Jennifer Burns: Milton Friedman, Ayn Rand, Economics, Capitalism, Freedom

00:00:00.000 | The following is a conversation with Jennifer Burns,

00:00:03.760 | a historian of ideas, including the evolution

00:00:07.760 | of economic, political, and social ideas

00:00:10.240 | in the United States in the 20th century to today.

00:00:14.180 | She wrote two biographies, one on Milton Friedman

00:00:18.840 | and the other on Ayn Rand, both of which I highly recommend.

00:00:23.840 | This was a super technical

00:00:26.400 | and super fascinating conversation.

00:00:29.680 | At the end, I make a few comments

00:00:31.420 | about my previous conversation with President Zelensky,

00:00:35.600 | for those of you who may be interested.

00:00:37.660 | This is "Alex Regional Podcast."

00:00:40.560 | To support it, please check out our sponsors

00:00:42.760 | in the description.

00:00:43.960 | And now, dear friends, here's Jennifer Burns.

00:00:47.620 | You have written two biographies,

00:00:50.320 | one on Milton Friedman and one on Ayn Rand.

00:00:54.380 | So if we can, we will focus on each one separately,

00:00:58.120 | but first, let's talk about the ideas

00:00:59.560 | that two of them held in common,

00:01:01.240 | the value of individual freedom,

00:01:03.040 | skepticism of collectivism, and the ethics of capitalism.

00:01:07.880 | Can you talk about the big picture ideas they converge on?

00:01:10.920 | - Yeah, so Milton Friedman and Ayn Rand,

00:01:14.120 | in the biggest picture, they're both individualists,

00:01:17.640 | and they're skeptical of collectivities and collectivism.

00:01:21.440 | So their unit of analysis is the individual,

00:01:24.440 | what's good for the individual,

00:01:25.680 | what works for the individual,

00:01:26.960 | and their understanding of society kind of flows from that.

00:01:30.400 | They also both use this focus on individualism

00:01:34.640 | to justify and to support capitalism

00:01:37.840 | as a social and economic system.

00:01:40.080 | So we can put them in a similar category.

00:01:42.400 | We can call them individualists,

00:01:44.040 | we could call them libertarians of a sort,

00:01:46.920 | but they're also really different

00:01:48.320 | in how they approach capitalism,

00:01:50.320 | how they approach thinking.

00:01:52.320 | You know, Ayn Rand developed her own moral

00:01:55.680 | and philosophical system to justify individualism

00:01:59.520 | and to connect the individual to capitalism

00:02:01.760 | and to support capitalism as a social and economic system.

00:02:06.280 | Friedman struggles a bit more

00:02:07.800 | with how to justify capitalism,

00:02:09.760 | and he'll ultimately come down to freedom as his core value,

00:02:13.800 | like his God, as he says.

00:02:15.760 | And so freedom does connect back to the individual,

00:02:18.800 | but he's not justifying capitalism for his own sake,

00:02:21.480 | he's justifying it for its ability to underwrite freedom

00:02:25.560 | in a social sense and also in the individual sense.

00:02:28.720 | - At a high level,

00:02:29.800 | are there interesting differences between them?

00:02:31.400 | You already mentioned a few,

00:02:32.720 | maybe in terms of who they are personally,

00:02:35.080 | maybe in terms of how they approach

00:02:36.560 | the justification for capitalism, maybe other ways.

00:02:39.240 | - Yeah, for sure.

00:02:40.080 | So beyond this idea that Milton Friedman

00:02:43.640 | takes a while to come to his justification of capitalism,

00:02:46.560 | Morzine Rand kind of has it from the start.

00:02:48.960 | She really focuses on the core quality

00:02:51.960 | of rationalism and rationality.

00:02:54.360 | Rationality is the defining feature of human beings.

00:02:57.920 | And so she works from there,

00:03:00.840 | whereas Milton Friedman eventually converges

00:03:04.160 | on this idea of freedom.

00:03:06.040 | So that's one part of it.

00:03:07.040 | The other is their intellectual styles

00:03:08.920 | are really, really different,

00:03:10.040 | their interpersonal styles are really different.

00:03:11.960 | So Friedman has big ideas, big principles that guide him,

00:03:15.760 | but he's also deeply empirical.

00:03:17.720 | He spends most of his career doing historical research,

00:03:21.160 | economic research, pulling data from how people

00:03:24.440 | actually make economic decisions and live in the world

00:03:27.000 | and using them to test and refine his theories.

00:03:29.800 | Where Rand, to some degree, we could say she's empirical

00:03:33.080 | in that she lives through the Russian revolution

00:03:35.040 | and takes a very big lesson from that.

00:03:37.360 | But her style of thinking is really first principles,

00:03:42.040 | an axiomatic approach, going from the basic idea

00:03:46.600 | of rationality, and then playing that out

00:03:48.880 | in different spheres.

00:03:50.320 | And so those are just very different

00:03:52.160 | intellectual approaches.

00:03:53.520 | And then they lead in some ways to really different ways

00:03:57.560 | of thinking about how you get things done in the world.

00:04:01.080 | Ayn Rand is a purist.

00:04:03.440 | She wants to start with the pure belief.

00:04:06.120 | She doesn't want it to be diluted.

00:04:08.840 | One of her favorite sayings was,

00:04:10.880 | "It's earlier than you think."

00:04:12.640 | In other words, we're still moving towards a place

00:04:14.840 | where we can really hold and express these ideals purely.

00:04:18.960 | Friedman, although he didn't use this terminology,

00:04:21.160 | was much more half-aloof guy.

00:04:23.280 | You know, like, "I'll take what I can get,

00:04:25.200 | and then I'll try to move to where I really wanna be."

00:04:27.600 | But he is able to compromise,

00:04:29.400 | especially when he moves from being an economist

00:04:32.120 | into being more of a political thinker.

00:04:35.520 | And so that's a really different intellectual style.

00:04:38.520 | And then it also plays out in their lives

00:04:40.360 | in that Ayn Rand is incredibly schismatic.

00:04:44.240 | I mean, she wants her friends to believe what she believes

00:04:47.960 | and support what she supports.

00:04:50.240 | And she's willing to break a relationship

00:04:52.080 | if it doesn't match.

00:04:54.080 | Milton Friedman, he also does tend to have friends

00:04:57.320 | who agree with him,

00:04:58.480 | yet he's always willing to debate his opponents,

00:05:03.040 | and he's willing to do so with a smile on his face.

00:05:05.440 | You know, he's the kind of, he's the happy warrior.

00:05:07.960 | And he actually will win a lot of debates

00:05:10.040 | simply by his emotional affect

00:05:12.200 | and his cheerfulness and his confidence,

00:05:14.640 | where Rand will lose debates

00:05:16.200 | because she gets so angry in the face of disagreement.

00:05:19.000 | So yeah, they have a lot of similarities

00:05:22.360 | and a lot of differences,

00:05:23.320 | and it's been really fascinating

00:05:24.640 | to kind of dive deep into both of them.

00:05:26.560 | - I just re-listened to Ayn Rand's, I think, last lecture,

00:05:30.920 | or at least it's called that,

00:05:32.520 | and just the confrontational nature

00:05:36.880 | of how she answers questions

00:05:39.560 | or how she addresses critics and so on.

00:05:42.600 | There is a kind of charisma to that.

00:05:45.240 | So I think both of them are very effective

00:05:47.360 | at winning over sort of popular support,

00:05:51.480 | but in very different styles.

00:05:52.680 | It seems like Ayn Rand is very cranky,

00:05:55.320 | but there's, I mean,

00:05:56.240 | it's the most charismatic, cranky person,

00:05:58.600 | I think, I've ever listened to.

00:06:00.160 | - Yeah, I mean, people talked about her,

00:06:03.600 | meeting her and coming to believe in her ideas

00:06:08.240 | in a similar way as they did with Marxism,

00:06:10.840 | in that suddenly everything made sense,

00:06:13.520 | and that when they came to believe in objectivism,

00:06:15.960 | they felt they had this engine

00:06:17.080 | for understanding the entire world.

00:06:19.240 | Now, after a while,

00:06:20.280 | for most people that then became confining,

00:06:23.040 | but yeah, that certainty,

00:06:24.640 | and Friedman had some of that as well.

00:06:27.320 | He clothed it differently.

00:06:28.800 | He clothed it in happiness,

00:06:30.160 | where Rand kind of closed it, as you said,

00:06:32.200 | in crankiness or anger.

00:06:33.920 | I mean, there's also an arc to Rand.

00:06:35.600 | She gets kind of angrier and angrier

00:06:37.440 | and crankier and crankier over the course of her life.

00:06:40.320 | What I enjoyed about my research

00:06:41.480 | is I was able to get into this early moment

00:06:43.360 | when she was different and a little more open,

00:06:46.040 | and then I kind of watched her close

00:06:48.880 | and her harden over time.

00:06:50.880 | - Would it be fair to say that Milton Friedman

00:06:54.000 | had a bit more intellectual humility,

00:06:56.080 | where he would be able to sort of evolve over time

00:06:59.360 | and be convinced by the reality of the world

00:07:03.040 | to change sort of the nuances of policies,

00:07:06.080 | the nuances of how he thought about economics

00:07:09.760 | or about the world?

00:07:10.760 | - Yeah, absolutely.

00:07:12.040 | Friedman believed in being able to say I was wrong,

00:07:14.880 | and there are some things he said he was wrong about.

00:07:17.400 | We'll delve more into monetarism and monetary policy,

00:07:20.840 | but he was able to talk about the ways

00:07:23.800 | his ideas hadn't mapped onto the world

00:07:25.560 | the way he thought they would.

00:07:27.680 | He does a really interesting interview

00:07:29.680 | at the end of his life where he's beginning to voice

00:07:32.920 | some doubts about globalization,

00:07:35.040 | you know, which was,

00:07:36.040 | he was sort of a prophet of globalization,

00:07:37.760 | a cheerleader of globalization.

00:07:39.040 | He really thought it would lead to a better world

00:07:40.760 | in all respects.

00:07:42.080 | And towards the end of his life,

00:07:43.080 | it's about two years before he dies,

00:07:44.640 | there's a note of doubt about how globalization unfolded

00:07:48.600 | and what it would mean,

00:07:49.960 | particularly for the American worker.

00:07:51.840 | And so you can see him still thinking,

00:07:53.880 | and that to me, I had sort of assumed

00:07:56.680 | he became crankier and crankier

00:07:58.320 | and more and more set in his ways.

00:07:59.760 | And of course there's a phase where he does become that way,

00:08:02.360 | especially if he's in the public eye

00:08:03.880 | and there's not room for nuance.

00:08:05.720 | But to find in the last years of his life,

00:08:08.360 | him being so reflective,

00:08:10.160 | that was absolutely not something Rand could do.

00:08:13.040 | - I think there's a thread throughout this conversation

00:08:15.520 | where we should actually also say

00:08:17.680 | that you're kind of a historian of ideas.

00:08:21.040 | - I am a historian of ideas, yes.

00:08:22.840 | - And so we're talking about today in part

00:08:27.160 | about two people who kind of fought for ideas,

00:08:31.400 | for an idea like we've mentioned, freedom for capitalism,

00:08:35.160 | and they did it in very different ways.

00:08:37.680 | And it's so interesting to see sort of the impact

00:08:40.520 | they both had and how their elucidation explanation

00:08:45.520 | of those ideas reverberated throughout society

00:08:50.160 | and how we together as a society figure out what works,

00:08:53.180 | the degree to which they have influence on the public,

00:08:57.520 | the degree to which they have influence

00:08:58.820 | on individual administrations,

00:09:00.280 | like the Reagan administration, Nixon, and so on,

00:09:02.840 | and how it might return, like fade away,

00:09:05.960 | and then come back in the modern times.

00:09:07.900 | And it's so interesting if you just see

00:09:10.320 | this whole world as a game of ideas

00:09:14.440 | where we were like pushing and pulling

00:09:16.480 | and trying to figure stuff out.

00:09:18.700 | A bunch of people got real excited

00:09:22.680 | over a hundred years ago about communism,

00:09:24.640 | and then they tried stuff out,

00:09:25.880 | and then the implementation broke down,

00:09:29.040 | and we keep playing with ideas.

00:09:31.240 | So these are the two greats of playing with ideas.

00:09:35.760 | But I think that's a thread that just runs through this.

00:09:37.920 | - Yeah, and of kind of pushing back against that movement

00:09:41.400 | towards communism, social democracy.

00:09:44.280 | But one difference that I really should emphasize,

00:09:47.800 | Rand is a writer of fiction.

00:09:49.920 | She's a philosopher, but she's also a writer of fiction.

00:09:52.080 | So she is working almost in a mythic register,

00:09:56.440 | much more in a psychological register.

00:09:58.400 | She's creating characters that people identify with

00:10:01.280 | and people relate to experiences they've had.

00:10:05.120 | And that's one of the reasons she hits so deep.

00:10:07.040 | And she's also offering people,

00:10:08.960 | I read all the fan letters to her.

00:10:10.520 | People would say things like,

00:10:12.720 | "I read 'The Fountainhead,'

00:10:14.640 | and now I'm getting a divorce."

00:10:16.300 | You know? - Yeah.

00:10:18.080 | - You know, having just these incredible realizations.

00:10:22.200 | - Milton Friedman didn't get such things.

00:10:23.600 | - Milton Friedman didn't get such things.

00:10:24.960 | Or I'll meet someone and they'll say to me,

00:10:28.800 | "Ayn Rand is the reason I went to medical school."

00:10:31.600 | You know, like a woman said this to me a few years back.

00:10:34.760 | "It never even occurred to me that I could be a doctor

00:10:36.720 | until I read Ayn Rand."

00:10:37.880 | And I said, "I'm gonna go to medical school."

00:10:39.840 | And so she has a really intense impact on people.

00:10:42.760 | So she thought of herself as rational.

00:10:46.080 | She thought of rationality as kind of what she was doing,

00:10:50.060 | but she was actually doing a kind of mythopoetic,

00:10:53.880 | psychological work as well.

00:10:55.800 | Whereas Friedman, on the one hand, was much more rational.

00:10:59.080 | There's a whole set of economic thinking

00:11:01.120 | and he provides a rational framework

00:11:03.960 | for understanding the world.

00:11:05.560 | And it's the framework of, you know, neoclassical economics.

00:11:09.520 | At the same time, he does pull on mythologies, you know,

00:11:12.640 | of the idea of America in the Gilded Age,

00:11:15.760 | the frontier mythology, the individual immigrant,

00:11:19.120 | the settler mythology.

00:11:20.160 | He pulls on these, but he doesn't create them.

00:11:23.520 | And they are, he's more kind of playing a tune

00:11:26.560 | he already has.

00:11:27.740 | Whereas I think Rand really does something

00:11:31.080 | a little bit deeper in her ability

00:11:32.680 | to reach into people's psyche

00:11:34.840 | and then take that emotional, psychological experience

00:11:39.460 | and fuse it to an intellectual world and a political world.

00:11:43.040 | And that's really what makes her so powerful.

00:11:46.220 | And so I think she comes back in to relevancy

00:11:50.040 | in a different way than Friedman does,

00:11:52.360 | because I think in some way she's tapped

00:11:53.920 | into a kind of more universal human longing

00:11:57.760 | for independence and autonomy

00:11:59.800 | and kind of self-creation and self-discovery.

00:12:03.060 | - Nevertheless, there's still pragmatic ideas

00:12:06.540 | that are still important today for Milton Friedman,

00:12:09.980 | even just in the economics level.

00:12:11.660 | So let's dig in.

00:12:13.200 | Let me try, I took some notes.

00:12:16.740 | Let me try to summarize who Milton Friedman is,

00:12:19.460 | and then you can correct me.

00:12:21.340 | Okay, so he is widely considered to be one of the greatest

00:12:25.900 | and most influential economists in history,

00:12:28.060 | not just the 20th century, I think, ever.

00:12:30.540 | He was an advocate of economic freedom, like we said,

00:12:33.780 | and just individual freedom in general.

00:12:36.940 | He strongly advocated for free market capitalism

00:12:39.820 | and limited government intervention in the economy.

00:12:42.420 | Though you do give, I've listened to basically everything

00:12:46.100 | you have on the internet.

00:12:47.560 | You give some more depth and nuance

00:12:49.380 | on his views on this in your books.

00:12:51.540 | He led the famed Chicago School of Economics,

00:12:57.020 | and he won the Nobel Prize in Economics in 1976.

00:13:01.260 | He greatly influenced economic policies

00:13:03.580 | during the Reagan administration and other administrations.

00:13:07.020 | He was an influential public intellectual,

00:13:09.900 | highly influential, not just among economists.

00:13:13.060 | He lived 1912 to 2006, so that means he lived

00:13:18.060 | and worked through some major world events

00:13:21.420 | where his ideas were really important.

00:13:23.020 | The Great Depression with the New Deal,

00:13:25.700 | World War II with the post-war Reconstruction,

00:13:29.740 | the rise and fall of the Bretton Woods monetary system,

00:13:33.700 | as we may talk about, the Cold War,

00:13:37.180 | and all the conflicts involved in that,

00:13:39.180 | sort of the tensions around communism and so on,

00:13:41.760 | so the fall of the Soviet Union.

00:13:44.340 | And also he has some interesting relationships

00:13:46.300 | to China's economic transformation since the 1970s,

00:13:51.380 | the stagflation of the 1970s,

00:13:53.620 | and I'm sure there's a lot more, so.

00:13:55.420 | Can you maybe continue this thread

00:14:00.140 | and give a big picture overview

00:14:01.340 | of the ideas he is known for?

00:14:03.340 | - Yeah, sure, and that's a great summary.

00:14:05.780 | You learn fast, so let me start with the economics,

00:14:10.500 | and then I can kind of transition

00:14:13.200 | to how he used those economic ideas

00:14:15.560 | to become a real voice in the American conservative movement

00:14:19.460 | and the American political realm.

00:14:20.600 | So I'll kind of highlight four ideas

00:14:25.100 | or contributions or episodes.

00:14:26.940 | One was his work with Anna Schwartz

00:14:29.940 | in revising our understanding of the Great Depression,

00:14:32.980 | and that's tightly related to the second,

00:14:34.900 | which is the school of monetarism

00:14:36.860 | that he and Schwartz really become founders of.

00:14:39.220 | Then there is the prediction of stagflation

00:14:45.860 | and the explanation of that in the 1970s,

00:14:48.780 | which really is one of these sort of

00:14:51.880 | career-making predictions, and we can dig into that.

00:14:55.240 | And then in terms of technical economics,

00:14:57.560 | he's known for the permanent income hypothesis,

00:15:01.020 | which he develops with a group of female collaborators

00:15:03.980 | that I can talk about.

00:15:04.820 | So those are kind of four technical pieces

00:15:07.480 | and being really brought together

00:15:10.440 | in what becomes the Chicago School of Economics.

00:15:13.200 | He's undoubtedly the head and the leader

00:15:15.480 | of the Chicago School of Economics.

00:15:17.480 | There's an earlier generation that he learns from.

00:15:20.360 | There's his generation.

00:15:22.020 | There's also a Chicago School of Law and Economics

00:15:25.780 | that's really profoundly influential.

00:15:28.100 | And then there'll be kind of a third generation

00:15:30.380 | that he's somewhat distinct from,

00:15:32.300 | but that goes on to really shape economics.

00:15:34.700 | But let me go back to these kind of four pieces

00:15:37.520 | and let me start with the Great Depression.

00:15:40.680 | So Milton Friedman actually lives

00:15:43.980 | through the Great Depression.

00:15:45.620 | He's in college when it hits,

00:15:47.900 | and he is, so he's in college, it's 1928 to 1932.

00:15:52.900 | And he's aware of the depression and he's deciding,

00:15:57.860 | should I study mathematics or should I study economics?

00:16:01.220 | And he hasn't, he's had some good economics teachers,

00:16:04.080 | but it's really the context.

00:16:06.500 | It's looking around at the slow dissolving

00:16:09.700 | of economic prosperity.

00:16:11.340 | So he decides to go to Chicago.

00:16:12.700 | He decides to study economics.

00:16:14.760 | And what's really interesting is that

00:16:18.300 | the Great Depression is so unexpected,

00:16:21.260 | it's unpredicted, it's unprecedented,

00:16:24.820 | and economists are really struggling

00:16:26.820 | to know how to respond to it.

00:16:28.460 | And so he's gonna arrive at the University of Chicago

00:16:31.940 | when the field is struggling to know what to do.

00:16:34.820 | So he's in this kind of really open space

00:16:37.660 | where the institutional economics of the 1920s

00:16:41.380 | has failed to predict, which was focused on business cycles.

00:16:44.420 | This is the irony.

00:16:45.260 | Their big thing was charting

00:16:46.900 | and understanding business cycles.

00:16:48.540 | And then we have the biggest business cycle of all time

00:16:51.500 | and they haven't seen it coming

00:16:52.800 | and they don't have a good explanation for it.

00:16:55.060 | And what he will get at Chicago

00:16:59.980 | is the remnants of a monetary understanding of the economy.

00:17:04.980 | And so his teachers,

00:17:07.740 | they don't know exactly what's going on,

00:17:09.600 | but they look first to the banking crisis.

00:17:13.020 | They look first to the, in 1933, it's bank runs,

00:17:17.100 | failures of maybe it's up to a third of American banks.

00:17:19.740 | It's huge, thousands of banks are failing per week.

00:17:22.100 | So they're focused on that.

00:17:23.300 | So that's the first kind of imprint he will have.

00:17:26.480 | The Great Depression has something to do

00:17:28.260 | with a banking system.

00:17:30.040 | The second imprint he will have

00:17:31.660 | is that all of his professors are profoundly concerned

00:17:34.820 | about the social crisis.

00:17:36.740 | They want relief programs.

00:17:38.780 | They want them now.

00:17:39.980 | They want bank regulation and financial reform.

00:17:42.340 | They're very active.

00:17:43.460 | This is not laissez-faire

00:17:44.540 | by any stretch of the imagination.

00:17:46.660 | So Friedman has that imprinting and then about,

00:17:51.160 | so that's, he gets there in '32, '36, '37,

00:17:55.420 | the ideas of John Maynard Keynes from Britain,

00:17:58.220 | which has a different explanation.

00:17:59.800 | Keynes has a different explanation of the Great Depression,

00:18:01.780 | will kind of make landfall in American economics

00:18:04.820 | and be very profoundly influential

00:18:07.140 | on most American economists.

00:18:08.900 | But Friedman already, it's too late for Friedman.

00:18:11.820 | He already has a different perspective.

00:18:13.820 | So Keynesianism unfolds.

00:18:16.420 | I can say more about that,

00:18:18.140 | but it basically leads to more active

00:18:22.700 | federal government participation in the economy.

00:18:25.620 | And what underlies a lot of that,

00:18:28.420 | its adaptation in America particularly,

00:18:31.060 | is the idea that capitalism has failed.

00:18:34.840 | Capitalism has revealed itself to have a profound flaw

00:18:39.860 | in that its cycles of boom and bust

00:18:44.260 | create social instability, chaos.

00:18:46.580 | It needs to be tamed.

00:18:47.580 | It needs to be regulated.

00:18:49.220 | And so that becomes the kind of baseline of politics

00:18:54.220 | in the United States, the understanding of the New Deal,

00:18:57.120 | the understanding of the Democratic Party,

00:18:58.920 | even to some extent,

00:18:59.760 | the understanding of the Republican Party.

00:19:01.180 | And Friedman never quite sure about that.

00:19:04.940 | He has a hunch that there's something else going on,

00:19:07.040 | and he does not buy that capitalism

00:19:08.980 | has sort of ground to a halt.

00:19:10.540 | Or the other idea is that capitalism

00:19:13.220 | has gone through some sort of phase transition,

00:19:16.140 | and it worked great maybe while we had a frontier.

00:19:19.700 | This is a very serious argument that people are making.

00:19:22.380 | United States used to have a frontier,

00:19:24.780 | a place where Europeans hadn't fully settled.

00:19:27.820 | Of course, they're pushing out the native tribes.

00:19:30.140 | That's another story.

00:19:30.980 | But that this frontier is the engine of economic growth,

00:19:34.600 | and the frontier is now over, it's closed,

00:19:36.680 | and we're gonna stagnate.

00:19:37.980 | And there's a theory of secular stagnation.

00:19:40.220 | And so to deal with secular stagnation,

00:19:42.300 | we're just gonna have to have a more active state.

00:19:44.820 | So Friedman is suspicious of all these assumptions.

00:19:47.940 | And he has this idea that it's something to do with money.

00:19:51.680 | Money is somehow important.

00:19:52.940 | And so he joins together with Anna Schwartz,

00:19:56.900 | who is an economist.

00:19:58.900 | She doesn't at this time hold a PhD.

00:20:01.100 | She's working for the National Bureau of Economic Research.

00:20:03.600 | And they come together to do this study of money

00:20:05.700 | in the US economy.

00:20:07.260 | And it takes them 12 years to write the book.

00:20:10.700 | And they're releasing their ideas, and they're arguing,

00:20:13.660 | and Friedman is writing papers, giving talks,

00:20:16.660 | saying money's really important.

00:20:18.820 | And nobody's really believing him.

00:20:21.540 | He's a crank.

00:20:22.380 | He's at Chicago.

00:20:23.740 | Chicago's a well-known university,

00:20:26.380 | but he's sort of considered a crank.

00:20:28.460 | And then in '63, he and Anna Schwartz publish this book,

00:20:31.580 | and it's 800 pages.

00:20:34.700 | It's a reinterpretation of the history of the United States

00:20:36.980 | through money, like the central character is money,

00:20:40.300 | whether it's BC, greenback, or the US currency.

00:20:43.660 | And they have a whole chapter on the Great Depression.

00:20:45.500 | And what they've literally done,

00:20:47.700 | Schwartz has done most of this,

00:20:49.160 | they've gone, Schwartz has gone to banks

00:20:51.380 | and said, "Show me your books."

00:20:52.500 | And then she's added up, column by column,

00:20:55.020 | how much money is in your vault,

00:20:56.420 | how much money is on deposit,

00:20:58.140 | how much money is circulating.

00:20:59.660 | And so they literally have graphs,

00:21:01.300 | you can see them in the book,

00:21:02.900 | of how much money has been circulating in the US

00:21:05.580 | at various different points in time.

00:21:06.820 | And when they get to the Great Depression,

00:21:08.340 | they find the quantity of money available in the economy

00:21:11.820 | goes down by a third.

00:21:13.620 | And in some ways, this is completely obvious

00:21:16.560 | because so many banks have failed,

00:21:20.340 | and we don't have any type of bank insurance at that point.

00:21:25.280 | So if your bank goes under, your savings are there,

00:21:27.220 | the money essentially vanishes.

00:21:29.000 | And it's fractional reserve banking, right?

00:21:30.480 | So you've put in, they can loan up to 90% on their deposits.

00:21:34.860 | And so, Friedman and Schwartz present this argument

00:21:38.460 | that what really made the Great Depression so bad

00:21:43.020 | was this drop in the amount of money,

00:21:44.840 | the 30% drop in the money.

