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Hello, this is William Clark of the Chicago Tribune,
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welcoming you, again, on behalf
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of Instructional Dynamics, Incorporated,
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to a visit with the distinguished economist,
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Professor Milton Friedman of the University of Chicago.
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And we're recording this interview
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on November 6th, Wednesday, November 6, 1974.
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Which of course, is the day after
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the November 5th elections.
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And, Dr. Friedman, I think the obvious first question
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is to ask you about your thoughts
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on the meaning and the consequences of yesterday's election.
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I think the meaning is much harder
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to interpret then the consequences.
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The distinction I'm making is the following one,
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that it's hard to know whether the meaning
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of this election is that the American people
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have in fact, given a firm mandate to Congress,
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to produce more inflation.
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Or whether, the meaning of this election is simply,
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that fed up with Watergate, with the high present inflation,
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affected by the general tendency to blame the White House
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for whatever happens, regardless
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of what the source of it is.
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The public has just expressed a general reaction
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of unease, of opposition to what was in.
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Of a rejection of President Nixon and all his works.
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I rather suspect the latter is the true meaning
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of the election, but I believe the consequences
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will be what the first meaning suggests.
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That is to say if you were a returning Congressman,
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if you were a returning Senator,
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if you had listened to what your fellow candidates
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had been saying on the stump,
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I think you would go back to Washington saying,
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the people want us to be sure
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to reduce unemployment as soon as we can,
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the people are fed up with inflation,
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but they don't want, they are not willing
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to support less inflation via less government spending.
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I rather think that if I were a returning Congressman,
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I would read the mandate of the people
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that the people have instructed us
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to spend more, not to raise taxes.
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Now, the people have not explicitly
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drawn the conclusion from those two statements.
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But there is only one logical conclusion.
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How can you spend more and not raise taxes?
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Fundamentally, the only way you are likely to do it
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is by imposing the hidden tax of inflation,
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by printing money to pay for the difference.
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I think Congress will take that message,
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I shall not be surprised if the Federal Reserve System
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takes the same message.
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So that I interpret the true significance
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of the election, that it is another firm push forward
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on the road to higher and higher government spending.
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To more and more government intervention
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into the economy, and to higher rates of inflation.
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I don't think that will occur overnight,
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as I've mentioned before, I believe the immediate
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prospect is for a tapering off of the rate of inflation
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and these things take time, there are legs involved,
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it will be next year before they get around
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to voting the spending, it will be the year after that
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before the spending occurs.
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I don't wanna predict the precise time table.
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But consider, for example, just one issue.
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We have been moving on a road towards socialized medicine.
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Medicare and Medicaid were big steps on that road.
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The proposed National Health Insurance
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is another major step down that road.
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Is there anything to stop it right now?
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Where is there any strong, coordinated,
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effective opposition to that move?
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I don't see it, so it seems to me,
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that one of the few things you can assert
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with almost complete certainty,
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is that within the next decade or so,
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maybe less, maybe more, the United States
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will have a completely socialized medical system.
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Now, I'm not saying that because I think it's desirable,
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on the contrary, I think it's disastrous.
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I think the result will be to make our medical system
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much less effective and much more erratic
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in its incidents than it presently is.
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If we look at the experience of Great Britain
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under socialized medicine, it has not
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been a happy experience at all.
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But I'm not now talking about what's desirable,
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but what's likely, and the question is,
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where can you see, what trends can you see,
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in the picture which will stop us
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going to socialized medicine?
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What trends do you see in the picture
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which will stop Congress from enacting
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a very large so-called public employment program?
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The latest fad, I shouldn't say the latest,
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it's a replay of the Public Works Administration
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and the Works Progress Administration of the late New Deal.
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That's exactly what the public employment program is.
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But what chance do you see now of stopping it?
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The only bit of hope I can see in this picture,
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it's only my natural optimism that forces me
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to dig so deep to see such a bright light,
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is that with the kind of overwhelming majorities
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the Democrats will have in the House and the Senate,
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with the kind of veto-proof Congress it will be,
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the responsibility for these measures
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will be clearly placed.
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If in the next couple of years we have,
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as I expect we shall have, an outburst of spending.
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If we have a very expensive monetary policy.
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If this, in turn, results in inflation,
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it will be clear who is responsible.
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But I have to temper even that optimistic note
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by suggesting that that you'd one,
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look very closely at the time pattern involved.
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The probability is that the inflationary consequences
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will be reaped after the next election, not before.
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Whereas the expansionary effects
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will be reaped before and not after.
