speed can be sacrificed, how much weight can be added, and how much additional cost can be imposed on the consumer in order to gain some (what exactly?) amount of additional security?
Most of these questions cannot be answered objectively, and yet they need to be answered unequivocally when developing and publishing standards. The answers will partly reflect the arbitrary judgments of government officials responsible for these issues, less often the judgments of consumers or consumer societies interested in the product in question, but mainly the influence of the manufacturers of these products.
When products hit the market in the normal course of things, there is always room for experimentation, trial and error. Of course, bad goods are produced, mistakes are made, unexpected defects are discovered. However, errors are usually made on a small scale and can be gradually corrected. Consumers can experiment on their own and decide which features they like and which they don't. When the government, represented by the Commission, comes into play, the situation changes. Many decisions must be made before a product is subjected to massive trial and error in use. Standards cannot be adapted to a variety of needs and tastes. They must suit all needs uniformly. Consumers are inevitably deprived of the opportunity to experiment with many alternatives. Mistakes will still be made, in which case they will almost certainly be big.
The environmental movement is responsible for the emergence of one of the fastest growing areas of federal government intervention. The Environmental Protection Agency, established in 1970 "for the purpose of protecting and improving the physical environment," is gaining ever-increasing power and authority. The standards it sets impose tens of billions of dollars a year on industry, local and state governments. Approximately one tenth to a quarter of spending on new capital equipment is aimed at combating pollution.
Preserving the environment and preventing excessive pollution are real issues in which the government should play an important role. When it is easy to identify all the costs and benefits of any action, as well as the people who have suffered and benefited from it, the market provides excellent tools to ensure that only those actions are taken, the benefits of which outweigh the costs of all participants. But when the costs and benefits or the people affected cannot be identified, then there is a failure. market regulation, expressed in side effects or damage to the "third party".
Government intervention is one way we can try to compensate for "market failure" and make better use of what we are willing to pay for clean air, water and land. Unfortunately, the same factors that make the market untenable also make it difficult for the government to make satisfactory decisions. In general, it is no easier for the government than for market participants to determine who exactly suffered a loss or benefit, and also to assess the amount of damage or benefit to each of them. Attempts to use government to correct market defects have often led to market defects being replaced by government errors.
We should not talk about "elimination of pollution", but about the need to create mechanisms for agreeing on an "acceptable" level of pollution, i.e. to the level at which the gain from reducing pollution slightly exceeds the sacrifices made in the form of other beautiful things (houses, clothes, etc.) that would have to be abandoned in order to reduce pollution. If we go further, we will sacrifice more than we gain.
In an effort to control pollution, the same approach is being taken as in regulating railroads and freight transport, controlling food and medicine, and ensuring the safety of manufactured goods. This system lacks effective mechanisms to balance costs and benefits. By reducing the problem to issuing directives carried out under the threat of force, the system creates a situation involving crime and punishment rather than buying and selling; operates in terms of "right or wrong" rather than "more or less". As a result, the system has the same defects as similar regulation in other areas.
Many economists agree that a much more effective way to control pollution than the current method of targeted regulation and control is to impose market discipline through charging for discharges.
Perfection is impossible in this world. There will always be low quality products, charlatans and scammers. But in general, market competition, when given room, protects consumers better than alternative government mechanisms that are increasingly imposed on the market.
Another invention of the market is the trademark. It is in the interests of General Electric, General Motors, Westinghouse, or Rolls-Royce to have a reputation for making products that are trustworthy and reliable. Quality is the source of their high reputation, which can influence the price of a firm more than the plants and factories it owns.
Chapter 8. Who Protects the Worker?
If Gallup polls asked the question “Who is responsible for improving the situation of the worker?”, the most common answer would be “unions”, then “government”, although “no one” and “don’t know” answers would probably prevail. However, the history of the United States and other Western countries over the past two centuries demonstrates the fallacy of such answers.
in the United States, more than three out of four workers are not union members. Identification of the interests of a "trade union" with the interests of its members is a delusion. Of course, in most trade unions there is a connection, and a rather close one, between these interests. Nevertheless, there are quite a few cases where trade unionists - acting legally or through abuse and misappropriation of trade union funds - benefited at the expense of their members. This substitution of concepts is the cause and effect of the general tendency to overestimate the influence and role of trade unions. Trade union actions are always visible and widely covered by the press. The "bargaining and market agreements," in Adam Smith's terminology, by which the earnings of most U.S. workers are determined, are much less visible, receive less attention, and as a result are greatly underestimated.
Despite the appearance that unions protect low-paid workers from exploitation by employers, the reality is different. The most successful unions invariably embrace workers whose professions require qualifications and who would have received high wages without unions. These unions make high pay even higher. British schoolteachers and municipal employees vividly illustrate general principle. Their unions do not negotiate with the taxpayers on whose money they live. They deal with government officials. The weaker the bond between the taxpayers and the officials with whom the unions deal, the stronger the propensity for the officials and unions to collude at the expense of the taxpayers. This is another example of what happens when people spend other people's money on other people. This is why unions of municipal employees are stronger in large centers such as New York than in small towns, and for the same reason teachers' unions have become more powerful as control over school operations and education spending has become more centralized and more remote. local community.
The key to understanding this situation is the most elementary principle of economics. The law of demand states that the higher the price of a commodity, the less willing to buy it. Making any type of labor more expensive will result in fewer jobs for that type. If carpentry prices are increased, the number of houses built will be reduced, and the houses under construction will use methods and materials that require less carpentry work.
A successful union reduces the available number of jobs in the area it controls. As a result, individuals who would like to get a job at a union wage cannot do so. They are forced to look for another job. A greater supply of labor in other jobs will lead to lower wages in those jobs.
How do unions manage to impose high stakes? One way is through violence or the threat of violence: threatening to destroy employers' property or beat them up if they hire non-union members. The easier way is to get the government to help. Another way to impose wage rates is through minimum wage laws. Defenders of these laws present them as a way to help people on low incomes. In fact, they only harm them. Despite all the rhetoric about helping the poor, they are demanding even higher minimum wages to better protect their members from competition.
The minimum wage law forces employers to discriminate against low-skilled people. Take a teenager low level education and low qualifications, whose services cost, say, only $2 an hour. He may agree to work for such pay in order to acquire higher qualifications and get a higher paying job in the future. However, the law requires that he be hired only if the employer agrees to pay him $2.9 an hour (1979). Unless the employer is willing to add 90 cents for charitable reasons to the $2 that this teenager is worth, he will not get the job. It has always been a mystery to us why it would be better for a young person not to be hired for a $2.9 an hour job than to be hired for a $2 an hour job.