00:21:46.140 | They call it the Great Contraction.

00:21:48.180 | And then they go further and they say,

00:21:49.340 | "Well, how did this happen and why?"

00:21:51.820 | And they pinpoint the Federal Reserve,

00:21:55.400 | which is a fairly new institution at that time.

00:21:57.760 | And they say, "What did the Federal Reserve do,

00:22:00.060 | "the lender of last resort?

00:22:01.220 | "What did it do in the face of what they're depicting

00:22:03.380 | "as a massive unprecedented liquidity crisis?"

00:22:06.380 | And they find it's not really doing much.

00:22:09.620 | And they really dig into the details,

00:22:11.380 | and they find that the Federal Reserve

00:22:15.220 | has gone through a sort of personnel change,

00:22:17.180 | and some of the key leaders in the 1920s,

00:22:19.860 | Benjamin Strong is one of them, he's now deceased.

00:22:23.060 | And the dominance of the New York Federal Reserve,

00:22:25.860 | which in their telling is global, it's interconnected,

00:22:30.740 | it's seen a lot of financial things come and go,

00:22:33.500 | and they believe that the New York Fed had the understanding

00:22:37.380 | to recognize this is a liquidity crisis,

00:22:39.180 | we should be very generous,

00:22:40.580 | we should support all the banks.

00:22:42.520 | Their influence has diminished

00:22:44.080 | for the kind of banks that are more,

00:22:46.220 | they don't say like the Rubes and the Hicks,

00:22:48.780 | but it basically is.

00:22:49.660 | It's like the people in charge

00:22:51.220 | don't know what they're doing.

00:22:52.220 | And so the Fed pursues this kind of policy

00:22:54.920 | of masterly inactivity.

00:22:56.200 | They don't see it as a problem.

00:22:57.820 | They don't do much.

00:22:58.780 | There's an enormous liquidity crisis.

00:23:01.140 | And that's their version

00:23:04.940 | of what the Great Depression is all about,

00:23:07.140 | that it's a financial system meltdown,

00:23:09.580 | it's a liquidity crisis, and that in some ways,

00:23:13.660 | well, in many ways, they argue

00:23:15.460 | very strong counterfactual argument.

00:23:17.820 | The Federal Reserve could have prevented it, and it did not.

00:23:21.260 | And so it becomes then an institutional failure

00:23:25.120 | and a political failure,

00:23:26.880 | not a failure of capitalism as a system.

00:23:30.120 | And so this book comes out, it's a blockbuster.

00:23:33.520 | And even those economists,

00:23:35.700 | who've been like, "Friedman is a crank, I don't buy it,"

00:23:38.680 | are like, "Friedman and Schwartz are onto something.

00:23:41.900 | "Milton Friedman, Anna Schwartz are onto something."

00:23:43.920 | And so that really changes the game.

00:23:46.720 | And this is also one

00:23:49.360 | of his most influential contributions,

00:23:52.760 | because "Friedman and Schwartz" becomes the playbook

00:23:55.640 | for the Federal Reserve.

00:23:57.160 | And we have lived through this, right?

00:23:59.080 | In the financial crisis,

00:24:00.440 | the Federal Reserve is ready to loan.

00:24:02.920 | COVID, the Federal Reserve does all kinds of new things,

00:24:06.200 | because no Federal Reserve chair wants to be

00:24:09.680 | in "Friedman and Schwartz 2.0" that somebody writes,

00:24:13.120 | or they're the bad guy who let the economy meltdown.

00:24:16.100 | So the specifics of what they say to do

00:24:19.440 | have obviously evolved as the system has changed,

00:24:22.380 | but this is a playbook

00:24:24.360 | for how to deal with economic crisis.

00:24:26.440 | It's "Friedman and Schwartz."

00:24:27.480 | And so it's absolutely fundamental,

00:24:29.960 | and that is really going to be the place he makes his mark.

00:24:33.960 | - There's a lot of things to say here.

00:24:35.480 | So first, the book we're talking about

00:24:36.800 | is "A Monetary History of the United States,"

00:24:39.760 | in part, for which Milton Friedman won the Nobel Prize.

00:24:43.440 | You've also mentioned the influence of the Great Depression.

00:24:45.560 | If you could even just rewind to that.

00:24:47.720 | - Yes. - So he went to,

00:24:48.920 | I guess, college in Rutgers.

00:24:50.680 | - That's right.

00:24:51.520 | - And he was, you know, mathematical proclivities.

00:24:56.200 | So he was kind of wanting to be a mathematician.

00:24:59.120 | And so it's kind of a cool crossroads.

00:25:02.120 | It's interesting how the right time,

00:25:06.120 | the right person arrives, right?

00:25:08.960 | So you described this really well,

00:25:10.780 | that he had this choice to be a mathematician

00:25:13.960 | or an economist.

00:25:14.800 | And economist is University of Chicago,

00:25:16.360 | mathematician is Brown University, whichever.

00:25:19.280 | And then this is also the beginnings,

00:25:24.000 | as you've described, of mathematical economics.

00:25:28.320 | So he fits in nicely into this using,

00:25:31.400 | I think you said the number of equations

00:25:34.200 | started going up per paper,

00:25:36.000 | which is a really nice way to put it.

00:25:37.680 | So really the right person at the right time

00:25:40.920 | to try to solve this puzzle of the economy melting down.

00:25:45.760 | It's so interesting.

00:25:46.600 | It's one human, it's just from just zooming in,

00:25:50.120 | I know a single human making a decision about life.

00:25:54.440 | And it's hard to know when you're in it

00:25:57.920 | that the world is melting down

00:25:59.520 | from an economics perspective,

00:26:01.560 | and that I could do something about this

00:26:04.740 | to figure out what it is.

00:26:06.120 | And also I'm going to reject the mainstream narrative

00:26:09.280 | about why this happened.

00:26:11.080 | - Yeah, so the other piece of the puzzle

00:26:13.600 | when he goes to Rutgers, he thinks he'll be an actuary.

00:26:15.900 | So Milton Friedman's family, his parents are immigrants,

00:26:19.880 | Jewish immigrants from Eastern Europe.

00:26:22.220 | They're pretty atypical in that they don't stay in New York,

00:26:26.600 | and they move to Raleigh, New Jersey,

00:26:29.400 | and they put together a fairly middle-class life

00:26:32.280 | as kind of, they have a shop,

00:26:34.280 | they do some wholesale buying and selling,

00:26:35.840 | and then his father dies when he's 16.

00:26:38.080 | His life becomes more precarious,

00:26:40.840 | but it's never as precarious as he makes it out to be.

00:26:43.220 | He's got three older sisters, they earn a good living,

00:26:45.680 | incidentally they all have better grades in high school

00:26:48.240 | than he does, but he's the one that goes to college.

00:26:50.840 | And, but it's actually really important

00:26:54.440 | that he loses his father figure,

00:26:57.040 | because he's then looking for other father figures,

00:26:59.800 | and he meets two at Rutgers.

00:27:01.480 | One is Arthur Burns, who will go on to have

00:27:04.340 | a huge influence in his career.

00:27:06.320 | No relation to me, by the way,

00:27:08.300 | but Arthur Burns is like him,

00:27:11.820 | a fellow Jewish immigrant boy on the make.

00:27:14.660 | He's older, and he's making a career as an economist.

00:27:17.800 | And then there's Homer Jones,

00:27:19.040 | who has gone to the University of Chicago,

00:27:21.940 | and is studying with Frank Knight at Chicago,

00:27:23.880 | and says, you have to go to Chicago.

00:27:25.800 | So he has these two mentors,

00:27:27.320 | and Burns in particular suggests,

00:27:30.000 | oh, I could be an economist, that could be my career path.

00:27:33.080 | You know, the idea to be an actuary for an insurance company,

00:27:36.480 | I'm not sure where he got that idea,

00:27:37.800 | but he just thought that was something he could do

00:27:40.040 | as someone who was good at math.

00:27:41.220 | And so the college really opens,

00:27:43.000 | the perspective opens the door.

00:27:45.240 | And then I think it's really key that, again,

00:27:47.560 | he doesn't get an explanation

00:27:52.100 | that he buys for the Great Depression,

00:27:54.040 | so then he's looking for one.

00:27:55.720 | And the math part is a really interesting aspect

00:27:59.280 | of his career.

00:28:00.520 | Now, he actually comes to Chicago

00:28:04.440 | to study with the mathematical economist, Henry Schultz,

00:28:08.480 | but he gets there, and he thinks Schultz is kind of dumb.

00:28:12.820 | He really does.

00:28:13.880 | He's incredibly arrogant,

00:28:15.400 | and he just thinks this guy's not that smart.

00:28:17.820 | And it seems that, I mean,

00:28:19.500 | Schultz did some really important work

00:28:21.080 | in the early stages of mathematical economics,

00:28:23.320 | but a lot of the oral histories about him are like,

00:28:25.460 | yeah, he wasn't that bright.

00:28:27.280 | So Friedman's maybe onto something.

00:28:29.640 | So he falls into the set of students

00:28:34.480 | who are really enthralled

00:28:35.820 | with his other professor, Frank Knight.

00:28:38.040 | And Frank Knight is against math and economics.

00:28:41.120 | Frank Knight is like a neoclassical economist,

00:28:43.640 | but not a mathematical economist.

00:28:45.440 | He's an old-school liberal.

00:28:47.120 | He's really concerned about liberal democracy,

00:28:51.640 | economic liberalism.

00:28:52.840 | And Friedman is very deeply influenced by Knight,

00:28:56.320 | and he continues to pursue mathematical economics.

00:28:58.640 | So he'll go, for part of his graduate career,

00:29:01.520 | he goes to Columbia University,

00:29:04.040 | where he actually gets his PhD from,

00:29:05.640 | and he works with a mathematical economist there.

00:29:09.160 | And so he comes out trained

00:29:10.920 | in what will eventually be econometrics,

00:29:13.920 | and statistics and economics.

00:29:15.440 | His early publications are in statistics,

00:29:17.220 | but it's not really where his intellectual heart and soul are.

00:29:21.400 | And eventually he will turn very profoundly

00:29:23.800 | against mathematics and economics,

00:29:26.160 | and become a sort of heterodox strain

00:29:28.280 | throughout 20th century economics that says,

00:29:30.720 | simple models are better.

00:29:32.480 | We need to work on empirical, work off empirical data,

00:29:38.120 | not construct elegant models.

00:29:40.680 | And becomes really sort of counter-cultural

00:29:44.240 | within economics in that way.

00:29:45.720 | - And the test of a good model

00:29:47.200 | is it should actually predict stuff that happens.

00:29:49.720 | - It should predict stuff that happen.

00:29:51.000 | It should tie back to what's going on.

00:29:52.920 | - I'm wondering which direction to go.

00:29:55.240 | So first, actually, if we could zoom out

00:29:56.840 | on the different schools of economics.

00:29:58.980 | - Yeah.

00:29:59.820 | - Just the basics.

00:30:00.680 | You mentioned neoclassical, we mentioned Keynesian economics,

00:30:04.240 | we mentioned, what else did we mention?

00:30:06.320 | Well, the Chicago School of Economics.

00:30:07.960 | - Right.

00:30:08.800 | - Where does Austrian economics fit into that pile,

00:30:11.880 | and Marxian economics?

00:30:13.600 | And can we just even just linger

00:30:15.920 | and try to redefine Keynesian economics,

00:30:18.600 | and Chicago School of Economics,

00:30:20.640 | and neoclassical economics, and Austrian economics?

00:30:24.600 | 'Cause there's some overlap and tension.

00:30:27.600 | - Okay, so schools of economics.

00:30:30.120 | So we could start with classical economics.

00:30:33.320 | Classical economics, we could think of Adam Smith

00:30:36.080 | as kind of your classic classical economist,

00:30:38.680 | the founder of the discipline.

00:30:40.480 | Classical economics does not really use math,

00:30:44.440 | is very close to political economy.

00:30:46.840 | It's concerned with, as Smith puts it,

00:30:51.040 | the wealth of nations.

00:30:52.160 | It's concerned to some degree with distribution.

00:30:54.400 | It's concerned to some degree

00:30:55.680 | with what makes a good political system.

00:30:58.360 | And what tends to really define classical economics

00:31:04.440 | when you're looking from a great distance

00:31:06.080 | is what's called the labor theory of value.

00:31:08.680 | So where does value come from in classical economics?

00:31:12.600 | It comes from the labor that a person puts into it.

00:31:17.480 | So maybe this in some ways comes from Locke's notion

00:31:21.720 | of property, that you kind of mingle your labor

00:31:24.360 | with the natural world.

00:31:25.720 | We can say labor theory of value.

00:31:27.400 | So classical economics concerned with,

00:31:31.120 | Smith is arguing against mercantilism

00:31:33.440 | for more free trade.

00:31:34.800 | Often goes by the name of political economy

00:31:38.080 | to show it's more capacious.

00:31:39.440 | It's thinking of politics and economics.

00:31:42.680 | You can still read these books today.

00:31:45.480 | The sentences are long, the words are different,

00:31:47.200 | but you can still follow along.

00:31:49.120 | So the real big transition from classical economics

00:31:53.320 | and political economy to economics,

00:31:55.920 | as it's understood today,

00:31:57.000 | comes with the marginal revolution.

00:31:59.480 | And the marginal revolution is a scientific revolution

00:32:02.320 | that happens in a couple of different places

00:32:04.920 | simultaneously, right?

00:32:05.920 | This is one of these things that you see

00:32:07.560 | in the history of science.

00:32:08.560 | Like, you know, there'll be some breakthrough,

00:32:10.560 | like Darwin has a breakthrough,

00:32:12.000 | but like somebody else has sort of the same breakthrough

00:32:13.880 | at the same time, totally, you know, differently.

00:32:16.280 | So there's a version of marginalism that's continental,

00:32:20.960 | that, you know, there's a version

00:32:21.920 | in the German-speaking lands,

00:32:23.160 | in the French-speaking lands, and in Britain,

00:32:25.600 | and they all kind of come together.

00:32:27.480 | And the shift is in the theory of value.

00:32:31.600 | So the theory of value in marginalism is on the margin.

00:32:36.600 | So say you have one apple and you want a second one,

00:32:42.400 | how much is going from one apple to two apple worth for you?

00:32:47.400 | Probably quite a bit.

00:32:49.440 | If you had 10 apples, maybe going to 11 apples

00:32:52.640 | doesn't matter that much.

00:32:53.640 | The marginal value is less.

00:32:55.800 | So what marginalism does though, most importantly,

00:32:59.280 | is it opens the door to math and economics,

00:33:02.960 | because it means you can graph this now.

00:33:05.520 | You can depict this relationship graphically.

00:33:09.840 | And there's some really interesting work

00:33:11.760 | in the history of economics that shows a lot of the people

00:33:14.920 | who developed marginalism were looking to physics

00:33:19.360 | as a model, physics, the queen of the sciences.

00:33:22.360 | And so they were thinking, they imported terms

00:33:26.360 | from the natural world to describe the social world

00:33:29.320 | through the lens of economics, terms like equilibrium.

00:33:32.680 | So the idea being that if you looked at a market,

00:33:36.800 | a market would reach equilibrium

00:33:39.160 | when everybody has bought and sold all that they want,

00:33:43.600 | or the price will settle at an equilibrium price

00:33:46.800 | when it's really the demand and supply are matching up.

00:33:49.920 | - And some of these ideas are things we would pick up

00:33:52.800 | at a microeconomics class?

00:33:54.960 | - Oh, yes, this is still out there.

00:33:57.600 | This is sort of the basic foundation of microeconomics,

00:34:01.680 | marginal analysis.

00:34:03.200 | And so in the German-speaking intellectual tradition,

00:34:07.120 | this is the root of Austrian economics.

00:34:10.320 | And people picking up the marginal revolution

00:34:12.680 | in the German-speaking lands are opposed to the historicists

00:34:15.760 | who are thinking in a more evolutionary way

00:34:20.200 | about how societies kind of grow and change

00:34:24.080 | and they have a vision of economic ideas

00:34:29.080 | as applying differently

00:34:31.560 | to different types of social arrangements.

00:34:34.000 | Or the marginalists, remember, are inspired by physics,

00:34:37.640 | and this is a set of natural laws that applies anywhere

00:34:42.000 | to any sort of human society.

00:34:44.480 | So that's this first really big fissure

00:34:46.840 | that we'll see again and again.

00:34:48.560 | Are you historically minded?

00:34:50.600 | Do certain traits of economic life in here,

00:34:55.600 | adhere, and become expressed in certain types of societies?

00:34:59.120 | Or are there universal economic laws

00:35:01.200 | that flow through any type of society?

00:35:03.280 | So that's kind of a juncture, a break.

00:35:05.840 | And so marginalism,

00:35:07.360 | first, people start using really geometry

00:35:11.120 | to kind of graph things,

00:35:12.320 | but marginalism is also opening up

00:35:14.360 | to the possibility of calculus

00:35:16.320 | and the possibility of creating models.

00:35:17.960 | But at that point in time, late 19th century,

00:35:21.040 | a model is something like a physicist does.

00:35:23.760 | Like, think of like an inclined plane

00:35:25.400 | and how fast does the ball roll from one to the other?

00:35:27.440 | It's a physical representation of the world.

00:35:29.960 | And eventually, economists will start to create

00:35:32.080 | mathematical representations of the world.

00:35:34.720 | But we're not quite there yet.

00:35:35.840 | So we're in late 19th century and we have this fissure,

00:35:39.080 | we have this introduction of marginal analysis

00:35:41.520 | that marks the juncture

00:35:43.080 | from classical economics to economics.

00:35:45.800 | So let's say now we have economics,

00:35:48.000 | but we still have this fissure between historical thinking

00:35:51.000 | and let's call it natural law thinking.

00:35:54.680 | That's not quite right,

00:35:55.520 | but physical laws versus contingency.

00:35:58.560 | And then in the United States,

00:36:01.600 | this ends up mapping onto debates about capitalism.

00:36:05.000 | And so more historically minded economists

00:36:08.560 | tend to be interested in the progressive movement,

00:36:12.320 | and which is invested in taming

00:36:15.960 | and regulating industrial capitalism

00:36:17.920 | and changing its excesses.

00:36:19.280 | Factory safety laws, wage laws, working conditions laws.

00:36:24.960 | Yet in general, American economists

00:36:29.520 | all use marginal analysis just in different ways.

00:36:32.760 | The ones who are more drawn to marginal analysis

00:36:35.560 | become known as neoclassical economists.

00:36:38.760 | They're neoclassical,

00:36:40.240 | the neo is because they're using marginal analysis.

00:36:42.680 | The classical is because they don't think

00:36:45.080 | we need to change the way the economy operates

00:36:47.880 | or the government operates.

00:36:48.800 | They're not progressive.

00:36:49.800 | Whereas the progressives are saying things like,

00:36:52.200 | we need to use social control.

00:36:55.760 | The state and the people collectively and democratically

00:36:59.560 | need to control the way economics unfolds

00:37:04.480 | and make sure things are fair and equal.

00:37:06.800 | So that school of thought

00:37:09.200 | becomes known as institutional economics

00:37:11.880 | in the United States by the 20th century.

00:37:14.160 | So it's part of the progressive movement,

00:37:16.000 | late 19th century, into the 20th century,

00:37:18.600 | it really becomes institutional economics.

00:37:21.000 | And it's quite dominant.

00:37:22.320 | And the neoclassical economists are still there,

00:37:24.560 | but they're very much a minority.

00:37:26.640 | And Frank Knight, Milton Friedman's teacher,

00:37:29.520 | is one of the minority neoclassical economists.

00:37:32.880 | And the institutionalists are much more progressive.

00:37:37.120 | Still.

00:37:38.280 | - Is it fair to say that the neoclassical folks

00:37:41.360 | and even the classical folks

00:37:42.800 | versus the institutional economics folks,

00:37:45.080 | they have a disagreement

00:37:47.680 | about how much government intervention

00:37:49.760 | there should be in the economy.

00:37:51.400 | So neoclassical is less intervention.

00:37:54.400 | And then institutional economists,

00:37:56.560 | the progressive folks, has more intervention.

00:37:58.560 | - Yes, yes, exactly right.

00:38:00.520 | So this is the situation in the 1920s.

00:38:04.840 | But the other piece I should mention

00:38:08.200 | is the first generation of progressive economists

00:38:11.200 | were very radical.

00:38:12.760 | They were closely allied with the socialist movement,

00:38:15.960 | with labor radicalism.

00:38:17.800 | And many of them lost their jobs at universities.

00:38:20.680 | This kind of connects to the early,

00:38:22.360 | the dawn of academic freedom.

00:38:23.680 | This is before academic freedom.

00:38:25.600 | And they became, they were chastened.

00:38:28.000 | They became much more mainstream.

00:38:30.000 | By the time we get to the 1920s,

00:38:31.520 | we don't really have radical critiques

00:38:34.000 | of society coming from economists.

00:38:36.400 | Much smaller profession,

00:38:38.440 | much less important than it is today.

00:38:40.680 | And fairly peaceful,

00:38:43.800 | because the 1920s are a fairly peaceful decade

00:38:46.440 | in the United States.

00:38:47.720 | So this is a situation when the Great Depression hits.

00:38:51.320 | And as I mentioned before,

00:38:53.880 | the head, the kind of most important

00:38:55.920 | institutional economist is Wesley Mitchell.

00:38:58.880 | And he has said,

00:39:01.120 | he's written a whole book on business cycles.

00:39:04.600 | But he doesn't see this business cycle coming

00:39:06.600 | and it hits

00:39:07.440 | and he doesn't have a good explanation for it.

00:39:09.160 | Now, perhaps the preeminent neoclassical economist

00:39:11.640 | was Irving Fisher.

00:39:12.800 | Now Irving Fisher is big into the stock market.

00:39:16.440 | And Irving Fisher says sometime in late summer, 1929,

00:39:20.640 | stocks are going ever higher

00:39:23.880 | and will continue to go ever higher forever.

00:39:26.840 | And so he loses his reputation

00:39:29.600 | after the stock market crash.

00:39:30.760 | So Milton Friedman is stepping into a field

00:39:33.440 | in which the greats have been discredited

00:39:35.560 | and there's an enormous economic crisis all around.

00:39:38.200 | - And everybody's struggling to figure out

00:39:40.480 | why the crisis happened.

00:39:42.000 | - Yes, and the other thing he's stepping into

00:39:44.160 | is a world where in the United States,

00:39:47.120 | there's a great deal of anger at capitalism,

00:39:50.880 | at the system, unemployed people on the street.

00:39:53.360 | In Europe, there's rising fascist movements.

00:39:56.520 | In Asia, there's rising fascist movements.

00:39:59.000 | And so everyone's very concerned about this.

00:40:02.200 | And Friedman is seeing a lot of this

00:40:04.480 | through the lens of Frank Knight,

00:40:06.040 | who feels like we are maybe reaching the end

00:40:09.160 | of what he calls liberalism.

00:40:10.960 | He calls himself an old-fashioned liberalism.

00:40:12.720 | We're reaching the end

00:40:13.760 | of representative democratic government

00:40:15.680 | because representative democratic government

00:40:18.200 | cannot solve these social problems.

00:40:20.480 | And capitalism as it has developed,

00:40:24.520 | Knight is very pro-capitalist,

00:40:26.040 | but he says it's generating inequality

00:40:28.280 | and this is putting too many strains on the system.

00:40:31.120 | So Knight will become one of the people

00:40:34.080 | who helps Friedman think,

00:40:35.440 | how do I develop a new theory of capitalism

00:40:38.960 | that works in an era of mass democracy

00:40:43.640 | where people can vote

00:40:45.160 | and people can express at the ballot box

00:40:47.280 | their unhappiness with what's happening economically.

00:40:50.640 | So this larger movement will generate

00:40:52.800 | of which F.A. Hayek is a part,

00:40:55.640 | Friedman is a part that becomes the very early stirrings

00:40:59.440 | of trying to think about a new sort of liberalism,

00:41:02.840 | which will eventually be called neoliberalism.

00:41:05.240 | - Okay, so if we can just linger on definitions of things.

00:41:08.480 | So we mentioned what neoclassical is

00:41:11.400 | and the institutional economics is.

00:41:14.240 | What's Keynesian economics?

00:41:16.720 | And the Chicago School of Economics,

00:41:19.160 | I guess, is a branch of neoclassical

00:41:21.680 | that's a little bit more empirical

00:41:23.760 | versus maybe model-based.

00:41:26.760 | And Keynesian is very model-heavy,

00:41:29.640 | more intervention of government.

00:41:31.520 | - Yes.

00:41:32.560 | - So the real battle is Keynesian versus everybody else.

00:41:36.680 | - That is what eventually comes to pass in the United States

00:41:39.760 | and in the kind of overall developed,

00:41:41.840 | in the kind of developed profession of economics.

00:41:45.200 | The other piece of the puzzle here

00:41:46.480 | is the introduction of mathematics.

00:41:48.320 | And it's been around the edges,

00:41:50.560 | but it will pick up speed in the 1930s,

00:41:53.560 | like the Econometrics Society is founded.

00:41:56.520 | They start publishing.

00:41:58.200 | People start using more statistical and mathematical tools

00:42:02.400 | to think about economics,

00:42:04.360 | and they're given a boost sort of inadvertently

00:42:06.360 | by the rise of Keynesian economics.

00:42:08.400 | So Keynes is trained in the neoclassical tradition.

00:42:11.960 | He's an absolutely fascinating figure.

00:42:15.560 | He's been there in the peace negotiations at Versailles.

00:42:18.720 | He basically calls World War II.

00:42:21.000 | He's like, "Hey, we're gonna have another war here

00:42:24.160 | caused by Germany because this peace treaty

00:42:26.600 | has been done in such a vindictive way,

00:42:29.280 | and people have made such bad decisions."

00:42:30.840 | He's there, he sees it happening.

00:42:32.520 | And so when the Great Depression unfolds,

00:42:36.400 | he basically comes up with a new theory

00:42:38.880 | for explaining what's going on.

00:42:40.720 | And the previous neoclassical understanding

00:42:44.240 | is sort of things go up and things go down.

00:42:47.080 | And when they go down,

00:42:48.040 | there's a natural mechanism to bring them back up.

00:42:50.280 | So when the economy's going down,

00:42:51.920 | prices are going down, wages are going down,

00:42:55.480 | everybody's losing money,

00:42:56.680 | but eventually firms are going to realize,

00:42:59.480 | "Hey, I can hire people cheap.

00:43:01.680 | Hey, I can buy stuff cheap.

00:43:03.680 | I don't have a lot of competition.

00:43:04.880 | Maybe I should get in the game here."

00:43:06.360 | And then others will start to get in,

00:43:07.600 | and then you regenerate prosperity in that way.

00:43:10.080 | And so Keynes says, "Sure, that's one theory,

00:43:14.880 | but something different is happening right now."

00:43:17.240 | Part of why it's happening

00:43:18.840 | is because the working class is more empowered now.

00:43:23.280 | They're not simply going to just take low wages

00:43:25.760 | and ride them down to the floor.