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I recently was setting down the dates
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at which, in the past 15 years,
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attempted cures for inflation were stopped
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and replaced by expansionary, monetary and fiscal action.
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And those are very interesting dates.
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They are 1963, 1967, 1971, they are exactly
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four years apart, each one is in the year
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preceding a presidential election.
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And it now looks as if 1975 is gonna
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be the fourth in that series.
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And interestingly enough, if we push back
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and ask, how did it happen in 1959?
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Was it in the series?
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It was because of the accident
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which I have mentioned before on these tapes,
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that we had a non-political president,
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Dwight Eisenhower, who was perfectly willing
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to sacrifice his possible successor
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in order to break the back of inflation.
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And he succeeded.
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The only occasion on which we have
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really broken the back of inflation
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was in 1960 when we got
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inflationary expectation down to zero.
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We were ready to start out on a path
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of no inflation and healthy growth,
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but in 1963, the year before the '64 election,
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we had the tax cut, we had big increase
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in government spending, we had
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a move toward easy money policy.
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And the same thing happened in 1967, '71,
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and now as I fear, '75.
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And, so it may well be that this
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possible favorable effect, we will
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have to wait till 1978 before we can see any effects of it.
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I wonder where that will put President Ford in 1976.
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The timing of those developments.
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The timing of those developments
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will put President Ford, in one sense, in a good position.
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In another sense, in a very bad position.
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Because, what will happen between now and then?
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He would have been vetoing these spending measures.
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Yes, I see.
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But a Democratic Congress, a democratic
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presidential nominee will be able to say,
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well you see, look you're back
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on a prosperous course, why?
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Because we passed these things over President Ford's veto.
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On the other hand, if the effect is,
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that the economy has expanded
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and is expanding at that time, is booming.
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Even though inflation may be somewhat rising,
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the general tendency to favor the White House
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and give him the credit, will be
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a good feature for President Ford.
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I think it's a, so I really don't,
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don't have any strong predictions on that matter.
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Any national election always heightens interest
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in the influence and position of the media.
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You have a letter, Milton, which is
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two or three months old, here.
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But the question it raises
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is certainly very pertinent today.
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The writer, Mr. J. Allen Rudolph,
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recalls that at one time you said something
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to the effect that, a quote if they, the media,
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succeed in driving him, referring to President Nixon,
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out of office, it will be impossible
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for them to not to continue to use this newfound power.
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I wonder what your thoughts on that are today?
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Well, I think it's a very pertinent question today
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and I think we've been having an example
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of the phenomenon I was referring to.
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It seems clear to me that the major cost
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to the nation of the whole Watergate episode,
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has been the extraordinary power,
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which it has demonstrated that the media have.
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They had this power all along.
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They didn't really recognize it.
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But it's perfectly clear that the key factor
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which finally drove President Nixon out of office,
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I don't mean to say that what he did
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was not reprehensible, or warrant things,
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I'm not condoning any of his behavior.
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And yet it is perfectly clear
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that it was the continuous, vehement,
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day after day attacks by the media
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that finally drove him out of office.
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That converted what was really a minor misdemeanor
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from any point of view or broad perspective.
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Into what people call, in a way,
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that it just seems to me as incredible,
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they call it the greatest crime of the century,
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the worst thing that ever happened to this country.
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It's incredible, as I've say over and over again,
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I hold Nixon's imposing price and wage controls
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on August 15, 1971 against him
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far more than i do the whole Watergate incident.
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And the whole cover up and so on.
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The first had far more important consequences.
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But, and in a way it was a far more unprecedented act.
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The first time it had ever been done in peace time.
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Whereas at most you could say what was done
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under Watergate was a slight expansion
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of things that had been done many times before.
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Certainly there were many earlier opportunities.
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If the media had gone after the Bobby Baker case
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in President Johnson's time.
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Yes, Yes,
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People today would not be in the same sense of stupor
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they are when you first mention the word Bobby Baker.
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They don't recall it.
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So, and no doubt Mr. Nixon gave 'em cause,
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but nonetheless, I think you have to say
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that our fundamental Constitutional
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system has been changed.
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We have added, essentially,
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a fourth branch of government.
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The fourth of state has also become
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a fourth branch of government.
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And it has discovered, that if it makes
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a sustained attack on any individual,
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that individual can be driven out of office.
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It has been flexing its muscles a little
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with respect to Rockefeller.
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The same pattern of build-up, of insinuations,
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of stories, of over-estimating the importance of it,
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of saying, this, that and the other.
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I am no friend of Rockefeller
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on the grounds of his political views and opinions.