We believe that the minimum wage law is one of the most discriminatory laws against the black population. First, the government creates schools in which many young people, mostly blacks, study so badly that they cannot acquire the qualifications to make good money. The government then punishes them a second time by preventing them from offering their labor force for low wages that would incentivize employers to train them on the job. And all this in the name of helping the poor.
An alternative to imposing wage rates is to directly limit the number of those who could occupy a given workplace. Health care is an excellent example, since much of the activity of public health organizations has been aimed at limiting the number of medical practitioners. Successful capping, as well as imposing wage rates, requires government assistance.
For most workers, the most reliable and effective protection is the presence of multiple employers. Due to the need for his services, the employer is interested in paying him the full cost of his work. If his own employer doesn't do it, someone else will. Competition for his services is the real protection of the worker. When workers get higher wages and Better conditions of labor in a free market, when they receive a raise as a result of competition between firms for the best workers and as a result of competition between workers for the best jobs, these higher wages are not paid at the expense of others. They can only be the result of an increase in labor productivity, an increase in capital investment, and an increase in the diversity of qualifications and skills. The whole pie gets bigger, the employee gets a bigger piece, but also the employer, the investor, the consumer, and even the tax collector. This is how the free market distributes the fruits of economic progress among people. This is the secret of the tremendous improvement in the conditions of workers during the last two centuries.
Chapter 9
Money. The existence of a generally accepted medium of exchange is based on an agreement which owes its existence to the mutual recognition of what is, to a certain extent, a fiction. Agreement or fiction are not ephemeral things. Although the value of money is based on fiction, money performs an extremely useful function. economic function. At the same time, it is a kind of veil. The "real" forces that determine the wealth of a nation are the abilities of its citizens, their diligence and ingenuity, the resources at their disposal, the way they are economically and politically organized, and so on.
Astonishingly different things have been used as money at one time or another. The word pecuniary comes from the Latin pecus meaning "cattle", one of the many things that was used as money. Objects used as money had one thing in common - they were accepted at a certain place and at a certain time in exchange for other goods and services with the certainty that others would accept them in the same way.
A faster growth in the quantity of money than in the quantity of goods and services leads to inflation, to an increase in prices expressed in this money. Today, when the universally recognized means of exchange have nothing to do with commodities, the amount of money is determined in each major country government. The government, and only it, is responsible for any sharp increase in the amount of money. It is this fact that has been the main source of confusion about the causes of inflation and the remedies for it.
No government is willing to take responsibility for causing inflation. Government officials always find some kind of excuse: greedy businessmen, demanding unions, wasteful consumers, Arab sheikhs, bad weather, and any other reason that has even the slightest semblance of plausibility. No doubt the businessmen are greedy, the trade unions are exacting, the consumers are wasteful, the Arab sheikhs have inflated the price of oil, and the weather is often bad. All this can lead to an increase in prices for individual goods, but cannot cause an increase in the price level. This can lead to temporary spikes in inflation up or down, but it cannot cause permanent inflation for one very simple reason: none of the alleged culprits has a printing press at their disposal.
Why do modern governments increase the amount of money so quickly? Why do they cause inflation, knowing all its danger? Inflation occurs when the amount of money increases significantly faster than production, and the faster the amount of money per unit of output increases, the higher the rate of inflation. In the United States, the accelerated growth in the amount of money in circulation over the past fifteen years has occurred for three interrelated reasons: rapid growth government spending; due to the government's policy of full employment; because of the misguided policies of the Federal Reserve.
Financing government spending by increasing the amount of money tends to be extremely attractive to the President and Congress. This gives them the opportunity to increase government spending - handing out candy to voters - without legislating additional taxes and loans from the population.
inflationary income. Financing government spending by increasing the amount of money seems like magic, like getting stuff out of the void. Let's take a simple example: the government is building a road, paying for the costs with freshly printed Fed notes. It looks like everyone is getting better. Road builders receive a salary and can buy food, clothing and pay for housing. Nobody pays higher taxes. At the same time, a new road appeared where there was none before. Who paid for it? The answer is that all owners of money paid for the road.
Extra money drives up prices if it is used to induce workers to build a road rather than engage in any other productive activity. This rise in prices is maintained as the excess money circulates in the stream of expenditure that moves from workers to sellers of commodities, from these sellers to others, and so on. Rising prices mean that money people once had can now buy less than before. The extra money printed is equivalent to a tax on cash. If the extra money raises prices by 1%, then each moneyholder ends up paying a tax of 1% of their cash balances. The physical equivalent of these taxes are the goods and services that could be produced with the resources used to build the road.
John Maynard Keynes wrote of inflation after the First World War: “There is no more ingenious or surer way to overthrow the existing foundations of society than to corrupt the currency. This process brings all the hidden forces of economic laws to the side of destruction and does it in such a way that not one person in a million is able to diagnose.
The analogy between inflation and alcoholism is instructive. When an alcoholic drinks, first there is a positive effect; negative effects come the next morning. When a country plunges into inflation, the initial effect seems to be positive. Increasing the amount of money allows those who have access to it - these days primarily the government - to spend more without forcing anyone else to spend less. The number of jobs is increasing, business activity is picking up, almost everyone is happy - at first. This is a positive consequence. The increase in spending then leads to higher prices: workers find that their earnings, even if they have increased in dollar terms, have less purchasing power; businessmen find that their costs have risen so much that additional sales will not be as profitable as expected unless they can raise prices even further. Negative consequences begin to appear: rising prices, reduced demand, inflation combined with stagnation.
Treatment for alcoholism is easy to prescribe: stop drinking. But it is difficult to fulfill, because this time the negative consequences come before the positive ones. An alcoholic who stops drinking experiences severe torment until he reaches a happy state when the irresistible desire to drink disappears. The same is true with inflation. The initial side effect of slowing money growth is agonizing: slower economic growth and a temporary rise in unemployment that are not initially accompanied by lower inflation. The beneficial effect manifests itself in about a year or two in the form of a reduction in inflation, recovery of the economy, and creation of the potential for rapid non-inflationary growth.
History knows of no example of an end to inflation without an intervening period of slowing economic growth and rising unemployment. On this empirical foundation rests our judgment that there is no way to avoid the side effects of the inflation cure. However, they can be mitigated. The most important way to mitigate side effects is to slow inflation gradually but steadily - the rate must be announced in advance and followed steadily so that it inspires confidence.
Graduality is needed to give people time to readjust their agreements and also to push them to do so. Many people are bound by long-term contracts—employment, lending and receiving money, manufacturing or building—which include an expectation of the likely rate of inflation. These long-term contracts make it difficult to bring inflation down sharply and mean that such an attempt will cost many a lot of money. If people are given time, these contracts will be completed, renewed or renegotiated, and thus they will be able to adjust to the new situation. Another tool that has proven effective in mitigating the adverse side effects of inflation treatments is the inclusion in long-term contracts of an automatic inflation adjustment mechanism known as a "sliding scale".