00:43:26.960 | We might not hit the floor.

00:43:28.440 | But also he says people might become too anxious to spend.

00:43:33.440 | They might not want to invest.

00:43:37.760 | And Keynes has these discussions of animal spirits, right?

00:43:41.840 | He's still enough of a political economist

00:43:44.240 | to think not just in terms of human rationality,

00:43:47.240 | but what are some other things going on in human beings?

00:43:49.520 | And people might decide to sit on their money.

00:43:52.360 | They might not invest it.

00:43:53.960 | And so what happens then

00:43:55.920 | is you could get stuck in a bad equilibrium.

00:43:59.520 | So in the neoclassical model,

00:44:01.080 | the equilibrium kind of restarts and resets itself.

00:44:03.840 | And he says, "No, we could get stuck here.

00:44:05.320 | We could get stuck in the depression."

00:44:07.040 | And in that case, what has to happen,

00:44:09.520 | he says the government stimulates investment

00:44:12.600 | and the government itself invests.

00:44:15.200 | And then he argues that,

00:44:17.280 | this is a student of his, Richard Kahn says,

00:44:19.480 | "As the government invests a dollar,

00:44:21.160 | it has like a multiplier effect.

00:44:22.880 | The dollar spent by the government

00:44:24.240 | kind of ramifies out throughout the economy."

00:44:26.480 | So it takes the government and puts it in the center

00:44:30.480 | as opposed to say the banking system or the financial system

00:44:33.280 | which would be the more Friedman analysis.

00:44:35.280 | And for many economists of Friedman's generation,

00:44:39.320 | and he's a weird generation

00:44:40.440 | 'cause the generation that becomes dominant

00:44:43.360 | is just like four years older

00:44:45.600 | the men who become Keynesian economics.

00:44:47.240 | But that four years is really important

00:44:48.920 | because they come in to grad school in economics

00:44:51.680 | and they get exposed to the new ideas of John Maynard Keynes

00:44:54.600 | and they, I think it's Paul Samuelson calls it,

00:44:58.400 | like it was like a South Sea virus

00:45:00.400 | that attacked all of the younger economists

00:45:04.960 | immediately succumbed and like no one under 50

00:45:07.840 | ever got the disease, right?

00:45:09.120 | 'Cause their thinking's already set.

00:45:10.680 | And so Keynesianism, Keynes himself is very suspicious

00:45:15.680 | of math and economics.

00:45:18.160 | And he and Friedman is fascinating.

00:45:20.280 | One of the first books by Anne Tingerman,

00:45:23.000 | a Dutch economist to use math and economics

00:45:25.880 | is huge volumes.

00:45:27.440 | Volume one, Keynes pans it.

00:45:31.000 | Volume two, Friedman pans it.

00:45:33.120 | So they're in the same page,

00:45:34.480 | but what happens is as Keynesianism

00:45:36.880 | arrives in the United States,

00:45:38.840 | Franklin Roosevelt is not really a Keynesian.

00:45:42.080 | He's kind of an accidental or experimental Keynesian.

00:45:46.280 | And there's a bunch of different ideas in the United States

00:45:49.520 | that are very similar to Keynesianism.

00:45:51.720 | They're not theorized,

00:45:52.640 | but they're similar ideas

00:45:53.680 | that the government has to do something.

00:45:55.480 | So this all comes together

00:45:56.880 | and American economists realize

00:46:00.120 | that you can construct models in the Keynesian perspective.

00:46:05.600 | And if you can use numbers in these models,

00:46:10.160 | you can go to Washington DC with numbers

00:46:13.760 | and you seem like you have a lot more authority.

00:46:18.040 | And so math becomes really twinned into Keynesian economics.

00:46:23.040 | - So numbers are used as a kind of a symbol of expertise.

00:46:29.080 | We really know what the hell is going on

00:46:31.560 | because we have some numbers, right?

00:46:32.880 | - Right, and we can create a model.

00:46:34.400 | And so we can say, okay, in the model,

00:46:36.240 | the interest rate is here and taxes are here.

00:46:38.520 | So let's play with government spending.

00:46:40.560 | Let's make it up, let's make it down.

00:46:42.040 | And then we can get an estimation.

00:46:43.560 | It'll spit out, here's predicted GDP.

00:46:46.400 | So the other piece of the Keynesian revolution

00:46:49.320 | is it really gets people thinking kind of holistically

00:46:52.960 | about the economy as one conceptual unit.

00:46:57.960 | And you then have what Paul Samuelson

00:47:02.800 | will end up calling the neoclassical synthesis.

00:47:05.080 | And this is still in economics today.

00:47:06.840 | If you take micro, you're gonna get supply and demand,

00:47:10.520 | scarcity, marginal analysis.

00:47:12.440 | If you take macro,

00:47:13.800 | you're gonna get a very different approach

00:47:15.520 | and that's more Keynesian based.

00:47:18.160 | And so the idea is that, and this makes sense.

00:47:20.760 | I mean, you can think of this from statistics, right?

00:47:22.600 | The way things act individually

00:47:25.080 | versus when they're all added together

00:47:26.840 | can be very different.

00:47:27.760 | So there's this kind of uneasy piece

00:47:30.360 | where economists are using kind of neoclassical tools

00:47:34.640 | to analyze individual behavior

00:47:36.480 | and individual market behavior.

00:47:37.760 | And they're shifting to a different paradigm

00:47:39.320 | when they think about the economy as a whole.

00:47:41.080 | And in this paradigm of the economy as a whole,

00:47:43.920 | the federal budget, the taxing and spending power

00:47:46.760 | of the federal government become paramount.

00:47:49.280 | And that is called the fiscal revolution.

00:47:51.640 | And that's really the essence of Keynesianism.

00:47:54.360 | But the key thing to remember

00:47:56.960 | is that Keynesianism and Keynes are different.

00:48:01.240 | And there's this famous episode

00:48:02.960 | where John Maynard Keynes comes to DC and he goes to dinner

00:48:07.080 | and he comes back and he says

00:48:08.400 | to one of his friends in London,

00:48:09.520 | he said, "Oh yeah, it was really interesting.

00:48:11.400 | I was the only non-Keynesian there."

00:48:13.960 | - Yeah. - You know?

00:48:16.720 | - So Keynesianism is more government intervention,

00:48:20.840 | fiscal policy.

00:48:21.760 | So put the government at the center

00:48:25.680 | of influencing the economy.

00:48:28.040 | And then the different flavors

00:48:30.520 | of whether it's Austrian economics

00:48:32.240 | or Chicago School of Economics is saying no,

00:48:36.080 | we have to put less government intervention

00:48:38.960 | and trust the market more.

00:48:41.880 | And the formulation of that from Milton Friedman

00:48:44.320 | is trust the money more, not trust,

00:48:48.160 | but the money supply is the thing

00:48:50.520 | that should be focused on.

00:48:52.280 | - Yes, so the Austrians and the Chicago Schools

00:48:56.000 | see economic prosperity and growth

00:48:59.840 | comes from individual initiative,

00:49:02.600 | individual entrepreneurship, kind of private sources.

00:49:05.280 | The private market is what drives economic growth,

00:49:07.520 | not the public sector.

00:49:09.440 | And so for Friedman then the question is,

00:49:12.440 | what is the government's role?

00:49:14.320 | And because he's lived through the Great Depression,

00:49:17.320 | he's not laissez-faire and he won't ever be laissez-faire.

00:49:20.920 | Now, interestingly, Hayek,

00:49:23.080 | living through the Great Depression,

00:49:24.480 | at first is laissez-faire.

00:49:26.640 | And he's like, sure, like let it rip.

00:49:29.320 | And things get so bad that Hayek's like,

00:49:32.160 | okay, that's not gonna work.

00:49:33.600 | - Can we actually define laissez-faire?

00:49:35.080 | So what do we mean?

00:49:36.040 | Like, what's the free market?

00:49:37.120 | What's laissez-faire?

00:49:37.960 | What's the extreme version here?

00:49:40.040 | - So yeah, laissez-faire means leave a be in France.

00:49:43.560 | It's more often used as an insult than as an actual.

00:49:48.200 | Very few people are completely and totally laissez-faire.

00:49:51.400 | That would be like the pure laissez-faire

00:49:53.440 | would be the sort of pure, maybe pure anarchist position,

00:49:56.720 | like the state does nothing or the state isn't even there.

00:50:00.360 | But it tends to, if I could maybe make it more precise,

00:50:04.240 | it would be focused on freedom of contract

00:50:06.800 | would be essential.

00:50:08.160 | And that means like the buyer of labor

00:50:13.040 | and the seller of labor must have absolute freedom

00:50:16.320 | to contract.

00:50:17.560 | So that means no minimum wage law, no working hours law,

00:50:22.440 | no employment law, things like that.

00:50:24.640 | That was, and this is all pre-progressive movement.

00:50:27.680 | A lot of things are that way, right?

00:50:29.160 | You know, imagine you're in 19th century America

00:50:32.120 | and you have a farm

00:50:32.960 | and you hire someone to help you in the farm.

00:50:35.200 | You offer the money, they take it.

00:50:37.720 | If they fall off a ladder and break their back,

00:50:40.080 | maybe you help them out, maybe you don't, right?

00:50:41.680 | But there's not a whole apparatus of legal liability

00:50:44.600 | and safety and things like that.

00:50:47.080 | So that would be one piece.

00:50:48.200 | Another piece of laissez-faire

00:50:49.960 | would be free trade amongst nations.

00:50:53.160 | So no regulation of who can invest in a nation

00:50:58.400 | or who can take money out of a nation.

00:51:01.120 | So Nippon Steel could come and invest in U.S. Steel

00:51:04.680 | and there would be no grounds in which to reject that.

00:51:08.040 | Or you could, as a billionaire in the United States,

00:51:11.600 | relocate you and all your money to another country

00:51:14.320 | and the United States couldn't try to keep you

00:51:16.240 | and nobody else could stop you from coming in.

00:51:18.560 | And so, and then in the context of economic crisis,

00:51:24.240 | laissez-faire would not encompass

00:51:28.480 | centrally provided relief

00:51:31.000 | because in the pure theory,

00:51:33.480 | again, very seldom applied purely,

00:51:35.600 | but in the pure theory,

00:51:37.040 | the wages need to come down far enough

00:51:40.320 | and people need to be desperate enough to start taking work

00:51:44.680 | and to start the machine again.

00:51:46.680 | So the theory would be if you give people relief,

00:51:49.560 | they might not go back to work.

00:51:51.360 | Now, almost nobody says that in the Great Depression

00:51:54.880 | because the situation is so bad

00:51:57.240 | and it's, you know, people are starving on the street

00:52:00.480 | and people feel, for humanitarian and ethical reasons,

00:52:03.760 | it's not okay to say that.

00:52:05.400 | The Austrians, though, at first, Hayek and Lionel Robbins

00:52:08.760 | are like, "This is a business cycle

00:52:10.240 | and it needs to run its course

00:52:11.840 | and it will be detrimental if we intervene."

00:52:14.560 | And then pretty soon, Hayek has to change his tune.

00:52:17.960 | - So the Austrians are the most hardcore

00:52:20.200 | in terms of laissez-faire.

00:52:21.320 | - Absolutely, and so Hayek will make the turn

00:52:24.880 | towards accepting more of a state

00:52:27.120 | and then will come to talk about how the state needs

00:52:30.200 | to support what he calls a competitive order.

00:52:33.360 | But his mentor, Ludwig von Mises,

00:52:36.440 | still remains very hardcore and is not really open

00:52:40.440 | to things like unemployment insurance

00:52:42.920 | or other state-based interventions.

00:52:46.320 | - What does von Mises say about, like, human suffering

00:52:49.360 | that's witnessed in the Great Depression, for example?

00:52:51.640 | Like, what are we supposed to, as economists,

00:52:54.600 | as humans that define policy,

00:52:56.840 | what are we supposed to see

00:52:58.360 | when people are, like, suffering at scale?

00:53:01.600 | - Yeah, I wish I knew an answer to that question.

00:53:03.760 | I don't know enough about von Mises

00:53:06.400 | and his reaction in the Great Depression.

00:53:08.800 | I think I would hazard that he would look more

00:53:13.800 | down the road and say, "Well, if you start here,

00:53:18.320 | you're gonna go places that are bad,"

00:53:20.960 | but I don't factually know what he said in response.

00:53:25.080 | I do know that Hayek's position doesn't last very long.

00:53:28.120 | It's not a position you can hold to.

00:53:30.400 | Maybe you could hold to it in other cycles.

00:53:33.280 | The other thing that was interesting

00:53:35.280 | was I found very few Americans saying this.

00:53:40.120 | Most who were were kind of small-town electeds,

00:53:43.840 | or the most famous is Andrew Mellon,

00:53:47.000 | quoted by Herbert Hoover, so not directly.

00:53:50.480 | We don't have him on record saying this,

00:53:52.360 | but apparently Hoover records in his memoirs

00:53:55.120 | that Mellon said something like,

00:53:57.600 | "Liquidate real estate, liquidate stocks,

00:54:02.080 | purge the rottenness out of the system.

00:54:04.040 | People will live a healthier life,"

00:54:06.680 | and certainly there were members of the Federal Reserve

00:54:09.960 | who felt like it would create,

00:54:12.920 | they didn't say moral hazard,

00:54:14.160 | but it would create what we now call moral hazard,

00:54:16.240 | bad habits, were we to intervene and to save failing banks

00:54:19.720 | because failing banks need to be taught a lesson.

00:54:22.880 | They need to be taught discipline,

00:54:24.360 | and so a lot of people, I think,

00:54:25.560 | saw it in the context of discipline.

00:54:27.720 | This is discipline, and if you remove the discipline,

00:54:32.200 | you'll be taking away something fundamental in society.

00:54:34.840 | - So Milton Friedman never quite went

00:54:36.880 | all the way to laissez-faire.

00:54:38.360 | - No, no, he didn't see that,

00:54:40.080 | and what's really interesting

00:54:41.600 | is the number of incredibly radical proposals

00:54:44.840 | that he and his teachers were floating,

00:54:47.440 | so I've mentioned Frank Knight.

00:54:49.380 | Another really important influence on Friedman

00:54:52.240 | was Henry Simons, who was a junior professor at Chicago,

00:54:57.240 | and Simons had this idea for what he called 100% money,

00:55:02.240 | which would be a law that says

00:55:04.400 | banks have to hold 100% of the deposits they receive.

00:55:08.800 | They can't loan them out on the margin,

00:55:11.080 | so this would completely and totally

00:55:12.900 | have overhauled the U.S. banking system,

00:55:14.600 | and he would have said

00:55:15.840 | there's a category of things called banks

00:55:17.460 | where you get deposits,

00:55:18.440 | and then there's gonna be a category of sort of,

00:55:20.480 | he didn't say investment banks,

00:55:21.680 | but investment vehicles that will invest,

00:55:24.020 | so similar to what did happen in some ways

00:55:27.000 | in the banking reforms in the 1930s,

00:55:30.480 | the investment banks were split from the deposit banks,

00:55:34.440 | and the banks that took deposits

00:55:36.080 | were much more highly regulated,

00:55:37.320 | and they were supported by the FDIC,

00:55:39.000 | but the point being the Chicago school

00:55:41.520 | had these very radical proposals for reform.

00:55:44.400 | Go off the gold standard, restrict the currency,

00:55:48.280 | change the banks, immediately relief payments now.

00:55:52.800 | What is important to note, though,

00:55:55.360 | is that they thought of all of those as emergency measures

00:55:59.020 | to get through the emergency,

00:56:00.760 | not as permanent alterations in the state

00:56:04.000 | of what had to be,

00:56:06.080 | and not permanent alterations between state and market,

00:56:09.480 | where the Keynesian assumption is things have changed,

00:56:12.200 | times have changed, we're in a new dispensation,

00:56:15.040 | and we need a new relationship.

00:56:17.000 | So Milton Friedman is very open

00:56:21.560 | to doing things differently in a state of emergency.

00:56:25.300 | He will have different ideas during World War II

00:56:28.560 | than any other time, and that's why I argue

00:56:30.580 | I think he would have been supportive

00:56:32.880 | of at least the first rounds of coronavirus relief,

00:56:35.640 | because I think he would have put

00:56:37.000 | his emergency thinking hat on.

00:56:39.460 | So in that way, he was definitely more flexible.

00:56:43.440 | - You mentioned Hayek.

00:56:44.960 | Who is this guy?

00:56:46.840 | What's his relationship to Milton Friedman

00:56:49.400 | in the space of ideas,

00:56:51.120 | and in the context of the Great Depression?

00:56:53.440 | Can we talk about that a little bit?

00:56:55.040 | - Sure, so F.A. Hayek is an Austrian economist

00:56:58.920 | who takes up a posting in London,

00:57:01.760 | and he's a mentor, a mentee, rather, of Ludwig von Mises.

00:57:06.760 | He's writing about business cycles,

00:57:10.800 | Austrian capital theory, and the Depression hits,

00:57:14.260 | and he's one of the few economists who, in the beginning,

00:57:18.880 | really is not calling for much intervention,

00:57:21.280 | although as he realizes how politically unpalatable that is,

00:57:25.320 | he will develop a more softened version

00:57:27.280 | of Austrian economics that has room

00:57:29.760 | for a whole range of social services.

00:57:32.000 | What's significant about Hayek is that he is also watching

00:57:35.360 | what's happening in Austria, what's happening in Germany,

00:57:38.280 | and he's really worried the same thing is going to happen

00:57:42.080 | to the Western democracies,

00:57:43.640 | and he sees the root cause of this is socialism,

00:57:47.160 | the shift towards an expanded role for government,

00:57:49.640 | which we've been talking about

00:57:50.720 | is happening in the United States,

00:57:52.000 | it's also happening in Britain,

00:57:54.000 | and so he writes this book that becomes incredibly famous,

00:57:57.160 | "The Road to Serfdom," basically saying taking these steps

00:58:01.440 | towards a planned economy or an economy

00:58:04.040 | that's a modified form of capitalism is going to, could,

00:58:07.960 | he's very clear that this is not an inevitability,

00:58:10.160 | but if the same steps are taken

00:58:11.960 | and people follow the same line of thinking,

00:58:14.060 | we may end up in a sort of coercive, totalitarian state.

00:58:18.160 | So this becomes enormously popular in the United States.

00:58:22.080 | First of all, he's in good touch with Friedman's teachers,

00:58:25.200 | even before this book comes out.

00:58:27.040 | They see them as kindred spirits.

00:58:28.840 | Frank Knight is in touch with him,

00:58:30.120 | Henry Simons is in touch with him.

00:58:32.040 | They all see themselves as liberals.

00:58:33.600 | They call themselves old-fashioned, unreconstructed liberals,

00:58:37.160 | and so even before he becomes famous,

00:58:39.240 | Hayek will be trying to kind of organize thinkers

00:58:43.000 | and intellectuals who he believes shares his values,

00:58:47.000 | of what we would call today classical liberalism,

00:58:49.520 | and to kind of create a counter consensus

00:58:51.920 | to the one that's gathering.

00:58:53.600 | Now, Hayek also chooses not to argue against Keynes,

00:58:58.440 | and he feels that this is a huge missed opportunity,

00:59:01.480 | that he should have staked out the case against Keynes,

00:59:04.200 | and that because he did not,

00:59:06.240 | people come to believe there is no case against Keynes.

00:59:08.880 | Keynes is literally unanswerable.

00:59:11.000 | So Hayek will have this great regret.

00:59:13.000 | He will channel some of his regrets

00:59:15.840 | into sort of community building,

00:59:18.120 | specifically developing the Mont Pelerin Society,

00:59:21.000 | and it will fall to Friedman

00:59:24.240 | to really make that case against Keynes.

00:59:28.280 | But Hayek will end up at Chicago,

00:59:30.680 | and Hayek really influences Friedman

00:59:33.480 | to think about what Hayek calls the competitive order,

00:59:37.280 | and how the state can and must

00:59:41.400 | maintain a competitive order.

00:59:43.680 | That is the system of laws, of norms, of practices,

00:59:48.120 | that makes it possible for markets to function.

00:59:51.040 | And this is one of these key differentiators

00:59:53.360 | between the older philosophy of laissez-faire,

00:59:56.880 | and the newer reconceptualization of liberalism,

01:00:00.280 | which says, yes, we need a state.

01:00:02.160 | We need a state that's not intervening in markets

01:00:06.960 | under social democratic auspices,

01:00:08.800 | but is structuring and supporting markets,

01:00:11.560 | so that they can function with maximum freedom,

01:00:14.320 | keeping in mind that if there aren't

01:00:17.720 | basic social supports needed,

01:00:20.040 | the market is apt to generate

01:00:21.920 | the type of either inequality or social instability

01:00:25.640 | that will call the whole system into question.

01:00:28.160 | So Hayek is really key

01:00:29.400 | in promoting this modified liberalism.

01:00:32.360 | But from being a very prominent economist

01:00:35.440 | in the 1920s and 1930s,

01:00:37.280 | as mathematics becomes the language of economics,

01:00:42.240 | Hayek is completely left out in the cold.

01:00:44.520 | Now, Friedman, to some degree, is left out in the cold,

01:00:46.880 | but Friedman, at least,

01:00:47.840 | has proved to the mathematical economists

01:00:50.680 | that he knows what they're up to,

01:00:52.000 | and he's rejecting it

01:00:53.240 | from a position of expertise and knowledge.

01:00:56.480 | And he literally drives the mathematical economists

01:00:59.920 | out of Chicago.

01:01:00.800 | They're clustered in a group called the Kohl's Commission,

01:01:03.120 | and he makes their life hell.

01:01:05.120 | They have to, they flee.

01:01:07.160 | They flee the Friedman onslaught.

01:01:10.040 | But then when Hayek arrives at the University of Chicago,

01:01:13.680 | he would like to be considered

01:01:15.000 | for a position in the economics department,

01:01:16.840 | and Milton Friedman says, "No way.

01:01:19.160 | "You're not really an economist

01:01:20.480 | "because you're not empirical,

01:01:22.200 | "because you just develop these theories."

01:01:24.920 | So he has an appreciation for Hayek as a social thinker,

01:01:29.920 | but not as an economist.

01:01:31.320 | So what Friedman decides to do,

01:01:33.160 | his answer to Keynes will be deeply empirical,

01:01:36.800 | but it will also be theoretical,

01:01:38.400 | and it will create an alternative intellectual world

01:01:42.600 | and approach for economists

01:01:44.360 | who aren't satisfied with Keynesianism.

01:01:47.160 | And almost single-handedly,

01:01:49.560 | Friedman will introduce sort of political

01:01:52.640 | and ideological diversity into the field of economics,

01:01:56.040 | because from his beachhead in Chicago,

01:01:58.600 | he will develop the theory of monetarism.

01:02:02.160 | So what is monetarism?

01:02:03.720 | The easy way to summarize it

01:02:07.160 | is this famous dictum of Milton Friedman's.

01:02:10.080 | "Inflation is always and everywhere a monetary phenomenon."

01:02:14.440 | And it's fascinating that he becomes an expert in inflation

01:02:19.040 | because the first research,

01:02:21.600 | and the first major research product of monetarism

01:02:25.320 | is that theory of the Great Depression

01:02:27.160 | in a monetary history of the United States,

01:02:28.720 | and that is a theory of a deflation,

01:02:30.960 | all prices going down.

01:02:33.000 | And he will go back to an idea

01:02:36.200 | that Irving Fisher had popularized,

01:02:38.520 | but a very old idea, almost a truism,

01:02:40.880 | the quantity theory of money,

01:02:43.080 | which says the level of the price level

01:02:45.240 | is related to the amount of money circulating in an economy.

01:02:49.640 | So if you have more money, prices go up.

01:02:51.320 | If you have less money, prices go down.

01:02:53.640 | Now, this seems like very basic

01:02:55.640 | and almost too basic to bear repeating,

01:02:58.880 | but Friedman is saying this very basic relationship

01:03:02.080 | holds true even in an advanced industrial economy.

01:03:06.120 | And that is what people have started to doubt.

01:03:09.640 | And if you think about money, you think about banks,

01:03:12.800 | you don't think necessarily

01:03:14.600 | about the federal budget spending and taxation.

01:03:17.800 | And what you see happens in American economics,

01:03:21.000 | the textbooks previous to the Keynesian Revolution,

01:03:23.480 | they spent a lot of time on money.

01:03:25.560 | They spent a lot of time on interest rates.

01:03:27.240 | You can do word counts,

01:03:28.680 | and other scholars have done the word counts.

01:03:31.360 | And then word count for money

01:03:32.880 | after World War II just plummets,

01:03:35.200 | and you start seeing things like taxation,

01:03:37.480 | budget, those things go up.

01:03:39.720 | So what happens is the economics profession

01:03:43.440 | shifts its attention.

01:03:44.560 | It just looks away from money to other things.

01:03:47.760 | And Friedman is one of the few who's saying,

01:03:49.400 | "No, money still matters, money still counts."

01:03:53.240 | And it's a very counterintuitive argument to make.

01:03:57.520 | It's a very historical argument to make.

01:03:59.680 | And this is absolutely fascinating to me.

01:04:02.440 | With Anna Schwartz, he develops this 150-year timeframe.

01:04:06.880 | He also has students working on episodes of hyperinflation

01:04:10.840 | in different periods of time.

01:04:12.120 | He's also looking back to ancient history,

01:04:15.320 | inflationary episodes there.

01:04:17.200 | And he's saying this is a law of economics.

01:04:20.960 | This is something that recurs throughout time.

01:04:22.960 | It's not historical, right?

01:04:24.200 | It's not contingent.

01:04:25.560 | It's a law of economics.

01:04:27.280 | And his Keynesian counterpoints are saying,

01:04:31.840 | "No, that's not relevant any longer."

01:04:33.920 | Maybe once it was relevant, but it's not relevant today.

01:04:36.880 | Now, in some ways, they have a point,

01:04:39.200 | because in order to pay for World War II,

01:04:44.000 | the federal government sells a lot of bonds.

01:04:47.400 | It issues a lot of debt.

01:04:49.440 | And it wants to pay this debt back at a low interest rate,

01:04:53.640 | and it wants people to keep buying it.

01:04:56.080 | It wants the low interest rate

01:04:58.280 | to be competitive with other interest rates.

01:05:00.360 | So it wants, in general,

01:05:01.600 | low interest rates throughout the economy.

01:05:03.880 | And the Federal Reserve has been so discredited

01:05:06.680 | by the Great Depression

01:05:07.840 | that the Treasury basically runs the Federal Reserve

01:05:11.280 | and says, "Keep interest rates low."

01:05:13.560 | And so that's what it's doing.

01:05:15.000 | And so the Federal Reserve

01:05:16.280 | has stopped being an independent entity.

01:05:19.240 | It's just a sub-department of the Treasury.

01:05:22.120 | But in 1951, they negotiate

01:05:24.920 | what's called the Treasury-Fed Accord.

01:05:27.480 | And the Federal Reserve gets its independence,

01:05:31.040 | but it doesn't really use it.

