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- | Hello, this is William Clark, Financial Editor | 0:02 |
of the Chicago Tribune welcoming you on behalf | 0:04 | |
of Instructional Dynamics to another visit with | 0:07 | |
the distinguished economist, Professor Milton Friedman | 0:10 | |
of the University of Chicago. | 0:13 | |
Doctor Friedman, last week when we were chatting you said | 0:15 | |
that you were expecting a reversal in the then trend toward | 0:19 | |
contraction in the money supply. | 0:23 | |
Is there any indication of such a reversal? | 0:26 | |
Milton | Yes, there is a substantial indication | 0:28 |
although as yet it's too | 0:30 | |
little to be a real firm confirmation. | 0:33 | |
But since then, there's been, there have been | 0:37 | |
one more week's figures coming out of the | 0:39 | |
Federal Reserve System and those figures do show | 0:42 | |
a very sizeable jump in the money supply defined as | 0:44 | |
currency plus demand deposits that is M1. | 0:49 | |
But also, slowing down of the sharp deceleration of | 0:52 | |
the decline in CDs and some increase in | 0:56 | |
the money supply including time deposits, | 1:01 | |
not counting the large CDs. | 1:05 | |
That is a ordinary kind of time deposit. | 1:06 | |
There's also some sign of a decline in Treasury balances. | 1:09 | |
If you'll recall that I was emphasizing a week, | 1:11 | |
in my last tape, that a major factor had explained, | 1:15 | |
been explaining the recent behavior of the money supply | 1:19 | |
was the abnormal accumulation of balances by the | 1:22 | |
U.S. Treasury and Commercial Bank. | 1:25 | |
There appears to have been some running down of those | 1:28 | |
balances in the, in that extra week. | 1:31 | |
That week of course is always a week or so behind times. | 1:34 | |
So when I say | 1:36 | |
- | Yes. | |
Milton | the figures that just came out, | 1:37 |
they are for about two weeks ago. | 1:38 | |
But they showed a very, very sharp increase in M1 | 1:41 | |
and money supply. | 1:46 | |
So that I would say that as of the moment, | 1:47 | |
that additional evidence gives me no reason to change | 1:49 | |
the view I expressed a week ago and we are likely to see | 1:52 | |
a reversal of the recent sharp retardation | 1:56 | |
in money supply growth. | 2:00 | |
That might well prove to be the case that that retardation | 2:01 | |
was a temporary aberration rather than a really | 2:05 | |
permanent shift | 2:08 | |
- | I see. | |
Milton | to a very much tighter stance. | 2:09 |
William | This is something on which we'll have to keep | 2:11 |
our eye | 2:13 | |
- | Yeah. | |
William | in the weeks ahead. | 2:14 |
Milton | Oh yes. | 2:15 |
Given the fact that what you're talking about | 2:16 | |
is a number which is being determined by the actions | 2:18 | |
of a relatively small number of individuals. | 2:22 | |
The Treasury in respect of its balances. | 2:25 | |
The Federal Reserve in respect of its purchases and sales. | 2:27 | |
It's very hard to be very firm about your predictions | 2:30 | |
about that kind of a matter. | 2:33 | |
When you're dealing with something which, | 2:34 | |
as it were, as an act of nature. | 2:37 | |
If there's a enormous gold discovery | 2:39 | |
which is going to be exploited, | 2:41 | |
you have no difficulty whatsoever in knowing that | 2:42 | |
that's going to continue to be exploited for a long time. | 2:44 | |
But when you're dealing with something in which people are | 2:46 | |
turning dials and pushing levers, | 2:49 | |
well then it's | 2:51 | |
(chuckling) | ||
very much harder to predict what they're going to do. | 2:52 | |
William | Dr. Friedman, there was an interesting article | 2:55 |
in the Wall Street Journal suggesting that | 2:58 | |
some Conservatives that support who supported Mr. Nixon | 3:02 | |
for the presidency have been a bit disappointed in | 3:04 | |
some things that he has done or some things that he has | 3:08 | |
failed to do up to this time. | 3:10 | |
You might be considered in that camp, | 3:13 | |
a Conservative that supported Mr. Nixon. | 3:15 | |
Are you disappointed at all with any of the things | 3:17 | |
that have happened up to this point? | 3:20 | |
Milton | Well I am, I certainly did support Mr. Nixon | 3:22 |
and I would be regarded in that sense of the term as | 3:25 | |
