Tape 25 - Monetary Policy, Gold Prices, Vietnam Peace, Investment Tax Credit, 'Collectivism' / Paul A. Samuelson papers, 1933-2010 and undated / Duke Digital Repository

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Hello, this is William Clark of the Chicago Tribune,

0:02

welcoming you once again on behalf of

0:04

Instructional Dynamics to a visit with

0:06

the distinguished economist, Professor Milton Friedman

0:09

of the University of Chicago.

0:11

Dr. Friedman, we have quite an accumulation of mail

0:13

from subscribers who have suggested questions

0:16

that they would like you to comment on.

0:19

I wonder if we might devote at least part of today's tape

0:21

to these questions.

0:24

We have a subscriber from Wisconsin, for example,

0:26

who writes as follows,

0:29

until recently, hadn't M1 and M2

0:32

been rising faster than they had been rising

0:36

prior to the 1966 slowdown of M1 and M2?

0:39

If so, how much danger of a crunch or a recession, or both,

0:43

is there now, even if growth rates of M1 and M2

0:47

don't slow to near zero, as they did in 1966?

0:51

Assume, for example, that growth of M1

0:55

is held to an annual rate

0:58

of three and a half percent for some months.

0:59

Of course he's talking about the two different types

1:02

of money supply, and perhaps you might want to review

1:05

the definition of those before you answer.

1:07

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Well what the subscriber is referring to is

1:10

M1 as a narrow definition of currency

1:12

in adjusted demand deposit.

1:14

M2 is a broader definition, including

1:16

commercial buying time deposits.

1:18

As I've emphasized on these tapes,

1:20

under current circumstances, a still third definition,

1:24

which is M2 less the CDs in some ways makes sense

1:29

because the CDs have become a market instrument

1:32

and their amount is enormously effected by,

1:35

on the one hand, the Regulation Q ceiling,

1:37

and on the other, the various devices that

1:40

commercial banks have developed for

1:42

getting around Regulation Q.

1:43

But going directly to his question,

1:46

the basic point underlying the question is entirely valid.

1:49

What matters is not the absolute

1:52

rate of growth of M1 or M2, for a crunch.

1:54

What matters is how large the change in M1 or M2 is.

1:59

If M1, just to stick to one number for a moment,

2:04

is going up at six percent per year,

2:06

as it did in the year prior to the 1966 slowdown,

2:09

that is from April 1965 to April 1966,

2:13

M1 went up at a rate of six percent.

2:16

Then from April 1966 to January 1967,

2:19

the period which saw the crunch,

2:22

M1 was practically horizontal.

2:25

It went down at the rate of two tenths of one percent.

2:27

That meant that the change in the rate of change

2:30

was 6.2 percentage points.

2:33

Well now, if M1 now were to start,

2:36

let's say from a higher level,

2:38

but it changed by 6.2 percentage points,

2:40

this would involve the same impact

2:43

upon the economy as you had earlier.

2:45

And so the subscriber's entirely right in what matters

2:49

is where you go from one level to the other.

2:52

However, if we look at the facts,

2:55

it would appear, that if anything,

2:57

the slowdown in the last four or five months,

2:59

the slowdown since December, has involved a smaller shift

3:02

in these rates of change,

3:06

than the slowdown in 1966 did.

3:08

Let me cite some numbers.

3:10

If I take the whole period from January 1967

3:13

to December 1968, that is the period after

3:16

the 1966 tightness and prior to the recent shift in money,

3:20

monetary policy, M1 during that period was rising

3:26

at the rate of 6.8 percent.

3:29

Now that's an average, it was rising faster than that

3:32

for the first part of that period and the last part,

3:35

and a little slower in between.

3:37

But taking those, what is that, that's nearly two years,

3:39

it's about 23 months,

3:43

taking those 23 months as a whole,

3:45

the average rate of growth was 6.8 percent,

3:47

or about one percentage point higher

3:50

than prior to 1966.

3:51

Now consider what's happened since December '68.