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On the other hand, it again seems to me,
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that what the media has been saying
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about his loans and gifts,
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they've just been building
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the things up out of all proportion.
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There was nothing improper in anything he did.
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On the contrary, you haven't had
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any emphasis in the media at all,
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or very little at the fact that he paid
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some 20 odd million dollars of taxes
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over those period of years.
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There was great deal of emphasis
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on a re-audit of this taxes
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00:12:05.400 --> 00:12:07.950
that raised them by a million dollars.
267
00:12:07.950 --> 00:12:10.483
I don't know, but I would be willing to wager you,
268
00:12:11.390 --> 00:12:14.490
that were Mr. Rockefeller not now contending
269
00:12:14.490 --> 00:12:16.970
for a Vice Presidential campaign,
270
00:12:16.970 --> 00:12:18.530
his lawyers would've successfully
271
00:12:18.530 --> 00:12:19.827
challenged much of that audit.
272
00:12:19.827 --> 00:12:21.490
And the actual extra taxes
273
00:12:21.490 --> 00:12:22.940
would have been much less.
274
00:12:22.940 --> 00:12:24.650
But Mr. Rockefeller's now in a position
275
00:12:24.650 --> 00:12:26.330
where he dare not do that.
276
00:12:26.330 --> 00:12:28.610
Just think what the media would say.
277
00:12:28.610 --> 00:12:30.970
If instead of Mr. Rockefeller leaning over backward
278
00:12:30.970 --> 00:12:33.640
and saying of course I'm gonna pay that million dollars,
279
00:12:33.640 --> 00:12:36.090
he had said that million dollars is wrongly assessed,
280
00:12:36.090 --> 00:12:37.730
I've instructed my lawyers to fight it
281
00:12:37.730 --> 00:12:40.670
and to take it to court and to defend my rights.
282
00:12:40.670 --> 00:12:42.670
He would've been pilloried in the press.
283
00:12:43.900 --> 00:12:45.850
We have seen a similar kind of thing
284
00:12:45.850 --> 00:12:47.483
with respect to Henry Kissinger.
285
00:12:48.701 --> 00:12:51.280
You have again had something in the media campaign
286
00:12:51.280 --> 00:12:53.563
to get Mr. Kissinger, it's been much more,
287
00:12:54.560 --> 00:12:58.260
it hasn't been as stringent, as extreme
288
00:12:58.260 --> 00:13:00.560
as the one on Rockefeller recently,
289
00:13:00.560 --> 00:13:04.180
because, partly because it's less important
290
00:13:04.180 --> 00:13:07.621
from the point of view of a political scene.
291
00:13:07.621 --> 00:13:12.621
Now, I'm not talking about the world situation.
292
00:13:13.560 --> 00:13:16.380
But, partly, also because, Henry Kissinger
293
00:13:16.380 --> 00:13:19.920
has gone out of his way to play up to the media.
294
00:13:19.920 --> 00:13:23.330
As has Rockefeller as well, over a long period of time.
295
00:13:23.330 --> 00:13:24.560
The interesting thing about it,
296
00:13:24.560 --> 00:13:27.340
and that's why both of these cases are so interesting.
297
00:13:27.340 --> 00:13:31.183
These are the two men, probably in the Republican party,
298
00:13:32.139 --> 00:13:35.410
who, were the greatest favorites
299
00:13:35.410 --> 00:13:38.030
of the media people inserted in the abstract.
300
00:13:38.030 --> 00:13:39.590
And yet, the media people have not
301
00:13:39.590 --> 00:13:42.860
been able to resist the temptation to go after them.
302
00:13:42.860 --> 00:13:46.340
And, it may well be, effectively,
303
00:13:46.340 --> 00:13:48.680
I will not be surprised if Kissinger has
304
00:13:48.680 --> 00:13:50.380
to give up the Secretary of State-ship
305
00:13:50.380 --> 00:13:52.410
in the not too distant future.
306
00:13:52.410 --> 00:13:54.780
I suspect Rockefeller will be confirmed
307
00:13:54.780 --> 00:13:56.810
after the, now that the elections are over.
308
00:13:56.810 --> 00:13:58.983
But it's not, by any means, a sure thing.
309
00:13:59.820 --> 00:14:03.130
And yet, it is hard to see, if you go back,
310
00:14:03.130 --> 00:14:04.660
and look at the situation when he was
311
00:14:04.660 --> 00:14:06.210
first appointed, everybody even said,
312
00:14:06.210 --> 00:14:07.990
well there's no man in the country,
313
00:14:07.990 --> 00:14:10.640
who will more readily get approval.