a Conservative. | 3:27 | |
Though I may say, I personally am very unhappy about | 3:28 | |
referring to myself as a Conservative. | 3:32 | |
The reason being, that I mostly want to change some things | 3:34 | |
and not to conserve | 3:37 | |
- | (laughing) | |
Milton | Some things and unfortunately Conservative has | 3:37 |
a notion, meaning of wanting to keep things just as they are | 3:41 | |
which is, but on the main point, | 3:44 | |
obviously, | 3:48 | |
there are many, some things, which I certainly would have | 3:50 | |
liked to have seen done differently. | 3:53 | |
And in this respect, | 3:55 | |
I would like to move more rapidly | 3:59 | |
than Mr. Nixon appears to be moving. | 4:01 | |
Toward reducing the role of the government, | 4:03 | |
toward dismantling programs that I think are undesirable | 4:05 | |
and in general toward starting a trend toward a greater | 4:09 | |
responsibility for the individual. | 4:12 | |
However, I am not disappointed in what he has been doing | 4:14 | |
because I personally did not expect an advance. | 4:18 | |
That it would be possible for Mr. Nixon to move as rapidly | 4:21 | |
in that direction, as some of us might like. | 4:27 | |
In order to move in that direction, | 4:31 | |
we do have to carry the country with us. | 4:33 | |
In some ways this all goes back to your | 4:37 | |
fundamental philosophy of politics. | 4:39 | |
There are some people who say, | 4:42 | |
wouldn't it be nice if we had a real honest to God | 4:43 | |
Conservative or Free Enterprise Party | 4:47 | |
and on the other hand we had a real honest to God | 4:51 | |
Left Wing or Liberal or Socialist Party. | 4:54 | |
So that we could really have this issue out | 4:58 | |
and have a choice. | 5:00 | |
- | Simplify things. | |
Milton | And have the issues firm and you could | 5:02 |
vote on principle. | 5:04 | |
And there is nothing in my opinion that would come closer | 5:05 | |
to destroying the nation. | 5:08 | |
In fact, it's highly desirable from the point of view | 5:10 | |
of political stability and the sound policy of the nation | 5:13 | |
that you have the two major parties be very close together. | 5:17 | |
Because the thing is that people are willing to accept | 5:20 | |
a change in government when that change is going to mean | 5:23 | |
a relatively small degree of change in present arrangements. | 5:26 | |
But if you have two parties which are violent, | 5:30 | |
violently differ, have fundamentally different principles, | 5:33 | |
then a change from one to the other is a major change | 5:36 | |
and it mean, and when people differ very, | 5:39 | |
very strongly and very basically, | 5:42 | |
typically speaking they fight about it. | 5:44 | |
They resort to arms. | 5:46 | |
They do not accept a shift in power, | 5:48 | |
which means a major shift in the character of this society. | 5:51 | |
And so the notion that you ought to have two sharply | 5:55 | |
opposed parties is a prescription for revolution, | 5:57 | |
not for orderly change. | 6:00 | |
Now the way in which, | 6:02 | |
that doesn't mean that you don't have large changes | 6:03 | |
occurring over a long period of time. | 6:05 | |
But the way in which they occur | 6:08 | |
is that you have two parties that are close together. | 6:11 | |
But one is on one side of the other. | 6:14 | |
Let's say right now you have a Republican and a Democratic | 6:17 | |
Party and the Republican Party is in favor of | 6:19 | |
a greater degree of private enterprise, | 6:22 | |
a greater degree of individual responsibility | 6:25 | |
and a smaller role for government | 6:27 | |
than the Democratic Party is. | 6:29 | |
But the difference is small for the party in the hole. | 6:31 | |
There are some members of the party that are not. | 6:33 | |
And as a result, what happens is that when you get | 6:35 | |
an election in this direction, | 6:38 | |
that tends to move the society slightly | 6:40 | |
in a different direction. | 6:43 | |
It starts a different trend. | 6:44 | |
That trend has very little effect to begin with | 6:45 | |
but it accumulates over a long period of time. | 6:48 | |
Let me go back to a particular case. | 6:50 | |
Suppose you go back to 1933 which was such a year | 6:53 | |
when Franklin D. Roosevelt came in. | 6:57 | |
William | Yes. | 6:59 |