3:54

From December '68 to now, to the last figures

3:58

we have available, the rate of growth of M1

4:02

has been somewhere in the order of four percent per year.

4:06

It was much lower than that until about early in May,

4:09

early in April, and then there was a big bulge in April

4:13

which has reversed itself so you're back down now,

4:16

very considerably on the line that you were following.

4:19

And so I think that four percent is a little bit

4:22

of an overestimate.

4:25

But even if we take the rate of growth of M1

4:26

prior to that bulge, it was at the rate of about

4:29

between two and three percent a year.

4:32

So if we sort of look at it and say,

4:34

consider the first six months of this year,

4:38

what will they be like,

4:39

the first six months after the slowdown.

4:40

My guess is, that the rate of growth of M1

4:42

will be somewhere between two and three percent per year.

4:44

That means the change has been from 6.8 percent,

4:48

than say to three percent.

4:51

Or by 3.8 percentage points.

4:52

That's a much smaller change than

4:55

the 6.2 percentage point change in the earlier 1966 crunch.

4:57

It's a little harder to make a comparable statement for M2

5:03

because of the CD effect.

5:06

In the earlier period, M2 went from 9.6 percent

5:08

rate of growth per year, to 3.7 percent.

5:12

Or as it happens, it fell also

5:15

by about six percentage points,

5:16

that is the switch,

5:18

the shift in M2 was about the same as an M1.

5:19

This time, if I look at M2 including CDs,

5:22

the shift has been much larger.

5:26

From a rate of growth of about 10 percent a year,

5:28

to a rate of growth of zero, or by 10 percentage points.

5:31

But as I've emphasized,

5:35

I believe that's a very misleading figure.

5:36

And if I look not at all of M2,

5:38

but an M2 excluding the CDs,

5:41

you have had about the same change, maybe a little bit

5:43

larger change than for M1, but not much.

5:47

From a rate of somewhere around nine percent a year

5:50

to a rate of somewhere about three to four percent,

5:52

about close to four percent a year.

5:55

So I would say that as of this date,

5:57

the shift in monetary policy has been less extreme

6:00

than it was in 1966.

6:04

I may say, that by my light it's been too extreme.

6:06

I would have preferred if you had tapered of more gradually.

6:09

But it's still been a good deal less extreme

6:14

than it was in '66, and therefore, I think there is

6:16

less danger of a credit crunch now, than there was then.

6:21

And so far as the danger of recession,

6:26

of a serious decline in the economy,

6:28

this is more complicated because it depends also on

6:31

how long the lower rate of growth is continued.

6:36

If I go back to 1966, '67 episode,

6:39

the monetary slowdown lasted for just about eight months,

6:43

from April 1966 to January 1967.

6:46

Then you had a reversal to a very rapid rate

6:50

of monetary growth.

6:53

The consequence of this was that the economic slowdown

6:55

was mild and only lasted about six or seven months,

6:58

from about January '67 to the third quarter of '67.

7:01

Had the earlier monetary tightness continued longer,

7:06

the economic slowdown would've been also longer extended

7:11

and perhaps sharper.

7:15

So coming to the current situation,

7:16

how large an effect there will be on the economy

7:19

depends on how long this monetary tightness is continued

7:22

and at what level.

7:25

If we take the situation up to date,

7:27

we've had about five months of it.

7:30

That's enough to make it pretty sure that you will have

7:33

some slowdown in the latter half of this year.

7:38

We haven't seen much of its effect yet

7:40

because the typical lag has not yet run its course.

7:41

We're still reflecting the very rapid rate

7:44

of monetary growth in the last half of 1968.

7:47

But there's every reason now to expect that beginning

7:50

about the third quarter of this year,

7:56

maybe a little earlier, maybe a little later,

7:58

you will have an economic slowdown.

7:59

Some signs of this as the Wall Street Journal

8:03

pointed out in a long article,

8:05

are showing up already in the leading indicators,

8:06

but again, they're very tentative signs.