For example, loans are typically made in a fixed dollar amount for a fixed period of time with a fixed annual rate percent, say $1,000 a year at 10%. The alternative is to set the rate of interest not at 10% but, say, 2% plus the rate of inflation, so that at 5% inflation the rate of interest would be 7%; with inflation of 10%, the rate will be 12%. Or you can agree that the debt should be returned taking into account inflation. In our simplified example, the borrower will owe $1,000, adjusted for inflation, plus 2% for using the loan. At 5% inflation, he would owe $1,050, and at 10% inflation, he would owe $1,100; in both cases, 2% per loan will be added.
Chapter 10
Our own history provides clear evidence of the importance of the intellectual climate. This climate was shaped by the activity of a remarkable group of men who met in 1787 at Independence Hall in Philadelphia to write the constitution of the new country in which they had a hand in creating. They were deeply immersed in history and were greatly influenced by contemporary English public opinion. They saw the concentration of power, especially in the hands of the government, as the greatest danger to freedom. Based on this, they prepared a draft constitution. This document was aimed at limiting the power of the government, maintaining the decentralization of power, giving a person control over his own life.
Later in the 19th century and into the first decades of the 20th century, the intellectual climate in the United States began to change. There has been a shift from believing in individual responsibility and relying on the market to believing in societal responsibility and relying on government. Once the change in public opinion was massive, as it was after the Great Depression, the Constitution, created under the influence of a completely different intellectual climate, could at best only slow the growth of government power, not prevent it.
Today, inflation, high taxes and sheer inefficiency, bureaucracy and over-regulation resulting from the increasing role of government force people to take the initiative, to find ways around government obstacles. Pat Brennan became something of a celebrity when she and her husband entered into competition with the US Postal Service in 1978. They set up a business in the basement of a house in Rochester, New York, which ensured that packages and letters in downtown Rochester would be delivered on the same day they were posted and at a lower cost than the Postal Service. Soon their business began to flourish. Of course they broke the law. The Postal Service sued them, they went all the way to the Supreme Court and lost. Financial support was provided by local businessmen.
Pat Brennan stated the following: I think we're in for a silent riot, and we may just be getting started. Look, people are standing up against bureaucrats, although a few years ago they did not even dare to think about it in fear that the authorities would crush them ... People are beginning to understand that their fate is their own business, and not someone there in Washington, to whom they are completely indifferent. So it's not a matter of anarchy, but the fact that people are starting to look at the power of bureaucrats in a new way and reject it.
Directed interests versus unorganized interests. Fragmentation of power and conflicting government policies are rooted in the political realities of a democratic system that operates on the basis of specific and detailed legislation. Such a system tends to give excessive political power to small groups with well-defined interests, to place more weight on the overt, direct, and immediate consequences of government action than perhaps on the more important but latent, indirect, and long-term consequences, to set in motion a process that brings about victim of the general interest, placing it at the service of special interests, and not vice versa. In politics, the "invisible hand" operates exactly the opposite of the "invisible hand" of Adam Smith. People who intend to promote the general interest are led by the "invisible political hand" to promote the special interest against their own intentions.
Consider a government incentive program merchant fleet through subsidies for building ships and trading operations, and assigning most of the cabotage to American-flagged ships. The cost to taxpayers is estimated to be about $600 million, or $15,000 per year for each of the 40,000 employed in the industry. Shipowners, managers and employees are very interested in the adoption and implementation of these measures. They spend money generously on lobbying and political donations. On the other hand, if you divide $600 million by 200 million people, that's $3 per person per year, or $12 for a family of four. Who among us would vote against a candidate for Congress just because he forced these costs on us? Who among us would think it wise to spend money to obstruct the adoption of these measures, or even spend time getting information about such things?
Bureaucracy. A town meeting in New England is the image that immediately comes to mind. The people who govern know and can control the people who govern; each person can express their point of view; the agenda is short so that everyone can get enough information about both important and minor issues. As the scope and role of government expands—to cover a wider area or population, or to perform a wider range of functions—the bond between the ruled and the rulers weakens.
The bureaucracy necessary for the functioning of government is growing ever larger and more and more wedged between the citizens and the representatives they elect. It becomes, on the one hand, a mechanism by which special interests can achieve their goals, and on the other, a carrier of an independent special interest, thus acting as an important component of a new class,
Almost a hundred years ago, A.V. Dicey explained why rhetorical appeals to the general interest are so convincing: “The beneficial effects of government intervention, especially in legislative form, are manifested directly, immediately and, so to speak, clearly, while the harmful effects of this are revealed only gradually and indirectly and are out of the field. our vision. Therefore, most people will inevitably look with excessive favor on government intervention.
In our opinion, we need the equivalent of the First Amendment to the Constitution to limit the power of the government in the economic and social spheres - a kind of economic bill of rights. A written constitution is neither a necessary nor a sufficient condition for the development or maintenance of a free society. Although Britain has always had only an "unwritten" constitution, it has become a free society. Many Latin American countries, whose constitutions repeat the United States Constitution practically word for word, have not succeeded in establishing a free society. For a written or unwritten constitution to be effective, it must be supported by public opinion, the majority of the population and its leaders. When the intellectual climate of a society changes, so does politics.
As the wave of public opinion supporting New Deal liberalism reaches its peak, the nationwide debate generated by the drafting of such a Bill of Rights will ensure that public opinion turns towards freedom rather than totalitarianism. It will spread a better understanding of the challenges posed by the increased role of government and how they can be addressed.
Limitation of taxes and budget spending. The adoption of the amendments will limit the budget and change the basic conditions in which legislators make decisions. The goal is to make special interests compete with each other for a share of a fixed pie, rather than allowing them to collude with each other to increase the pie to the detriment of taxpayers.
Gradually reducing the share of our income that is spent by the government will be the main contribution to the development of a freer and stronger society. But this is only one step in that direction. Many of the most destructive forms of government control over our lives do not require large government expenditures: for example, tariff, price and wage controls, employment licensing, regulation of production and consumption. In this regard, the most promising is the establishment general rules limiting the powers of the government.
International trade. Today the Constitution states: "No State shall, without the consent of Congress, impose any duties or taxes on imports or exports, except as may be absolutely necessary for the execution of the laws of inspection of the State." The amendment may be formulated as follows: "Congress may not impose any duties or taxes on imports and exports, except as may be absolutely necessary for the execution of the laws of inspection." An attack on all tariffs consolidates our interests as consumers against our special interest as producers.
Control over wages and prices."Congress shall make no law to restrict the freedom of sellers of goods or labor to fix prices for their products or services."