Milton | Despite all of the cries and clamors about | 7:00 |
what was done in the first hundred days of his regime, | 7:03 | |
if you look back, very little was done. | 7:05 | |
There was a ballast in character. | 7:07 | |
Mr. Roosevelt in his campaign oratory | 7:09 | |
was the same as Mr. Hoover. | 7:11 | |
He was in favor of a balanced budget. | 7:13 | |
You may not recall that he, | 7:15 | |
one of his strongest criticisms of the Hoover Administration | 7:16 | |
was that they had been extraordinarily profligate | 7:20 | |
in government expenditures. | 7:22 | |
(laughing) | ||
Milton | Were big spenders. | 7:24 |
Well Mr. Roosevelt came in and he changed matters | 7:26 | |
but he didn't make a drastic change right away. | 7:29 | |
But what he did was to start the country moving | 7:30 | |
in a slightly different direction. | 7:33 | |
Now you know how it is. | 7:34 | |
If two people start out moving | 7:35 | |
in a slightly different direction, | 7:37 | |
they're only two degrees apart to begin with, | 7:38 | |
but they keep moving for a long time, | 7:40 | |
after each one has gone a hundred miles | 7:42 | |
they're a long ways apart. | 7:44 | |
Well similarly the slight change in direction | 7:46 | |
which Mr. Roosevelt introduced in 1933, | 7:49 | |
by the time we come to 1969, | 7:52 | |
produced a major change in the character of the American | 7:55 | |
society, politics and government. | 7:57 | |
Indeed this is what Mr. Nixon referred to in his | 8:00 | |
Inauguration Address when he said, | 8:03 | |
we have about to the limits of what government can | 8:05 | |
accomplish in these ways. | 8:08 | |
Well now Mr. Nixon comes in. | 8:09 | |
He also must in all accordance with this | 8:11 | |
general Democratic principle, | 8:15 | |
the change must be mild and that you must not move | 8:17 | |
in a direction which will alienate any large part | 8:20 | |
of your supporters or even of your opponents. | 8:23 | |
That you mustn't divide the country, | 8:26 | |
you must try to unite it. | 8:27 | |
It's inevitable that he is forced | 8:29 | |
to make changes more gradual, | 8:32 | |
more slowly than he himself would like in terms | 8:35 | |
of his own values. | 8:38 | |
This is a political necessity forced upon him. | 8:38 | |
And as a result, what you have at the moment | 8:41 | |
is something that will be disappointing to many of us | 8:43 | |
because it's hard to see the change. | 8:46 | |
But yet, I think there is a significant change. | 8:49 | |
You have a different emphasis. | 8:51 | |
You have a different atmosphere. | 8:53 | |
Let me cite one little example. | 8:55 | |
Mr. Nixon, in one of his news conferences, | 8:57 | |
dismissed the Guideline Policy completely out of hand. | 9:01 | |
He said that a policy of governmental influence on | 9:03 | |
wages and prices was inappropriate to this country | 9:07 | |
and he was in, that was not a policy | 9:10 | |
that this administration would use. | 9:12 | |
Well, that, as a matter of fact, | 9:13 | |
see that's an interesting case. | 9:16 | |
Because you see guidelines were not currently in effect. | 9:18 | |
The Johnson Administration had been forced to drop them | 9:21 | |
because the actual price rises had gone | 9:23 | |
well beyond the guidelines. | 9:26 | |
So you had something which involved no change | 9:27 | |
in a sense, in policy and therefore, | 9:30 | |
nobody was going to be hurt by it in the moment. | 9:32 | |
And yet, the principle stated is an important principle | 9:35 | |
because it suggests a direction of movement. | 9:38 | |
A kind of way you're gonna do future things. | 9:40 | |
And in general, I think that the Conservatives | 9:41 | |
will find as time passes that in case after case | 9:45 | |
where there is a possibility of moving, | 9:48 | |
Mr. Nixon will move in a direction | 9:52 | |
which will involve | 9:55 | |
a greater role for private enterprise. | 9:57 | |
Which will involve some reduction in government activity. | 9:59 | |
It isn't going to be dramatic, | 10:04 | |
it isn't going to be all one way. | 10:05 | |
In some areas he will be driven by political necessities | 10:08 | |
to increase the roll of government, | 10:11 | |
even in places where you and I, or I might not want him to. | 10:12 | |
This is true, clearly in urban problems, | 10:18 | |
in welfare problems. | 10:21 | |
