MF

My previous post was on how I was brought up. This one is one is on my father.¹

The attitude to his children, treating them as people who had the same intellectual status as he did, was applied more generally. He would argue with anyone. I remember one argument with the proprietor of the garage in New Hampshire where we had our car fixed, who was arguing that a big company, by spending enough on advertising, could always sell what they produced. The example he offered was a new car Ford had just brought out called the Edsel.

One of my father’s projects was an experiment in economic education that involved arguing with New York City cab drivers. New York had, and still has, a taxi medallion system. It issues a fixed number of medallions, each of which entitles the owner to operate one taxicab; each cab company has to own as many medallions as it operates taxicabs. The medallions are transferable; if you own one you can sell it to someone else, after which he now has the right to legally operate a cab. The price of a medallion now is, probably then was, over a hundred thousand dollars.

When my father took a cab in New York he would get into a conversation with the driver about medallions. The natural view of the driver was that they were a good thing, because fewer cabs meant more riders for him. My father’s project was to convince the driver that he had it backwards. The cab driver was an employee of a cab company. His wage was determined by how much they had to pay to get drivers. The medallion system lowered the number of cabs, hence the demand for cab drivers, making their wage lower, not higher. It brought in more money per cab but the additional money went to the company to cover the cost to them of having to own a bunch of expensive medallions. Abolishing the medallion system would cost the companies money since it would make their expensive investment worthless but it would increase the demand for drivers and so push up their wages.

The experiment was to see whether he could explain the argument well enough to convince his driver in the course of the ride. His conclusion was that in a short ride he couldn’t, in a long ride he could.

It wasn’t just gas station proprietors and cab drivers. Even after he became famous, with a Nobel prize, best selling books, and a television series, he answered his own mail — as best I could tell all of it. The answers were substantive responses, not form letters. David Henderson describes his experience:

At age 19, a few weeks after graduating from the University of Winnipeg, I flew down to Chicago and went to his office at the University of Chicago. Friedman invited me in warmly and took about ten minutes of his time to convey two main messages to me. The first was that there’s more to intellectual life and development than Ayn Rand. The second—and these were his exact words—was, “Make politics an avocation rather than a vocation.” Then he gently escorted me to the door. But he gave a 19-year-old kid ten minutes. (“Why Milton Friedman Was Rare”.)

The best I can do to describe that feature of my father is to say that he had, in the British sense, no side, never behaved as if he was important and other people were not.

Some Economics

My father was in favor of eliminating most of what modern governments do but retaining the core functions, national defense and making and enforcing law, the classical liberal minimal state. I carried the argument further, in my first book sketched how a society might work where all useful government functions had been privatized.

My father’s view was that my system might work but probably wouldn’t, mine that it might not work — I devoted two chapters in the first edition of my first book and two more in the third to ways in which it might break down² — but probably would. That is not the sort of disagreement that is worth arguing about; neither of us had anything close to a mathematical proof of his position.

In listing the essential functions of government that my father supported I did not include money. Libertarians critical of his views routinely accuse him of supporting the Federal Reserve System and the system of government produced money but it was not true. His recommended monetary policy for the Fed, gradually increasing the money supply at a constant rate, was not what he thought the ideal monetary policy would be, merely the best policy he thought the Fed could be trusted to implement.³

He explored the question of what was the economically optimal behavior of the money stock in an essay on the optimal quantity of money included in a book with that title. After reading it I pointed out that what he described as optimal would, in first approximation, be the result of a system of competing private issuers; he did not disagree. George Selgin, in an article exploring my father’s views on a government monopoly of money, concludes that:

Friedman and Schwartz ultimately conclude that there are in fact no good economic arguments to support government monopolies of hand-to-hand currency. Nevertheless, they claim that to oppose these monopolies would be futile.

That quote is relevant to the central difference between my father’s approach to reform and mine. I was interested in what would be the ideal set of institutions, whether for money or for law. He was interested in what changes in existing institutions might possibly be implemented. Changes he supported and was to some degree responsible for include floating exchange rates, the abolition of the draft, and at least a partial shift away from monetary policies based on the idea that there was a long-term tradeoff between inflation and unemployment. His final project, school vouchers, the cause for which my parents established the Friedman Foundation,⁴ is gradually being achieved.

Again Krugman

Commenting on my father’s analysis of the responsibility of the Federal Reserve for the Great Depression, Krugman writes:

In his role as a monetarist propagandist, Friedman told the story as if it were the following: “The Federal Reserve contracted the money supply, plunging a private economy that would otherwise have been pretty stable into a depression.” This sounds like a strong argument for the proposition that markets should be left alone. But his actual story was “The Federal Reserve failed to inject cash into the economy as the banking system is collapsing of its own accord. If the Fed had injected enough cash to stabilize my preferred monetary aggregate the slump would’ve been much milder.” (Peddling Prosperity)

Economists are supposed to think about the effect of incentives. The existence of the Federal Reserve, established to serve as a lender of last resort, meant that private banks believed it was no longer necessary for them to take expensive precautions against a run on the banks bringing down the banking system. When the run came the Fed did nothing about it and the system crashed. Krugman’s implication that if there was no Fed to prevent it the Great Depression would still have happened is like claiming that if Lucy had not promised Charlie Brown that she would hold the football for him he still would have tried to kick it and gone head over heels.

Some evidence that, in the absence of the Fed, the private market would have coped sufficiently well to prevent the Great Depression is the fact that it was, by a substantial margin, the worse depression in the nation’s history. The next worse was set off by the collapse of the Second Bank of the United States, an earlier attempt at government intervention in the banking system to solve the nation’s economic woes.

Bits and Pieces

When my parents got married, they decided that there were certain things that were difficult to say and should therefore be replaced by numbers. Only one survived in actual usage. In their family  “number two” meant, in my family still means, “You were right and I was wrong.”

One reason is that it is shorter, so easier to say. A second reason is that using the number reminds speaker and audience that admitting error is a difficult and virtuous thing to do, which makes it easier to do it. A third reason is that using a family code reminds the speaker that he is speaking to people who love him, so are unlikely to take advantage of the confession of error to put him down.

My father used to be fond of the phrase “There is no such thing as a free lunch,” sometimes abbreviated TANSTAAFL. He eventually stopped using it on the grounds that it was not true, that both consumer and producer surplus are, in effect, free lunches. He replaced it with “Always look a gift horse in the mouth.”

Phrases he continued to use included “A bad carpenter blames his tools,” “It is a capital mistake to make the best the enemy of the good” and Cromwell’s “I beseech you, in the bowels of Christ, think it possible you may be mistaken.” He referred to my carrying too many logs in from the woodshed to the fireplace in order to do it in fewer trips as a lazy man’s load.

An Infuriating Man

Leo Rosten, author of, among many other things, The Education of Hyman Kaplan and The Joys of Yiddish, was a friend of my parents, having met them when all three were in graduate school at the University of Chicago. His book People I Have Loved, Known or Admired contains an affectionate portrait of my father.

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1. I believe I have only once in my life given a talk about my father, to the Goldwater Institute for an event honoring him. It is webbed. My part of the video starts about 22 minutes in.

2. Chapters 30, 34, 55 and 56 of The Machinery of Freedom.

3. Somewhere he is quoted as saying that he cannot remember any time that he did not hate the Fed but I haven’t been able to locate the quote. If someone reading this knows where it is let me know.

4. Now EdChoice. My parents did not want their names permanently associated with an organization over which, after their deaths, they would have no control, possibly with the examples of the Ford and Carnegie foundations in mind, so provided for the name to be changed some years after the last of the founders were no longer around.