Employment Licensing."No state shall make or enforce laws that restrict the right of any citizen of the United States to engage in any activity or profession of his choice." All three previous amendments can be replaced by a single amendment that takes the Second Amendment to the Constitution as its model (guaranteeing the right to keep and bear arms): “The right of the people to buy and sell lawful goods and services on mutually acceptable terms shall not be violated by Congress or or by the state."
Taxation. On paper, tax rates are highly differentiated - from 14 to 70%. But there are so many loopholes and special privileges in the law that the high rates are almost a façade. A low flat rate of less than 20% on all revenues would benefit the budget more income than the existing bulky structure.
Corporate income tax also suffers from many disadvantages. This is a hidden tax that the population, without realizing it, pays through prices when buying goods and services. It creates a double taxation of corporate income: the first time - corporations, the second time - shareholders after the distribution of income. It penalizes the investment of capital and thus hinders productivity growth. It must be cancelled.
What is needed here is an amendment to repeal the existing Sixteenth Amendment authorizing taxes on income and replace it with the following: "Congress shall have the power to establish and levy taxes on income individuals from whatever sources they may be derived, without apportionment of these taxes among the states and without reference to any census or census, provided that the single rate of taxation applies to all income in excess of professional and business expenses, and fixed personal discount. The word "person" excludes corporations and other artificially created persons."
Inflation protection. An expansion of the Fifth Amendment provision is required, establishing that “no one shall be deprived of life, liberty, or property without due process of law; private property should not be taken for public use without fair compensation.” The relevant amendment should provide that: “All contracts between the US government and other parties entered into in dollars, and all amounts in dollar terms contained in federal laws must be adjusted annually to take into account changes in the general price level in the previous year.
Conclusion. The two intertwined ideas of individual freedom and economic freedom have found their greatest realization in the United States. These ideas are still with us in many ways. We are saturated with them. They form the basis of our being. But we deviated from them. We have begun to forget the fundamental truth that the greatest threat to human freedom is the concentration of power in the hands of the government or anyone else. Fortunately, we are awakening. We are once again aware of the dangers of an overmanaged society, that good ends can be perverted by bad means, and that trust in the ability of free people to control their own lives in accordance with their own values is the surest way to the fullest potential of a great society.
Milton Friedman is a famous American economist, winner of the Nobel Prize in Economics, known to the world as an active supporter of classical liberalism (state-free economy). He is a man who directly influenced the economic success of the United States and the countries of Western Europe.
Citizenship: USA
Date and place of birth: July 31, 1912, Brooklyn, New York, USA
Education and degree: BA in Economics and Mathematics from Rutgers University; Master in Economics from the University of Chicago
Family and Children:
Career:
Biography of Friedman
American economist Milton Friedman was born in Brooklyn (New York). When he was still a child, his parents Sarah Ethel (nee Laundau) Friedman and Jeno Saul Friedman, immigrants from Eastern Europe, moved to Rahway, New Jersey. His mother worked in a dry goods store, and his father, as F. later recalled, "tried unsuccessfully to achieve results in hopeless trading operations." The family had small and unstable incomes and could not get out of poverty. Nevertheless, she did not have to go hungry, and the atmosphere in the family was warm and friendly.
At the age of 16, F. by competitive selection was admitted to Rutgers University with the right to receive a partial scholarship. In 1932, he was awarded a bachelor's degree in two disciplines at once - economics and mathematics. While studying at the University F. came under the influence of two assistants: Arthur F. Burns, who later became director of the US Federal Reserve, and Homer Jones, the future authority in the field of theory interest rate. It was Jones F. obliged to write a thesis in economics and receive a recommendation to continue specialization in this area at the University of Chicago.
After receiving a master's degree from the University of Chicago in 1933, F. moved for postgraduate training at Columbia University (New York). At the end of 1934 he returned to the University of Chicago, becoming a research assistant. The following summer, he took part in a large-scale consumer budget research project for the US National Committee on Natural Resources, Washington, DC. Cooperation F. with the US National Bureau of Economic Research (NBEI) began in 1937, when he began working as an assistant to Simon Kuznets.
In 1940, they completed the writing of a joint scientific work "Income from Independent Professional Practices" ("Income From Independent Professional Practices"). This work later formed the basis of the dissertation, for which F. in 1946. was awarded a doctorate in economics from Columbia University. At the same time, one of the conclusions of the mentioned study, namely, that “medicine provides only limited opportunities to raise the income of physicians of all specialties in comparison with the income of dentists”, provoked such widespread objections in the NBE that the publication of the book was delayed until the end of the Second World War.
The formation of F. as an economist can be traced from his first independent steps in this science. His subsequent contribution to the theory and practice of economics is accompanied by unexpected results, he becomes a prolific researcher and popular writer-economist, participates in important research conducted by government and academic institutions, directs the so-called. Chicago School of Economists. Despite the fact that many of his views on economic theory and public policy remain controversial, he, as the English economist John Barton put it, "provided us with a foundation for future research in macroeconomics."
During the Second World War, F. participates in the development of tax policy on the instructions of the Federal Ministry of Finance and, taking advantage of his stay in Washington, conducts research at Columbia University on military statistics. In 1945 ... 1946. he teaches economics at the University of Minnesota. Then F. returns to the University of Chicago and becomes an assistant professor of economics. With the assistance of the NBEI F. begins many years of work on the creation of monetary theory.
In 1950, F., as a consultant on the implementation of the "Marshall Plan", developed by George, K. Marshall and providing for the restoration of the war-torn economies of Western Europe, arrives in Paris, where he becomes an active advocate of the idea of floating exchange rates. He predicts that fixed exchange rates, introduced by the Bretton Woods agreement, will ultimately fail, which happened in the early 70s. His knowledge in the field of theoretical and practical problems of the economy of European countries increased in the course of cooperation with Professor Fulbright (1953) from the University of Cambridge (England).
Starting to work with S. Kuznets, working closely with economists Dorothy Brady, Margaret Reid and Rose Director, F. formulated and found practical confirmation of his hypothesis of "constant income consumption." In his book "The Theory of the Consumption Function" ("A Theory of the Consumption Function"), published in 1957, F. proved that the concept of John Maynard Keynes, linking current consumption with current income, will inevitably lead to an erroneous course. Instead, F. put forward a theory according to which the consumer does not build their consumer calculations, with the exception of temporary, on the current income, relying on the expected or permanent income. Although permanent income is not always obvious, it could be calculated by weighted average of recent earnings. Money. He called this averaging "distributed lag".
Exploring a wide range of practical data on consumption, F. found that the results did not differ from his theory of permanent income (in the 50s, Franco Modigliani presented an alternative, but similar to the approach of F. consumption theory, tied to life cycles and explaining the same economic phenomenon). The conclusion about constant income played an important role in causing a reasonable reformulation of the quantity theory of money. In subsequent works, F. will show that changes in money demand throughout the history of America have always been determined by changes in the sphere of permanent income.