314
00:14:10.640 --> 00:14:12.660
His life has been a public book,
315
00:14:12.660 --> 00:14:15.090
open book for the past 20 years.
316
00:14:15.090 --> 00:14:17.600
Now, where would it next surface?
317
00:14:17.600 --> 00:14:19.100
I don't know.
318
00:14:19.100 --> 00:14:24.100
But I do know that any man who wishes to make
319
00:14:25.830 --> 00:14:30.830
a career in politics will pay far more attention
320
00:14:31.130 --> 00:14:35.340
to the 20, the 30, the 40 people in Washington D.C.,
321
00:14:35.340 --> 00:14:37.770
who control the outputs on the two evening,
322
00:14:37.770 --> 00:14:39.690
three evening news shows.
323
00:14:39.690 --> 00:14:41.183
Television.
Television.
324
00:14:42.150 --> 00:14:45.580
Who are the chief reporters for the New York Times
325
00:14:45.580 --> 00:14:47.100
and the Washington Post.
326
00:14:47.100 --> 00:14:49.940
He will pay far more attention to them,
327
00:14:49.940 --> 00:14:53.193
then he will to his thousands of constituents at home.
328
00:14:54.650 --> 00:14:56.100
That's an interesting commentary.
329
00:14:56.100 --> 00:15:00.007
I'm glad you mentioned those specific members of the media.
330
00:15:00.007 --> 00:15:01.706
(laughing)
331
00:15:01.706 --> 00:15:03.920
Oh, I don't mean to be making
332
00:15:03.920 --> 00:15:06.180
any criticism of any individual person at all.
333
00:15:06.180 --> 00:15:07.013
No, I understood.
334
00:15:07.013 --> 00:15:08.420
We are all of us behaving
335
00:15:08.420 --> 00:15:10.350
in accordance with our own position.
336
00:15:10.350 --> 00:15:12.380
And I don't mean to say that the members of the media
337
00:15:12.380 --> 00:15:15.993
have done this in any deliberate sense at all.
338
00:15:17.175 --> 00:15:19.950
I am sure that they are absolutely correct
339
00:15:19.950 --> 00:15:20.920
in their indignation.
340
00:15:20.920 --> 00:15:23.440
They have hated Nixon all along.
341
00:15:23.440 --> 00:15:26.880
And they feel that they were confirmed in their hatred.
342
00:15:26.880 --> 00:15:28.720
They feel righteous.
343
00:15:28.720 --> 00:15:31.610
But we must remember, that the greatest harm
344
00:15:31.610 --> 00:15:32.920
has been done in this world,
345
00:15:32.920 --> 00:15:37.360
always by people who were absolutely
346
00:15:37.360 --> 00:15:39.790
firmly persuaded of their own right.
347
00:15:39.790 --> 00:15:42.030
Who felt that it was essential
348
00:15:42.030 --> 00:15:46.306
to override opponents in the name of the good.
349
00:15:46.306 --> 00:15:50.150
It is the absolute true believers
350
00:15:50.150 --> 00:15:52.830
and the honest fanatics who do the most harm,
351
00:15:52.830 --> 00:15:56.280
whether their names, I once made a comment to this effect
352
00:15:56.280 --> 00:15:58.440
at a commencement talk I gave
353
00:15:58.440 --> 00:16:00.570
at the University of Rochester,
354
00:16:00.570 --> 00:16:04.230
and I started saying all the true fanatics
355
00:16:04.230 --> 00:16:06.180
and self-believers, and I said whether it be
356
00:16:06.180 --> 00:16:10.570
Torquemada, or Hitler, or everybody was with me,
357
00:16:10.570 --> 00:16:13.992
or Ralph Nader, at which point there was a dead silence.
358
00:16:13.992 --> 00:16:15.090
(laughter)
359
00:16:15.090 --> 00:16:16.510
But, that is a good example.
360
00:16:16.510 --> 00:16:17.343
Yes, it is.
361
00:16:17.343 --> 00:16:18.670
I think Nader has done a great deal of harm.
362
00:16:18.670 --> 00:16:21.960
But I'm not saying that he's not a sincere, honest man.
363
00:16:21.960 --> 00:16:23.440
He's a fanatic.
364
00:16:23.440 --> 00:16:25.360
And in the same way, when I say
365
00:16:25.360 --> 00:16:27.300
this about the news media, I'm not questioning
366
00:16:27.300 --> 00:16:29.470
their motives, I'm not questioning their honesty,
367
00:16:29.470 --> 00:16:31.440
or their integrity or anything like that,
368
00:16:31.440 --> 00:16:33.861
I'm only saying, that one of things
369
00:16:33.861 --> 00:16:36.770
that history demonstrates is that
370
00:16:36.770 --> 00:16:39.063
if power exists it will be used.