01:05:32.760 | But statutorily, it now has it.

01:05:35.320 | And so most economists are just observing

01:05:39.280 | a regime in which the Federal Reserve has no power,

01:05:41.800 | a regime in which there is really little inflation.

01:05:44.280 | The inflation that is seen is post,

01:05:46.560 | just a little burst of inflation in the Korean War.

01:05:49.120 | And they're saying inflation's not really important,

01:05:51.480 | it's not really relevant,

01:05:52.560 | and money's not really relevant and important.

01:05:54.960 | And so to break through and to make the argument,

01:05:57.800 | that's why Friedman and Schwartz go to history,

01:06:00.880 | and they're able to make that argument for history.

01:06:03.920 | So then Friedman is coming out

01:06:06.240 | with a variety of papers that are saying,

01:06:08.520 | you know, when I look at economic fluctuations,

01:06:12.120 | he maps them side by side to fluctuations

01:06:14.480 | in the money supply and says, look, they fit.

01:06:16.960 | And other economists, remember,

01:06:18.640 | they're building complicated mathematical models,

01:06:21.200 | and Friedman's doing extremely simple stuff.

01:06:23.880 | And they just think it's dumb, it's not interesting,

01:06:26.880 | it's not true, they just, they don't buy it at all.

01:06:29.960 | And so, but after a monetary history of the United States,

01:06:34.040 | they have to pay attention.

01:06:35.560 | So it's really in those years,

01:06:37.360 | Friedman is hammering this idea of monetarism,

01:06:39.480 | and it starts to become something respectable,

01:06:44.360 | bordering on respectable for other economists

01:06:47.040 | to look to and think about.

01:06:48.480 | And that's really the beginning

01:06:50.280 | of the kind of Keynesian monetarist split,

01:06:52.840 | where if you start to give Friedman any credence,

01:06:56.000 | you're heading towards a monetarist position.

01:06:58.240 | Now, at the same time,

01:07:00.720 | Friedman comes out very publicly in 1964

01:07:04.240 | as a supporter of Barry Goldwater.

01:07:06.760 | And Keynesian economics has found a home

01:07:10.040 | in the Democratic Party.

01:07:11.960 | It's probably brightest moment in the sun,

01:07:14.280 | is the administration of John F. Kennedy,

01:07:16.360 | who brings in a lot of Harvard and Yale professors

01:07:19.520 | to the Council of Economic Advisors.

01:07:21.160 | He proposes a series of spending programs

01:07:24.800 | that are really guided by the Keynesian philosophy.

01:07:27.560 | And Barry Goldwater is tremendously controversial,

01:07:31.640 | part for his votes against civil rights,

01:07:33.800 | which Friedman really supports,

01:07:35.120 | part 'cause he's a hardcore libertarian,

01:07:38.000 | in an age when that's not in the political mainstream

01:07:41.080 | or not discussed in the political mainstream.

01:07:43.400 | And I mean, he's just tremendously unpopular,

01:07:45.440 | particularly in all the educated precincts

01:07:47.760 | where Friedman lives.

01:07:48.600 | So Friedman is like an outcast and a pariah

01:07:51.400 | for his support of Goldwater.

01:07:53.320 | And so that actually really affects monetarism,

01:07:55.920 | because people feel that this is now becoming

01:07:59.000 | a package deal.

01:08:00.560 | And so there's a great reluctance

01:08:02.520 | to embrace Friedman's ideas,

01:08:04.360 | because it seems like he would then have

01:08:05.840 | to embrace his politics.

01:08:07.480 | - Ah, so it's associated with conservatism.

01:08:12.600 | So this is the years when conservatism,

01:08:15.920 | there is a movement that calls itself conservatism,

01:08:18.800 | and Friedman is very tightly allied with this movement

01:08:21.520 | from the beginning,

01:08:22.680 | partly through his friendship with William F. Buckley.

01:08:25.320 | And a lot of people say to me,

01:08:27.320 | "Yeah, but Friedman's not conservative."

01:08:29.880 | And this is like a bigger,

01:08:31.640 | we could have a whole separate podcast on this.

01:08:33.360 | But for now, I'll just say that conservative

01:08:36.960 | in the United States becomes a political brand

01:08:40.320 | that contains elements of conservatism

01:08:43.280 | that are recognizable across time and space,

01:08:46.000 | embrace of tradition,

01:08:48.040 | more comfort with hierarchy, et cetera.

01:08:50.760 | And it also has something new and different,

01:08:53.160 | which is Friedman's ideas

01:08:55.600 | about Milton Friedman's advocacy of more free markets,

01:08:59.080 | less government regulation,

01:09:00.440 | and the benefits of capitalism,

01:09:01.920 | and the benefits of freedom.

01:09:03.040 | And that gets folded into American conservatism,

01:09:06.120 | in part because Milton Friedman

01:09:07.920 | is such a powerful intellectual figure.

01:09:10.360 | And after his advocacy of Goldwater,

01:09:13.400 | media realizes this guy's really smart.

01:09:16.400 | He has really interesting things to say.

01:09:17.840 | He makes great copy.

01:09:18.880 | He makes a great guest.

01:09:20.040 | And he starts writing a column for Newsweek magazine,

01:09:23.400 | which is a very big deal

01:09:24.840 | in a much more consolidated media environment.

01:09:27.840 | And he's quoted in all the newspapers.

01:09:29.440 | And so his public profile really starts to rise

01:09:32.200 | right as he's pushing monetarism

01:09:35.760 | as an alternative to the Keynesian synthesis.

01:09:38.920 | - Can we just linger on what is monetarism?

01:09:42.800 | - Yes, okay, I didn't come into it.

01:09:44.600 | - So like what, okay, the money supply.

01:09:47.080 | - Yes.

01:09:47.920 | - So money is this thing that,

01:09:49.440 | you can think of it like a notion

01:09:53.440 | where people buy and sell stuff.

01:09:56.600 | And there's this fascinating,

01:09:57.800 | complex, dynamical system of people

01:10:00.840 | contracting with each other in this beautiful way.

01:10:04.440 | I mean, there's so many pothead questions

01:10:05.960 | I want to ask you about the nature of money.

01:10:09.200 | I mean, money is fascinating in that way.

01:10:11.360 | And I think for Milton Friedman,

01:10:13.560 | trusting the flow of money is really important.

01:10:18.960 | And the signals that pricing and money in general provides

01:10:23.480 | is really important.

01:10:25.360 | - So yeah, and some of this,

01:10:27.400 | I could take some of this back again to Frank Knight.

01:10:30.120 | So one thing Frank Knight said to all his students

01:10:33.000 | was the market is the best allocation mechanism we have.

01:10:38.000 | The market is what allocates resources.

01:10:41.720 | In a situation of scarcity,

01:10:43.640 | the market allocates them the best.

01:10:45.960 | And Hayek will add to that by saying prices

01:10:49.560 | are information signals,

01:10:51.640 | and a price sends information to buyers and sellers

01:10:54.440 | about how they should act.

01:10:56.120 | And these are the two of the strongest arguments

01:10:58.720 | for why the government should not intervene

01:11:01.280 | in the price system, because it will blur information

01:11:04.920 | or because it will allocate less efficiently

01:11:07.680 | than market allocation will.

01:11:09.880 | And so what Friedman is really gonna add to that

01:11:13.080 | is maybe going up a level and thinking in the macro

01:11:16.400 | about the whole economy and how money circulates

01:11:20.360 | through that economy as a whole.

01:11:23.640 | And so what he and Anna Schwartz do

01:11:26.440 | is they construct what are called monetary aggregates.

01:11:30.680 | This is adding together, say, all the money

01:11:33.160 | that's on deposit in banks and all the money

01:11:36.240 | that's believed to be circulating in people's wallets.

01:11:38.840 | And you also have to really go back in time.

01:11:43.120 | We don't have credit cards.

01:11:44.900 | There is a stock market, but it's tiny

01:11:48.880 | in terms of the number of people who invest.

01:11:50.440 | There aren't mutual funds.

01:11:51.800 | When traveler's checks are introduced,

01:11:56.080 | this is like a big deal.

01:11:57.960 | So we have a very simple monetary system.

01:12:00.760 | And so Schwartz and Milton Friedman start measuring

01:12:04.480 | what they call the monetary aggregates.

01:12:06.120 | They focus on M1 and M2, and their favorite aggregate is M2,

01:12:11.120 | which I believe is encompassing sort of deposits

01:12:13.940 | and circulating medium.

01:12:16.220 | The other thing to recall, there's some fine distinctions

01:12:19.800 | between money in savings accounts

01:12:24.800 | and money in checkings accounts.

01:12:27.760 | And money in savings accounts can earn interest

01:12:31.920 | and is generally believed not to circulate,

01:12:34.840 | where money in checking accounts

01:12:37.200 | does not at that time bear interest

01:12:39.000 | and cannot legally bear interest,

01:12:40.520 | and so is thought of as circulating.

01:12:42.520 | And then there's different institutional architectures

01:12:44.800 | of postal savings banks and credit unions.

01:12:47.360 | But Friedman is, one, taking the focus

01:12:50.920 | to these aggregate amounts of money and saying,

01:12:55.440 | these really have a lot to do with economic booms and busts.

01:12:59.960 | When we have an expansion in the amount of available money,

01:13:03.680 | we see an expansion in economic activity.

01:13:06.480 | When we have a contraction in available money,

01:13:08.880 | we have a contraction.

01:13:10.720 | And so he says, at this stage, the government,

01:13:15.720 | through the mechanism of the Federal Reserve

01:13:19.320 | and its influence on interest rates,

01:13:21.920 | can either make money more cheaply available

01:13:25.680 | and more freely available in the economy,

01:13:28.320 | or it can make money more expensive and slow things down.

01:13:31.800 | But the central core idea of monetarism

01:13:35.760 | is this is potentially very bad.

01:13:38.560 | If the government can hit the gas and then hit the brake

01:13:42.360 | and hit the gas and hit the brake

01:13:45.040 | based on, say, what a politician wants

01:13:48.480 | or what somebody at the Federal Reserve wants,

01:13:50.800 | you have a lot of instability in the system.

01:13:53.440 | And so one of the core policy proposals of monetarism

01:13:58.280 | is let's grow the money supply at a steady rate.

01:14:02.880 | And in the beginning, Friedman just says K%.

01:14:06.040 | He doesn't even put a number on it

01:14:08.560 | because he says the number doesn't matter.

01:14:10.480 | What matters is the steadiness in the growth rate

01:14:13.040 | because if it's a steady growth rate, it will fade away,

01:14:17.400 | and then people will make economic decisions

01:14:20.200 | based on the fundamentals,

01:14:22.200 | not based on what they think is gonna happen,

01:14:25.360 | not based on hedging against inflation

01:14:28.360 | or hedging against deflation.

01:14:30.520 | They'll just be able to function.

01:14:33.400 | So this is sort of the paradox of monetary policy.

01:14:37.200 | When it's happening right, you don't see it,

01:14:40.440 | you don't notice it.

01:14:41.720 | When it's happening wrong, Friedman argues,

01:14:43.760 | it can just fundamentally destabilize everything.

01:14:46.320 | It can cause a Great Depression,

01:14:48.080 | can cause an artificial boom.

01:14:50.040 | And so he's taking monetary policy

01:14:52.800 | at a time when most economists think

01:14:54.400 | it's completely irrelevant

01:14:55.560 | and saying this is the central game of the economy.

01:14:59.120 | Now, we live in a world where we believe this,

01:15:02.200 | and the Federal Reserve chair can't open their mouth

01:15:05.680 | without headlines being generated.

01:15:08.280 | But Friedman is saying this at a time

01:15:10.080 | when the Federal Reserve

01:15:11.200 | is like a mysterious and secretive organization.

01:15:15.000 | It's not well-known, it's not deeply appreciated.

01:15:17.880 | Some of the only people who appreciate the Fed's power

01:15:20.640 | are like hardcore rural populists who have constituents,

01:15:25.640 | who think the banks and money power are the problem,

01:15:29.600 | who are like throwbacks from the frontier days.

01:15:31.840 | So Friedman in the beginning has no constituency

01:15:35.560 | for this policy.

01:15:36.920 | He has no constituency for this analysis.

01:15:40.240 | And so just going back to summarize monetarism,

01:15:43.360 | it's looking, it's using the quantity theory of money

01:15:47.040 | to analyze the macroeconomy.

01:15:49.760 | It's proposing a policy of slow and steady growth

01:15:54.040 | in the money supply.

01:15:55.760 | And then it is arguing that inflationary episodes,

01:15:59.580 | when they emerge, are profoundly driven

01:16:02.480 | by changes in the money supply, not by anything else.

01:16:06.880 | - I mean, and going even up a level as we started,

01:16:12.640 | how epic is it to develop this idea,

01:16:17.640 | to hold this idea, and then to convince the United States

01:16:21.920 | of this idea that money matters,

01:16:24.760 | that today we believe is mostly correct for now?

01:16:29.760 | - Yeah.

01:16:31.760 | - And so just this idea that goes against the experts

01:16:35.360 | and then eventually wins out

01:16:38.040 | and drives so much of the economy,

01:16:40.320 | the biggest, the most powerful economy in the world.

01:16:43.000 | So fascinating.

01:16:43.880 | - Yeah, so I mean, that's a fascinating story.

01:16:46.240 | And so what happens is Friedman

01:16:48.120 | has advanced all these ideas.

01:16:50.280 | He's roiled the economics profession.

01:16:52.120 | He's built a political profile.

01:16:54.680 | And then he becomes the head

01:16:57.440 | of the American Economics Association.

01:16:59.320 | And he is asked in that role to give a presidential address.

01:17:02.840 | And so he gives this presidential address, December 1967.

01:17:07.280 | And he says, "I'm gonna talk about inflation.

01:17:11.400 | "And I'm gonna talk about the trade-off

01:17:14.200 | "between inflation and unemployment."

01:17:16.560 | And this is what's generally known as the Phillips Curve.

01:17:19.640 | And the Phillips Curve in its original form

01:17:21.880 | is derived of post-World War II data.

01:17:24.840 | So it's derived of about 12 years of data.

01:17:27.160 | And it shows that when inflation goes up,

01:17:31.600 | unemployment goes down.

01:17:33.680 | And the idea would make sense

01:17:36.720 | that as the economy is heating up

01:17:38.440 | and lots of things are happening,

01:17:39.880 | more and more people are getting hired.

01:17:41.880 | And so this relationship has led policymakers

01:17:45.480 | to think that sometimes inflation is good.

01:17:49.000 | And if you want to lower unemployment,

01:17:51.000 | you could let inflation kind of go a little bit.

01:17:54.880 | And in the crude forms, it becomes to seem like a menu.

01:17:59.440 | Like you could take your model and you could plug in,

01:18:02.560 | "I want this much unemployment."

01:18:05.120 | And it would say, "Well, great, this is how much inflation

01:18:07.040 | "you should do."

01:18:07.880 | And so then you would target that inflation rate.

01:18:10.000 | So Friedman gets up and he says, "This is wrong.

01:18:14.320 | "This might work in the short-term,

01:18:16.280 | "but it's not gonna work in the long-term

01:18:18.240 | "because in the long-term, inflation has,

01:18:21.880 | "first of all, it has a momentum of its own.

01:18:23.800 | "Once it gets going, it tends to build on itself."

01:18:27.080 | The accelerationist thesis, it accelerates.

01:18:30.080 | And once inflation gets going,

01:18:33.160 | and the reason it gets going is because

01:18:35.760 | workers go to the store

01:18:39.680 | and they see the price level has gone up.

01:18:41.120 | Things have cost more.

01:18:42.680 | They ask for the wages to go up.

01:18:44.680 | Then people, eventually the wages will go up too high

01:18:49.680 | and they will no longer be hireable

01:18:52.560 | or companies will decide, "At these high wages,

01:18:54.400 | "I can't hire as many workers.

01:18:55.560 | "I'd better lay off."

01:18:56.800 | So if inflation keeps going, eventually over the long-term,

01:19:00.360 | it will result in high unemployment.

01:19:02.840 | So he says, "Theoretically,

01:19:04.480 | "you could end up in a situation

01:19:05.840 | "where you have high inflation and high unemployment."

01:19:09.000 | This hasn't been seen,

01:19:09.840 | but he says, "Theoretically, this could happen."

01:19:11.480 | And then he goes and he says,

01:19:13.100 | "And the government has started expanding the money supply.

01:19:16.760 | "It started expanding the money supply in 1966.

01:19:19.840 | "So we're gonna get a bunch of inflation

01:19:22.720 | "and then we're gonna get a bunch of unemployment."

01:19:25.200 | And he estimates about how long it will take.

01:19:28.120 | And then he says, "Once this all happens,

01:19:29.760 | "it will take about 20 years to get back to normal."

01:19:33.300 | And-- - And he predicts

01:19:35.440 | the stagflation of the 1970s.

01:19:37.920 | - Stagflation of the 1970s. - How gangster is that

01:19:39.560 | for an economist to do that?

01:19:41.080 | Again, against the mainstream belief

01:19:45.480 | represented by the Phillips Curve.

01:19:47.480 | - Yeah, and what really makes it happen

01:19:50.460 | is that many of the economists

01:19:52.440 | who most deeply dislike Friedman

01:19:54.500 | and most deeply dislike his politics in the 1970s

01:19:58.200 | as they're running their models,

01:20:00.000 | they start to say, "Friedman's right."

01:20:01.600 | They start to see in the data that he's right.

01:20:04.120 | And a very parallel process happens in Britain.

01:20:06.980 | Britain is going through a very similar

01:20:08.720 | sort of burst of spending, burst of inflation.

01:20:10.940 | And so Friedman is vindicated in this very profound way,

01:20:14.720 | in the way that he himself said

01:20:16.200 | would be the ultimate vindication,

01:20:17.500 | which is my theory should predict.

01:20:19.780 | So that prediction of stagflation

01:20:23.760 | is really the sort of final breakthrough of his ideas

01:20:27.280 | and also their importance to policy

01:20:30.400 | and to thinking about how we should intervene

01:20:34.800 | or not in the economy

01:20:35.700 | and what the role of the Federal Reserve is.

01:20:37.360 | Because he's saying the Federal Reserve

01:20:38.800 | is incredibly powerful.

01:20:40.640 | And finally, people start to believe him.

01:20:42.800 | - And I don't know if we said, but to make clear,

01:20:46.300 | stagflation means high unemployment and high inflation,

01:20:50.480 | which is a thing, like you mentioned,

01:20:52.960 | was not seen before and he predicted accurately.

01:20:55.960 | And it also disproves the sort of the relationship,

01:20:59.800 | the inverse relationship

01:21:00.920 | between unemployment and inflation.

01:21:04.940 | - Yeah, now I should say the Phillips curve

01:21:07.080 | is still out there.

01:21:08.380 | It's been expectations augmented

01:21:10.820 | and it is relevant in the short term.

01:21:14.960 | But Friedman's warning is still very much apt

01:21:19.000 | that if you get too focused on unemployment,

01:21:22.500 | you can let inflation out of the bag.

01:21:24.500 | And so until very recently,

01:21:26.680 | the Federal Reserve's tradition

01:21:28.160 | has been focusing on inflation,

01:21:31.020 | believing that's fundamental

01:21:32.440 | and that will keep unemployment low

01:21:34.760 | rather than trying to lower unemployment

01:21:37.100 | at the cost of raising inflation.

01:21:39.400 | - Can we go back to Frank Knight

01:21:41.720 | and the big picture thing we started with,

01:21:44.040 | which is the justification of capitalism?

01:21:46.220 | - Yes.

01:21:47.060 | - So as you mentioned, Milton Friedman searched

01:21:48.760 | for a moral justification of capitalism.

01:21:51.560 | Frank Knight was a big influence on Milton Friedman

01:21:56.160 | and including on this topic

01:21:58.400 | of understanding the moral justification of capitalism.

01:22:01.680 | I think you spoke about Knight's case for capitalism

01:22:05.120 | was grounded in the idea that the ability to act

01:22:07.940 | in the face of uncertainty creates profit

01:22:11.040 | and it should because taking risks should be rewarded.

01:22:14.200 | So like this idea that taking risks

01:22:17.000 | in the face of uncertainty should create profit.

01:22:19.880 | And that becomes a justification,

01:22:22.220 | the ethics of capitalism.

01:22:25.640 | Can you just speak to that?

01:22:26.680 | - Yeah, so Knight is talking about

01:22:28.960 | where does profit come from?

01:22:30.600 | And to his mind, it comes from the entrepreneurial function

01:22:33.760 | and the risk-taking function.

01:22:35.720 | And so he kind of weaves that into why,

01:22:39.280 | you know, capitalism works best

01:22:42.840 | and why it's the most effective allocation machine

01:22:45.540 | and why it assigns responsibility

01:22:48.480 | in a way he believes that a socialist system never could.

01:22:51.720 | Now, Knight though, is not a booster of capitalism.

01:22:55.120 | It could be in part because he's just a darkly pessimistic

01:22:58.160 | kind of depressive guy.

01:22:59.440 | And so he's afraid that capitalism is gonna collapse

01:23:03.160 | and socialism or fascism is gonna take over or communism.

01:23:07.200 | And so he kind of descends into darkness there.

01:23:10.560 | Friedman as the more optimist believes with Hayek

01:23:14.720 | that you can develop a different approach to capitalism

01:23:18.340 | that would preserve the price system, preserve allocation

01:23:21.300 | but build in social supports, build in a social minimum,

01:23:24.500 | things like this.

01:23:25.340 | But there's a moment in his career

01:23:27.080 | where he's really struggling to figure out

01:23:28.680 | like how do I make this case for capitalism?

01:23:30.580 | And basically the whole sort of conservative movement

01:23:33.460 | or people who we later call the conservative movement

01:23:35.280 | are struggling to make this case.

01:23:37.420 | And he starts thinking about what makes capitalism work

01:23:41.580 | is that if you put forth effort, you get a reward.

01:23:44.540 | So then you could say, well, people get what they deserve

01:23:46.780 | under capitalism, but then he kind of stops and he says,

01:23:49.280 | that's not really true

01:23:50.480 | because we're born with such different endowments

01:23:53.560 | and there's a huge quotient of luck, right?

01:23:55.880 | So some people are just in the right position

01:23:57.560 | and some people aren't.

01:23:58.480 | So if I say capitalism is moral

01:24:02.480 | because people get what they deserve,

01:24:04.840 | that's not really true.

01:24:06.520 | And he also kind of has like an ethical reaction

01:24:10.520 | which he ends up calling like an aesthetic reaction.

01:24:12.840 | He's kind of like, it just doesn't feel right to say that.

01:24:16.400 | And so he struggles for a while with like, what do I say?

01:24:19.300 | And then he basically says, capitalism,

01:24:22.180 | it can't be the core.

01:24:23.980 | Discipline of the market can't be the core to your ethics.

01:24:26.420 | It has to be something else.

01:24:27.380 | So that's when he will decide it's freedom.

01:24:29.700 | It's individual freedom.

01:24:31.240 | That's really the ethical core

01:24:32.940 | and capitalism makes individual freedom possible

01:24:35.820 | because capitalism is dedicated to maximizing that.

01:24:38.780 | And so the defense of capitalism comes through freedom

01:24:44.180 | and at his stage in history,

01:24:47.040 | he's able to set aside nice worry about inequality

01:24:50.560 | and say, when I look at the data,

01:24:52.380 | and this is true for the macro data at mid-century,

01:24:55.140 | incomes are actually converging, right?

01:24:58.400 | And it also, if you look historically,

01:25:00.120 | if a country goes from say a more feudal agrarian society

01:25:04.320 | to a more market-based society, incomes will converge.

01:25:07.480 | Now then they might start to diverge,

01:25:08.920 | but Friedman's in the moment

01:25:10.040 | when he's seeing the convergence.

01:25:11.920 | And so that's what he's really focused on.

01:25:14.100 | So he believes he can justify capitalism

01:25:17.320 | through the ethic of freedom.

01:25:19.000 | And he also believes that inequality

01:25:21.040 | is a problem that can be addressed through specific policies.

01:25:25.980 | And it's not a fundamental feature of capitalism.

01:25:28.480 | In other words, he doesn't see capitalism

01:25:30.200 | as an engine of inequality, the way that Frank Knight did

01:25:33.360 | and the way that maybe some critics on the left would.

01:25:36.240 | - How did he conceive of freedom?

01:25:38.760 | So individual freedom, economic freedom, political freedom,

01:25:43.080 | civil freedom, what was the tension,

01:25:44.980 | the dynamic between those different freedoms for him?

01:25:47.780 | - So he really begins focusing on economic freedom.

01:25:50.860 | And he says it's really important

01:25:53.080 | to focus on economic freedom

01:25:54.320 | because in the United States, we don't value it enough.

01:25:57.660 | So by economic freedom, he means the ability

01:26:00.560 | to keep what you've earned,

01:26:04.620 | the ability to make decisions about your business,

01:26:06.720 | the ability to make decisions about the work that you do.

01:26:09.020 | So this will translate into things like

01:26:11.700 | there shouldn't be a minimum wage.

01:26:13.300 | He believes the minimum wage has bad social effects,

01:26:15.620 | but he also believes you should be free to accept a job

01:26:18.380 | at a wage that you yourself have determined

01:26:20.660 | is acceptable to you.

01:26:21.860 | And there should be very minimal regulation,

01:26:26.680 | questions around safety and other things,

01:26:28.500 | because the market will ultimately,

01:26:30.040 | if you create an unsafe product, it won't sell.

01:26:32.720 | And that will be, that's sort of your incentive.

01:26:35.180 | So he really centers economic freedom

01:26:38.360 | because he thinks especially,

01:26:39.780 | and he's really speaking from his vantage point

01:26:42.020 | in the universities and speaking

01:26:43.460 | to the kind of liberal consensus of the '50s and '60s,

01:26:46.460 | he thinks economic freedom has been undervalued

01:26:49.060 | in the American context.

01:26:50.040 | So he really wants to push that forward.

01:26:52.060 | He's really kind of taking political freedom for granted.

01:26:55.100 | Now, later in his career, when he becomes famous,

01:26:57.140 | he's traveling the world, he spends time in Chile.

01:27:00.740 | And this country is now being ruled by a dictator,

01:27:04.220 | Augusto Pinochet, who starts introducing economic freedom,

01:27:07.700 | but there's no political freedom.

01:27:09.540 | And Milton Friedman believes eventually

01:27:11.340 | these two things are gonna go together,

01:27:12.940 | and tells Pinochet, you've got economic freedom,

01:27:16.380 | and eventually it's gonna bring,

01:27:17.740 | it's gonna mean political freedom.

01:27:19.620 | Pinochet's like, okay, fine, not really interested in that.

01:27:21.720 | I wanna know what I should do about inflation.

01:27:23.300 | (laughing)

01:27:24.380 | But then when Milton Friedman leaves Chile,

01:27:26.420 | he is attacked and vilified for having been a supporter.

01:27:30.900 | He's interpreted that he's a supporter of the regime,

01:27:33.820 | which he's not, but he realizes

01:27:35.500 | he has talked too much about economic freedom,

01:27:37.660 | and he hasn't talked enough about political freedom.