The value of F.'s theory of constant income is difficult to overestimate. Much of the subsequent study of aggregate consumption confirms this theory, and the developed methodology for determining and estimating future incomes has been of great interest to macroeconomists everywhere. Moreover, the most important advances in econometrics during the 1960s and 1970s were achieved thanks to F.'s statistical methods, which he used specifically to assess permanent income.
The publication in 1963 of the fundamental work “The Formation of the Monetary System in the United States” (“A Monetary History of the United States”), written by F. in collaboration with an expert in the field of economic history Anna J. Schwartz, made it possible to highlight the importance of the theory of F. not only in the applied sense, but also in the field of the history of money circulation. The authors have collected extensive statistical materials on the issues of money circulation since the period of the American Revolution and documented the comprehensive influence of the money supply involved in the state turnover on inflationary processes.
The Great Depression-era chapter of their joint work accused the Federal Reserve of failing to maintain an adequate level of liquidity. banking system USA. They formulated the following thought in that chapter: “A radical contraction of the money supply is, although tragic, but genuine evidence of the power of monetary policy, in contrast to the opinion of Keynes and his supporters regarding the reduction in the amount of money in circulation as a weakness of the banking system.” Continuing to defend their arguments, F. co-authored with economist David Meiselman published in 1963 an article criticizing the main idea of Keynes and his followers. It showed that nominal consumer spending is determined by the money supply rather than by individual items of expenditure. state budget. These considerations formed the basis of the so-called. theories of money circulation in the 1980s.
According to F., "it's all about the money," because changes in the intensity of growth in nominal incomes are mainly due to changes in the growth of the money supply. The reciprocal criticism of the views of F. and Meiselman by the neo-Keynesians reflected the main directions of the debate of the 60s and 70s on monetary and fiscal policy, during which, however, the main proposals of F. had to be recognized as quite acceptable and legitimate.
The monetary economic theory of F. gives a clear idea of the economic methods. Economic models, he suggests, should be judged by their ability to predict real economic outcomes, not by their speculative constructions. In addition, simple, single-equation models of monetary phenomena are far superior to Keynesian multi-equation models. The monetary doctrine of F. has become a viable basis for existing doctrines, despite the excessive allocation of one causal factor - the money supply, which could not but cause a certain skepticism among a number of researchers.
Achievements F. one way or another connected with his analysis of the shortcomings of Keynes's theoretical calculations and effective criticism of the Phillips curve, which approximately interprets the so-called. natural increase in unemployment. Critical analysis of the studied phenomena allowed F. to have a constant influence on the development theoretical aspects economic policy and an assessment of the economic factors of unemployment for periods of rising inflation and periods of declining employment of the able-bodied population. Moreover, his exhaustive analysis of the role of economic stabilization policies - and this was especially evident in his famous analysis of the use of lags in the development of economic stabilization strategies - clearly demonstrates how and why economic stabilization measures can unexpectedly backfire.
F. was awarded the Nobel Memorial Prize in Economics in 1976. "For achievements in the field of consumption analysis, the history of money circulation and the development of monetary theory, as well as for practical demonstration of the complexity of the policy of economic stabilization." In the Nobel lecture, he returned to a topic that had been raised back in 1967 when addressing the American Economic Association - to the rejection of Keynes's remark about the stable relationship between the rate of inflation and unemployment. He came to the conclusion that in the long run, the Phillips curve still shifts upward, subject to a natural increase in unemployment.
In his opinion, the reason for this phenomenon was the acceptance of the growth of unemployment as an increasing parameter, instead of interpreting it as a constant numerical constant. For the short term, in his opinion, inflationary monetary and fiscal policy could only temporarily reduce the unemployment rate, since workers and corporations habitually seek to increase income levels, which ultimately cannot but contribute to an increase in the price level (and, accordingly, an increase in unemployment).
He showed that, under certain conditions, the rise in the slope of the Phillips curve could indeed be a reasonable explanation for the economic stagflation of the early 1970s. However, the social price of fluctuations in inflation is so high that F. becomes a consistent defender of "stability" as opposed to "discretionary" monetary policy. A sustained rise in the interest rate on money transactions could lead not only to a stagnation in fluctuations in the money supply, but also to an increase in the unpredictability of business activity forecasts in the private sector.
F. earned recognition as an adviser to President Richard M. Nixon, despite their differences with him on the establishment of strict control of prices and wages in 1971. in the Newsweek column dedicated to him since 1966, and also due to the earlier publication of Capitalism and Freedom (1962). His popular book Free to Choose (1980) even gave the name to the television screensaver of his series of talks on social and economic issues.
Many of F.'s proposals, such as reducing the amount of state intervention in the economy, the introduction of mercenary military service, the use of the so-called. "negative income tax" (payments from the budget to persons with insufficient income) have received practical implementation. Other proposals - education on the basis of a guarantee of subsequent payment, the rejection of social security and the minimum wage - are still met with serious objections from politicians.
Despite the label “conservative” often pasted to him by political opponents, F. is much closer to the classical liberalism of Adam Smith and John Stuart Mill than to the traditionally conservative wing of economic doctrine. He believes that the goals he pursues are in fact not at odds with the goals of the modern liberal trend. He says: "The different approach to economic policy, especially for the uninitiated, stems mainly from the difference in forecasts of subsequent economic actions, and not from the dissimilarity of fundamental principles and concepts." Although the awarding of the F. Nobel Prize caused a number of objections from professional economists and people who are keenly interested in economics, the laureate's contribution to theoretical and applied research was widely recognized. Thus, Paul Samuelson called him an "economic economist".
Returning from the University of Chicago in 1977, F. becomes a senior researcher at the Hoover Institution at Stanford University. For three decades he has been an active member of the American Economic Association, of which he was president in 1967.
F. married in 1938; his wife is Rose Director, economist; their acquaintance began with a joint scientific work at the University of Chicago. They have a son and a daughter.
In addition to the Nobel Prize, F. was awarded the John Bates Clark Medal of the American Economic Association (1951) and honorary degrees from many American and foreign universities and colleges.
Interests, hobbies:
travels;
classical music.
Notes:
Bibliography:
media library
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Friedman with Reagan
Bush honors Friedman Speech in May 2002 Friedman in old age (one year before death)
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Milton with his wife Rose Milton and Rosa Friedman Milton with his wife Rosa Friedman with his wife at a gala dinner Milton and Rosa Friedman 
David, son of Milton Friedman David Friedman, son of Janet - daughter of Milton Friedman Patry Friedman - grandson of Patry, grandson of Milton Friedman
Milton Friedman was an American economist and statistician best known for his strong belief in free market capitalism. During his time as a professor at the University of Chicago, Friedman developed many free market theories that ran counter to the views of traditional Keynesian economists. In his book The Monetary History of the United States, 1867-1960, Friedman illustrated the role of monetary policy in creating and possibly worsening the Great Depression.