371
00:16:40.250 --> 00:16:42.180
It is hard to find anywhere in history
372
00:16:42.180 --> 00:16:44.870
a case where somebody or some group had power
373
00:16:44.870 --> 00:16:47.131
and they deliberately avoided using it.
374
00:16:47.131 --> 00:16:49.800
That's right, that's an interesting commentary.
375
00:16:49.800 --> 00:16:52.413
I'd like to ask you, comment on the money supply,
376
00:16:52.413 --> 00:16:55.620
Milton, and perhaps get into it by,
377
00:16:55.620 --> 00:16:59.130
again, using a letter that was written
378
00:16:59.130 --> 00:17:02.093
to you by Mr. Donnelley P. McDonald,
379
00:17:04.480 --> 00:17:08.010
who refers to hearing Federal Reserve board
380
00:17:08.010 --> 00:17:10.370
member John Sheehan speak.
381
00:17:10.370 --> 00:17:13.220
He says, I heard Mr. Sheehan speak in Muncie, Indiana
382
00:17:13.220 --> 00:17:15.020
about a year ago, and on that occasion,
383
00:17:15.020 --> 00:17:18.740
he said, of course the Fed can stop inflation,
384
00:17:18.740 --> 00:17:21.050
all you have to do is read Milton Friedman
385
00:17:21.050 --> 00:17:22.690
in order to know that.
386
00:17:22.690 --> 00:17:24.480
And then, Mr. Sheehan went on,
387
00:17:24.480 --> 00:17:26.490
according to Mr. McDonald, to make remarks
388
00:17:26.490 --> 00:17:28.210
similar to those in a clipping
389
00:17:28.210 --> 00:17:29.960
of which he sent you.
390
00:17:29.960 --> 00:17:31.520
Which reads in part, and this is
391
00:17:31.520 --> 00:17:34.000
a direct quote from Mr. Sheehan,
392
00:17:34.000 --> 00:17:37.140
were we immediately, we, the Federal Reserve Board,
393
00:17:37.140 --> 00:17:39.200
were we immediately to begin acting
394
00:17:39.200 --> 00:17:42.400
to squeeze out inflation, there will be 15
395
00:17:42.400 --> 00:17:46.050
to 20% unemployment by the end of the year.
396
00:17:46.050 --> 00:17:49.430
There would be 30 to 40% black unemployment,
397
00:17:49.430 --> 00:17:51.680
riots in the streets, and perhaps
398
00:17:51.680 --> 00:17:53.410
a new form of government.
399
00:17:53.410 --> 00:17:56.520
Thus, resolving the problem would be rather simple,
400
00:17:56.520 --> 00:17:59.340
rather straight forward and utterly ridiculous.
401
00:17:59.340 --> 00:18:00.600
And there is a footnote.
402
00:18:00.600 --> 00:18:02.640
Governor Sheehan later commented,
403
00:18:02.640 --> 00:18:04.830
this as must be evident as hyperbole
404
00:18:04.830 --> 00:18:07.840
used in an informal setting to give emphasis
405
00:18:07.840 --> 00:18:10.535
not to make a prediction, as to the serious results
406
00:18:10.535 --> 00:18:12.300
that would flow from any sudden
407
00:18:12.300 --> 00:18:14.840
and drastic squeeze down in the money supply.
408
00:18:14.840 --> 00:18:16.480
Particularly in a situation of
409
00:18:16.480 --> 00:18:18.853
world shortages of energy and food.
410
00:18:19.840 --> 00:18:23.340
Well, that certainly is very pertinent,
411
00:18:23.340 --> 00:18:25.607
because a crucial question about the money supply,
412
00:18:25.607 --> 00:18:27.660
and the one that we have been raising over
413
00:18:27.660 --> 00:18:29.740
and over again on these tapes,
414
00:18:29.740 --> 00:18:33.954
is whether, the slowdown that appeared in June,
415
00:18:33.954 --> 00:18:36.540
is going to continue.
416
00:18:36.540 --> 00:18:39.810
Now, let me comment on that on two levels.
417
00:18:39.810 --> 00:18:41.380
One a purely technical level,
418
00:18:41.380 --> 00:18:44.894
and then get to Mr. Sheehan, who illustrates
419
00:18:44.894 --> 00:18:48.200
what I think is the real problem
420
00:18:48.200 --> 00:18:51.613
of getting sensible monetary policy.