01:27:39.500 | He's kind of assumed political freedom,

01:27:41.580 | 'cause he's come from the American context.

01:27:43.780 | So then he starts recalibrating them and saying,

01:27:46.780 | you know what, if you don't have political freedom,

01:27:48.820 | you're never gonna be able to hold on to economic freedom.

01:27:51.460 | So he sees that they need to go together,

01:27:54.020 | and they don't naturally go together,

01:27:55.860 | and so he starts to become more clear

01:27:58.540 | in talking about political freedom.

01:28:01.240 | Now, let's fast forward to the end of his life,

01:28:03.500 | and he's witnessing the emergence

01:28:05.900 | of what we call the Asian tiger.

01:28:07.260 | So, capitalist economies that are doing very well,

01:28:11.780 | but they don't have political freedom,

01:28:14.180 | but then he observes they don't have political freedom

01:28:16.800 | in that you can't vote in a free and fair election,

01:28:20.180 | but they also don't have a Stasi, they don't have a KGB,

01:28:23.620 | they're not hauling people off for their wrong opinions.

01:28:27.460 | So then he says they have something called civic freedom,

01:28:30.700 | and so he kind of defines this third sphere,

01:28:32.660 | civic freedom of debate, discussion,

01:28:35.980 | interpersonal relations, but you can't be political.

01:28:38.300 | So, this is a late in life addition,

01:28:42.380 | I don't think it's fully theorized,

01:28:44.100 | I think what it shows is that during the Cold War,

01:28:47.140 | he very much believed economic and political freedom,

01:28:50.260 | you know, capitalism and freedom, democracy,

01:28:54.340 | the United States, capitalism, this all went together.

01:28:57.380 | And he starts to see at the end of his life,

01:28:58.980 | the emergence of different social systems

01:29:00.700 | that are using market trading and allocation,

01:29:03.300 | but aren't giving people similar freedoms,

01:29:05.860 | and he's kind of puzzling over that.

01:29:07.540 | Now, he always believes that China will democratize,

01:29:11.020 | and he thinks China's on the path to democratization,

01:29:14.220 | in part because Chile does democratize.

01:29:16.820 | Eventually, Pinochet is voted out,

01:29:19.220 | and it's become a democratic capitalist

01:29:21.700 | and very prosperous country.

01:29:22.900 | And he thinks that's exactly what's happening in China,

01:29:24.920 | he sees Tiananmen, and he doesn't live long enough

01:29:28.400 | to get to where we are now,

01:29:29.660 | in which doesn't look like political or civic freedom

01:29:32.980 | is coming to China anytime soon.

01:29:34.940 | - And he did oppose the dual-track system of China,

01:29:38.420 | meaning like the market is bottom-up,

01:29:41.220 | the government in China is top-down,

01:29:45.060 | and you can't have both.

01:29:46.860 | - He thought you couldn't have both.

01:29:48.380 | - Yeah.

01:29:49.220 | - He thought eventually the market would triumph.

01:29:51.640 | - Well, that's a really powerful idea to say,

01:29:53.820 | okay, maybe there's not political freedom,

01:29:56.060 | but just hold on to the economic freedom,

01:29:58.220 | and eventually that's going to give political freedom.

01:30:01.780 | Is that correct to say, like,

01:30:03.860 | start to work on the economic freedom,

01:30:06.580 | and the political freedom piece will take care of itself?

01:30:09.220 | - That's what he believed, that's what he believed.

01:30:11.340 | Yeah, I think it's more complicated than that, right?

01:30:14.620 | The people who gain out of a system of economic freedom

01:30:18.140 | could decide to collude in a system

01:30:20.620 | where there isn't political freedom.

01:30:23.180 | That's certainly a scenario.

01:30:24.580 | So, but that was, again, that's that core idea of freedom,

01:30:28.540 | right, and that core belief that people want freedom,

01:30:32.220 | and that people are drawn to freedom.

01:30:34.700 | - Just to go back to Frank Knight a little bit,

01:30:36.740 | he wrote an essay called "The Ethics of Competition."

01:30:39.620 | He had the metaphor that economic life is a game,

01:30:42.220 | and then maybe that extends to society as a whole,

01:30:44.380 | like the entirety of it is a competitive game.

01:30:47.220 | And Milton Friedman, I think, adapted some of this,

01:30:52.220 | appreciated some of this.

01:30:53.980 | Can you speak to this metaphor?

01:30:55.260 | - Yeah, I think what the metaphor of the game does

01:30:57.980 | is it asks you, okay, well, what are the rules then?

01:31:01.580 | And let's focus on the rules that keep the game going.

01:31:05.580 | So he didn't use the concept of an infinite game,

01:31:07.780 | but I think that's an interesting one.

01:31:09.220 | You know, a game that all the players are in

01:31:11.100 | and keep going again and again and again.

01:31:13.340 | And so that helped Knight, along with Hayek,

01:31:17.740 | shift from the allocation question, who's getting what?

01:31:22.740 | Are things allocated fairly?

01:31:24.620 | To the more structural question of like,

01:31:26.980 | what are the rules of the game that we need

01:31:29.100 | to keep this system going?

01:31:31.460 | And so for a while that led to the discussion of monopoly.

01:31:34.260 | Well, we need rules against concentration,

01:31:36.820 | or we need the rule of law.

01:31:40.340 | Everyone needs to be treated equally.

01:31:42.580 | People need to know what they're up against.

01:31:46.900 | And then going back to monetarism,

01:31:49.660 | the core of monetarism is a rule.

01:31:52.380 | Friedman called it a monetary growth rule.

01:31:55.260 | And so again, what keeps the economic game going

01:31:59.420 | is a rule about how much the money grows

01:32:03.100 | that everybody knows.

01:32:04.500 | Nobody's guessing, nobody's changing the rules

01:32:07.700 | to help their side or to help, you know,

01:32:09.460 | the people they're friendly with.

01:32:11.140 | We all know it's there, it's clear, it's easy.

01:32:13.500 | And so that emphasis on rules,

01:32:16.820 | I think really has a through line.

01:32:18.420 | It goes into Hayek's competitive order,

01:32:20.660 | and then it goes into the monetary growth rule.

01:32:23.340 | And then, you know, today,

01:32:26.820 | monetary policy makes use of monetary policy rules.

01:32:30.980 | We have not abandoned discretion,

01:32:33.300 | but rules are used as a heuristic or a check,

01:32:35.940 | and those come out of Friedman's thinking.

01:32:38.500 | And so it's something, it's really profound,

01:32:43.500 | and it was always counterposed to discretion,

01:32:47.180 | which Friedman worried would be subject to capture

01:32:50.620 | or political corruption

01:32:52.020 | if you had discretion in policymaking,

01:32:53.820 | or if you had discretion in these very big areas.

01:32:56.480 | Then people would stop competing

01:33:00.060 | against each other in a market,

01:33:01.580 | and they would turn their attention

01:33:03.780 | to getting control of the rules or the rule makers.

01:33:07.820 | - So if there's clear, transparent rules,

01:33:10.220 | then you're free to play the game.

01:33:13.580 | - Yes, exactly.

01:33:15.300 | - But then, depending on the rules,

01:33:17.300 | the game can turn out,

01:33:18.740 | the equilibrium that it arrives at might be different, right?

01:33:21.500 | So that speaks to the mechanism design,

01:33:24.820 | the design of the rules.

01:33:26.740 | - Yeah, and that was, again,

01:33:28.340 | to go back to the idea of separating new liberalism

01:33:32.340 | or neoliberalism from classical liberalism

01:33:34.380 | was more of a focus on what are the rules that are needed?

01:33:37.260 | What is the competitive order that we wanna set out?

01:33:40.540 | How do we design in social safeguards?

01:33:42.880 | How do we think about it?

01:33:44.960 | And so that shift towards monetary policy

01:33:49.140 | and focusing on stable monetary growth,

01:33:51.160 | that becomes really important in the post '70s era

01:33:54.580 | as one of the basic rules

01:33:56.300 | of how a capitalist economy should function.

01:33:58.500 | And it becomes really important

01:34:00.740 | because they see the example of, say,

01:34:02.860 | countries, most notably in Latin America,

01:34:05.220 | where monetary rules weren't followed

01:34:07.960 | and different governments played politics

01:34:11.380 | with their currencies.

01:34:12.740 | And that created just huge upheaval

01:34:15.340 | and huge social loss, economic loss,

01:34:18.540 | just economic disaster.

01:34:20.500 | - So my friend, she's a poker player,

01:34:22.940 | philosopher of sorts, great human being.

01:34:24.920 | She has a podcast called "Win Win"

01:34:27.500 | that everybody should listen to.

01:34:28.880 | And the whole purpose of the podcast

01:34:30.960 | and her whole way of being in spirit

01:34:33.180 | is to find win-win solutions.

01:34:34.860 | So do you think of economic life

01:34:37.380 | as having such win-win solutions?

01:34:40.740 | So being able to find rules where everybody wins,

01:34:44.460 | or is it always going to be zero-sum?

01:34:47.100 | - I definitely believe in win-win,

01:34:49.860 | but with a big asterisk.

01:34:51.340 | Like, you can have win-win,

01:34:53.700 | but it can feel like win-lose,

01:34:56.060 | which is it's not just, are people getting more?

01:35:00.400 | It has a lot to do with,

01:35:01.500 | do people feel they're getting more?

01:35:03.600 | And do people feel they're getting what's fair and equal?

01:35:06.440 | So you could have a situation,

01:35:09.960 | you know, for instance,

01:35:11.940 | if you look at the history of, going back to Chile,

01:35:15.460 | it has steady growth, steady income growth,

01:35:19.540 | steady diminution of inequality,

01:35:22.060 | and a high level of discontent within the society,

01:35:25.020 | and a high level of belief

01:35:26.620 | that the society is corrupt and unfair.

01:35:29.940 | And that's what matters.

01:35:31.540 | How people feel about it, how people perceive it matters.

01:35:35.420 | And you can't, you know, we saw this recently,

01:35:37.940 | you can't just come out with a bunch of statistics

01:35:40.240 | and tell people you're winning in this game

01:35:43.100 | if they feel like they're losing.

01:35:44.820 | So that goes to all the non-rational factors

01:35:47.920 | and all the comparative factors that people have

01:35:51.980 | when they think about where they are

01:35:54.300 | vis-a-vis other people in society.

01:35:56.300 | So we're just incredibly social creatures.

01:35:58.100 | We're incredibly attuned to our status,

01:36:01.060 | to rising and falling, to where we sit vis-a-vis others.

01:36:04.300 | And so that absolutely has to be attended to.

01:36:07.160 | It can't just be an economic analysis.

01:36:09.620 | - That's so interesting that the experience

01:36:12.780 | of the economy is different than the reality of the economy.

01:36:15.900 | You know, on the topic of corruption,

01:36:18.520 | I think the reality of corruption

01:36:20.080 | versus the perception of corruption

01:36:23.400 | is really important in a lot of these nations.

01:36:25.280 | You take Ukraine, for example.

01:36:27.600 | The perception of corruption

01:36:29.400 | has a big impact on the economy.

01:36:31.480 | You don't want to invest,

01:36:32.480 | you're very cautious as a business person.

01:36:34.840 | The reality of corruption can be way different

01:36:36.720 | than the actual perception.

01:36:38.200 | But if narratives take hold,

01:36:40.360 | it's a self-fulfilling prophecy

01:36:44.000 | that it has a big effect on the psychology

01:36:46.600 | of the people involved.

01:36:47.700 | It's interesting.

01:36:48.540 | - Yeah, I mean, this goes back to Keynes' analysis

01:36:51.500 | of the Great Depression, right?

01:36:52.960 | If people won't invest, if they're spooked,

01:36:55.920 | if the investing classes are spooked,

01:36:57.860 | you could be in real trouble.

01:36:59.980 | And in some ways, this simple analysis of the problem

01:37:03.860 | and proposal of a solution was enough to restore

01:37:08.060 | eventually the path to academic prosperity, right?

01:37:11.620 | That's Franklin Roosevelt.

01:37:12.940 | Nothing to fear, but fear itself.

01:37:14.660 | You know, the sense of we know we have a future,

01:37:17.000 | we have optimism, then you believe in it.

01:37:18.920 | And to go back to thinking about money, right?

01:37:21.880 | Money works because we all believe in it.

01:37:24.300 | You know, it's a form of social trust,

01:37:26.580 | and it's a form of belief and faith in our society

01:37:30.100 | and in the other people in it.

01:37:31.780 | And when that breaks down,

01:37:32.980 | the money system will break down as well.

01:37:34.620 | - Is there something Milton Friedman said

01:37:37.220 | and thought about how to control the psychology

01:37:40.200 | of humans at scale?

01:37:42.680 | - No, I mean, what's interesting is he does talk,

01:37:45.620 | especially in his later work,

01:37:47.660 | he says we have fiat currency, and this is an experiment,

01:37:52.500 | you know, and we don't know how it's going to turn out.

01:37:55.380 | And it's turning out okay right now,

01:37:57.000 | but we've always had a commodity-based

01:37:59.340 | or backed currency of some form or another.

01:38:01.980 | And this is the first time.

01:38:04.940 | And so, who really knows?

01:38:07.380 | So far, so good.

01:38:09.340 | And he also is very attuned.

01:38:11.240 | It's interesting in his later writings

01:38:12.720 | when he's thinking about this to,

01:38:14.680 | sure, I could design a monetary system

01:38:17.340 | that would be different,

01:38:18.180 | but when I look at history,

01:38:20.140 | I see that monetary systems have always, say,

01:38:22.780 | incorporated the role of the state

01:38:25.120 | because it's so important to people.

01:38:26.660 | And so, therefore, my theoretical designs

01:38:29.500 | really have to be tempered

01:38:30.580 | by what I've actually seen happen in history.

01:38:33.380 | - So maybe we could speak to this tension

01:38:36.680 | between how much government intervention is okay

01:38:40.060 | for Milton Friedman.

01:38:41.020 | So he was against minimum wage,

01:38:42.900 | but he was for guaranteed minimum income.

01:38:45.700 | Can you explain, actually, the difference between the two?

01:38:48.100 | - Yeah, so this was one of the discoveries

01:38:50.560 | I made in my research.

01:38:51.500 | I found a paper from 1938.

01:38:53.380 | He wrote advocating what we would call today

01:38:55.820 | a universal basic income, a minimum income.

01:38:58.700 | And he basically sees this as part of the effort

01:39:01.420 | to create a new liberalism, right?

01:39:04.220 | And he basically says we have advanced societies,

01:39:07.260 | we have prosperous societies,

01:39:09.500 | we have decided, in keeping with our morals and our ethics,

01:39:12.900 | that people should not be starving

01:39:15.020 | in an advanced society like this.

01:39:16.780 | The question is how are we gonna make that happen?

01:39:19.500 | And he ended up believing the best thing to do

01:39:22.180 | was to put a floor under everybody.

01:39:24.920 | And he said you can get that based on your income.

01:39:28.740 | If you have a lot of income, you don't get it.

01:39:31.080 | If you have a little income,

01:39:32.600 | you might get a little bit of it.

01:39:33.640 | If you have no income, you get enough of it.

01:39:36.380 | And he believed in the beginning,

01:39:37.940 | you should base that on what was required to buy food, right?

01:39:41.660 | That that would be kind of an objective.

01:39:43.140 | You could objectively determine the nutrition

01:39:45.500 | and the price of food.

01:39:46.980 | And so that for him, it's important.

01:39:49.700 | He says it's keeping with a liberal polity

01:39:52.040 | because it's not intervening in the price system.

01:39:55.180 | It's not intervening in economic relations.

01:39:58.100 | And it does not, in his view,

01:40:00.260 | require a bureaucracy to administer.

01:40:02.780 | It does not, in his view, require that you qualify for it

01:40:06.700 | by virtue of being in a protected class.

01:40:09.500 | You just get it as kind of part of your membership

01:40:13.560 | in this general citizenship body.

01:40:15.540 | And so that to him was really different than a minimum wage

01:40:20.500 | because it did not interfere with the work bargain.

01:40:24.960 | His belief about minimum wages was specifically

01:40:27.740 | that it priced out unskilled labor.

01:40:30.700 | That what an unskilled laborer had to offer

01:40:32.860 | was a willingness to work for a very low wage.

01:40:35.640 | And if you set the minimum wage too high,

01:40:38.660 | businesses, instead of hiring that higher-priced labor,

01:40:42.700 | would not hire.

01:40:43.540 | Or like we could think of today, right?

01:40:45.740 | They put in an electronic checkout, you know,

01:40:47.660 | or something like this,

01:40:48.600 | where you don't actually need the labor.

01:40:50.300 | So he really believed the minimum wage

01:40:52.220 | had that perverse incentive.

01:40:54.380 | Now there's, this is a live debate

01:40:56.780 | on what minimum wages do.

01:40:58.540 | And there seems to be a level at which you can set them

01:41:01.260 | that they can not have that perverse effect,

01:41:04.100 | and in fact can kind of create people

01:41:06.240 | with more spending money that then powers the economy.

01:41:08.540 | So he had a very sort of clinical analysis of that

01:41:12.880 | rather than an empirical one or a really abstract analysis.

01:41:16.360 | But the minimum income is fascinating

01:41:19.680 | because it seems very leftist to us.

01:41:22.240 | But what it is, is it's purely individualistic.

01:41:26.060 | And it never really happened

01:41:28.000 | because it was so purely individualistic

01:41:31.080 | because American social policy typically identifies,

01:41:35.340 | like this group of people is deserving

01:41:37.480 | and we'll give them benefits.

01:41:38.600 | So the classic example is soldiers, veterans.

01:41:41.480 | Another example is mothers raising dependent children.

01:41:45.480 | These people deserve money.

01:41:46.880 | The rest of you, you better go out and work.

01:41:49.320 | And so Friedman's proposal, it really caught on in the '60s.

01:41:52.400 | It ultimately went nowhere, but it was no litmus test,

01:41:55.480 | no income analysis, just we're gonna give you this much.

01:42:00.920 | Everyone's gonna get this much.

01:42:02.440 | And he decided once mass taxation had come in,

01:42:04.920 | you could do it through taxes and you could just rebate.

01:42:07.640 | People who didn't pay income taxes got a rebate.

01:42:10.800 | That actually came to pass.

01:42:11.840 | It's the earned income tax credit.

01:42:13.520 | And it's considered extremely successful by policy analysts.

01:42:17.400 | It does what it's supposed to do.

01:42:18.680 | It's not that expensive.

01:42:20.280 | And so I see that as a kind of paradigm of his thinking

01:42:24.700 | in that instead of creating a bureaucracy

01:42:28.560 | that does some form of redistribution

01:42:30.520 | or instead of trying to intervene in the market for labor

01:42:34.480 | or the market for something else, the market for housing,

01:42:37.600 | you provide a cash grant that people spend for themselves.

01:42:41.980 | And so interestingly, that's what happened

01:42:44.880 | in the emergency situation of COVID, right?

01:42:47.080 | That's exactly what people did.

01:42:48.480 | They followed that model.

01:42:49.480 | We just get money out quick.

01:42:51.400 | And there's a lot of discussion still about UBIs

01:42:54.640 | as something that should be done.

01:42:56.380 | And I think it's always gonna be hard to pull off

01:42:59.080 | because I think Americans

01:43:02.120 | and their elected representatives

01:43:04.080 | don't wanna provide a universal benefit.

01:43:06.000 | They wanna provide a targeted benefit

01:43:07.600 | 'cause they believe there's like a moral component here.

01:43:10.760 | And Friedman advanced a policy that was really abstract

01:43:15.340 | and really just kind of, it was devoid of judgment.

01:43:19.520 | It was like pure and beautiful in that way,

01:43:21.180 | but like utterly impractical.

01:43:23.080 | - And it really focused on not interfering with the market

01:43:26.720 | and the signals that the market provides.

01:43:28.840 | Like it was really against price controls

01:43:30.840 | for the same kind of reason.

01:43:32.080 | - Yeah, exactly.

01:43:33.360 | Or you could say, okay,

01:43:34.760 | but how does this not interfere with the market, right?

01:43:37.080 | If you provide people with a minimum income,

01:43:38.800 | won't that change their incentives to work, et cetera?

01:43:41.960 | I mean, there's a big body of research on this.

01:43:44.460 | Most of it seems to show one,

01:43:47.720 | it's way better than the current benefits cliff

01:43:50.640 | where you have to not work to get your benefits.

01:43:54.140 | And any incentive impact on working

01:43:57.600 | seems to be much lower than would be expected.

01:44:00.040 | But I'll let the economist in the social science

01:44:04.520 | to fight that one out and figure it out empirically.

01:44:06.600 | Hopefully we should be able to.

01:44:07.960 | - Yeah, there's been a bunch of studies.

01:44:09.440 | It's interesting, even just how you conduct studies

01:44:11.880 | like this, how you do these kinds of experiments,

01:44:14.240 | especially if you're empirically minded.

01:44:17.760 | 'Cause a lot of the studies I saw is they're pretty small.

01:44:21.760 | - Right.

01:44:22.600 | - So how do you make big conclusions

01:44:25.360 | about how to run the world,

01:44:28.400 | how to run economies from such small studies?

01:44:31.760 | It's all a fascinating experiment of ideas.

01:44:35.840 | And it's also inspiring to see individuals

01:44:39.400 | and maybe small groups of individuals

01:44:43.120 | like the Chicago School of Economics

01:44:45.680 | to sort of shake up what we believe

01:44:49.160 | in how we run the world.

01:44:51.160 | - Yeah. - Inspiring.

01:44:52.120 | - Yeah.

01:44:53.360 | - You call Milton Friedman the last great conservative,

01:44:57.120 | maybe to be a little bit sort of controversial

01:45:02.080 | and make bold statements that get everybody excited.

01:45:05.340 | But what do you mean by that

01:45:06.880 | and what makes a great conservative?

01:45:09.280 | - So I was really thinking of that

01:45:11.320 | in terms of kind of American political identities

01:45:14.520 | and particularly the 20th century conservative movement,

01:45:18.280 | which people are always saying this isn't conservatism.

01:45:21.440 | And I was like, yes, in America,

01:45:22.640 | conservatism is different.

01:45:23.960 | It looks different.

01:45:25.320 | It feels different.

01:45:26.280 | Conservatism in America builds in a big component

01:45:29.600 | of what we could call libertarianism, pro-capitalism,

01:45:34.000 | anti-government ideas.

01:45:35.600 | And critics will say,

01:45:37.240 | but conservatism is about conserving institutions

01:45:40.800 | and practices, and it has a role for the state

01:45:43.280 | and an organic community.

01:45:44.920 | But in the United States,

01:45:45.840 | it's always had since the 20th century,

01:45:48.480 | also this anti-statist, let's let the market rip.

01:45:53.480 | Let's not worry about what the market does

01:45:56.240 | to establish traditions.

01:45:57.640 | The market is our tradition.

01:45:58.800 | Capitalism is our tradition.

01:46:00.580 | So that was really synthesized.

01:46:02.540 | Many people were there,

01:46:04.880 | but Friedman and the importance of his books,

01:46:07.280 | Free to Choose, Capitalism and Freedom,

01:46:11.600 | the television series he did,

01:46:13.480 | all of these were like core components

01:46:15.720 | of this American conservative synthesis as it evolved.

01:46:19.240 | And I really see that as having broken down.

01:46:22.280 | It is scattered into different pieces

01:46:25.720 | and we don't know where they're gonna

01:46:27.560 | come back together again.

01:46:29.480 | But Friedman's push for open global markets,

01:46:34.480 | unfettered free trade,

01:46:35.880 | it's getting pushback on both the left and the right.

01:46:38.520 | That I think is just a major sign

01:46:42.640 | that both parties have turned away from this vision.

01:46:45.080 | I don't know what they've turned to,

01:46:47.720 | but the way that Friedman brought these pieces together,

01:46:50.760 | I think that political moment is past.

01:46:52.600 | So that's what I was trying to talk about

01:46:54.800 | with the book title.

01:46:56.960 | There's another way though,

01:46:57.840 | in which I think of him also as a conservative,

01:47:00.320 | which is that within the field of economics,

01:47:03.680 | he went back to this older idea,

01:47:05.360 | the quantity theory of money and said,

01:47:07.400 | this still has value.

01:47:09.520 | This can be applied in the modern day.

01:47:11.640 | It is something to teach us.

01:47:13.400 | And he pushed back against this trend

01:47:16.480 | towards mathematization.

01:47:17.880 | So he kept writing books.

01:47:19.520 | You can still pick up a Friedman book and read it.

01:47:22.320 | Where's lots of economics articles and outputs,

01:47:24.880 | like unreadable unless you're in the field.

01:47:26.880 | And so I think in that way,

01:47:28.280 | he was trying to conserve methodologically

01:47:31.840 | and intellectually the traditions of the field.

01:47:35.040 | The work that he and particularly Anna Schwartz did

01:47:38.320 | that literal accounting of things

01:47:40.560 | and deep analysis of data from the field,

01:47:43.440 | that was like completely unfashionable in his time.

01:47:45.720 | Now we've sort of gone back to it

01:47:47.080 | with big data and with computers,

01:47:49.000 | but he helped bring that forward

01:47:50.960 | and preserve that tradition.

01:47:52.080 | So I think of him kind of intellectually as a conservative,

01:47:56.000 | if you think of the mode of his thought.

01:47:58.160 | And so, I mean, what makes a great conservative

01:48:01.120 | is one who takes those older ideas

01:48:03.200 | and makes them fresh for a new time period.

01:48:05.880 | I think that's exactly what he did.

01:48:09.760 | - You've also spoken about the fact

01:48:11.400 | that the times when he was sort of out in public,

01:48:15.760 | there was more of an open battle of ideas

01:48:20.240 | where conservatism often had, you know,

01:48:23.240 | William F. Buckley, he had a more vibrant,

01:48:26.960 | deep debate over ideas where it seems less deep now.

01:48:35.120 | - I mean, that is the thing that it's hard,

01:48:38.840 | especially like for the students I teach today

01:48:41.320 | to be like, you know, there were arguments about ideas

01:48:44.200 | and conservatives won a bunch of them, you know?

01:48:46.640 | And that happened in the '70s, late 1960s to 1970s,

01:48:51.320 | when they, you know, one set of arguments

01:48:53.120 | was about economics, like, okay,

01:48:55.360 | this idea of stimulating the economy by spending more,

01:48:57.960 | it has a downside.

01:48:59.040 | The downside's called inflation.

01:49:00.680 | And the downside's called too much regulation.

01:49:05.320 | And, you know, you've gone too far in kind of bottling up

01:49:09.360 | the actual sources of economic growth and dynamism,

01:49:12.400 | and we have to let those free.

01:49:14.000 | In social policy, there was also a critique.

01:49:17.480 | You know, the Great Society had all these ways of,

01:49:20.440 | ideas of ending poverty, and, you know,

01:49:22.240 | people came and analyzed them and said,

01:49:24.360 | the programs aren't helping.