Milton Friedman was born on July 31, 1912 in New York and died on November 16, 2006 in California. Friedman grew up on the East Coast and attended Rutgers University, studying mathematics and economics. He graduated from college in 1932 and went on to earn a doctorate in economics from the University of Chicago in 1946. During this time, Friedman took a position at the National Bureau of Economic Research to study income distribution in the United States. After working on income inequality, he focused on tax research and statistical analysis. In 1946, after graduating with a Ph.D., Friedman took up an economics position at the University of Chicago, where he did his most effective work.
Friedman's first big breakthrough in economics was his Consumption Function Theory in 1957. This theory advocated the idea that an individual's consumption and saving decisions are more dependent on permanent changes in income than changes in income, which are perceived as ephemeral. This theory produced the permanent income hypothesis, which explains why short-term tax increases actually reduce savings and keep consumption levels static, all other things being equal. Friedman's initial contribution to economics came from his analysis of prevailing macroeconomic theories. At one time, as a professor of macroeconomics, Keynesian economics dominated. This school of economic thought, founded by British economist John Maynard Keynes, believes that fiscal policy is more important than monetary policy, which government spending should be used to neutralize business cycle volatility and the fact that prices are inherently sticky.
Friedman countered these Keynesian macroeconomic views with his own economic theory of free market monetarism. Through this theory, Friedman expressed the importance of monetary policy and noted that changes in the money supply have real short-term and long-term effects. In particular, the money supply affects price levels. Friedman went on to use monetarism to openly contradict the Keynesian principles of the Keynesian multiplier and the Phillips curve.
Friedman was awarded the Nobel Prize in Economics in 1976. During his career, he published groundbreaking books on modern economy, as well as numerous influential articles, changing the way economics is taught.
Milton Friedman and monetarism versus Keynesian economics
John Maynard Keynes and Milton Friedman were two of the most influential economic and public policy thinkers of the 20th century. While Keynes is widely credited with creating the first systematic approach to macroeconomic policy government, Friedman rose to prominence in part by criticizing Keynes' policy proposals and instead advocating a more prudent monetary policy.
For much of his life, Keynes was better known for his political journalism and legendary debating skills than for his economic thinking. In 1919 he published The Economic Consequences of the Peace, an objection to the burdensome compensations and sanctions imposed on Germany after the First World War. Keynes argued that these unjust punishments would make the region politically unsustainable.
Keynes became the pre-eminent thinker in Britain during the 1920s, when the country was struggling with unemployment. His fame skyrocketed with the release of his economic magnum opus The General Theory of Employment, Interest, and Money in 1936. In this work, Keynes argued that an interventionist government could help smooth down recessions by supporting aggregate demand. Strategic government spending can stimulate consumption and investment, Keynes argues, and help alleviate unemployment.
At the time of the release of The General Theory, the world was in the middle of the Great Depression, and classical ideas about political economy were bad. Keynes's theories gave birth to a new dominant paradigm in economic thought, which was later called Keynesian economics. While they are still popular, some argue that Keynesian economics provided a pseudoscientific rationale for shortsighted elected politicians to run budget deficits and accumulate massive levels of public debt.
If Keynes was the most influential economic thinker of the first half of the 20th century, Friedman was the most influential economic thinker of the second half.
Friedman strongly opposed many of the policy proposals supported by the Keynesian economists of the day. He advocated deregulation in most areas of the economy, demanding a return to the free market wisdom of classical economists such as Adam Smith. He challenged modern notions of deficit spending and suggested that in the long run only discoordination and inflation could result from expansionary fiscal and monetary policies.
Friedman argued about free trade, less government, and a slow, steady increase in the money supply in a growing economy. His emphasis on monetary policy and the quantity theory of money became known as monetarism. Friedman's popularity attracted other free-market thinkers to the University of Chicago, which spawned an antiquarian coalition called the Chicago School of Economics.
When Friedman won the Nobel Prize for economic sciences in 1976, it marked a turning point in academic economic thought, from Keynesianism to the growing Chicago School. Friedman's renewed focus on prices, inflation, and people's incentives is a direct meeting with Keynes's interest in employment, interests, and public policy.
To the extent that Keynes was seen as an enemy of laissez-faire, Friedman was the new public face of free markets. Friedman won a major intellectual victory after three decades of Keynesian politics ended in stagflation in the late 1970s, something like Keynesians like Paul Samuelson thought was impossible.
The main provisions of the theories of Milton Friedman
1. Judge politics by their results, not their intentions.
In many ways, Friedman was an idealist and libertarian activist, but his economic analysis always based on practical reality. He famously told Richard Heffner, host of The Open Mind, in an interview, "One of the big mistakes is to judge policies and programs by their intentions and not by their results."
Many of Friedman's most controversial positions were based on this principle. He opposed raising the minimum wage as he felt it was inadvertently hurting young and low-skilled workers, especially minorities. He opposed tariffs and subsidies because they unintentionally hurt domestic consumers. His famous " Open letter» 1990 to the then-drug business, Bill Bennett called for the decriminalization of all drugs, mainly because of the devastating unintended consequences of the war on drugs. This letter robbed Friedman of a streak of conservative supporters who, he said, failed to "recognize that the very measures you prefer are the main source of the evil you deplore".
2. The economy can be transferred to the masses.
During Friedman's landmark interviews on The Phil Donahue Show in 1979 and 1980, the host said that his guest was "a man who will never be accused of confusing the economy" and told Friedman, "The good thing about you is that when you speak, I almost always understand you.”
Friedman has lectured on campuses including Stanford and New York. He hosted a 10 television program called Free Choice and wrote a book of the same name, tailoring its content to his audience.
Economist Walter Block, Friedman's sometimes friendly agitator, memorialized the death of his contemporary in 2006, writing: "Valiant, witty, wise, wise, wise, kind and yes, I say, inspiring analysis should be an example for us all."
3. "Inflation is always and everywhere a monetary phenomenon."
The most famous passage from the writings and speeches of Friedman: "Inflation is always and everywhere a monetary phenomenon." He challenged the intellectual climate of his era and confirmed the quantity theory of money as viable. economic principle. In a 1956 article entitled "Studies in the Theory of the Quantity of Money", Friedman found that, ultimately, an increase in the money supply increases prices but does not actually affect output.
Friedman's work debunked the classic Keynesian dichotomy about inflation, which argued that prices rose either from sources with costs or because of "demand." He also put monetary policy on the same level as fiscal policy. Friedman's insight was so harsh in his criticism of the Fed's lack of respect for the money supply that the Fed effectively stopped issuing board minutes to avoid his scrutiny.