421
00:18:53.360 --> 00:18:56.253
On a technical level, the facts are
422
00:18:56.253 --> 00:19:00.910
that a couple of weeks ago, you had a jump in M1,
423
00:19:00.910 --> 00:19:02.500
three billion dollars in a week,
424
00:19:02.500 --> 00:19:03.890
which almost brought you back
425
00:19:03.890 --> 00:19:05.940
to that long period trend,
426
00:19:05.940 --> 00:19:07.170
which the Federal Reserve Bank
427
00:19:07.170 --> 00:19:09.950
of St. Louis has now superimposed
428
00:19:09.950 --> 00:19:11.830
on their weekly money chart.
429
00:19:11.830 --> 00:19:13.380
They have a weekly money chart
430
00:19:13.380 --> 00:19:16.020
in which they show M1 every week.
431
00:19:16.020 --> 00:19:19.080
And they have superimposed on that a trend,
432
00:19:19.080 --> 00:19:24.080
going back to 1970, showing the 6.7%
433
00:19:24.154 --> 00:19:27.430
roughly rate of rise from 1970.
434
00:19:27.430 --> 00:19:29.020
And if you look at that chart,
435
00:19:29.020 --> 00:19:30.930
you will see that the actual money supply
436
00:19:30.930 --> 00:19:33.700
was hugging around that trend until June,
437
00:19:33.700 --> 00:19:35.350
and then came off sharply below,
438
00:19:35.350 --> 00:19:37.060
and then this one week rise almost
439
00:19:37.060 --> 00:19:38.650
brought it back to the trend,
440
00:19:38.650 --> 00:19:41.140
but the week after there was decline,
441
00:19:41.140 --> 00:19:43.700
the latest one we have, there was a decline.
442
00:19:43.700 --> 00:19:45.900
Which brought it back down again.
443
00:19:45.900 --> 00:19:48.450
So that as of now, it is still significantly
444
00:19:48.450 --> 00:19:50.550
below that trend and you have to say
445
00:19:50.550 --> 00:19:52.060
that since June, there has been
446
00:19:52.060 --> 00:19:55.030
an appreciatively lower rate of monetary growth.
447
00:19:55.030 --> 00:19:57.696
This would also be true of the M2 series.
448
00:19:57.696 --> 00:20:01.050
However, there are a number of technical factors
449
00:20:01.050 --> 00:20:05.340
which suggest that you may have a reversal.
450
00:20:05.340 --> 00:20:08.123
In the first place, I am told
451
00:20:08.123 --> 00:20:10.820
that the revisions that are due to come up
452
00:20:10.820 --> 00:20:13.180
for the inclusion of non-member bank figures,
453
00:20:13.180 --> 00:20:17.640
are likely to raise the recorded rate of growth
454
00:20:17.640 --> 00:20:20.050
over the past few months so that actually
455
00:20:20.050 --> 00:20:22.840
money has grown at a faster rate
456
00:20:22.840 --> 00:20:25.660
then the published numbers would suggest.
457
00:20:25.660 --> 00:20:29.130
In the second place, the base,
458
00:20:29.130 --> 00:20:31.490
that is to say, high powered money,
459
00:20:31.490 --> 00:20:35.633
currency and reserves, what the Fed controls directly.
460
00:20:35.633 --> 00:20:39.820
Has continued to rise, it has shown some retardation,
461
00:20:39.820 --> 00:20:43.153
but a much lower retardation than the actual, then M1.
462
00:20:44.190 --> 00:20:46.620
This means that the so called multiplier,
463
00:20:46.620 --> 00:20:49.130
you see for each dollar a day there are several dollars
464
00:20:49.130 --> 00:20:51.970
of deposits and of money supply.
465
00:20:51.970 --> 00:20:54.450
That multiplier has been going down.
466
00:20:54.450 --> 00:20:56.700
And if it were to return to its earlier level,
467
00:20:56.700 --> 00:20:59.880
even though the base kept going at its present level,
468
00:20:59.880 --> 00:21:01.100
you would have a more rapid rate
469
00:21:01.100 --> 00:21:02.070
of growth of the money supply.
470
00:21:02.070 --> 00:21:04.030
Those are the technical reasons.
471
00:21:04.030 --> 00:21:06.000
But, underlying those technical reasons
472
00:21:06.000 --> 00:21:08.950
is really the fundamental question,
473
00:21:08.950 --> 00:21:13.070
which this quotation from Mr. Sheehan raises very sharply,
474
00:21:13.070 --> 00:21:15.490
the Fed can control the money supply.
