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Academically, Milton had established himself as an expert on inflation and consumer behavior. He predicted in 1967 that a sustained period of inflation would not drive down unemployment, directly contrary to the mainstream view at the time. He predicted it correctly, in the period of 1973 of soaring inflation, unemployment in USA remained high, a phenomenon known as stagflation, which was exactly what he had warned of.
I met this advocate of ‘liberal free market’ at his office in his ‘home-base’ University of Chicago to talk about his visions on economy. His personality and the nice smelling coffee helped warmed the cold and windy weather of Chicago that day.
I said:
“As the leader of the Chicago school of economics, and the winner of Nobel Prize in Economics in 1976, The Economist magazine described you as ‘the most influential economist of the second half of the 20th century...possibly of all of it.’ You strongly support the virtues of a free market economic system with minimum government intervention. You even went as far as writing an Op-ed in the New York Times that ‘The Social Responsibility of Business Is to Increase Its Profits’, that there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud. This is a very controversial statement, considering that in this recent time, the trend is that corporates, especially the large ones, are encouraged to accept broader social responsibility.”
Milton said:
“As I wrote in the New York Times, in a free‐enterprise, private‐property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.
Of course, the corporate executive is also a person in his own right. As a person, he may have many other responsibilities that he recognizes or assumes voluntarily—to his family, his conscience, his feelings of charity, his church, his clubs, his city, his country. If we wish, we may refer to some of these responsibilities as ‘social responsibilities.’ But in these respects he is acting as a principal, not an agent; he is spending his own money or time or energy, not the money of his employers or the time or energy he has contracted to devote to their purposes. If these are ‘social responsibilities,’ they are the social responsibilities of individuals, not of business.”
I said:
“In August 2019, the Business Roundtable, an organization representing America’s largest corporations, issued a statement calling upon all businesses to take greater responsibility for ensuring that the interests of every stakeholder are addressed in corporate policy. The statement also said that shareholders are not only concerned with short-term profits but long-term profitability, and that an excessive focus on the former could damage the latter.
And by 2018, Larry Fink, CEO of BlackRock, the world’s largest investment fund, expressed concern that the profits-at-all-cost model of corporate enterprise was creating excessive social costs, particularly for the environment, that were unsustainable. He pledged to use the voting power of the trillions of dollars of shares he controlled to improve corporate social responsibility.”
Milton said:
“The newer phenomenon of calling upon stockholders to require corporations to exercise social responsibility, in most of these cases, what is in effect involved is some stockholders trying to get other stockholders, or customers or employees, to contribute against their will to ‘social’ causes favored by the activists. Insofar as they succeed, they are imposing taxes and spending the proceeds. They are in effect imposing taxes, on the one hand, and deciding how the tax proceeds shall be spent, on the other. This process raises political questions on two levels: principle and consequences. On the level of political principle, the imposition of taxes and the expenditure of tax proceeds are governmental functions.
I said:
“Adam Smith famously remarked: ‘It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages'. We are not in business to serve public goods let alone to perform altruistic deeds; we need to provide for ourselves and our families. In business, both parties need to benefit, the one who sells the bread and the one who buys it. In this sense it is our gain that there are bakers, butchers and brewers attending to their own interests, as ultimately that serves our interests best.”
Milton said:
“Self-interest is not myopic selfishness. It is whatever it is that interests the participants, whatever they value, whatever goals they pursue. The scientist seeking to advance the frontiers of his discipline, the missionary seeking to convert infidels to the true faith, the philanthropist seeking to bring comfort to the needy - all are pursuing their interests, as they see them, as they judge them by their own value.
The world runs on individuals pursuing their separate interests… The record of history is absolutely crystal clear that there is no alternative way, so far discovered, of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.”
I said:
“Nevertheless, self-interest and profit motive frequently gone badly off track, as we experience in Lehman Brothers case in 2008. Soon after Lehman Brothers filed for bankruptcy and global markets panicked, the stock market collapsed. The Federal Reserve provided $9 trillion of emergency loans to banks, and nationalized the nation’s largest insurance company, AIG.”
Milton said:
“First, tell me, is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? What is greed? Of course none of us are greedy. It’s only the other fellow who’s greedy.
The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn’t construct his theory under order from a bureaucrat. Henry Ford didn’t revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty, the only cases in recorded history are where they have had capitalism and largely free trade.
If you want to know where the masses are worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear that there is no alternative way, so far discovered, of improving the lot of the ordinary people.
In economy a whole lot of things can go wrong as Adam Smith said: ‘There is much ruin in a nation’ and government can mess things up in many ways, but the desire to better ourselves can still make markets work.”
I said:
“Gordon Gecko in the movie Wall Street said: ‘ greed – for lack of a better word – is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms – greed for life, for money, for love, knowledge – has marked the upward surge of mankind.’
So may I ask you whether capitalism is good from morality point of view?”
Milton said:
“The problem with that is in moral values are individual, they are not collective. Moral values have to do with what each of us separately believes in holds true. What our own individual values are: capitalism, socialism, central planning our means, not ends they in and of themselves. They need a more alluring world, humane or humility in human. We have to ask what are their results?
The degree of social injustice and torture in a place like in incarceration in a place like Russia is of a different order of magnitude than it is in those Western countries where most of us have grown up and in which we have been accustomed to.
Where do you have the greatest degree of inequality in the world? In Soviet Union enormous inequality in the immediate literal sense that there is a small select group that has all of the services and amenities of life and very large masses that are in a very, very low standard of living. Indeed, in a more direct way, if you take the wage rate of foremen versus the wage rate of ordinary workers in the Soviet Union, the ratio is much greater than it is in the United States.
China, too, is a nation with wide differences in income, between the politically powerful and the rest; between city and countryside; between some workers in the cities and other workers.