4. Technocrats can't control the economy.
In column 1980
Newsweek Milton Friedman said: "If you put the federal government in charge of the Sahara desert, there will be a shortage of sand in five years." Friedman was a vicious critic of government and was convinced that free markets worked better on the basis of morality and efficiency. From the perspective of the real economy, Friedman relied on several truisms and underlying incentive-based analyses. He suggested that no official could or could spend money as wisely or carefully as the taxpayers from whom it was confiscated. He often spoke of regulatory takeover, a phenomenon in which strong special interests are co-opted by the very agencies set out to control them.
Friedman government policy is created and enforced by force, and that force creates unintended consequences that do not come from voluntary trade. The valuable political power of government power creates an incentive for the rich and cunning to abuse it, helping to generate what Friedman dubbed "government failure."
5. Government failures can be as bad or worse than market failures.
Friedman combined his lessons on the unintended consequences and bad incentives of government policy. “Here you have a market failure,” Friedman told a Chicago student in a recorded lecture, “but in the same cases it’s also hard to get the government to do anything about it… You have to come to terms with the fact that when the government tries to get a response, you probably , fail the government."
Friedman liked to point out government failures. He talked about how wage controls and President Richard Nixon's control led to a shortage of gasoline and rising unemployment. He opposed the Interstate Commerce Commission (ICC) and Federal Commission Communications (FCC) to create virtual monopolies in transportation and facilities mass media. He is known to have argued that the combination of public schooling, minimum wage laws wages, drug prohibition programs, and welfare programs have inadvertently forced many families within the city into cycles of crime and poverty.
This concept embraces many of Friedman's most powerful ideas: politics has unintended consequences; economists should focus on outcomes, not intentions; and voluntary interactions between consumers and businesses often produce excellent results for government decrees.
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Independent work on Economic theory:
"Milton Friedman and his economic ideas"
Completed: student gr. M-34 Prasalov V.A.
Checked by: Berkutova Z.T.
Milton Friedman ( English Milton Friedman, July 31 1912 , New York - November 16 2006 , San Francisco) - American economist, laureate Nobel Prize 1976 "for his achievements in the analysis of consumption, the history of money circulation and the development of monetary theory, and also for the practical demonstration of the complexity of the policy of economic stabilization."
Economics, described in the living language of Friedman and filled with his indefatigable energy, ceases to be a "dreary science." It was about him that President Bush said that the American nation and the whole world were lucky that Milton Friedman became an economist ...
George F. Will
Plan
Biography 3
Bibliography 5
The main ideas of the monetarist theory of M. Friedman and the monetarists. 6
References 10
Milton Friedman was born in 1912 in Brooklyn, New York, to a poor family of Jewish emigrants from Galicia (modern Ukraine).
In 1932 he graduated from Rutgers University, where he received a bachelor's degree in two disciplines - economics and mathematics. His teachers in economic disciplines were two Nobel Prize winners S. Kuznets and J. Stigler, as well as the future president of the US Federal Reserve A. Burns. This helped shape Friedman's interests and influenced his decision to continue studying economics.
Friedman received a master's degree in economics from the University of Chicago in 1933, and did postgraduate practice in New York (Columbia University). In the same place, in 1946, he defended his doctoral dissertation on problems of philosophy, taking as its basis his first scientific work "Income from an independent private practice", written by him in collaboration with Saiman Kuznets.
During World War II, Friedman taught economics at the University of Minnesota, participated in the development of a new tax policy on assignment from the Treasury Department, and independently conducted research on military statistics.
In 1948, he worked at the University of Chicago, where he dealt with methodological problems of the social sciences, problems of legal relations (he defended his doctoral dissertation), money, and gathered around him a group of followers and like-minded people, called the "Chicago School of Economics." They were united by ideas that were considered seditious in those years - a belief in the self-sufficiency of the market and the need to rid it of state interference.
Milton Friedman has always led a very active social life: for many years he wrote a column in Newsweek magazine, he took part in all the political and economic battles of the twentieth century. In 1950, Friedman went to France as a consultant on the implementation of the "Marshall Plan", which provided for the restoration of the war-ravaged economies of Western Europe. A few years later, he lectured in China and took part in the restoration of the Chilean economy under Pinochet, prompting the dictator to introduce “free” market rules in the country. Friedman advocated the legalization of drugs and prostitution, the privatization of roads, the abolition of licensing and permits for doctors and drivers. And in last years dealt with school "vouchers" being sure that in this area market competition would give much better results than state regulation.
In 1967-1969 M. Friedman served as the honorary president of the American Economic Association.
Among the supporters of Friedman's economic ideas at different times were British Prime Minister Margaret Thatcher and US President Ronald Reagan. The principle promoted by Friedman was adopted by the International Monetary Fund.
In 1976 he won the Alfred Nobel Memorial Prize. It was awarded to Friedman "for achievements in the field of consumption analysis, the history of money circulation and the development of monetary theory, as well as for the practical demonstration of the complexity of the policy of economic stabilization." He proved the influence of a long-term assessment of current income by economic agents on economic processes.
M. Fridman owns more than 250 works, including 27 books. Main works:
1. "Methodology of positive economic science" (1953);
2. "Theory of the consumer function" (1957);
3. US Monetary History, 1867-1960 (1963), co-written with Anna Schwartz;
4. "Capitalism and Freedom" (Capitalism and Freedom, 1962);
The book arose as a result of the author's concern about the strengthening of government and the restriction of freedom in the United States. In his work, M. Friedman argues that economic freedom is a necessary condition for political freedom. If the means of production are concentrated in the government, then in reality society cannot oppose anything to it. The state, the economist continues, is obliged to establish laws, monitor the observance of property rights, take measures against monopolies, mitigate the manifestations of the "market fiasco", and also gradually (3-5% per year) increase the amount of money in circulation.
5. "The Role of Monetary Policy" (The Role of Monetary Policy. 1967);
6. "Optimal amount of money and other methodologies" (1969);
7. "Theoretical Foundations of Monetary Analysis" (1972);
8. "Money and economic development"" (Money and economic development, 1973);
9. "Freedom of Choose" (Freedom of Choose, 1980);
In the book, M. Friedman defends the principle of economic liberalism, while simultaneously criticizing the policies of the US government in many areas, and especially in the field of taxation and state regulation of the school system. As one of the panaceas, F. proposes to introduce a negative taxation system.
10. Tyranny of the Status Quo (1984), co-written with wife Rose Friedman et al.
The path of M. Friedman from an academic scientist to the founder of the Chicago monetarist school, a Nobel Prize winner, was associated with the development of the theory of capitalism as a self-regulatory system, with the formation of the monetarist doctrine, which was recognized as the antipode of the Keynesian system of state intervention in the economy.
Monetarism (from Latin moneta - coin) is an economic theory according to which the amount of money in circulation is a determining factor in the development of the economy.