8:08

If tomorrow, the Fed were to turn into a policy

8:11

of expansion, then that slowdown would be,

8:14

as in '67, brief and not enough to qualify as a recession.

8:17

On the other hand, if the Fed continues

8:23

its present monetary policy,

8:25

which I think there is every reason to believe it will,

8:27

at least for a time,

8:29

well then I would expect the slowdown might last longer,

8:32

and might be severer than it was in 1967.

8:35

Although again, whether it will qualify

8:39

as a full-blown recession or not is a much more,

8:42

that's more a semantic question

8:44

than it is an economic question.

8:46

And it's a much more difficult thing to answer.

8:47

That will partly depend on how long the Fed

8:50

continues its current rate of growth.

8:53

As I've mentioned earlier, I think it would be desirable

8:55

for the Fed to let the money supply grow

8:58

a trifle faster than it has been letting it grow.

9:00

Although I should add,

9:03

unaccustomed as I am to saying nice words about the Fed,

9:08

I should add, that while in my opinion,

9:13

they have over-shopped this time, they have,

9:16

as the figures I've cited already indicate,

9:19

over-shot to much lesser extent than they did in 1966.

9:22

Or I might also add than they did in 1959, '60.

9:26

So, so far, while I'm not ready to give them

9:31

a hundred percent yet, I'll give them a better grade

9:35

than I would have for either of those two other episodes.

9:38

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Now that's an interesting and comprehensive answer

9:42

to our subscriber.

9:44

Now here's another one, Dr. Friedman, who apparently is

9:45

a commercial banker, and he writes as follows,

9:47

dear Dr. Friedman, it has been stated that an increase

9:50

in the official price of gold

9:53

would have a downward effect on interest rates.

9:55

This theory would appear to conflict with the facts

9:58

which are that the free price of gold

10:01

has risen dramatically, while interest rates continue

10:03

to climb to almost unbelievable levels.

10:07

Your comments would be greatly appreciated.

10:10

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That's a very interesting and sophisticated question.

10:12

Because what is involved there are the two opposite effects

10:15

of monetary policy on interest rates.

10:20

Namely, the short-term effect and the long-term effect.

10:23

The argument that an increase in the official price of gold

10:27

would have a downward effect on interest rates,

10:30

comes from what you might call,

10:33

sort of the prevailing orthodoxy,

10:35

that if you had an increase in the official price of gold,

10:37

that would enable countries throughout the world

10:42

to increase their money supply more rapidly.

10:44

A more rapid rate of increase in the money supply,

10:47

it is argued, produces lower interest rates.

10:50

And so that is a line of argument.

10:53

That line is entirely correct as far as it goes.

10:55

But it doesn't go very far.

10:58

And it doesn't go very far because it describes only

10:59

the initial effects of a more rapid monetary growth.

11:03

If the rate of monetary growth is raised more rapidly,

11:06

its first effect is to produce something of a decline

11:09

in interest rates because the way in which

11:13

the monetary growth is speeded up is through

11:16

central banks buying assets in the open market,

11:18

increasing the volume of credit available.

11:21

However, after a time, and our empirical estimates

11:23

suggests that that time is about six months,

11:28

so it's not a very long time,

11:31

the effect tends to go in the opposite direction.

11:33

What happens then is that the more rapid rate

11:36

of monetary growth tends to raise incomes,

11:38

it raises the demand for loanable funds,

11:42

it produces price inflation.

11:45

And these effects tend to raise interest rates

11:47

rather than lower them.

11:50

And so, as the subscriber notes, the free price of gold

11:51

has risen dramatically, while interest rates continue

11:55

to climb to almost unbelievable levels.

11:58

And the fact is that the rise in the free price of gold

12:00

and the rise in interest rates

12:04

are the common effect of the same cause.

12:06

Namely, substantial inflation.

12:08

We have had a very rapid increase in the quantity of money

12:10

over a fairly long period,

12:14

both in the United States and in other countries.

12:16

Though this in its first stages held down interest rates,

12:19

it then had its major effect on income and prices,

12:22

which raised interest rates.