In other places, he will move much more slowly then, | 10:23 | |
in my opinion, it would be safe to move, for example. | 10:26 | |
I believe it would, it would be absolutely safe right now | 10:29 | |
to abolish completely exchange controls. | 10:32 | |
Interest equalization tax, the control on foreign lending | 10:35 | |
and the control on foreign investment. | 10:38 | |
I, they're doing very little right now, | 10:40 | |
you can get rid of them right now, | 10:42 | |
they're nuisances and I think it would be | 10:43 | |
desirable to do it. | 10:45 | |
Mr. Stans, | 10:47 | |
under Secretary of the Treasury, Volcker, | 10:50 | |
of indicated and congressional testimony that they are | 10:52 | |
moving to get rid of these controls but slowly | 10:54 | |
and gradually over a period of time. | 10:56 | |
I think that's a mistake. | 10:58 | |
But nonetheless, the direction in which they want to move | 10:59 | |
is to get rid of them. | 11:02 | |
Not to saving them | 11:04 | |
- | Not to saving them. | |
Milton | So I think that there's a, | 11:05 |
that while there is real cause for disappointment | 11:07 | |
on the part of many people, on the other hand, | 11:10 | |
there are some signs that what I and others like me | 11:12 | |
expected to begin with. | 11:16 | |
Would be that you would start changing the atmosphere | 11:18 | |
and move in a mild way, | 11:20 | |
away from the former policies is what you're likely to have. | 11:22 | |
I might say one more thing in this area. | 11:28 | |
I'm not sure if you ever heard of a famous, | 11:31 | |
this has to deal with the political necessities | 11:34 | |
and the way to interpret these political things. | 11:36 | |
I don't know, Mr. Clark, if you've ever heard of a | 11:37 | |
famous article that was published in 1929 by a man by | 11:41 | |
the name of Harold Hotelling, | 11:44 | |
called Stability in Competition. | 11:46 | |
William | No, I don't believe I have. | 11:48 |
Milton | Well Harold Hotelling is, | 11:50 |
he's still alive but he now retired. | 11:51 | |
But he was a very famous Mathematic Economist | 11:55 | |
and Mathematical Statistician. | 11:57 | |
And this article was about a very, very simple problem. | 11:59 | |
Handled entirely in mathematical terms | 12:02 | |
but it has enormously far reaching implications | 12:04 | |
for our whole political structure. | 12:07 | |
And it had to do with the following simple problem. | 12:09 | |
Consider a street of a certain length | 12:12 | |
on which their are customers uniformly distributed | 12:15 | |
on the street. | 12:18 | |
And on this street there's a grocery store | 12:19 | |
which the customers are buying. | 12:21 | |
Now here you are, you want to set up another grocery store. | 12:23 | |
And the question is, | 12:26 | |
where should you set the grocery store up on this street? | 12:27 | |
Now, one thing about it that Hotelling assumed | 12:31 | |
was that the only thing that mattered to the customers was | 12:34 | |
how far they had to walk to get their groceries. | 12:36 | |
That both grocery stores were going to offer the same | 12:38 | |
goods at roughly the same prices and there was just | 12:40 | |
gonna be a question of how far you walked. | 12:42 | |
Well at first you might think well, | 12:44 | |
if we think of a present grocery store, | 12:46 | |
he's dividing the street into two parts. | 12:49 | |
One part, let's say to his right and one to his left. | 12:51 | |
Suppose the one to his left is longer. | 12:54 | |
Well your first thought might be that we'll put the | 12:56 | |
new grocery store halfway down that longer section. | 12:59 | |
William | Yes it would. | 13:02 |
Milton | Seems the sensible | 13:03 |
thing to do. | 13:04 | |
- | That's that. | |
Milton | But if you think about it a little more | 13:04 |
you'll realize, no that really isn't so sensible | 13:06 | |
because now the new grocery store will get everybody | 13:08 | |
to his left because he's in between them | 13:12 | |
and the old grocery store. | 13:15 | |
But consider those people who are between him | 13:16 | |
and the old grocery store. | 13:18 | |
Half of them will go to him and half to the other person. | 13:20 | |
If he moves closer and closer to the old grocery store, | 13:23 | |
he has more people who are on his left | 13:27 | |