475
00:21:15.490 --> 00:21:17.180
As Mr. Sheehan implicitly says,
476
00:21:17.180 --> 00:21:18.753
there is no doubt about it.
477
00:21:19.750 --> 00:21:22.240
They have not chosen to control the money supply
478
00:21:22.240 --> 00:21:24.780
in such a way as to avoid inflation.
479
00:21:24.780 --> 00:21:26.233
Why have they not done so?
480
00:21:26.233 --> 00:21:27.513
They have not done so, in part,
481
00:21:27.513 --> 00:21:30.090
because of their preoccupation with interest rates.
482
00:21:30.090 --> 00:21:34.210
There's no doubt that that has affected them.
483
00:21:34.210 --> 00:21:36.050
If you ask them now, why did you let
484
00:21:36.050 --> 00:21:39.100
the money supply grow so slowly of the past five months?
485
00:21:39.100 --> 00:21:41.030
Because, undoubtedly, that slow rate of growth
486
00:21:41.030 --> 00:21:43.570
was less than they really intended to produce.
487
00:21:43.570 --> 00:21:44.870
The answer they will give you,
488
00:21:44.870 --> 00:21:48.230
will be, why look, in the last few months,
489
00:21:48.230 --> 00:21:51.170
the interest rates have been coming down anyway.
490
00:21:51.170 --> 00:21:52.820
If we had really let the money supply
491
00:21:52.820 --> 00:21:54.340
go up at the rate we wanted to,
492
00:21:54.340 --> 00:21:57.910
at 4 or 5% instead of 1 or 2%,
493
00:21:57.910 --> 00:21:59.810
short term interest rates would have come down still.
494
00:21:59.810 --> 00:22:02.030
Sharper, everybody would've announced
495
00:22:02.030 --> 00:22:04.550
in the newspapers, the Fed has changed its policy,
496
00:22:04.550 --> 00:22:08.640
the market resume, and now, then where would we be?
497
00:22:08.640 --> 00:22:12.610
So, despite all their protestations,
498
00:22:12.610 --> 00:22:15.180
they are still very much concerned with the money markets
499
00:22:15.180 --> 00:22:17.140
in the credit sense and with the interest rates.
500
00:22:17.140 --> 00:22:18.480
That's one reason.
501
00:22:18.480 --> 00:22:21.280
But surely, the more fundamental reason,
502
00:22:21.280 --> 00:22:24.070
is the one that Mr. Sheehan brings out.
503
00:22:24.070 --> 00:22:26.220
They have persuaded themselves
504
00:22:26.220 --> 00:22:29.080
in the Washington atmosphere along with everybody else
505
00:22:29.990 --> 00:22:31.990
in that political atmosphere,
506
00:22:31.990 --> 00:22:36.340
that it is not worth reducing inflation,
507
00:22:36.340 --> 00:22:37.940
if the cost of it is that you have
508
00:22:37.940 --> 00:22:40.160
somewhat higher unemployment.
509
00:22:40.160 --> 00:22:42.610
And they have justified their views in that way,
510
00:22:42.610 --> 00:22:44.780
if we may take Mr. Sheehan's statements
511
00:22:45.640 --> 00:22:49.320
as an indication, by grossly overestimating,
512
00:22:49.320 --> 00:22:53.470
in my opinion, the effect of a slower monetary growth rate.
513
00:22:53.470 --> 00:22:55.710
A primer level of unemployment.
514
00:22:55.710 --> 00:22:58.820
The numbers which Mr. Sheehan throws around,
515
00:22:58.820 --> 00:23:01.180
he may say in his footnote, and withdrawn
516
00:23:01.180 --> 00:23:04.500
that this is hyperbole, but I didn't notice
517
00:23:04.500 --> 00:23:07.310
that he have any other more reasonable numbers.
518
00:23:07.310 --> 00:23:08.960
Those numbers come from one place,
519
00:23:08.960 --> 00:23:10.290
we know were they come from.
520
00:23:10.290 --> 00:23:14.190
They come from American experience from 1929 to '32.
521
00:23:14.190 --> 00:23:16.030
They come from the Great Depression.
522
00:23:16.030 --> 00:23:19.310
Now, is it really true that what people like myself
523
00:23:19.310 --> 00:23:22.370
are asking the Fed to do in order to slow down inflation,
524
00:23:22.370 --> 00:23:24.940
is to follow the policies that
525
00:23:24.940 --> 00:23:26.833
were followed from '29 to '33?
526
00:23:27.710 --> 00:23:30.040
Nothing could be further from the truth.