12:25

The inflation also has raised the price of gold

12:26

because it means that at the former price,

12:29

gold was cheap relative to other goods.

12:31

It meant also that an increasing number of people

12:34

became distrustful of paper currencies as a way

12:36

in which to hold their wealth,

12:40

and thus tended to turn toward gold

12:42

as an alternative horde, as an alternative store of wealth.

12:44

So I would say that the increase in the free market price

12:48

is a consequence of inflation.

12:54

If the official price of gold were raised,

12:56

it would be,

12:59

it might very well be a source of further

13:01

inflationary pressures, which after these initial facts,

13:03

would undoubtedly and by raising the free market

13:06

price of gold still higher very likely.

13:08

And also, keeping interest rates high

13:10

or raising them some more.

13:14

I may say, I think it is very unlikely

13:16

that there will be a change in the official price of gold

13:19

because as I've indicated before in these tapes,

13:22

I do not believe that the official price of gold

13:25

is a very meaningful price.

13:29

I believe that the role of that second tier

13:30

of this official gold thing is really as a way in which

13:33

various countries of the world

13:38

can profess to be on a gold standard,

13:39

when they're really on a dollar standard.

13:41

And that that official price of gold will stay

13:43

as long as nobody asks for very much gold.

13:45

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I see.

13:47

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And as soon as people

start to ask for a good deal of gold on that official level,

13:48

I think that we are far more likely

13:51

to close the window than we are

13:53

to change the official price.

13:55

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I recall that you were saying that before.

13:56

Doctor, here's another, I believe, commercial banker.

13:59

Says dear Dr. Friedman, my question concerns an issue

14:03

discussed in an earlier cassette regarding the effect

14:06

of peace rumors in the marketplace.

14:10

In that discussion, you suggest that a reduction

14:12

in troop commitments or expenditures

14:14

for the Vietnam conflict would in political terms,

14:16

put the Nixon administration in such a favorable light

14:19

that it would be able to pursue

14:22

the relatively unfavorable course of fighting inflation

14:23

with strict economic and monetary control.

14:27

Then the subscriber makes some other comments,

14:30

but he comes down finally to asking if the following

14:32

might be a valid appraisal or interpretation,

14:36

namely with reduced spending in Vietnam,

14:39

the Nixon administration could well report

14:43

that this would be deflationary in nature,

14:45

and as such, would serve as an excuse for the return

14:48

to monetary ease and increased spending

14:52

on the home front for cities and other social problems.

14:55

Would you be so kind as to comment

14:58

on this possible outcome, he asks.

15:00

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It certainly is a possible outcome.

15:02

There's no doubt that there's widespread belief all over

15:03

that a major source of inflation, or the major source

15:07

of inflation, has been the Vietnamese War.

15:10

And that consequently, any kind of a reduction

15:13

in the war commitment, any kind of a termination

15:16

or reduction in the Vietnam conflict would ease

15:19

inflationary pressure.

15:24

That this in turn, it's widely believed,

15:26

would set free funds for increased spending

15:28

on the home front.

15:31

So I cannot disagree with the gentleman

15:32

who wrote this question that this is a possible outcome.

15:34

On the other hand, I believe that the Nixon administration

15:39

and its economic advisors are extremely sophisticated

15:44

about these issues.

15:46

That they realize that the fundamental source of inflation

15:48

is monetary expansion,

15:52

that the main and only way we can hold down inflation

15:55

is by holding down the rate of monetary expansion,

16:01

and that in order for this to be a credible policy,

16:04

in order for the people at large

16:06

to believe that the administration

16:07

is serious in holding down inflation,

16:09

it must also express its seriousness

16:11

in holding down the budget.

16:13

And I think that given this understanding of it,

16:15

the major limitation on their holding down the budget

16:19

is the public tolerance of their doing so.

16:23

Now I agree with the subscriber that that will be offset

16:27

to some extent by the clamor that now that Vietnam

16:30

has tapered off, if it has tapered off,

16:32

of course we're talking about something

16:34

that hasn't happened and may not happen,

16:35

it's a very iffy question.