01:49:25.880 | In some ways, you've actually created engines

01:49:28.040 | to trap people in poverty

01:49:29.320 | because you've given them a benefit

01:49:31.400 | and said if they actually start to work,

01:49:32.920 | they lose the benefit.

01:49:34.160 | You've created all these perverse incentives.

01:49:36.840 | And these ideas were fought out.

01:49:38.240 | They were empirical.

01:49:39.840 | They were controversial.

01:49:41.400 | And they were based on really deep research

01:49:43.840 | and really deep argumentation.

01:49:45.320 | And so, it seems that era has passed.

01:49:49.760 | It seems like we're driven much more quickly

01:49:53.680 | by moods rather than thought through ideas.

01:49:57.840 | Right now, it seems like the ideas come after the,

01:50:02.000 | they follow the political mood

01:50:03.640 | and try to put together the underpinning of it,

01:50:06.720 | where it really was the opposite

01:50:08.400 | for much of the 20th century.

01:50:09.880 | It does seem like we lead with emotional turmoil.

01:50:12.960 | Right.

01:50:13.800 | And the ideas follow versus lead with the ideas

01:50:16.760 | and the sort of the emotion of the masses respond.

01:50:20.080 | Right, exactly.

01:50:20.920 | So, if we think of the evolution of conservatism,

01:50:22.920 | it was a whole set of ideas that was crafted, refined.

01:50:27.400 | The 1950s, 1960s, 1970s,

01:50:30.280 | sort of really found their emotional standard bearer,

01:50:33.600 | translator, salesperson in Ronald Reagan,

01:50:37.440 | who incidentally had been following these ideas

01:50:39.840 | as they developed and had been honing his ability

01:50:42.560 | to express them and apply them politically.

01:50:45.040 | You know, it's a very opposite.

01:50:46.640 | If we look at Trump as the political definer of the era,

01:50:50.120 | you know, there's a set of ideas,

01:50:51.760 | but it was more attitudes, impulses, vibes,

01:50:56.240 | and the ideas are coming after that,

01:50:58.360 | trying to figure out how they patch on.

01:51:00.600 | So, it's interesting to watch, to see that difference,

01:51:05.480 | and I hazard that a lot of it just has to do

01:51:08.600 | with the immediacy of the media environment we're in,

01:51:11.160 | and it's just power of the media messages

01:51:14.400 | to get out so fast.

01:51:16.960 | What do you think Milton Friedman would say

01:51:18.680 | about Donald Trump, about him winning in 2024,

01:51:23.680 | and just in general, this political moment?

01:51:28.120 | I think he would love Doge.

01:51:29.800 | I think that's, you know, it goes without saying.

01:51:33.120 | I think he would focus on that part

01:51:34.520 | 'cause I think he would really love it.

01:51:36.840 | He would be very alarmed by the idea of tariffs

01:51:40.480 | and very alarmed by the return to protectionism.

01:51:43.720 | I mean, I think he believed that part of what

01:51:46.720 | made the world peaceful in the second half

01:51:49.400 | of the 20th century, as opposed to during World War II,

01:51:53.520 | was the world was knit together more by trade,

01:51:56.520 | and that was the great hope,

01:51:57.840 | that if people traded with each other, they wouldn't fight.

01:52:00.920 | He's also, you know, a proponent

01:52:03.760 | of the free movement of capital.

01:52:05.840 | You know, he would absolutely oppose this idea

01:52:07.880 | that Nippon Steel wasn't allowed to invest

01:52:10.960 | in the United States, you know?

01:52:13.320 | I think he would struggle,

01:52:15.360 | and he wholeheartedly embraced Reagan,

01:52:18.640 | and he worked to minimize the parts

01:52:20.560 | of the Reagan legacy he didn't like.

01:52:22.840 | I think he would find it harder to embrace Trump

01:52:25.480 | because he's not of that style,

01:52:28.400 | and he just had a different style,

01:52:29.840 | but I'm guessing he would have come around

01:52:32.280 | through the, I think he would just say,

01:52:35.080 | "Okay, we have a chance to reduce the size of government."

01:52:38.240 | At the same time, those spending plans

01:52:41.760 | of the Trump administration

01:52:43.520 | are not fiscally conservative in any way,

01:52:46.120 | and that was his concern, was not so much with debt,

01:52:49.600 | but with the feeling that there's no mechanism

01:52:52.880 | to stop the growth of government,

01:52:54.600 | that it just grows and grows and grows,

01:52:56.760 | and so he ended up believing,

01:52:58.880 | like, even deficits aren't so bad

01:53:01.520 | because they make politicians cautious,

01:53:04.080 | he thought, about continuing to spend,

01:53:07.240 | but I have to believe he would be concerned

01:53:09.840 | about the potential threats to the U.S. currency's position

01:53:14.840 | as the world's reserve currency

01:53:17.200 | with increased levels of debt and spending.

01:53:21.680 | He was concerned about low interest rates.

01:53:24.640 | He died, I think it's 2004, 2006,

01:53:30.720 | but it was in the beginning,

01:53:32.160 | he didn't see the zero low bound,

01:53:33.440 | but he saw low interest rates,

01:53:34.600 | and he said, "This isn't necessarily good."

01:53:36.720 | Everyone's talking about low interest rates

01:53:38.560 | as if they're good,

01:53:39.920 | but there should be a price on capital.

01:53:42.640 | There should be a price on this.

01:53:44.320 | It shouldn't be so low,

01:53:45.640 | and so he had some of, still,

01:53:49.760 | the kind of macro insights that I think are important.

01:53:52.440 | - You wrote the Wall Street Journal essay

01:53:55.320 | titled "How Inflation Ended Neoliberalism

01:53:58.600 | and Re-Elected Trump."

01:54:00.200 | So can we weave that into this discussion

01:54:02.800 | in terms of inflation and Trump?

01:54:07.480 | What's the main idea of the essay?

01:54:09.200 | - So the main idea is kind of looking back

01:54:11.720 | and saying, so today we have been living in a world

01:54:16.480 | where people have been focused on monetary policy,

01:54:21.480 | steady monetary policy, free trade, reducing regulation.

01:54:27.080 | This is all called the neoliberal era,

01:54:29.960 | and my argument was a lot of that arose,

01:54:33.840 | was driven by inflation.

01:54:35.480 | So we have Milton Friedman predict inflation in 1967.

01:54:39.400 | It starts breaking out in the 1970s,

01:54:41.760 | Britain and the United States,

01:54:43.560 | and every institution was designed around stable prices,

01:54:48.560 | and once inflation broke out, prices were no longer stable.

01:54:53.680 | So for example, tax rates weren't inflation-adjusted.

01:54:58.160 | So if your income went up because of inflation,

01:55:02.040 | you might bump from a low tax rate

01:55:03.640 | to an extremely high tax rate,

01:55:05.120 | but you don't actually have more money.

01:55:06.800 | On paper, you have more money, but everything costs more,

01:55:09.200 | so you don't actually have more money,

01:55:10.320 | and your taxes have gone up.

01:55:12.040 | That kicks off the taxpayer revolt.

01:55:14.520 | There's a whole shift of American corporations

01:55:17.520 | towards focusing on financial investments

01:55:20.240 | because the tax breaks they used to get for depreciation,

01:55:24.520 | for building new factories, are not inflation-adjusted,

01:55:27.120 | so they no longer pay off in an inflationary environment,

01:55:30.400 | and then when Paul Volcker comes in in 1980s, early 1980s,

01:55:35.400 | and starts fighting inflation,

01:55:38.000 | really pushes up interest rates to bring down inflation,

01:55:41.200 | and that completely reorders the banking sector

01:55:44.200 | because banks had statutory legal limits

01:55:48.520 | on the interest they could charge,

01:55:49.960 | and once general market interest rates exceeded that,

01:55:54.120 | it was proliferation of new financial forms

01:55:56.680 | to take advantage of that.

01:55:58.080 | So my point was the era we live in

01:56:00.880 | was ushered in by inflation,

01:56:03.760 | and then everyone turned against all the formulations we had

01:56:08.760 | and said, well, these have hollowed out our industrial base.

01:56:12.440 | These have, we've got too much immigration,

01:56:16.680 | we've got too much economic openness,

01:56:18.800 | we need to reshore, we need to focus,

01:56:20.640 | we need to turn against all these things,

01:56:21.920 | we need to spend more, we've disinvested,

01:56:25.200 | and the net result of that turning away, I argued,

01:56:30.200 | is people forgot about inflation.

01:56:32.240 | They really forgot it could ever exist,

01:56:34.080 | and you had a whole set of theories

01:56:35.480 | on the left, modern monetary theory,

01:56:37.120 | that basically said we don't really need

01:56:38.840 | to worry about inflation, we can spend what we want,

01:56:41.720 | and lo and behold, inflation came back,

01:56:44.480 | and so my argument is that has now opened the door

01:56:48.560 | to the presidency of Donald Trump,

01:56:50.240 | which is potentially a deeply transformative moment

01:56:55.040 | that will change the size and shape of government,

01:56:58.840 | that may change our foreign policy profoundly,

01:57:01.320 | that may change our immigration policy,

01:57:05.000 | it may change the demographics of our country,

01:57:07.040 | all of that, and my thesis is that

01:57:09.000 | it's all been made possible by inflation,

01:57:12.600 | and so the great mistake of the past years

01:57:16.640 | was to forget how fundamental inflation was

01:57:19.640 | to the rise of the last political order,

01:57:22.320 | and to profoundly underestimate how much inflation

01:57:27.320 | would change the current political order,

01:57:30.120 | so I just think it's one of these things,

01:57:32.640 | this is why I think you should study history,

01:57:34.240 | because I think if you had studied history,

01:57:35.640 | you would be aware of this,

01:57:37.200 | and it's so easy for people to forget,

01:57:40.440 | just like the banks forgot that interest rates

01:57:42.800 | could ever go up, they got so used to it,

01:57:44.800 | and it's only a 10, 15 year thing,

01:57:47.400 | but to them that seems like forever,

01:57:48.920 | so I really do believe what history teaches you to do

01:57:52.480 | is just have a much vaster scope in your vision,

01:57:57.120 | and then take into account the possibilities

01:57:59.560 | of so many things happening that are different

01:58:01.640 | than what's happening today,

01:58:02.840 | and so I just hope we don't forget about inflation entirely,

01:58:06.600 | but here's the thing,

01:58:07.560 | there's quite a strong chance that Trump's policies

01:58:11.640 | will initiate even worse inflation,

01:58:14.240 | and then they will prove to be his undoing,

01:58:17.280 | so the ironies of inflation could be continuing.

01:58:20.040 | - Like you said, Milton Friedman would be a big fan of Doge,

01:58:24.800 | so if he was still here today,

01:58:27.400 | and rolled with Elon Musk and Vivek,

01:58:30.080 | what advice would he give?

01:58:31.640 | What do you think he would focus on

01:58:34.120 | in terms of where to cut, how to cut,

01:58:36.600 | how to think about cutting?

01:58:38.080 | - You know, his signature policy move,

01:58:41.040 | I talk about this, is taking the price mechanism

01:58:45.320 | and trying to make that into the policy,

01:58:49.160 | and that seems sort of obvious to us today,

01:58:52.560 | but in the era that he came in,

01:58:54.400 | so there would be rent controls,

01:58:57.080 | let's take away rent controls,

01:58:58.320 | let's let housing prices set themselves,

01:59:00.520 | or he was very against national parks,

01:59:03.560 | I actually think that national parks are good,

01:59:05.360 | so I hope the Doge people don't take this up,

01:59:07.400 | but rather than an allocation to fund the national parks,

01:59:11.680 | they should be funded by the revenue that they bring in

01:59:14.400 | when people visit them,

01:59:15.640 | and so I think he was always looking to,

01:59:18.600 | let's let prices make the decisions here,

01:59:20.520 | so I think that would be one of the key pieces.

01:59:23.560 | The other thing I think he'd really be thinking about,

01:59:25.800 | he wrote about this a lot,

01:59:27.200 | about occupational licensure and barriers to entry,

01:59:31.680 | and he felt like one of the worst things

01:59:33.440 | that government does,

01:59:35.000 | and sometimes it's private entities that do this,

01:59:37.360 | is create barriers to entry

01:59:39.160 | to protect industries and markets,

01:59:41.440 | so he talked about this in the case of the medical profession

01:59:44.440 | which I think is actually not a good example

01:59:46.680 | because I think we all have a collective investment

01:59:49.680 | in having medical doctors be highly trained,

01:59:52.440 | but so for instance,

01:59:53.320 | you could look at, you know,

01:59:55.520 | nail technicians or hair cutting,

01:59:57.360 | there's often these licensing requirements

01:59:59.240 | or there's a sort of big kerfuffle,

02:00:00.680 | I think it's DC passed a law

02:00:02.880 | that to run a childcare center,

02:00:04.160 | you have to have a college degree,

02:00:05.320 | well, what does that do?

02:00:06.160 | I mean, that disenfranchises

02:00:07.360 | a whole bunch of would-be entrepreneurs

02:00:08.920 | who don't happen to have a college degree,

02:00:10.280 | but probably could be really good

02:00:11.360 | at this particular business,

02:00:12.960 | so I think he would be saying,

02:00:14.680 | look out for where private interests

02:00:18.280 | have used the state to protect themselves

02:00:21.200 | and clear away those types of barriers

02:00:24.680 | and let competition through prices guide outcomes.

02:00:29.680 | - Yeah, so open up for more competition

02:00:32.240 | and allow for more signals from the market

02:00:36.480 | to drive decisions and so on.

02:00:38.040 | - Yes, yes.

02:00:38.960 | - Which would actually naturally lead

02:00:41.560 | to cutting a lot of the bureaucracy of government.

02:00:46.560 | - I think the other thing he would probably be arguing for

02:00:49.880 | is again, go back to the design of the minimum income

02:00:52.640 | or the negative income tax,

02:00:54.440 | that there's a way he ultimately decided

02:00:58.000 | to run it through the tax system, right?

02:00:59.360 | The government's already collecting this data,

02:01:01.760 | they already have your information

02:01:03.120 | and they can just send the money out through the system,

02:01:05.880 | rather than having a social bureaucracy

02:01:07.960 | where you have to come in in person,

02:01:09.480 | you have to fill out forms,

02:01:11.200 | you have to document, do you own a car?

02:01:13.880 | What's your income?

02:01:14.800 | Who lives in the household?

02:01:16.720 | So I think he would say,

02:01:17.760 | and his analysis of that was who that really benefited

02:01:21.520 | was the bureaucracy that processed that paper,

02:01:26.520 | that implemented those norms

02:01:29.360 | and that if you could pull that away,

02:01:31.520 | you could get help out where it was needed much quicker

02:01:34.640 | without having this drag of people

02:01:36.800 | doing sort of unproductive work

02:01:38.560 | of administering these systems.

02:01:39.840 | So I think trying to cut administrative overhead

02:01:41.680 | and what he didn't have then, which we have now,

02:01:44.520 | is the technology that we have

02:01:46.440 | and the ability to send benefits out via smartphone

02:01:50.080 | or just to move so much faster

02:01:53.600 | and to handle information on a mass scale so much faster.

02:01:58.120 | - It's painful, but I think one of the big things

02:02:00.320 | you can do is just that, which is digitalize,

02:02:04.160 | I don't know if that's a word,

02:02:05.480 | but just convert everything

02:02:08.480 | to where the speed of signal can be instantaneous.

02:02:13.480 | So there's no paperwork, it goes immediately.

02:02:18.400 | And then that means that the pricing signals

02:02:22.480 | and all of these kinds of things

02:02:24.320 | are just immediately available to people.

02:02:26.560 | - That seems to be the low-hanging fruit.

02:02:28.160 | Government IT systems could be vastly improved upon.

02:02:33.160 | - But that would result again

02:02:34.560 | with a lot of people getting fired.

02:02:37.220 | And I think somebody submitted a question for me

02:02:41.520 | saying like, what are your thoughts

02:02:45.240 | as a person who cares about compassion?

02:02:46.820 | What are your thoughts about government employees,

02:02:49.260 | which there's a lot of, that are going to be hurt by Doge?

02:02:54.260 | - Yeah.

02:02:56.400 | - And it's always a really difficult question.

02:02:59.440 | A lot of people get fired to make room for a new system.

02:03:03.680 | That's going to lead to a lot of pain.

02:03:05.740 | - There is gonna be a lot of pain.

02:03:07.600 | I don't know what the solution is.

02:03:09.240 | I think that's also part of why Friedman favored

02:03:14.240 | a minimum income.

02:03:15.120 | He talked about it being sort of counter-cyclical.

02:03:17.340 | In other words, when things were really bad,

02:03:21.620 | the spending level on it would naturally go up.

02:03:23.820 | This is what economists today call an automatic stabilizer.

02:03:26.820 | And then when it's not needed, the cost of it goes down.

02:03:31.320 | I mean, maybe there's a way to make it,

02:03:34.900 | sweeten it with honey and have people take buyouts

02:03:36.900 | or things like that.

02:03:37.740 | That would certainly be a way better way to go.

02:03:41.140 | - I did a podcast with Javier Millay.

02:03:43.380 | He has consistently praised Milton Friedman

02:03:46.000 | and cited him as one of his inspirations.

02:03:48.000 | So what do you think Milton Friedman would say

02:03:52.120 | about what's going on in Argentina

02:03:54.320 | and what Javier Millay is trying to do in Argentina?

02:03:56.880 | - Yeah, I think he would appreciate it.

02:03:58.400 | I mean, I think Millay is much more

02:04:00.600 | of an Austrian-inspired thinker,

02:04:03.560 | but I think he definitely appreciates Friedman.

02:04:05.520 | And on the macro level, Friedman always understood

02:04:09.040 | it's really painful to treat inflation.

02:04:12.760 | But the more you put it off, the harder it is.

02:04:15.880 | So I think he would be trying to get him,

02:04:19.360 | as he's doing, to just message that short-term pain,

02:04:24.200 | long-term gain.

02:04:25.680 | I think he'd be very supportive.

02:04:27.000 | I think he'd be thrilled to see.

02:04:29.000 | Also that Millay is very good at explaining

02:04:30.880 | these abstract ideas and putting his policies

02:04:33.360 | in the framework of the bigger picture.

02:04:35.280 | That was really meaningful to Friedman.

02:04:37.840 | I don't know how politically persuasive it is overall.

02:04:42.320 | You know, Millay's very intense.

02:04:44.320 | He doesn't have the same sort of gifts of salesmanship

02:04:48.640 | and setting people at ease

02:04:49.680 | that say someone like Ronald Reagan had,

02:04:51.240 | but it seems to be that's what his country

02:04:53.160 | was calling for right now, so.

02:04:55.080 | - Yeah, he is more chainsaw-less, like warm blanket.

02:04:59.640 | Javier recollects this line from Milton Friedman.

02:05:05.600 | I don't know if this is accurate,

02:05:06.600 | but if you strive for equality over freedom,

02:05:09.440 | you often get neither.

02:05:10.760 | But if you strive for freedom, you often get both.

02:05:13.480 | Do you think there's truth to this?

02:05:15.680 | - You know, I think on the big picture, definitely.

02:05:18.800 | I mean, we've seen focusing too much on equality.

02:05:23.800 | It can be, because equality is such an alluring word,

02:05:28.600 | it can lead you to downgrade all kinds of other things

02:05:31.080 | that are really important.

02:05:32.560 | But I really think it depends

02:05:34.480 | on how you're defining freedom.

02:05:35.640 | I mean, the statement is too big and too broad, right?

02:05:39.440 | So, you know, if you're talking about freedom,

02:05:44.440 | if by freedom you mean not having to pay taxes

02:05:49.800 | if you're successful, you know,

02:05:51.640 | I think that can have all kinds of knock-on effects, right?

02:05:54.800 | The idea that people are able to prosper

02:05:57.840 | when they're educated.

02:05:59.360 | Where's education gonna come from?

02:06:02.000 | How is that gonna be paid for and supported?

02:06:04.320 | And again, to go back to Knight,

02:06:07.120 | if you're generating too much inequality,

02:06:10.320 | or people are feeling

02:06:11.440 | that you're generating too much inequality,

02:06:13.600 | sometimes they value that more than they value freedom.

02:06:16.800 | And so I think the balance,

02:06:19.040 | I think there has to be more of a balance.

02:06:22.080 | And it's just, it's hard to make such global statements

02:06:24.880 | if you have to break them down

02:06:25.880 | into what actually do you mean.

02:06:27.680 | But again, Malay is coming from a very different context,

02:06:31.880 | a very different country that has seen so much upheaval,

02:06:35.720 | so much government intervention, so much inflation,

02:06:38.120 | so much political turmoil.

02:06:39.840 | He's probably thinking about it differently

02:06:43.120 | than Friedman was thinking about it.

02:06:44.680 | - Yeah, I mean, there was,

02:06:46.680 | there probably still is a real threat of hyperinflation.

02:06:49.880 | There seems to be a very high level of corruption

02:06:52.720 | or the capacity for corruption.

02:06:54.160 | So it's a really messy situation.

02:06:57.040 | So Javier Malay likes to recollect this great line

02:07:01.360 | from Milton Friedman,

02:07:02.760 | that if you strive for equality over freedom,

02:07:05.240 | you often get neither.

02:07:06.800 | But if you strive for freedom, you often get both.

02:07:10.160 | Do you think there's a truth to this?

02:07:12.560 | - Yeah, I think in the macro, for sure.

02:07:15.720 | I mean, we've seen,

02:07:17.080 | if you really put equality as your goal,

02:07:19.600 | it's such a seductive ideal

02:07:22.800 | and people believe in it so much

02:07:24.360 | that they can carry out horrible crimes

02:07:27.760 | in the name of equality.

02:07:29.360 | But then focusing on freedom,

02:07:31.240 | these words are too big.

02:07:33.160 | They're so hard to define.

02:07:35.080 | And so I think you have to ask sort of like,

02:07:36.560 | what is the freedom you're talking about, right?

02:07:38.400 | If you're talking about the freedom of ordinary people

02:07:41.400 | to be entrepreneurial,

02:07:43.120 | to make their own way, to start new things,

02:07:46.360 | to continue what they're doing,

02:07:47.480 | to keep what they've earned, for sure.

02:07:48.920 | I think that can increase the equality overall.

02:07:52.320 | If you're talking about lower taxes,

02:07:55.680 | if freedom is just a code for lower taxes

02:07:58.200 | or has to be, I mean, lower taxes in general, great.

02:08:01.920 | But if you're one of the top generators of wealth,

02:08:05.800 | there has to be some way to ensure that,

02:08:09.560 | say, education, right?

02:08:11.000 | People prosper when they're well-educated.

02:08:13.280 | That's when economies do better.

02:08:14.640 | Education is generally state-funded

02:08:16.960 | and you need some way to support that

02:08:18.960 | and provide for those institutions that structure society,

02:08:22.880 | that make competition possible.

02:08:25.160 | So I think it's just a really broad statement.

02:08:28.920 | But again, Malay is coming from a really different context.

02:08:32.560 | He's coming from the South American context

02:08:35.040 | from such upheaval, such economic devastation

02:08:38.360 | in pursuit of the goal of equality

02:08:41.280 | that I think trying to rebalance

02:08:42.920 | with that emphasis on freedom,

02:08:44.120 | I definitely see where he's coming from.

02:08:46.480 | - If we can pivot a little bit, we've talked about Reagan.

02:08:50.000 | What are some interesting stories

02:08:51.480 | about how Milton Friedman navigated the Reagan

02:08:54.240 | and maybe even the Nixon administrations

02:08:56.680 | and how he was able to gain influence?

02:09:00.560 | - Well, the Nixon administration is an interesting case

02:09:03.240 | because, so I've been talking about inflation

02:09:06.240 | and the different consequences it had.

02:09:09.440 | One consequence it had is that it began to undermine

02:09:12.480 | the Bretton Woods currency system

02:09:14.080 | that was established in the wake of World War II.

02:09:16.400 | Now, Bretton Woods, what it did basically,

02:09:19.440 | it ended up inadvertently putting the U.S. dollar

02:09:23.080 | at the center of the world economic system.

02:09:24.960 | But under Bretton Woods,

02:09:27.120 | countries of the industrialized West

02:09:28.560 | agreed to trade their currency

02:09:30.920 | in set ratios that government set.

02:09:32.800 | So a franc was worth so many dollars

02:09:36.400 | or a German mark was worth so many francs.

02:09:38.400 | And then also under this system,

02:09:40.840 | countries could come to the United States

02:09:42.600 | and they could trade the dollars that they held for gold

02:09:47.600 | 'cause the U.S. was on a sort of modified gold standard.

02:09:50.840 | There was a ratio of gold to paper money.

02:09:54.880 | And so the system was set up and very quickly,

02:09:59.160 | most countries were, the dollar was at the heart of it

02:10:03.200 | in that the converting into and out of dollars

02:10:05.880 | was really the mechanism of trade

02:10:07.440 | for many of these countries.

02:10:08.520 | So Friedman said, you know,

02:10:11.560 | what we should have is floating exchange rates.

02:10:15.280 | This is an idea, again, of instead of having

02:10:19.400 | a top-down design of policy, an administered policy,

02:10:22.880 | we will have policy set by prices.

02:10:25.280 | And you should be able to trade currencies

02:10:27.240 | on an open market.

02:10:28.200 | They should trade and they should fluctuate

02:10:29.720 | and that would be fine.

02:10:31.280 | Totally outlandish idea.

02:10:32.920 | But he was pinpointing the fact

02:10:35.760 | that Bretton Woods had an instability

02:10:38.400 | and that instability began to emerge

02:10:40.360 | in the time of inflation.

02:10:42.080 | So you have more and more dollars being printed.

02:10:46.560 | They're worth less and less.

02:10:49.080 | If European nations keep trading their currency for dollars,

02:10:54.080 | they're gonna be importing inflation

02:10:56.400 | into their own economies.

02:10:57.720 | So they say, we don't want these dollars,

02:11:00.600 | we'd like some gold instead.

02:11:02.320 | And they have the right to go to the treasury,

02:11:04.440 | send in an order and get gold out.

02:11:07.560 | And so they start doing this more and more

02:11:10.640 | and it becomes, it's called the gold drain

02:11:13.360 | and the United States starts running out of gold.

02:11:16.960 | They're aware this is happening through the '60s,

02:11:19.040 | they're trying various things to fix it.

02:11:21.840 | And when Nixon comes into office in '68,

02:11:26.000 | Friedman sends him a memo and it says,

02:11:30.680 | this is gonna be a real problem.

02:11:35.080 | He says something like, this is a running sore

02:11:39.880 | and you have to lance it right away.

02:11:42.080 | Some very graphic-- Very nice.

02:11:44.160 | Metaphor, otherwise it's gonna explode.

02:11:47.720 | And Nixon just files the memo away.

02:11:50.880 | Nixon loved people to think he was influenced by

02:11:54.800 | and following the wisdom of Milton Friedman,

02:11:57.480 | but he didn't actually want to do that.

02:11:59.560 | He just wanted the political benefit that came from it.