so that he's between them and the | 13:30 | |
grocery store. | 13:35 | |
William | Existing store. | 13:35 |
Milton | Existing store. | 13:36 |
I may have gotten my left and rights mixed up in this. | 13:37 | |
This is the kind of thing that is much easier to show | 13:40 | |
on a blackboard | 13:42 | |
(chuckles) | ||
or with a piece of paper. | 13:42 | |
William | Well the point is clear though. | 13:43 |
Milton | But if you see the point, | 13:45 |
you will, if you think about this a little, | 13:46 | |
you will find out that after you think about it, | 13:47 | |
the best place for him to set up that grocery store | 13:50 | |
is as close as he can get to the other grocery store | 13:52 | |
but on the long side of the market. | 13:55 | |
This way he takes away everybody. | 13:57 | |
Now of course, that by itself is not gonna be very stable. | 14:00 | |
Cuz, and this is part of what, Hotelling went on | 14:04 | |
because if these grocery stores can move, | 14:06 | |
if you did this, | 14:08 | |
the other grocery store would jump around them. | 14:09 | |
See here's an old, new grocery store has moved | 14:12 | |
beside the old grocery store on the long side | 14:16 | |
of the market and he's taken away most of his business. | 14:18 | |
Well, the old grocery store will then jump on the | 14:21 | |
other side of him until he gets on the long side | 14:23 | |
of the market and they will keep flip-flopping until | 14:26 | |
they are right in the middle of that line | 14:28 | |
with one on each side of the middle and then they're | 14:31 | |
dividing the customers up in half | 14:32 | |
and that's where they stay. | 14:34 | |
Right in the middle of that line with this. | 14:35 | |
Well now, this analysis applies absolutely precisely | 14:37 | |
to politics when you have a two-party system. | 14:41 | |
Here I have the Democrats and the Republicans, | 14:44 | |
let us say, and let's for the moment the left and the right | 14:46 | |
images carries that right notation. | 14:48 | |
Now a Democratic Party, | 14:51 | |
the people on the left have nowhere to go. | 14:54 | |
Whom are they gonna vote for? | 14:56 | |
So that the people | 14:58 | |
- | Alright. | |
Milton | that are Democrats then have a strong incentive | 14:59 |
to move toward the center. | 15:02 | |
The Republican, the people on the right, | 15:04 | |
where are they gonna go? | 15:07 | |
They have no place to go. | 15:07 | |
They're gonna have to vote for him | 15:09 | |
so the Republican Party has a tendency for it to move | 15:10 | |
to the center. | 15:13 | |
And so the net tendency of it is, | 15:14 | |
is that the parties tend to move away from their | 15:16 | |
William | Extremes. | 15:19 |
- | Extremes, from there, | |
I hate to call these extremes | 15:22 | |
because being at one of these myself, | 15:24 | |
(chuckles) | 15:26 | |
an extreme can be a principled extreme so, | 15:27 | |
William | Yes. | 15:29 |
Milton | But nonetheless, correctly. | 15:30 |
They have a tendency to move away from the extremes | 15:31 | |
and move toward the exact center. | 15:33 | |
And this is why a two-party system | 15:35 | |
tends to lead to two parties that it's hard to | 15:38 | |
tell the difference between them. | 15:40 | |
Republicans become more and more like the Democrats | 15:42 | |
and vice versa. | 15:44 | |
These are very strong tendencies that we've all observed. | 15:45 | |
Now let us suppose, I want to come back, | 15:48 | |
because there is some qualifications you have to make, | 15:51 | |
but let us suppose that public opinion | 15:53 | |
moves one way or the other. | 15:55 | |
Let's suppose public opinion moves the right | 15:56 | |
or moves to the left. | 15:58 | |
Let's say in the, in the, | 16:00 | |
1933 it moved to the left. | 16:02 | |
And the Democrats and the Republicans have been | 16:05 | |
precisely in the middle but now because public opinion | 16:07 | |
moved under them it's as if that street | 16:09 | |
moved underneath the grocery store. | 16:11 | |
The Democrats now have a longer part of the street | 16:13 | |
on their left. | 16:15 | |
William | I see. | 16:16 |
Milton | Because they have an overwhelming majority now. | 16:17 |
And this is what happens. | 16:19 | |
And then they can afford to move left | 16:20 | |
because they can afford to lose some of these people. | 16:22 | |