16:37

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Yes.

16:39

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But I'm sure there will be the clamor,

16:40

now we can give money for the cities.

16:42

But I believe also,

16:44

my opinion remains, that this will be

16:46

more than counterbalanced by the great political strengths

16:48

that will accrue to the administration

16:51

as a result of this.

16:53

Which will enable the administration

16:54

to give primary emphasis to what it has said

16:57

is its major domestic priority,

17:01

namely, slowing down inflation.

17:03

Moreover, another factor working in this same direction,

17:05

at least for some time in the future,

17:10

is that inflation is not going to slow down very rapidly.

17:13

I was mentioning an answer to an earlier question

17:16

that you might get a slowdown in the economy

17:18

and the rate of growth in GNP

17:20

in the third or fourth quarter of this year,

17:22

but that doesn't necessarilly mean that you will

17:24

simultaneously get a slowdown

17:26

in the rate of price increase.

17:28

Prices have an inertia of their own.

17:30

They tend to keep going because once you get

17:32

inflationary expectations as widespread as you have them now

17:36

they tend to be embedded

17:40

in wage contracts that are negotiated,

17:41

and prices that are set for a year ahead.

17:43

And thus, our experience is, not only in this country,

17:46

but in other countries,

17:49

that prices continue to rise at about their former rate,

17:51

for some time after you've had a slowdown

17:54

in the rate of economic,

17:57

of total GNP or monetary growth in the nominal income.

17:59

As a consequence, if you look ahead

18:04

to the rest of the calendar year,

18:07

it is very hard to believe that you can get more

18:09

than a slight slowing down in the rate of inflation

18:12

by the end of this calendar year.

18:14

So going back to the conflict between these two forces,

18:16

for the rest of this year at least,

18:21

inflation will still very clearly seem to be

18:23

a pressing and immediate task,

18:26

and therefore, I think it is likely that the major impact

18:28

of a slowing down of the Vietnamese conflict,

18:33

if you got it, would be in the direction that I indicated.

18:36

Though I don't deny that there other currents

18:39

running in the other direction.

18:41

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Thank you Doctor.

18:44

Now here is another one from a gentleman

18:44

who I believe is with a college,

18:48

department of business of a college.

18:51

His question is this,

18:53

are the benefits through the investment tax credit

18:55

taken away from businesses by government

18:59

in increased assessments in later years?

19:02

And by increased taxes,

19:05

I'm not sure I read that just properly,

19:07

is what is gained in lower tax payments

19:09

later lost by higher taxes on assessments?

19:13

That is on this more valuable capital plant

19:16

that the company has built.

19:19

-

Well, I'm not sure I understand entirely

19:21

what the subscriber's driving at,

19:24

but there are two different,

19:26

I see two different possibilities.

19:29

First, if an enterprise has an investment tax credit,

19:31

and this is in order to build a higher plant

19:38

that presumably raises its income later on,

19:41

and this raises taxes, its corporation taxes,

19:44

federal incomes taxes later on.

19:47

But that's nonetheless does not take away the benefits

19:51

of the initial investment tax credit

19:55

because let's suppose that the investment tax credit

19:57

had not been there.

20:00

Then the firm would've had less money to invest.

20:02

But the income which it was able to get

20:05

from the smaller amount of investment

20:09

would still have been subject to taxes.

20:11

So what we have in later years

20:12

is higher taxes on a ...

20:14

But on a larger income.

20:18

I think that aspect of the question,

20:21

before I turn to the other aspect

20:23

which has to deal with property assessments

20:24

and local property assessments,

20:26

I think the first aspect of the question

20:28

is a very interesting one from another point of view.

20:30

It will be recalled that at the time

20:33

the investment tax credit was first instituted,

20:35

business enterprises, in general

20:37

much preferred accelerated depreciation.

20:40

They thought the alternative to investment tax credit

20:42

was more generous treatment of depreciation expenses.

20:47

And the business community at large preferred that.