Capitalism, on the other hand, is a system of organization that relies on private property and voluntary exchange. It has repelled people, it’s driven them away from supporting it because they have thought it emphasized self-interest in a narrow way, because they were repelled by the idea of people pursuing their own interests rather than some broader interest. Yet if you look at the results, it’s clear that the results go the other way around.
If you had both freedom and prosperity, the greatest measures of freedom, if you look at the Western countries where freedom prevails. There has been more social justice and less inequality. So has capitalism succeeded despite the immoral values that pervade it? The results have arisen because each system, capitalism and socialism, has been true to its own values, or rather the system doesn’t have values.
What we’re concerned with in discussing moral values here are those that have to do with the relations between people. It is important to distinguish between two sets of moral considerations, the morality that is relevant to each of us in our private life. How we, each individually conduct ourselves, behave and then what’s relevant to systems of government and organization.”
I said:
“Over the past decades China’s has yielded steady progress in economic growth and development. While most observers agree the pace of transformation in China has been extraordinary, some remain concerned about the increasing income inequality. However China claimed that the gap is closing as rural income rises in China.”
Milton said:
“In late 1979, I was astonished when I received an official invitation to visit China. This was a phenomenon that I find almost literally incredible, and I quickly accepted it. I and my wife Rose arrived in China in 1980. The trip was a struggle from the start. The general impression on walking or driving down the streets is one of drabness and dullness and dirt. Almost the only place there is light and beauty and cleanliness and variety is on the stage.
This poor socialist country invited me, of all people, to provide economic advice on inflation. I delivered four lectures on topics such as “the mystery of money” and “the Western world in the 1980s” to an audience of officials and scholars. I dismissed the idea that inflation appeared only in capitalist societies. Inflation was neither innately ‘capitalist’ nor ‘communist’. Instead, government itself was the root cause of inflation, which could be cured only by ‘free private markets’.
I said:
“How did the audience receive your lectures?”
Milton said:
“They seemed completely unaware of my commitment to the free market. To the Chinese economists these ideas were radical. In a society that had not yet accepted free private markets, this approach was unacceptable. A Chinese researcher mentioned ‘the internal contradictions of capitalism’, a standard Marxist phrase about the widening gap between the income of the owner and the labor. I asserted that there were no such contradictions, and gave my observations about Marx’s incorrect predictions about the future of capitalist development. And I said it is a fact that ordinary people would always live better in capitalist countries than in socialist countries.
I said:
“Then you were invited again to China in 1988, for what occasion?”
Milton said:
“The occasion was a conference on economic reform hosted in Shanghai by the Cato Institute and Fudan University. I advocated the widest possible use of not the market but ‘free, private markets’. The words ‘free’ and ‘private’ are more important than the word ‘market’. Every society, whether communist, socialist, or whatever you will, uses the market. Rather, the crucial distinction is private property or no private property. Who are the participants, government bureaucrats who are operating on behalf of something called the state? Or are they individuals operating directly or indirectly on their own behalf?
In China, the substantial freeing of many prices, particularly those of agricultural and similar goods, has not been accompanied by the privatization of the banking system. As I understand it, the Chinese government indirectly determines what happens to the money supply through the credits it grants state enterprises. The results include a rapid increase in the quantity of money and, not surprisingly, a rapid upward pressure on prices, so that inflation, both open and repressed, has reared its ugly head.”
I said :
“In the trip’s most dramatic development, you received word that Zhao Ziyang the Communist Party General Secretary had requested to meet with you. What did you discuss?”
Milton said:
“Zhao laid out the challenges facing China’s economy, what they intended to do in carrying the reform further was to reduce the number of prices that are under the dual-track system and state control. However, just as they were ready to go a step further toward price reform, they were faced with difficult problems, especially sizable inflation. He asked my assessment of the effects of inflation. Can the people take such a shock, both economically and psychologically? Then he raised an even more fundamental question: ‘Why did inflation occur in China?’
I pointed to the dual-track system as one cause of inflation because it produced so many inefficiencies in the economy, from queuing to shortages, and pumped up prices in the sectors that were open to the market forces of supply and demand. I was similarly dismissive of other ‘halfway’measures that delayed what I saw as the only real solution: full privatization and marketization.
The conversation continued, touching on proposed reforms to exchange rates, state-owned enterprise management, and the central government’s authority over the economy. Zhao begged me to understand China’s special circumstances: without a developed banking system, China could not tighten the money supply to control inflation, as the U.S. Federal Reserve does. But I continued to push for immediate, sweeping market reforms. After nearly two hours of heated exchanges, we ended the conversation with no consensus on the best path for China.”
I said:
“Even so, you were welcomed back to China in 1993 for official meetings. How did you see China that time?”
Milton said:
“Traveling to Shanghai and Beijing I was astonished at the rapid pace of development in China. At the end of the trip, I returned to the Great Hall of the People, the site of my fateful encounter with Zhao Ziyang, to meet with China’s new president, Jiang Zemin. He delivered what I perceived as a canned speech about the successes and challenges of the Chinese economy, and the meeting ended quickly. I conjecture that Jiang Zemin did not really want to hear what we had to say.”
I said:
“Thank you Milton for this great interview.”
THE END
This is an imaginary interview in memory of Milton Friedman.
Sources :
https://newrepublic.com/article/159351/corporations-milton-friedman-free-market-economy
https://www.youtube.com/watch?v=27Tf8RN3uiM
https://paintedmonster.com/2018/07/26/phil-donahue-vs-milton-friedman/
https://theamericanscholar.org/milton-friedmans-misadventures-in-china/
https://www.cato.org/sites/cato.org/files/serials/files/policy-report/1988/12/v10n6.pdf
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