It's hard, it's much harder for the political sphere | 16:24 | |
for one party to jump over the other | 16:27 | |
than it is in grocery, | 16:30 | |
- | Oh yes. | |
William | Because in the | 16:31 |
- | Sure. | |
Milton | political sphere, part of the credibility | 16:32 |
of a party depends on long term consistency | 16:34 | |
and on faithful people. | 16:37 | |
So the Republicans were stuck, as it were. | 16:38 | |
They couldn't jump over the democrats | 16:41 | |
and get on the | 16:42 | |
(chuckling) | ||
long side of the street. | 16:43 | |
And what had to happen was that the Democrats | 16:44 | |
were led to move over to the left. | 16:46 | |
And as they moved over to the left, | 16:48 | |
the Republicans could follow them. | 16:49 | |
Until they both got back to the place where, | 16:51 | |
again, you had the, you had the, | 16:53 | |
electret as it were, | 16:58 | |
evenly divided on each side of them. | 16:59 | |
Now to continue this analogy, | 17:00 | |
I don't mean to say it has everything | 17:03 | |
and I'll make some exceptions in a moment | 17:04 | |
but I think it has a good deal to say about | 17:06 | |
the political scene to continue this analogy. | 17:08 | |
The opinions of the populous now have moved to the right. | 17:11 | |
There has been a great deal of disillusionment | 17:14 | |
with governmental policy. | 17:16 | |
And once again, | 17:18 | |
- | That's true. | |
Milton | the Democrats couldn't jump over | 17:19 |
on the other side of the Republicans. | 17:20 | |
They were stuck there. | 17:21 | |
And so, what happened? | 17:22 | |
The Republicans could afford to move somewhat to the right. | 17:25 | |
Mr. Goldwater too much, | 17:27 | |
from the political point of view, | 17:29 | |
from the point of view of getting elected. | 17:30 | |
Mr. Nixon less so. | 17:33 | |
Much more to a far greater extent, | 17:34 | |
it seems to me. | 17:38 | |
In 1968 than 1960. | 17:38 | |
The Eisenhower case is of course an exceptional case | 17:42 | |
of a particular personality and really doesn't exactly | 17:44 | |
fit into this. | 17:47 | |
Although to some extent it does reflect a rightward shift | 17:48 | |
of the electret at that time. | 17:51 | |
But, so now, | 17:53 | |
so Mr. Nixon gets elected with this mandate | 17:57 | |
from the public, essentially, and he can afford to move | 18:00 | |
to the right but only a little, if he isn't going to lose | 18:02 | |
the other side of that market. | 18:06 | |
If he isn't going to induce the Democrats to come right | 18:07 | |
close to him and cut away his populous. | 18:09 | |
Now there are a number of interesting things | 18:13 | |
that qualify this. | 18:15 | |
One of them just came out a moment ago. | 18:16 | |
If the party moves too far away from its own supporters, | 18:19 | |
it does establish the possibility of | 18:24 | |
a third party coming in. | 18:26 | |
William | I see. | 18:27 |
Milton | And the Wallace Party in a way, | 18:28 |
shows this problem in the 1968 election. | 18:30 | |
It came in and took away votes from both the Democrats | 18:34 | |
and the Republicans but mostly from, | 18:37 | |
so to speak, the extremes of both. | 18:39 | |
William | Mm-hmm. | 18:41 |
Milton | Parties. | 18:42 |
So then in a Democracy, a party does have to | 18:43 | |
maintain more of a position principle. | 18:46 | |
That is it has to maintain stabler position | 18:50 | |
on that line than these grocery stores | 18:52 | |
that can hop all over the place without anybody, | 18:53 | |
no even there, even a grocery store | 18:56 | |
depends on the faithfulness of its customers | 18:58 | |
and their trust and it wouldn't want to move too much. | 19:00 | |
But a party in particular has to rely, | 19:02 | |
it has to have a certain consistency | 19:04 | |
in order to be credible to its customers, | 19:06 | |
to its clients. | 19:08 | |
A second very important qualification | 19:10 | |
and I think it's an extremely important qualification, | 19:12 | |
is that in our system the parties have to have | 19:15 | |
money to run campaigns. | 19:16 | |
And now it turns out that the people are most interested | 19:18 | |
in giving money to the campaigns that the people feel | 19:21 | |
most strongly on the, on issues. | 19:24 | |
And they tend to be in the image | 19:26 | |
I've been giving at the | 19:28 | |