02:12:02.640 | So then comes the moment

02:12:06.840 | where the US Treasury Department realizes

02:12:09.840 | we're going to run out of gold.

02:12:12.320 | What should we do?

02:12:13.160 | And then everybody decamps to Camp David

02:12:15.560 | and Nixon decides we're just gonna stop

02:12:20.120 | redeeming currency for gold.

02:12:22.080 | It's called slamming the gold window shut, done.

02:12:25.440 | And he also at that same meeting

02:12:28.240 | decides to institute price controls.

02:12:31.040 | He does a whole bunch of stuff.

02:12:32.280 | It's an emergency.

02:12:33.400 | He calls it the new economic plan,

02:12:35.160 | which is an unconscious echo of the Soviet new economic plan.

02:12:38.520 | So a problematic name, a problematic policy.

02:12:42.400 | And Friedman is livid at the price controls,

02:12:45.120 | but he's like, actually,

02:12:46.920 | it's great that you closed the gold window.

02:12:48.680 | Let's go all the way to floating exchange rates.

02:12:51.160 | And this idea was heresy within the Treasury Department.

02:12:54.680 | Everyone's very committed to the idea of the gold standard,

02:12:59.680 | convertibility, possibility,

02:13:01.400 | the United States at the core of the financial system,

02:13:04.240 | kind of Hammond Hall.

02:13:05.520 | But at this point,

02:13:06.360 | Friedman has a very close relationship with George Shultz.

02:13:09.440 | And George Shultz is a high level appointee

02:13:12.840 | who will eventually,

02:13:14.400 | over the course of the next administrations,

02:13:15.960 | become the Treasury Secretary.

02:13:17.440 | And so Friedman is feeding Shultz all his ideas

02:13:22.040 | about how we should move to floating exchange rates,

02:13:24.800 | how we shouldn't try to reconstruct Bretton Woods.

02:13:27.680 | And the people in Treasury,

02:13:29.280 | it's funny 'cause I've read some of their accounts

02:13:31.760 | and actually Paul Volcker

02:13:32.760 | is in the Treasury Department at this time.

02:13:34.480 | And he can kind of sense that Friedman is in here somewhere,

02:13:37.800 | you know, like feeding his boss ideas.

02:13:40.400 | He doesn't quite know.

02:13:41.840 | And you know, in the oral history,

02:13:43.720 | Shultz talks about this quite a bit.

02:13:45.760 | So at any rate,

02:13:46.600 | Friedman exerts this behind the scenes influence.

02:13:49.400 | And what Shultz does is just kind of

02:13:52.200 | lets Bretton Woods fade away.

02:13:54.080 | He doesn't make grand pronouncements.

02:13:56.080 | It just slowly the world shifts to a regime.

02:14:01.080 | For a while, it was like a regime of steady prices.

02:14:06.040 | And then they call it a steady regime of changing prices

02:14:08.240 | or whatever.

02:14:09.080 | The language changes, the reality changes,

02:14:11.040 | and they kind of end up where they are.

02:14:12.560 | So that's a real measure of Friedman's influence.

02:14:15.720 | If there had been another economist in Shultz's ear

02:14:18.240 | that said, "No, catastrophe is imminent.

02:14:20.720 | "We have to go back to Bretton Woods."

02:14:22.560 | He probably would have worked harder.

02:14:24.000 | The US government would have worked harder.

02:14:26.080 | And so that becomes one of these pieces of globalization.

02:14:30.440 | And you know, what people don't realize

02:14:32.080 | is there used to be,

02:14:33.600 | in addition to these floating set capital ratios,

02:14:36.240 | you couldn't bring capital in and out of different countries

02:14:38.320 | and you had to register.

02:14:39.240 | You couldn't invest.

02:14:40.600 | For all these rules and strictures

02:14:42.160 | and the falling of Bretton Woods

02:14:43.960 | really blows that all open.

02:14:45.240 | It's a precursor to globalization.

02:14:47.000 | So Friedman is right there.

02:14:49.320 | Now, he's very ambivalent about Nixon.

02:14:52.440 | I mean, he sees that Nixon is not an honest person.

02:14:55.960 | He thinks he's very intelligent.

02:14:57.560 | And Nixon's dream is to create a new centrist majority.

02:15:02.920 | So he does many things to go back

02:15:05.080 | on his supposed economic principles and ideals.

02:15:08.640 | So Friedman does not like this.

02:15:09.840 | He doesn't like the price controls.

02:15:11.720 | He's in communication with his old mentor, Arthur Burns,

02:15:14.920 | who's now the chair of the Federal Reserve.

02:15:16.840 | And Burns is basically doing everything wrong

02:15:20.080 | in monetary policy.

02:15:21.280 | And I described this in the book in some detail,

02:15:23.960 | these anguished letters back and forth.

02:15:25.800 | And basically, as I see it,

02:15:28.800 | Burns doesn't have a solid theory of inflation.

02:15:31.160 | And the more Friedman pushes him,

02:15:34.080 | it's almost like Burns is willfully ignoring Friedman

02:15:36.840 | and kind of doing the opposite of what Friedman says.

02:15:39.000 | So Burns is running a very loose monetary policy.

02:15:42.280 | Inflation is quite considerable over the '70s.

02:15:44.440 | I mean, we were all spooked by what did it get to 6%,

02:15:47.160 | something like that, recently for a very short time.

02:15:50.320 | This is inflation going over 10%, hovering in 8%

02:15:54.080 | for basically the whole decade of the '70s,

02:15:55.960 | going up and down with extremely elevated rates.

02:15:58.480 | And so the Carter presidency largely falls,

02:16:02.760 | foreign policy is a big part of it,

02:16:04.200 | but the failure to tame inflation is part of it.

02:16:06.160 | And then Reagan comes in.

02:16:08.080 | And now Reagan loves Friedman and Friedman loves Reagan,

02:16:11.280 | very mutual feeling.

02:16:13.440 | The Reagan administration creates

02:16:14.680 | like an advisory economic board, Friedman's on it.

02:16:17.360 | He's retired now, he's entering his kind of golden years,

02:16:21.000 | but he really has Reagan's ear.

02:16:22.640 | And here what he does is he convinces Reagan

02:16:26.640 | of his theory of inflation,

02:16:28.240 | which is inflation has been caused.

02:16:30.760 | It's a monetary phenomenon that has been caused

02:16:32.880 | by bad monetary policy.

02:16:34.440 | Inflation has an accelerating dynamic.

02:16:38.600 | The only way to end inflation is by really showing

02:16:43.480 | and signaling that government policy has changed.

02:16:46.000 | And when you do that, it's very painful

02:16:49.000 | for a short amount of time, people will suffer,

02:16:52.200 | but then you will come out on the other side

02:16:54.400 | into stable prices.

02:16:55.840 | And this is what you need for economic prosperity.

02:16:58.560 | So the man who implements this policy, Paul Volcker,

02:17:03.240 | he's definitely influenced by Friedman,

02:17:05.680 | buys a big picture of Friedman.

02:17:08.240 | He even buys Friedman's specific technique

02:17:11.800 | of the monetary growth rule

02:17:13.520 | and of the focus on monetary aggregates,

02:17:15.960 | which Friedman has said, right, money matters,

02:17:17.880 | aggregates matter, and that's what money is.

02:17:20.640 | Pretty quickly, Volcker finds that because of inflation

02:17:25.160 | and the financial deregulation in response to it,

02:17:27.960 | the aggregates don't work the way Friedman said they would.

02:17:31.360 | And so the specific policy Friedman recommends,

02:17:35.000 | Volcker tries it for a year or so, doesn't work super well.

02:17:38.240 | But what does work is letting interest rates go high,

02:17:42.000 | go above inflation to a point where

02:17:44.560 | both the general citizenry and the financial markets

02:17:47.840 | believe like, oh, they're actually serious about inflation.

02:17:50.720 | And because we've had a decade of inflation

02:17:52.440 | with all these presidents saying, you know,

02:17:54.880 | going forward, we're gonna whip inflation now,

02:17:57.600 | that monetary policy has lost credibility.

02:18:00.040 | This is why people focus so much on credibility today,

02:18:02.680 | 'cause once it's lost, it's really hard to get it back.

02:18:05.360 | And one way Volcker gets it back is interest rates over 20%,

02:18:09.440 | unemployment very high, as high as 25%

02:18:12.480 | in like construction sectors.

02:18:15.000 | And as this is happening,

02:18:16.960 | Milton Friedman is whispering in Reagan's ear,

02:18:19.400 | this is the right thing.

02:18:21.080 | Stay the course, this is going to work.

02:18:23.600 | Now, interestingly, he hates Volcker, Volcker hates him,

02:18:27.520 | and Friedman will never give Volcker credit for this policy,

02:18:30.080 | but he will give Reagan credit for this policy.

02:18:32.600 | But he owes credit himself for keeping Reagan

02:18:37.600 | from wobbling on this policy and just pushing it through.

02:18:41.520 | And he also tells Reagan very pragmatically,

02:18:43.920 | you better do this now, you've got a four-year term,

02:18:47.040 | do this in the first two years of your term,

02:18:49.400 | things will have turned around by 1984

02:18:51.640 | when you run for re-election

02:18:52.920 | and you'll benefit from it.

02:18:53.840 | And that's absolutely what happens.

02:18:55.920 | - If we could take a small tangent.

02:18:57.480 | - Yeah.

02:18:58.320 | - Sort of a question I have to ask

02:19:00.080 | about since we mentioned Bretton Woods

02:19:02.520 | and maybe the gold standard,

02:19:03.760 | maybe just have a general discussion

02:19:05.800 | about this whole space of ideas.

02:19:08.160 | There's a lot of people today

02:19:09.560 | that care about cryptocurrency.

02:19:11.160 | - Mm-hmm.

02:19:12.560 | - What do you think that Milton Friedman

02:19:15.240 | would say about cryptocurrency

02:19:17.680 | and what role crypto might play in the economy?

02:19:23.680 | Whether he would be for this idea, against this idea,

02:19:28.680 | and if we could look at it for today

02:19:31.400 | and also just 10, 100 years from now.

02:19:34.560 | - There's a clip, I think it's in 1992,

02:19:37.240 | where people say, oh, Friedman predicted cryptocurrencies

02:19:40.080 | because he's talking about how payments

02:19:43.040 | will eventually be electronic.

02:19:45.200 | So in some ways, he definitely,

02:19:47.760 | as he was looking at the computer and money,

02:19:49.000 | he knew these would come together in some way.

02:19:51.320 | I think he probably would see a use case for crypto.

02:19:56.320 | He definitely would not buy the stronger forms,

02:19:59.560 | I think, of crypto ideology

02:20:02.440 | in which we could be heading towards a future

02:20:05.320 | in which there's many different currencies that compete

02:20:07.360 | or that are distributed or there's a stateless currency.

02:20:09.720 | And he addresses this very, very clearly

02:20:12.040 | because Hayek's denationalization of money,

02:20:14.880 | it's a paper in the late '70s,

02:20:17.200 | Hayek argues for this kind of competing currency model

02:20:20.480 | or regime, and so he's responding to that.

02:20:22.800 | He's responding to people writing about free banking.

02:20:25.560 | And he basically says, look,

02:20:27.240 | even if you developed a variety of competing currencies,

02:20:31.160 | eventually society would converge on one.

02:20:33.840 | And that's because people just want one currency

02:20:36.360 | that they know, they don't want a bunch of different options.

02:20:39.200 | Even in places where there have been options to do that,

02:20:41.800 | they've been used very minimally.

02:20:43.640 | And then he says, secondly, the state always steps in.

02:20:46.920 | He says, technically, theoretically, it doesn't have to.

02:20:50.360 | I could draw you a model.

02:20:51.600 | I could tell you about how it could work without the state,

02:20:54.560 | but in actual reality,

02:20:56.600 | all human societies through time and space,

02:20:59.760 | the state eventually becomes involved

02:21:02.400 | in the provision of money

02:21:03.600 | because it has so many knock-on effects to so many people.

02:21:06.840 | So, sure, I think he would, again,

02:21:09.640 | find a use case for crypto, think it's interesting,

02:21:12.320 | but I don't think he would see it

02:21:13.880 | as this is going to displace state money

02:21:16.240 | and we're going to have a variety of distributed currencies.

02:21:21.000 | The other thing he really stresses

02:21:22.720 | is that a change in a monetary system,

02:21:25.720 | it only happens amid great, great crisis.

02:21:28.840 | So, again, you see in countries

02:21:31.520 | where the state is not controlling the money well,

02:21:34.680 | that's when people are more turning to crypto,

02:21:36.400 | but he says, because money is so fundamental,

02:21:39.040 | there are going to be so much political pressure

02:21:42.280 | on any country that gets the currency profoundly wrong

02:21:47.280 | that the government will fall

02:21:49.000 | and another one will replace it, right?

02:21:50.400 | So, if you look at episodes of hyperinflation,

02:21:52.660 | they don't go on very long

02:21:55.080 | because they're so upsetting to people.

02:21:57.800 | - If we can go back in time,

02:21:59.440 | we've talked about it a bunch,

02:22:01.080 | but it's still a fascinating time.

02:22:03.560 | The Great Depression, University of Chicago,

02:22:06.840 | there's these folks like Jacob Viner, Frank Knight,

02:22:10.680 | Henry Simons, all of these influenced the thinking

02:22:13.880 | of Milton Friedman.

02:22:15.420 | There's this Room 7 situation at the University of Chicago.

02:22:19.560 | Just going back there,

02:22:21.860 | even just speaking almost philosophically,

02:22:24.080 | what does it take to explore ideas together,

02:22:27.160 | sort of like deliberate, argue in that space,

02:22:30.520 | and maybe there might be interesting stories

02:22:32.520 | about that time.

02:22:33.640 | It would just be interesting to understand

02:22:36.440 | how somebody like Milton Friedman forms

02:22:40.600 | - The seed is planted and the flower blooms.

02:22:43.360 | - Yeah, yeah.

02:22:44.520 | So, he gets to University of Chicago,

02:22:47.600 | he makes fast friends,

02:22:49.920 | and in his third and fourth year,

02:22:52.320 | they become what I call them the Room 7 gang.

02:22:54.760 | So, Room 7 is they find an old storeroom in the basement,

02:22:57.960 | they take it over,

02:22:59.200 | and that's where they have their jam sessions.

02:23:01.320 | And what made this world come together was Frank Knight.

02:23:04.880 | There was a charismatic leader

02:23:06.800 | and there were a bunch of acolytes

02:23:08.280 | who clustered around him.

02:23:10.440 | That, I think, was a key piece of the ingredient.

02:23:12.760 | And then there was a sense that they were onto something

02:23:15.800 | that the rest of the economics field

02:23:18.080 | had forgotten or was rejecting.

02:23:19.680 | So, there was like that sense of mission.

02:23:21.840 | So, that seems to have been,

02:23:24.960 | there was a formal education piece,

02:23:27.440 | and then there was a parallel education piece

02:23:29.760 | rooted in admiration for a thinker, a shared admiration.

02:23:33.440 | And then what that led Friedman to do,

02:23:36.600 | you know, what I found syllabi, you know,

02:23:40.160 | that he had from non-economics courses,

02:23:42.520 | lists of books,

02:23:43.360 | and he'd written the prices of different ones

02:23:45.080 | he wanted to read.

02:23:46.000 | So, he had, you know, John Stuart Mill on liberty,

02:23:48.320 | like 50 cents written in the margin.

02:23:50.440 | So, he began to educate himself.

02:23:52.560 | He gave himself a like parallel curriculum

02:23:55.240 | alongside this very formal economics curriculum.

02:23:57.480 | He started reading, you know,

02:23:58.800 | the traditions of political liberalism,

02:24:01.360 | and then talking them through with friends

02:24:03.080 | and developing like a shared sense of mission.

02:24:05.920 | And that, the incredible thing is,

02:24:07.760 | of those friends in the group,

02:24:10.240 | you know, they scattered for like 10 years,

02:24:12.240 | and then they all came back together.

02:24:14.040 | You know, George Stigler, his great friend,

02:24:15.680 | was hired at Chicago.

02:24:17.320 | Aaron Director, who was his wife's brother,

02:24:20.440 | was at Chicago.

02:24:21.680 | So many of these people continued.

02:24:24.080 | He became Frank Knight's colleague.

02:24:26.040 | So, that was the base.

02:24:28.320 | That was what really grew him,

02:24:29.720 | that really profound peer group.

02:24:32.400 | Now, the other piece I talk about a lot

02:24:34.360 | is Freeman was a collaborator,

02:24:38.000 | an open-minded collaborator.

02:24:39.480 | And he had incredible connections

02:24:41.320 | with economists who were women.

02:24:43.080 | And he basically found,

02:24:44.520 | first in the figure of Anna Schwartz,

02:24:47.560 | later in the figure of this group of women

02:24:49.240 | who were his wife's friends,

02:24:51.760 | this kind of untapped pool of talent.

02:24:54.120 | And so, he immersed himself in this whole other world

02:24:56.480 | of consumption economics.

02:24:58.680 | And that resulted in, you know,

02:25:00.040 | his more technical work on a theory

02:25:02.960 | of the consumption function,

02:25:04.120 | which is the theory of permanent income.

02:25:06.280 | So, for Freedman, intellectual work

02:25:08.840 | and intellectual production was always done

02:25:11.400 | in this very social context,

02:25:13.720 | in a context that blended friendship

02:25:16.640 | and intellectual partnership.

02:25:19.040 | And he really, he only had a handful of friends

02:25:22.080 | who were not also economists,

02:25:24.320 | interested in the same questions he was.

02:25:25.920 | So, he just lived and breathed ideas all day long.

02:25:30.080 | - Can you speak to the jam sessions?

02:25:31.560 | Like, what do we know about the jam sessions?

02:25:33.200 | What are we talking about here?

02:25:34.600 | You're sitting in a room.

02:25:35.880 | Are they analyzing?

02:25:37.480 | Are they reading papers and discussing papers?

02:25:39.320 | Or are they arguing more, like,

02:25:41.440 | over beers kind of situation?

02:25:42.640 | - Yeah, more arguing over beers.

02:25:44.640 | And in this case, there's several people who say

02:25:48.120 | it was all about Frank Knight.

02:25:50.240 | What did he say?

02:25:51.520 | What did he mean when he said it?

02:25:53.040 | Is he right?

02:25:54.400 | And so, Knight was very,

02:25:56.000 | he would say one thing and then say another.

02:25:57.640 | If you read him, it's very hard to follow

02:25:59.720 | what he's actually saying,

02:26:00.760 | because he's full of qualifications.

02:26:02.400 | And irony isn't blends.

02:26:03.480 | And so, he would throw out these pieces,

02:26:07.680 | and then the students would kind of clutch at them.

02:26:09.720 | And then they would come back together

02:26:11.000 | and try to assemble this sort of worldview.

02:26:12.840 | And then Frank Knight fell into this terrible depression,

02:26:15.920 | and to cheer him up, they planned a big party.

02:26:19.480 | And they went back through all of his previous writings,

02:26:23.000 | and they assembled them into a book that was published.

02:26:25.640 | This is "The Ethics of Competition."

02:26:27.160 | And you can read the introduction,

02:26:28.480 | written in part by Milton Friedman.

02:26:29.800 | So, not only were they talking about Knight

02:26:32.560 | and what he said,

02:26:33.400 | but then they started poring over his work.

02:26:36.000 | And one of them described it

02:26:37.280 | as like a general equilibrium system,

02:26:39.240 | where you had to know all the parts,

02:26:41.120 | and then all of a sudden it all fit together in a whole.

02:26:43.840 | So, if we step back,

02:26:45.640 | what they were doing was getting inside the mind

02:26:48.520 | of a great thinker,

02:26:49.600 | and understanding the ways it all fit together,

02:26:52.160 | and then kind of testing their ideas against Knight's.

02:26:55.760 | And what's fascinating is one of the first papers

02:26:59.520 | that Friedman publishes in "Statistics"

02:27:02.080 | is a rebuttal of Frank Knight.

02:27:04.600 | He publishes a rebuttal of Frank Knight's ideas

02:27:07.200 | about risk and uncertainty.

02:27:09.200 | And Frank Knight, he kind of took a black swan argument.

02:27:12.440 | He said, "Risk, you can calculate.

02:27:14.920 | "Uncertainty, you can't.

02:27:16.600 | "Like existentially, philosophically,

02:27:19.040 | "you can't get your hands around it.

02:27:20.720 | "It is the black swan."

02:27:22.240 | And Friedman publishes this statistical paper,

02:27:24.400 | and he says, "I can put uncertainty on a graph."

02:27:27.960 | And so, there's that sort of Freudian killing

02:27:30.280 | of the father element when he comes back,

02:27:32.520 | and he will, in some ways,

02:27:35.240 | turn his back on Knight's approach and Knight's pessimism,

02:27:38.560 | even while it's like a foundation of his thinking.

02:27:41.120 | - Fascinating.

02:27:43.920 | Is there something you could say about the thinking process

02:27:46.320 | that Milton Friedman followed?

02:27:49.400 | Like how he developed his ideas?

02:27:52.680 | You mentioned there's a strong collaborative component,

02:27:55.480 | but there's another story I saw about

02:27:58.240 | that I think his son recalled

02:28:03.160 | about the argument number system that you mentioned.

02:28:06.160 | Which I, by the way, if you're gonna explain that

02:28:08.440 | as the tangent of a tangent, that's really awesome.

02:28:11.400 | I think it's like number one if the other person is right.

02:28:14.880 | - Number two means you were right and I was wrong.

02:28:19.200 | And the number system evolved in some ways

02:28:22.880 | to be quick and efficient, but in other ways,

02:28:24.680 | they also were really clear about it.

02:28:26.160 | So, something like there's kind of like

02:28:29.200 | three reasons behind it.

02:28:30.360 | First is, if you use a number, it reminds the listener

02:28:35.360 | that it's really hard to say the words, "I was wrong."

02:28:39.520 | So, you're kind of calling on their sympathy

02:28:42.400 | by using number, reminding them

02:28:43.840 | that you're doing a hard thing.

02:28:45.000 | And then, it's also reminding them

02:28:48.520 | that you're in this family with this code.

02:28:51.240 | And so, you're signaling your membership

02:28:54.560 | and your closeness and your love, really.

02:28:57.040 | And so, it's supposed to be an easy way to disagree

02:29:00.000 | without breaking the relationship.

02:29:01.580 | - Yeah, so admitting you're wrong

02:29:04.400 | now comes with this warm, fuzzy feeling.

02:29:06.600 | - Yeah, yeah.

02:29:07.640 | - And that's really, I mean, that's so powerful.

02:29:10.800 | I think so much of the friction of human interaction

02:29:15.100 | could be boiled down to just not being able to admit

02:29:18.320 | that you're wrong efficiently and quickly

02:29:20.440 | and regularly and just often.

02:29:23.560 | And to be able to do that, that's really powerful.

02:29:26.480 | - Yeah, I think it's a really neat aspect

02:29:29.200 | of their family life, for sure.

02:29:30.800 | - Sorry, that's a fun story,

02:29:32.960 | but can we just generalize to how he engaged in collaboration,

02:29:37.560 | how he developed his ideas?

02:29:39.680 | Is there a thinking process?

02:29:41.880 | - So, he taught at the University of Chicago,

02:29:43.760 | and he tended to teach for six months

02:29:45.560 | and then have six months off.

02:29:46.960 | And he spent the summers in New Hampshire or Vermont.

02:29:50.320 | He had, right near that border,

02:29:51.760 | they had two different houses.

02:29:52.880 | And that to him was the deep thinking time.

02:29:56.000 | And so, when he's at Chicago, he's teaching, he's arguing.

02:30:00.440 | Some people loved his teaching style, very much in charge,

02:30:05.200 | very much keeping students on their toes, confrontational.

02:30:08.600 | Others found it too much, overwhelming,

02:30:11.360 | kind of shut them down intellectually,

02:30:12.920 | and they couldn't cope with it.

02:30:15.000 | And so, I think it was kind of go time when he was teaching.

02:30:18.960 | In that case, that was a lot of social time,

02:30:21.480 | interacting, talking, other professors,

02:30:23.800 | going out and giving papers,

02:30:25.320 | arguing with the people at Yale or Harvard.

02:30:27.600 | Then he would go and do these very deep dives

02:30:30.440 | over the summer.

02:30:31.560 | He would also regularly do these trips to New York

02:30:34.520 | to see Anna Schwartz, so his 12-year collaborator.

02:30:37.240 | They didn't have, phone calls were really expensive.

02:30:39.440 | They did have quite an extensive correspondence,

02:30:41.280 | but then they would do these meetings.

02:30:42.480 | So, he would basically come in

02:30:44.560 | at the beginning of the summer,

02:30:46.800 | going to Raleigh, stop in New York, see Schwartz,

02:30:49.680 | and then, again, on the way back to Chicago.

02:30:51.760 | So, you'd have these deep check-ins at that point.

02:30:54.080 | The other thing that happened

02:30:55.120 | is people would come visit him in New Hampshire.

02:30:57.720 | And so, he would have these,

02:30:59.800 | he had a studio separate from the house.

02:31:01.520 | He would go and he would work.

02:31:02.480 | And then at night, his friends would come.

02:31:04.760 | His friends are all economists.

02:31:06.000 | There's a whole cluster of economists.

02:31:08.120 | They all clustered within driving distance

02:31:10.600 | of the Dartmouth Library

02:31:11.920 | so that they could get their hands on books.

02:31:14.160 | And so, they would come over,

02:31:15.400 | and then they would argue and talk into the night.

02:31:18.040 | So, I think he did need that deep focus time,

02:31:22.240 | but it was not like,

02:31:23.760 | he also lived a very engaged, very embedded social life.

02:31:28.640 | - A part of which was his marriage.

02:31:31.060 | Is there something you could say about love,

02:31:33.960 | about marriage, about relationship

02:31:35.680 | that made the whole thing work?

02:31:37.320 | It was vibrant, and they wrote a biography together?

02:31:40.640 | - They did.

02:31:41.480 | I mean, they were very complimentary.

02:31:42.800 | They were kind of the yin and the yang.

02:31:44.880 | She was very introverted,

02:31:47.760 | somewhat suspicious of others, skeptical.

02:31:51.440 | And he was extremely extroverted, optimistic, high energy.

02:31:56.440 | And they also were at a time when it was really clear,

02:32:00.400 | like, for broader society, these are the roles of a man,

02:32:03.440 | these are the roles of a woman.

02:32:05.280 | And they pretty much adopted those.

02:32:06.640 | Now, Rose Friedman did some very important economic work.

02:32:11.320 | She's part of the early stages

02:32:12.640 | of the theory of the consumption function.

02:32:14.800 | She didn't complete her degree

02:32:16.240 | because she really knew there wasn't,

02:32:18.720 | if she wanted to be married and have children in the world

02:32:21.240 | she'd lived in, there wasn't a real pathway

02:32:23.440 | to also being an economist.