20:49

Today, right now, when the investment tax credit

20:52

is going to be suspended, there has been some talk

20:54

and comment from the treasury department

20:57

that something of a quid pro quo might be a reconsideration

20:59

of accelerated depreciation or more generous depreciation.

21:03

So that this question leads me,

21:07

and causes me to turn to the question

21:09

of the same problem with respect to depreciation.

21:12

Business concerns are always often saying, for example,

21:15

well, the government doesn't lose anything

21:17

by accelerated depreciation.

21:19

Because, they say, if we depreciate more now,

21:21

that leaves less to depreciate later on.

21:25

So the only effect of accelerated depreciation, they say,

21:27

is to shift taxes from now to the future.

21:30

If I have a 100,000 dollar factory or machine,

21:33

and I depreciate it over five years,

21:36

well then in the sixth year I have a higher income

21:39

than I would have if I'd depreciated it over six years.

21:41

That's true, but it does not mean that the enterprise

21:44

does not benefit from accelerated depreciation.

21:47

The easiest way to look at it,

21:50

is to think of the accelerated depreciation

21:52

as an interest-free loan from the government.

21:54

In effect, the enterprise is able to earn interest

21:56

on what it otherwise would've had to pay in taxes.

21:59

If it had not been allowed to accelerate its depreciation

22:02

in the first year, it would've paid higher taxes this year

22:06

and lower taxes later on.

22:08

By accelerating its depreciation, it in effect

22:12

transfers payments from this year to the future.

22:17

Now it could do the same thing by borrowing

22:24

the corresponding sum from a bank.

22:26

But if it borrowed from a bank,

22:27

it'd have to pay interest on it.

22:29

That's why I say accelerated depreciation

22:30

is the equivalent of an interest-free loan

22:32

to the enterprise.

22:35

And of course that's why enterprises like it.

22:36

I have always felt, myself, on the score of depreciation

22:38

that one should do, the right solution,

22:42

would be to let enterprises take depreciation

22:45

in any way they want, at any time they want.

22:47

Let them spread it however they want.

22:49

However, in each year, calculate the difference

22:50

between the depreciation they've taken

22:55

and the accumulated depreciation they would be entitled to

22:56

under a standard formula, whatever it might be,

23:00

a declining balance or a straight line.

23:02

And then, require the firm to pay interest on

23:05

any excess depreciation its taken,

23:09

or alternatively, receive interest on any

23:12

shortage of depreciation.

23:15

And in this way, by having interest charged or paid on loans

23:18

to or from the government, you see, I've said to or from

23:23

because suppose a company that takes less depreciation

23:26

than it would be entitled to.

23:29

Well then, it's paying more taxes now

23:30

and less in the future,

23:32

it's making a loan to the government.

23:33

And so if you accounted for these loans

23:35

by having an interest rate,

23:37

then it seems to me you could let corporations

23:38

take the depreciation whenever it was in their own

23:40

best business interest to do so.

23:43

The tax payer would have nothing to lose,

23:45

the government, I say the government, there's no government

23:48

involved, there's the citizen.

23:50

But the rest of the citizens would lose nothing.

23:52

And the corporation would gain flexibility.

23:54

Now we come to the second part of his question,

23:58

and here I'm a little puzzled.

23:59

I tell you what he has in mind here,

24:02

is that the higher capital expenditures by a business

24:05

means larger plant, which means large basis for taxes

24:09

by local governments and cities, in property taxes.

24:13

-

This is what I assume he means.

24:18

-

Now that makes sense for any individual enterprise.

24:19

But it really doesn't make sense

24:23

for all enterprises together.

24:24

It's another one of these cases of fallacy of composition.

24:25

Something that's true for the individual

24:28

but not true for the community at large.

24:29

Because as I emphasized, I believe, in an earlier tape

24:32

when I discussed the investment tax credit,

24:35

there's no evidence whatsoever that the

24:37

investment tax credit makes the total amount

24:39

of capital formation different than it otherwise would be.

24:41

That's a question of how much the community saves.