extremes of these lines | 19:28 | |
- | Yes. | |
Milton | Because they are the ones who feel strongest. | 19:30 |
The ones in the middle. | 19:31 | |
So called Independent voters that are always | 19:33 | |
talked about are likely to be people who don't have | 19:36 | |
strong opinions one way or the other. | 19:38 | |
They are easily swayed, easily moved | 19:40 | |
and they are not very likely to be very | 19:42 | |
good sources of campaign contributions. | 19:46 | |
Therefore, the necessity to finance | 19:49 | |
a movement has a strong element. | 19:51 | |
It turns out that from my point of view | 19:55 | |
this is a very good thing. | 19:58 | |
That if it weren't for the necessity to finance it, | 19:59 | |
this is one of the reasons that I think it's a great | 20:01 | |
mistake to talk in terms of using federal funds | 20:03 | |
to finance it, to have government financing. | 20:06 | |
Because you can be perfectly sure that if you have | 20:08 | |
government financing, | 20:10 | |
if you finance out of the Treasury, | 20:12 | |
out of the public, | 20:14 | |
so you don't have to appeal to particular people, | 20:14 | |
you can be perfectly sure that your parties are gonna get | 20:17 | |
blander and blander and more and more alike | 20:19 | |
and you're not even gonna have that degree of difference | 20:21 | |
which is desirable so that you can change trends | 20:24 | |
from time to time. | 20:26 | |
But the need to appeal to financial supporters | 20:28 | |
has a strong value of causing the parties to | 20:32 | |
move apart a little. | 20:34 | |
Now again, I'm over simplifying the issue | 20:36 | |
because I'm talking about these parties as if | 20:39 | |
they were homogeneous magnitudes whereas we all know | 20:41 | |
that the National Party is one thing and the | 20:44 | |
Local Party is another. | 20:46 | |
(chuckles) | ||
A Democrat in the State of Illinois and a Democrat | 20:48 | |
in the State of New York are not the same thing. | 20:50 | |
And surely a Republican of the State of Illinois | 20:52 | |
and a Republican of New York State are not the same thing. | 20:54 | |
But nonetheless, I think this has the general kind of | 20:57 | |
thing I'm talking about has a great deal | 20:59 | |
of importance and explains a good deal. | 21:01 | |
While you must expect that the way Mr. Nixon | 21:04 | |
will in fact operate is gonna leave a lot of those of us | 21:07 | |
who would like over the longer run | 21:11 | |
to see more important changes dissatisfied. | 21:13 | |
William | That's extremely interesting. | 21:16 |
He, you would regard Mr. Nixon as a political realist | 21:17 | |
certainly? | 21:21 | |
Milton | Well anyone who gets elected has to be a | 21:22 |
political realist. | 21:24 | |
- | Absolutely. | |
Milton | And any man who is able to come back | 21:25 |
William | as he did | 21:28 |
- | As he did. | |
must be a political realist. | 21:29 | |
But that doesn't mean, | 21:31 | |
there's no inconsistency between a man being | 21:32 | |
a political realist and a man having principles. | 21:34 | |
I think those people who are commenting on Mr. Nixon | 21:37 | |
as some people did in the story | 21:40 | |
you remarked on | 21:42 | |
- | Yes. | |
Milton | that he doesn't have any principles. | 21:43 |
I think they are fundamentally wrong. | 21:44 | |
I say this based on my own personal experience. | 21:45 | |
I think Mr. Nixon has very real and very strong principle. | 21:48 | |
But he also believes very strongly | 21:51 | |
that a major problem in the nation today | 21:55 | |
is that the nation is so widely divided, | 21:57 | |
it has been split apart by the Vietnam War, | 22:00 | |
by the Civil Rights issues. | 22:03 | |
And therefore, I believe that he is even more cautious | 22:05 | |
today about taking measures that would contribute | 22:08 | |
this division than he would have been under | 22:12 | |
other circumstances. | 22:14 | |
And so it seems to me he must temper his principles | 22:15 | |
in the light of what will produce | 22:19 | |
economic, what will produce political health, | 22:23 | |
political unity. | 22:25 | |
William | That's an extremely interesting | 22:27 |
appraisal, Dr Friedman. | 22:30 | |
Another question we might raise, | 22:33 | |
and just very briefly, | 22:35 | |