527
00:23:30.040 --> 00:23:31.950
There has been no more severe credit
528
00:23:32.900 --> 00:23:36.650
of the policies in the Federal Reserve from 1929 to '33.
529
00:23:36.650 --> 00:23:39.370
Then those like myself, who are now urging the Fed
530
00:23:39.370 --> 00:23:41.400
to slow down for inflation.
531
00:23:41.400 --> 00:23:43.730
What happened from 1929 to '33
532
00:23:43.730 --> 00:23:46.943
was that the quantity of money declined.
533
00:23:46.943 --> 00:23:49.560
The Fed deliberately followed policies
534
00:23:49.560 --> 00:23:51.060
which had the effect of reducing
535
00:23:51.060 --> 00:23:52.700
the quantity of money by a third.
536
00:23:52.700 --> 00:23:54.540
None of us had been asking them for that.
537
00:23:54.540 --> 00:23:56.990
On the contrary, I criticized the Fed
538
00:23:56.990 --> 00:23:59.240
for having swung too far in the last six months.
539
00:23:59.240 --> 00:24:02.650
I did want them, it wasn't my idea that they should go
540
00:24:02.650 --> 00:24:05.725
to a one or 2% rate of monetary growth.
541
00:24:05.725 --> 00:24:08.463
For M1, or a 4% one for M2.
542
00:24:09.350 --> 00:24:10.493
All along, it has seemed to me,
543
00:24:10.493 --> 00:24:12.800
that the right policy for them to follow,
544
00:24:12.800 --> 00:24:14.760
is to go to a rate of monetary growth
545
00:24:14.760 --> 00:24:17.280
that they can stick with indefinitely for the long run,
546
00:24:17.280 --> 00:24:22.175
which would be something like, 3%, 4% for M1,
547
00:24:22.175 --> 00:24:25.813
maybe 5%, 6% for M2.
548
00:24:26.702 --> 00:24:28.420
Now, those are rates of monetary growth,
549
00:24:28.420 --> 00:24:30.110
which if persisted to, within the course
550
00:24:30.110 --> 00:24:32.220
of two or three years bring inflation down
551
00:24:32.220 --> 00:24:34.883
to two or 3% at the most, maybe to a little less.
552
00:24:35.900 --> 00:24:37.780
And, which would not, in my opinion,
553
00:24:37.780 --> 00:24:41.280
involve anything like, the kinds
554
00:24:41.280 --> 00:24:43.200
of sharp increases in unemployment,
555
00:24:43.200 --> 00:24:45.170
the riots on the street corners and so on,
556
00:24:45.170 --> 00:24:48.767
which Mr. Sheehan suggests is likely.
557
00:24:48.767 --> 00:24:51.720
But the fact that he thinks in these two terms,
558
00:24:51.720 --> 00:24:55.800
and that I fear many another of the Federal Reserve Board
559
00:24:55.800 --> 00:24:58.890
does, is not a very encouraging portent
560
00:24:58.890 --> 00:25:01.563
for what the future monetary policy is likely to be.
561
00:25:03.340 --> 00:25:05.150
We have used Mr. Sheehan as an example,
562
00:25:05.150 --> 00:25:07.693
and I don't mean to single him out.
563
00:25:08.969 --> 00:25:13.969
The fact is that I think the Federal Reserve Board
564
00:25:14.160 --> 00:25:17.510
will read the elections very much as Congress will read it,
565
00:25:17.510 --> 00:25:21.480
as the mandate to avoid unemployment.
566
00:25:21.480 --> 00:25:23.780
And if they read it that way, then the portents
567
00:25:23.780 --> 00:25:26.800
for the future are not very encouraging.
568
00:25:26.800 --> 00:25:27.890
Thank you very much.
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00:25:27.890 --> 00:25:29.970
We've been visiting with Professor Milton Friedman
570
00:25:29.970 --> 00:25:31.790
of the University of Chicago.
571
00:25:31.790 --> 00:25:35.100
If you subscribers would like to ask questions
572
00:25:35.100 --> 00:25:38.080
for Dr. Friedman to answer on future tapes,
573
00:25:38.080 --> 00:25:41.540
or suggest subjects for him to discuss,
574
00:25:41.540 --> 00:25:45.301
please write to Instructional Dynamics Incorporated,
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00:25:45.301 --> 00:25:50.037
450 East Ohio Street, Chicago, Illinois, 60611.
576
00:25:51.620 --> 00:25:53.230
We'll be visiting with Dr. Friedman
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00:25:53.230 --> 00:25:54.603
again in a couple of weeks.