24:44

And it may make the savings slightly different,

24:46

but its major effect, surely, is to shift investment

24:49

from certain enterprises to other enterprises.

24:53

To shift investment from firms that can not qualify

24:55

for the tax credit to those firms that qualify

25:00

for the tax credit.

25:03

Therefore, it's by no means clear that it makes

25:04

the total amount of property on which taxes can be assessed

25:06

by all of the communities of the United States

25:09

higher than it otherwise would be.

25:11

Whether it does or not depends on something

25:13

that most people do not even discuss

25:15

in discussing the investment tax credit.

25:16

It depends on the elasticity of savings

25:19

with respect to the interest rate.

25:22

That is if the investment tax credit, in effect,

25:24

enables a slightly higher rate of return to be earned

25:26

on all investments,

25:30

question is, does this higher rate of return

25:33

encourage consumers, wealth holders, people in general,

25:35

to save a larger fraction of their total income?

25:39

If it does, and it adds to the total supply

25:42

of funds for capital formation,

25:44

if, as is widely believed,

25:46

savings, though responsive to the interest rate,

25:48

are only responsive a little bit,

25:51

it takes quite a sizeable change in the interest rate

25:53

to change the rate of savings.

25:55

If that is true, as is widely believed,

25:56

why then it seems to me there's no reason to

25:59

suppose that there's any compensation of a kind

26:02

that this gentleman supposes.

26:05

-

Doctor there's not much time left for a big question

26:08

like this next one,

26:11

but here's what another subscriber says.

26:12

Your optimism in the face of continuing worldwide

26:15

trend toward collectivism is reassuring.

26:17

But my inadequate knowledge of history

26:20

reveals no example of a peaceful reversal of such a trend

26:22

by any country.

26:26

Can you give me such an example

26:28

or explain why you are optimistic without precedent.

26:29

-

Yes I can give one dramatic example.

26:33

The most dramatic example in history

26:36

is of course the reversal in Great Britain

26:38

in the 19th century.

26:40

Great Britain at the end of the 18th century

26:42

was at an extensive governmentally controlled economy.

26:45

You had in the early 19th century,

26:48

especially right after the Napoleonic wars

26:50

after 1815 to 1830,

26:52

the widespread movement for the repeal of the corn laws.

26:54

This led to the abolition of the corn laws

26:57

to the institution of free trade,

26:59

to a shift of British economic policy from its early

27:01

mercantilistic policy to an almost entirely

27:04

laissez-faire policy.

27:06

Now unfortunately, I can't go much farther on this line,

27:08

but I would only use my brief remaining seconds

27:13

for one more bit of optimism.

27:17

And that is I suggest that this subscriber compare

27:19

the state of the world as it looked in 1945,

27:22

just after World War II with the way it looks today.

27:25

Whatever may be the problems today,

27:28

the world in '45 looked as if we were just on the edge

27:30

of a widespread takeover of collectivism all over the world.

27:34

That was a period of high ex road to serfdom.

27:37

And it certainly looked as if

27:40

we were on the road to serfdom.

27:41

Now the United States has continued to go in the direction

27:43

of more collectivism.

27:45

But most of the rest of the countries of the western world

27:47

have been moving, if anything, in the opposite direction.

27:49

And so far, as the world as a whole is concerned,

27:52

it seems hard for me to believe

27:54

that any objective observer will not say that there is

27:57

less collectivism, and less danger of a collectivist

28:00

takeover than there was in 1945.

28:03

-

Thank you very much.

28:06

Those are interesting comments, Dr. Friedman.

28:07

Now if you subscribers have other questions

28:09

or comments or suggestions for topics

28:12

you would like discussed in this series,

28:14

please send them to Instructional Dynamics,

28:16

166 East Superior Street, Chicago, 60611.

28:19

This is William Clark,

28:25

Dr. Friedman and I will be talking with you again next week.

28:26

Tape 25 - Monetary Policy, Gold Prices, Vietnam Peace, Investment Tax Credit, 'Collectivism'

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