has to do with in a way that Mr. Nixon's administration, | 22:36 | |
there have been some comments in articles lately | 22:39 | |
raising the question of the independence of the | 22:43 | |
Federal Reserve System. | 22:45 | |
Posing the question of whether it will become more | 22:48 | |
or less independent under the Nixon Administration. | 22:51 | |
What his influence would be there. | 22:55 | |
What would be your thought on that? | 22:57 | |
Milton | Well this issue of the independence of the Fed | 22:59 |
is certainly a very, very old issue which has caused a lot | 23:01 | |
of controversy for a long time. | 23:05 | |
And it's a very much misunderstood issue, I believe. | 23:07 | |
In one sense, the Federal Reserve is not independent | 23:13 | |
and cannot be independent. | 23:17 | |
The members of the Federal Reserve are appointed by | 23:18 | |
the President. | 23:20 | |
Federal Reserve operates in the Washington atmosphere. | 23:21 | |
Congress can pass laws affecting it and does | 23:24 | |
from time to time, | 23:27 | |
it's subject to congressional investigation. | 23:28 | |
Historically, we have the experience of not only | 23:33 | |
of the United States but we have the experience of | 23:35 | |
very many countries which have had Central Banks. | 23:38 | |
The problem, one major problem that arises, | 23:41 | |
past independence, when there's a disagreement | 23:46 | |
between a Treasury and a Central Bank. | 23:48 | |
A Minister of Finance | 23:50 | |
and a Central Bank. | 23:51 | |
- | Yes. | |
Milton | That's been historically | 23:52 |
the chief source of disagreement. | 23:55 | |
It happens not to be at the moment. | 23:57 | |
But it has historically been the chief source | 23:58 | |
of disagreement. | 24:00 | |
And the record of history is clear. | 24:02 | |
Whenever there's been a sharp disagreement in | 24:05 | |
any country between the Treasury and the Federal Reserve, | 24:08 | |
the Treasury and the Central Bank, | 24:11 | |
the Treasury has always been the victor. | 24:13 | |
No Central Bank has been able to maintain its independence | 24:15 | |
when it was sharply in conflict with the Treasury. | 24:17 | |
That was the case in the United States in World War One, | 24:20 | |
it was a case in the United States in World War Two, | 24:22 | |
it was a case in the United States with the Bond Support | 24:25 | |
Program after the war. | 24:27 | |
That was finally ended in 1951 with the Federal Treasury | 24:29 | |
Reserve Accord but only because the Treasury itself | 24:32 | |
had been persuaded, | 24:35 | |
by outside critics. | 24:37 | |
And only because also Congress had taken a hand. | 24:39 | |
You must remember that a major factor producing | 24:41 | |
that Federal Treasury Reserve Accord were the hearings | 24:44 | |
conducted by the then Senator Paul Douglas. | 24:47 | |
The Douglas Hearings. | 24:51 | |
- | Yes. | |
Milton | The Joint Economic Committee. | 24:52 |
They were excellent hearings and they had a great | 24:53 | |
deal to do with forcing an agreement. | 24:56 | |
(quick bang) | 24:58 | |
William | I see the, I see that our time is running out | 25:00 |
so I really won't be able to go into this | 25:04 | |
as fully as I would like. | 25:06 | |
Maybe we can come back to it. | 25:07 | |
Milton | Let me only state dogmatically my own view. | 25:08 |
My own view of an independence of the Federal Reserve | 25:10 | |
is that independence of the Federal Reserve | 25:13 | |
in any meaningful, fundamental sense if very undesirable. | 25:14 | |
Now the desirable would be to have the Federal Reserve | 25:18 | |
System a department of the government like the Treasury | 25:20 | |
or perhaps in the Treasury, | 25:23 | |
able to express its views in the administration. | 25:25 | |
But then, being part of a joint agreed on policy | 25:28 | |
formed by the administration. | 25:33 | |
William | Thank you very much, Dr Friedman. | 25:35 |
If you have questions or comments or suggestions | 25:37 | |
for topics you would like discussed in this series, | 25:40 | |
please send them to Instructional Dynamics Incorporated, | 25:42 | |
166 East Superior Street, | 25:46 | |
Chicago, 60611. | 25:48 | |
This is William Clark. | 25:51 | |
Dr. Friedman and I will be talking with you again next week. | 25:52 |
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