His monetarism is a set of theories that have independent significance, but they are all united by the quantitative theory of money, which Friedman considered as a general principle of analysis. According to Friedman's monetarism, the main means of development of modern capitalism is economic freedom, which conditions all other freedoms of society. He believed that the idea of economic freedom is realized only if the state does not interfere in the economy, if that part of the national product that determines the state's income and is the material basis of state "built-in stabilizers" is reduced.
According to Friedman, it is the psychological factors of a person, in contrast to state regulation of the economy, that act as a natural factor in the desire of the economic system to balance. This is where Friedman's subjectivism is manifested, which is one of the characteristic features of the neoclassical trend in economic theory, because he took into account the psychological factor - the motives of human behavior in different economic situations.
State intervention in the economy, says Friedman, blocks the action of spontaneous regulators that contribute to the achievement of equilibrium; it is oriented towards the short term, since any unforeseen external influences can cause deviations from the intended direction. But the main thing is that, using the Keynesian model, the state can only influence aggregate demand, financing it from its own revenues, but it cannot ensure a balance between supply and demand. Regarding foreign trade, monetarists oppose protectionist methods of its regulation by the state. The laws of the market must have room for action in this sector of economic activity as well.
So, the basic principle of monetarism is that the alternatives market mechanism does not exist. But, nevertheless, the market mechanism itself cannot provide some economic actions aimed at achieving socially important goals that are not related to production efficiency (for example, ensuring defense capability). Then there is a need for economic intervention by the state, which in this situation is justified. In addition, it is possible in the form of budgetary incentives, but on the condition that real resources will be attracted to the production process.
Monetarists, unlike Keynesianism, did not strive for full employment of the population.
As it turned out, low unemployment and price stability are incompatible phenomena, so they strongly deny the possibility of budget financing of programs to expand employment. Friedman considers a 4-5% unemployment rate to be economically justified, since the social retention of such a number of unemployed is not problematic. He argues that unemployment can decline during a period of accelerating inflation only with unforeseen changes in national demand in a market where there are long-term links between work and capital. But these changes will have a short-term effect.
Based on the database of US economic history, he argues that the monetary factor has an exceptional influence on the cyclical nature of economic development. Insufficient amount of money in circulation, according to Friedman, leads to a production crisis, and an increased amount leads to inflation, so the central bank should not allow fluctuations in the money supply, maintain a stable rate of its growth. In this regard, Friedman focuses on the problem of money supply, size, growth rate and its components. He explains the cyclical nature of development starting from the "equation of exchange", according to which the total price of the product created in the country should be equal to the product of the value of the money supply and the speed of turnover. Then the value of money and prices will remain unchanged, hence inflation will not exist.
The fundamental difference between the monetary and Keynesian systems is the direction of the liberal and state monetary policy and the expected consequences. Monetary policy is long-term and balanced, according to which the state must systematically increase the money supply, regardless of cyclical fluctuations and, unlike the views of Keynes, should not interfere in monetary relations and influence the exchange rate, reacting to the cyclical change in conjuncture. This, however, does not mean that he downplays the importance of monetary policy. On the contrary, among all ways of influencing the economy, he prefers precisely monetary policy as the most acceptable way for a democratic society to interfere in the economy, which does not lead to excessive government dictates and a decrease in individual freedom. But at the same time, it clearly defines the nature and objectives of monetary policy. He defends the principle of gradualism, which implies that the activities of this policy are implemented slowly, are designed for years and are not a quick response to changes in the situation. The author considers the stability of the movement of the mass of money as one of the most important conditions for the stability of the economy as a whole. He proposes to abandon attempts to use monetary leverage to influence real variables (unemployment, production) and defines control over nominal variables, primarily prices, as the goals of this policy. Friedman sees the achievement of this goal in following the "monetary rule", proposing to maintain the growth rate of the money supply at a level not exceeding 3-5% per year.
The state should also control the money supply by reducing its own expenditures, expenditures in the social sphere, which will help reduce the state budget deficit, limit the growth of the money supply, and reduce the rate of inflation. But this will lead to a decrease in demand, therefore, unemployment will increase, but the constant attenuation of inflation rates will reduce the level of inflationary expectation, revive business activity, and the unemployment rate will begin to fall.
Based on the concept of "objective unemployment", Friedman concludes that employment and, as a consequence, production is inherently cyclical, its nature is hidden in the insufficient supply of money supply. The article "Money and the business cycle" provides examples of how the crisis recession occurred against the backdrop of falling prices, which led to a decrease in the need for money. The decrease in the money supply was a sign of crises and stagnation and was necessarily accompanied by a change in the situation on the labor market. He estimates market fluctuations as the reaction of the economic body to the dynamics of the money supply. A decrease in its volume causes an increase in prices, consumer spending, investment, and, finally, real changes in factors of production. This shows the natural attraction to economic equilibrium.
It is interesting that the thoughts of Keynesians and monetarists regarding the definition of the role of the interest rate as regulators of the transfer of capital from one country to another coincide, but, according to Friedman, they perform an auxiliary function on the way to achieving equilibrium. He believed that in a market economy there is an inverse relationship between foreign exchange reserves and the size of the domestic money supply, which in total is the amount that is necessary for the exchange of goods. It is through this feedback that equilibrium is established, while the system created on the basis of the Keynesian model blocks the action of the market's adaptive mechanisms. It is obvious that Friedman considered the economic activity of society as an organic unity of internal and external economies, and in this he saw the essence of the openness of the economy.
As a conclusion, we can form the main ideas of Milton Friedman's economic policy as the key provisions of monetarism:
1. the regulatory role of the state in the economy should be limited to the control of money circulation;
2. market economy is a self-regulating system. Disproportions and other negative manifestations are associated with the excessive presence of the state in the economy;
3. the money supply affects the amount of expenses of consumers, firms. An increase in the mass of money leads to an increase in production, and after full capacity utilization - to an increase in prices and inflation;
4. inflation must be suppressed by any means, including through the reduction of social programs;
5. When choosing the rate of growth of money, it is necessary to be guided by the rules of "mechanical" growth in the money supply, which would reflect two factors:
a) the level of expected inflation;
b) the growth rate of the social product.
Wikipedia is the free encyclopedia. http://en.wikipedia.org
Intellectual Energy Celebration / George F. Will Washington Post 2003.
RUCONOMICS. Economics in Russian. http:// ruconomics. com/2006/11/17/ milton- Friedmen-1912-2006
Capitalism and freedom / M. Friedman. - M.: New publishing house, 2006 - 240 pages.
History of economic theory / Ed. Zlushko S.M., - K .: Knowledge, 2005 - 720 pages
Website, dedicated to the film and book "Freedom of Choice" http://www.freetochoose.net/
Economic dictionary. http://abc.informbureau.com/html/iiiaoadeci.html