02:32:24.880 | You know, I do think that a lot of that,

02:32:28.520 | it's not, although it feels very gendered,

02:32:30.720 | like, you know, he's the man out in the world

02:32:32.640 | and she's in private.

02:32:33.800 | It's interesting because her brother, Aaron Director,

02:32:35.720 | was the same way.

02:32:36.560 | He was very private man, very shy, very introverted.

02:32:39.840 | And he exerted this like quiet intellectual influence

02:32:42.320 | on all of his friends.

02:32:44.080 | So I think that was just kind of a family trait

02:32:47.000 | of being more quiet, preferring to be behind the scenes.

02:32:50.240 | It wouldn't have worked any other way

02:32:51.680 | because Friedman was so out there,

02:32:54.320 | so, you know, so extroverted.

02:32:57.640 | And there's a bit of a sad thing she said.

02:32:59.720 | She said, "When I married Milton,

02:33:01.880 | I lost half of my conversations.

02:33:04.320 | When David came along, I lost the other half."

02:33:07.320 | So it was a household that was just dominated

02:33:10.640 | by male voices in which she didn't have a lot of room.

02:33:13.800 | What was tricky for me in my research

02:33:15.360 | is she didn't leave much of a trace.

02:33:17.640 | She put together Milton Friedman's archive

02:33:19.960 | and she took herself out of it.

02:33:21.280 | So I really had trouble finding her actual voice

02:33:25.280 | in the historical documents.

02:33:26.600 | And she didn't want to leave that behind.

02:33:28.800 | So it's absolutely essential piece of his success

02:33:32.480 | because she's the one who pushed him

02:33:34.000 | to do the Newsweek column, to do Free to Choose.

02:33:37.080 | And she really wrote capitalism and freedom.

02:33:39.400 | She took all his random notes

02:33:41.520 | and she put them together into a book.

02:33:43.280 | And that became this kind of testimony of his ideas,

02:33:45.920 | but she shared many of his ideas.

02:33:48.760 | And she, you know, without...

02:33:50.840 | When I think of Friedman, if you take away Anna Schwartz,

02:33:53.640 | if you take away Rose Friedman,

02:33:54.920 | if you take away the other woman who collaborated with him,

02:33:57.680 | you have a much thinner resume than the one he actually has.

02:34:01.160 | - Yeah, it's always sad and it always makes me wonder

02:34:04.320 | about the private secret conversations between partners.

02:34:10.400 | Because they might not show up in the record,

02:34:14.320 | but they probably influenced the person

02:34:16.720 | more than almost anything else.

02:34:18.720 | Those quiet little conversations.

02:34:20.760 | - Yeah.

02:34:22.560 | - If we can switch our path

02:34:27.080 | to another great mind of the 20th century, Ayn Rand.

02:34:32.840 | We talked about some of the similarities here

02:34:36.360 | about them being fighters for freedom

02:34:38.160 | and fighters for capitalism.

02:34:41.280 | What is Ayn Rand's philosophy?

02:34:43.640 | If you can give a big, 10,000-word summary of objectivism.

02:34:47.280 | - Yeah, so she called it objectivism.

02:34:49.560 | Trying to, she used to do this thing,

02:34:51.000 | like I can stand on one foot and say it.

02:34:54.000 | So it goes something like epistemology, reason,

02:34:58.880 | ethics, selfishness, politics, capitalism.

02:35:02.600 | And that was kind of how she summarized it.

02:35:04.120 | So what she did,

02:35:05.760 | there's a couple of things she did with objectivism.

02:35:08.200 | First of all, she says the key defining element

02:35:11.680 | of humanity is rationalism, the rational faculty.

02:35:14.440 | So that's what defines what humanity is.

02:35:17.760 | Therefore, there is an objective reality

02:35:19.760 | that we can access and know with our reason.

02:35:22.360 | That's the objective epistemology.

02:35:24.040 | And the one social and economic system

02:35:27.880 | that lets rationality flower

02:35:30.640 | and is based upon rationality is capitalism.

02:35:33.560 | And then rationality only works,

02:35:36.960 | in her view, as an individual capacity.

02:35:40.240 | And that rationality teaches that what you should do

02:35:43.880 | is pursue your interests.

02:35:47.440 | And so she ends up calling that selfishness.

02:35:50.720 | Now, it's tricky because selfishness has so many strong

02:35:55.440 | and negative connotations.

02:35:57.560 | And she meant, I think, something closer

02:36:00.880 | to self-actualization because she really tried

02:36:05.840 | to create this idea and express the idea

02:36:09.560 | that to be truly selfish did not mean trampling on others.

02:36:14.560 | It meant just being motivated

02:36:18.120 | by your own kind of internal measures and metrics.

02:36:23.080 | And so in her fiction, she tries to show this

02:36:26.920 | by showing the false selfishness of Peter Keating,

02:36:31.320 | who's an architect who kind of steps over everybody

02:36:33.680 | to advance his career.

02:36:35.560 | And she says that's not true selfishness

02:36:37.320 | because true selfishness would recognize it's false

02:36:40.880 | to take others' work and pass it off as your own.

02:36:43.800 | Now, the other big piece of objectivism

02:36:45.640 | is a very approach that's really inspired

02:36:49.520 | and related to Friedrich Nietzsche's idea

02:36:53.440 | of revaluing values or a genealogy of morals.

02:36:58.400 | And so she says what's happened here

02:37:01.840 | is Western culture has converged

02:37:05.000 | on this idea of altruism as good.

02:37:07.840 | Being selfless and altruistic is good.

02:37:11.200 | And this has led us to communism

02:37:14.280 | and has led us to devalue the individual

02:37:16.400 | in favor of the collective.

02:37:17.840 | So what we need is a new moral code

02:37:20.400 | which elevates selfishness,

02:37:22.720 | which elevates the individual,

02:37:24.160 | and which takes all the things

02:37:25.520 | that we have been told are bad

02:37:27.680 | and actually sets their values.

02:37:29.920 | This is what she's trying to do with objectivism.

02:37:32.200 | I mean, it is about as ambitious

02:37:33.840 | of an intellectual project as there can be.

02:37:36.720 | And that's what really draws people in.

02:37:40.360 | Yet at the same time,

02:37:41.400 | she's flying in the face of the way human morals

02:37:45.800 | and ethics and societies have evolved.

02:37:48.200 | And she's not able to single-handedly recreate them

02:37:51.400 | the way she wants them to be.

02:37:52.760 | - Yeah, I mean, she's not doing herself any favors

02:37:55.360 | by like taking on the words

02:37:56.760 | and trying to rebrand them completely,

02:37:58.920 | like writing "The Virtue of Selfishness."

02:38:01.640 | It's like, can we just call it self-actualization?

02:38:04.720 | - Yeah.

02:38:05.560 | - There's a negative connotation to selfishness

02:38:07.720 | and a positive connotation to altruism.

02:38:10.520 | So she sometimes, it seems,

02:38:13.600 | takes on the hardest possible form of argument.

02:38:18.040 | - Yeah, I mean, she had a student

02:38:21.000 | who ended up being very close to her,

02:38:23.200 | Nathaniel Brandon, and he was sort of an advisor,

02:38:25.280 | and he said, "Can you please not use selfishness?

02:38:27.280 | "Just come up with another word."

02:38:28.520 | But part of her liked it.

02:38:30.660 | Part of her wanted to provoke and unsettle.

02:38:33.360 | She didn't wanna give that up.

02:38:35.120 | - I mean, people should listen to her public talks.

02:38:39.420 | Her whole aura, way of being is provocative,

02:38:46.680 | and she's a real powerhouse of an intellectual.

02:38:49.760 | So she loves the challenge.

02:38:51.800 | And that, just listening to her in itself is just inspiring

02:38:56.480 | 'cause you could see the individualism radiate from her.

02:39:01.400 | - Yeah, I mean, that was one of the things I found

02:39:04.400 | in researching and writing about her.

02:39:06.520 | She's an incredibly unusual human being, you know?

02:39:09.800 | And so that was her strength, right,

02:39:12.760 | 'cause she's so unusual, but it was also her downfall

02:39:14.840 | because she looked to herself as a model

02:39:17.740 | or to get insight about humanity,

02:39:20.840 | and she never quite processed how different she was

02:39:23.440 | from other people.

02:39:24.840 | - So just because we talked about Milton Friedman so much,

02:39:28.440 | can we just return to what to you,

02:39:31.640 | given everything we've said,

02:39:33.600 | is the interesting differences about Ayn Rand,

02:39:36.600 | her ideas related to Milton Friedman?

02:39:44.120 | - Yeah, I mean, broadly, we could put Milton Friedman

02:39:46.160 | and Ayn Rand in some sort of category together,

02:39:48.840 | but she has this focus on ethics and rationality

02:39:53.840 | and this desire to be revolutionary

02:39:58.680 | that's much stronger than Friedman.

02:40:00.960 | Friedman wanted to overthrow the economic consensus.

02:40:04.800 | He didn't want to overturn the moral basis

02:40:07.120 | of Western society.

02:40:08.640 | So she's also, she does something.

02:40:12.320 | So in one of Frank Knight's essays,

02:40:14.120 | he talks about the ethics of competition,

02:40:16.220 | and he says you basically cannot build an ethics

02:40:19.960 | out of competition because it would be monstrous to do so,

02:40:23.600 | because it would say the winner of this competition

02:40:27.400 | is ethically right,

02:40:28.800 | and that would open the door to sort of might makes right.

02:40:31.800 | And this is what Friedman struggles with,

02:40:33.440 | and he says, "I can't take capitalist outcomes

02:40:36.960 | "as ethical unto themselves.

02:40:38.340 | "I can't do it.

02:40:39.180 | "It doesn't feel right."

02:40:40.600 | And there's this line where Frank Knight says,

02:40:42.440 | "No one would ever do this."

02:40:43.720 | And I was like, "Oh, Frank Knight,

02:40:45.340 | "you haven't read Ayn Rand yet."

02:40:47.360 | - Hold my beer, yeah.

02:40:48.200 | - You're a little too early,

02:40:49.240 | because that's what she does.

02:40:50.440 | She takes the outcomes of capitalism

02:40:52.820 | and of market competition and says,

02:40:54.640 | "These have ethical meaning."

02:40:56.680 | And this is where ethical meaning inheres,

02:40:58.960 | and it is ethical to try to succeed

02:41:02.480 | and to succeed in a capitalist society.

02:41:04.080 | Now, what she's able to do is create a fictional world

02:41:07.360 | in which people succeed in her fictional capitalist world

02:41:10.720 | through ethical behavior.

02:41:12.520 | And so she doesn't really have to wrestle

02:41:14.520 | with a capitalist world in which people succeed

02:41:17.480 | through fraud and corruption and all the other things

02:41:21.280 | that might go into someone's success.

02:41:23.080 | She creates the best possible take

02:41:25.880 | on success under capitalism,

02:41:27.940 | and then she holds that up as an ideal.

02:41:29.720 | And I think what's important

02:41:31.840 | is that so few people have done that,

02:41:33.620 | and she comes at a time

02:41:34.760 | when everybody is emphasizing the downsides of capitalism.

02:41:38.020 | And she says there's another way to look at it.

02:41:40.160 | Here are the good sides of capitalism.

02:41:42.200 | - And like you said, she was operating,

02:41:43.800 | which I really loved the phrasing of that,

02:41:46.080 | in the mythic register.

02:41:48.920 | - Yeah.

02:41:49.760 | - So she was constructing these characters,

02:41:52.200 | these capitalists, that are like the highest form,

02:41:56.280 | these great heroic figures, almost romanticizing them.

02:42:00.240 | - Yeah, yeah.

02:42:01.720 | - You mentioned "We the Living"

02:42:02.800 | as one of the books that you like of hers the most,

02:42:06.640 | but can we stay in the mythic register

02:42:09.600 | with "The Fountainhead" and "Alice Shrugged"?

02:42:12.820 | What to you are some sort of memorable, inspiring moments,

02:42:16.860 | insightful moments from those books

02:42:20.200 | that may be scenes or ideas that you take away from them

02:42:26.040 | that are important for people to understand?

02:42:30.760 | - Yeah, so "The Fountainhead"

02:42:32.160 | is this story of a struggling architect, Howard Rourke,

02:42:37.160 | and she kind of follows his life and his career.

02:42:40.640 | And the message is really,

02:42:42.920 | it's a version of to thine own self be true, right?

02:42:45.960 | And Rourke's designs are too avant-garde.

02:42:49.820 | Nobody appreciates him,

02:42:51.080 | and he just keeps doing what he wants to do,

02:42:54.600 | and is just focused on his own visions, his own genius.

02:42:57.960 | I think that's been really inspiring

02:42:59.560 | to kind of creators of all types.

02:43:01.360 | I think it's barely unrealistic

02:43:03.760 | as a portrait of human achievement,

02:43:06.040 | but it's an aspirational idea.

02:43:07.920 | I mean, one phrase that comes to mind is,

02:43:10.620 | there's a character, I forget which one,

02:43:12.520 | who is in some sort of adversarial relationship

02:43:15.660 | with Howard Rourke and says something to him like,

02:43:17.360 | "Well, Mr. Rourke, what do you think of me?"

02:43:20.240 | And Rourke says, "I don't think of you."

02:43:23.440 | You know, and that to Rand was the ideal.

02:43:25.320 | You're not thinking of other people.

02:43:27.080 | You're an island unto yourself.

02:43:29.840 | You know, you're focused on your own goals,

02:43:32.320 | your own capacities,

02:43:33.960 | and you're not doing it to impress other people,

02:43:36.560 | or to be better than other people,

02:43:37.940 | or to dominate other people.

02:43:39.120 | You're doing it 'cause you're sort of expressing

02:43:40.720 | your inner soul in a way.

02:43:43.520 | So that has been very captivating to so many,

02:43:47.360 | and "The Fountainhead" is one of those books

02:43:48.920 | we talked about that causes,

02:43:50.320 | you know, people read it

02:43:51.160 | and they make changes in their life,

02:43:52.480 | or they feel called to their higher self.

02:43:55.320 | - And I think there's also the scene where Rourke,

02:43:58.760 | with the Dean of Architecture at the school,

02:44:00.560 | that's speaking to what you're saying,

02:44:02.900 | I think, to me, is inspiring.

02:44:05.280 | So this is the Dean of Architecture that expels Rourke,

02:44:09.400 | and it brings him into a meeting,

02:44:10.880 | thinking Rourke will plead for a second chance.

02:44:13.080 | And the Dean says that,

02:44:15.060 | "Rourke's work is contrary to every principle

02:44:17.800 | "we have tried to teach you,

02:44:19.140 | "contrary to all established precedents

02:44:22.380 | "and traditions of art.

02:44:24.260 | "Do you mean to tell me that you're thinking seriously

02:44:26.400 | "of building that way when and if you are an architect?"

02:44:30.600 | And then, in a gangster-like way, Rourke says, "Yes."

02:44:34.680 | And then Dean asks, "My dear fellow, who will let you?"

02:44:38.280 | And Rourke replies, "That's not the point.

02:44:40.800 | "The point is, who will stop me?"

02:44:44.240 | - Yes.

02:44:45.080 | I mean, you know, "Ran"'s coming from communist Russia,

02:44:47.320 | but it has a bit of the "don't mess with Texas" flavor,

02:44:49.960 | you know, I might say.

02:44:51.160 | That really resonates with this idea

02:44:52.840 | of anyone who's felt like they're, you know,

02:44:54.600 | fighting the powers that be.

02:44:56.160 | Yeah, it's interesting.

02:44:58.180 | I thought you might be going to a quote

02:45:00.680 | where he says something like, "I inherit no tradition.

02:45:04.920 | "You know, I stand at the beginning of one."

02:45:07.220 | And I really think "Ran"'s thinking about herself,

02:45:09.400 | you know, when she says that,

02:45:10.600 | that she inherits nothing, she stands at the start.

02:45:12.840 | But, you know, "The Fountainhead" comes out

02:45:14.880 | in the middle of World War II,

02:45:16.600 | and it's not expect, "Ran" is an unknown writer.

02:45:20.520 | This is kind of a strange book.

02:45:21.920 | It's, you know, classic story.

02:45:23.240 | It's turned down by 12 publishers

02:45:25.080 | before one takes a chance on it.

02:45:27.240 | And "Ran" really loved this story.

02:45:29.440 | The editor who read it said, "This book is great."

02:45:32.240 | And his boss said, "No."

02:45:33.880 | And he said, "If you don't take this book, I'm quitting."

02:45:37.240 | You know, and so she idolized him for doing that.

02:45:40.580 | So they print it, and it becomes a bestseller

02:45:43.440 | just through word of mouth.

02:45:44.960 | So it's not advertised, doesn't,

02:45:46.640 | it gets one good book review,

02:45:47.780 | but people tell each other how much they like this book.

02:45:51.320 | And it keeps printing and selling out printings.

02:45:53.480 | It's made into a movie.

02:45:54.600 | And so it lands in this time when Americans are engaged

02:45:58.000 | in this great collective endeavor of World War II.

02:46:00.240 | They're making all kinds of sacrifices for the collective.

02:46:03.700 | And I think paradoxically, as they do that,

02:46:05.600 | they're drawn to this vision

02:46:06.800 | of someone who doesn't have to compromise at all,

02:46:09.440 | you know, who is leading their life exactly as they want to.

02:46:12.480 | You know, meanwhile, they might be sleeping

02:46:14.480 | on an ocean liner because they've been drafted

02:46:16.260 | to fight in this war, and they're reading "The Fountainhead"

02:46:18.080 | and they're feeling better about themselves.

02:46:19.520 | And so it's also really interesting.

02:46:21.520 | "The Fountainhead" is hugely popular in India,

02:46:24.400 | which is fascinating.

02:46:25.520 | And, you know, talk to people about this,

02:46:27.760 | and they basically say,

02:46:29.640 | "This book comes like a breath of fresh air

02:46:31.960 | into a very traditional and conformist culture,

02:46:34.320 | and people just latch onto it, and they love it."

02:46:36.760 | You know, and it gives them that feeling

02:46:38.200 | of freedom and possibility that they're hoping for.

02:46:40.920 | - Yeah, I mean, it really is a book.

02:46:43.360 | "Atlas Shrugged" can be a bit of that too,

02:46:45.800 | but it's more of the philosophy, objectivism,

02:46:48.800 | and the details and the nuance

02:46:50.200 | of that seeps into "Atlas Shrugged."

02:46:52.240 | The Fountainhead is very much like a thing

02:46:55.200 | that makes you change the path of your life.

02:46:57.800 | - Yeah.

02:46:58.640 | - And that, I mean, that's beautiful to see

02:47:00.480 | that books can have that power.

02:47:02.600 | - And, you know, Rand knew that she was doing that,

02:47:06.720 | and she knew what she was doing.

02:47:08.680 | You know, this wasn't an accident,

02:47:10.440 | and people say, "Oh, she's a bad writer.

02:47:12.400 | Oh, her characters are so heavy-handed."

02:47:14.480 | You know, she started as a screenwriter.

02:47:16.000 | She started as someone who analyzed films

02:47:19.120 | for movie studios.

02:47:20.200 | She knew exactly how to manipulate plot

02:47:23.520 | and character and drama.

02:47:25.440 | And she also knew that she was writing, you know,

02:47:28.320 | people say, "Oh, Rand is for, you know, adolescents.

02:47:31.200 | Adolescent teenagers love Rand."

02:47:32.600 | And that's kind of who she was writing for.

02:47:34.360 | And she said, "You know, I'm writing for people

02:47:35.840 | as they start out on their life,

02:47:37.040 | and they're thinking about who they want to be."

02:47:39.800 | So she's not writing, you know, for the weary middle age.

02:47:43.920 | She's writing for the young

02:47:44.960 | who are looking for inspiration.

02:47:46.360 | - You know, people say that to me sometimes

02:47:47.880 | about certain books like "Rand,"

02:47:50.280 | but also about "The Alchemist."

02:47:52.840 | I know a lot of people for whom "The Alchemist,"

02:47:55.800 | and they're adults, and they're brilliant people,

02:47:58.040 | "The Alchemist" changed their life.

02:48:00.440 | And the same can be said about "The Fountainhead."

02:48:02.720 | - Yeah.

02:48:03.560 | - I, and I sometimes get criticized

02:48:07.160 | for using words that are too simple.

02:48:11.000 | I think simple words can have power.

02:48:15.240 | And the cliche thing sometimes needs to be said.

02:48:18.600 | And sometimes, if effectively,

02:48:21.360 | needs to be said in an over-the-top way

02:48:24.680 | in the mythic register,

02:48:27.440 | because that's the thing that resonates with us.

02:48:29.360 | - Yeah.

02:48:30.200 | - 'Cause we are like heroes of our own story,

02:48:32.360 | and we need to hear that message sometimes

02:48:34.840 | to take the bold step, to take the risk, to take the leap.

02:48:38.040 | - Yeah, and I mean, the other thing,

02:48:39.680 | she knew she was doing kind of propaganda in a way.

02:48:42.880 | She was like, "I'm doing pro-capitalist propaganda."

02:48:45.200 | She has a degree from the University of Leningrad.

02:48:47.120 | You know, she's raised up in Soviet Russia.

02:48:49.000 | She said, "We need to present the case

02:48:51.720 | "for the other side in the same way."

02:48:54.200 | And that's what she did.

02:48:56.160 | - Why do you think she's so divisive?

02:48:57.880 | People either love her or hate her.

02:49:00.560 | - I mean, I think it's because of that purity

02:49:03.240 | that I'm willing to say, sort of, "You get what you deserve."

02:49:07.640 | And that kind of lack of charity.

02:49:09.760 | And part of that in her work

02:49:12.600 | is because she creates this fictional world

02:49:14.760 | where she can set everything up just so.

02:49:17.640 | And so you don't have contingency or accident or bad luck,

02:49:22.640 | or you don't really have a lot of children.

02:49:26.520 | You don't have handicapped people.

02:49:27.640 | You know, you just have this idealized world.

02:49:30.880 | And I think it's really infuriating

02:49:33.440 | for people who feel that's so inaccurate.

02:49:35.200 | How can you be deriving a social theory

02:49:37.640 | and philosophy around this?

02:49:39.760 | And how can you be missing, what seems to many people,

02:49:42.440 | she's missing the kind of ethical instinct

02:49:45.480 | or the altruistic or charitable instinct?

02:49:47.920 | And so they just become enraged at that.

02:49:50.520 | And they don't want to see anyone go that far.

02:49:53.520 | And they're outraged that someone went that far,

02:49:56.240 | did the thing that Frank Knight said no one would do.

02:49:58.840 | Yeah, it's very unsettling.

02:50:02.840 | - Would you say that's her main blind spot,

02:50:06.400 | the main flaw of objectivism

02:50:07.960 | is just how black and white it paints the world?

02:50:12.640 | Or if not, what would you say are the flaws of objectivism?

02:50:17.640 | - So, I mean, the big flaw is that it's justified

02:50:20.840 | through a fictional world.

02:50:22.280 | You know, it's not justified

02:50:24.480 | through reference to the real world.

02:50:26.080 | You know, it's not empirical in a way, it's not.

02:50:30.960 | And Rand herself would say that she's not writing

02:50:33.560 | about things how they are, but how they should be.

02:50:37.080 | And so that idealism just really undermines

02:50:42.080 | it as a mechanism to understand

02:50:46.000 | where we're actually living.

02:50:47.520 | - And that is a big contrast with Milton Friedman

02:50:50.040 | who would focus on how things are

02:50:52.360 | versus how things should be.

02:50:54.640 | - And then I think it's the problem of elevating rationality

02:50:58.400 | over any other mode of insight or thinking.

02:51:01.080 | And so what happens in Rand's life,

02:51:02.760 | and I describe this in some detail in the book,

02:51:05.360 | is she essentially creates a cult of reason around her

02:51:09.560 | and people who are drawn into this cult,

02:51:13.360 | it's called the collective.

02:51:14.960 | It's a group of young people in New York City

02:51:17.440 | who are drawn to her work and she's already famous,

02:51:20.340 | but she's writing "Atlas Shrugged"

02:51:21.640 | and so she's sharing drafts of "Atlas Shrugged"

02:51:25.000 | as she goes along.

02:51:26.440 | And one of the members of the collective

02:51:28.600 | to bring all of this together is Alan Greenspan,

02:51:31.100 | later be head of the Federal Reserve,

02:51:32.720 | and he's incredibly taken with her.

02:51:34.720 | He's one of these people who says,

02:51:36.760 | "I was a narrow technical thinker.

02:51:38.520 | I never thought about ethics or politics or anything bigger

02:51:41.840 | until I met Ayn Rand and she really opened my mind."

02:51:44.320 | So he's part of this tight-knit group.

02:51:46.800 | But over time, in this tight-knit group,

02:51:48.320 | they think of themselves, we are all individualists.

02:51:50.440 | We're dedicated to individualism and capitalism.

02:51:52.540 | We're different than everybody else.

02:51:54.800 | Over time, they all come to share Ayn Rand's views

02:51:58.440 | and opinions on everything from music to art to clothes.

02:52:03.440 | She gets a dining room table

02:52:05.160 | and a bunch of them get the same dining room table

02:52:07.720 | and it becomes incredibly conformist

02:52:10.920 | because they've all believed they're acting rationally

02:52:15.060 | and they believe that to act rationally

02:52:16.800 | is to agree with Ayn Rand

02:52:18.280 | and they believe there's no other way

02:52:20.720 | to make decisions than rationality.

02:52:23.400 | And so to disagree with her is to be irrational.

02:52:26.320 | They don't want to be irrational.

02:52:27.400 | So people get really caught up

02:52:29.720 | in this very damaging cult-like circle around her.

02:52:33.800 | - Plus, for a cult of reason, they get awfully emotional

02:52:38.800 | when there's any disagreement with Ayn Rand.

02:52:42.160 | I mean, it's kind of hilarious, it's absurd,

02:52:45.600 | but it's also beautiful to watch this singular figure.

02:52:52.160 | We've talked about several singular figures in "Like Frank,"

02:52:54.880 | right, that shakes up the world with her ideas.

02:52:59.880 | - Yeah.

02:53:00.840 | - And of course it would form a cult.

02:53:02.080 | And of course that cult would be full

02:53:03.700 | of contradictions and hypocrisies.

02:53:05.500 | - Yeah, I mean, it's amazing.

02:53:07.900 | So Murray Rothbard, who's a famous anarchist,

02:53:10.000 | falls into the Ayn Rand cult and then he disagrees

02:53:15.000 | and there's some type of show trial

02:53:17.720 | where he's told he's wrong about everything

02:53:20.200 | and then he has a little sort of pseudo-cult of his own.

02:53:23.240 | And two of his cult members switch over to Ayn Rand

02:53:26.840 | and then one of them, to gesture their breaking

02:53:31.840 | of their relationship, mails him a dollar bill

02:53:35.000 | that's been torn in half.

02:53:36.920 | I mean, this is high theatrics, right? (laughs)

02:53:41.000 | - Okay, sticking on the drama and the theatrics,

02:53:44.420 | who was Nathaniel Brandon?

02:53:46.660 | - Oh, yes.

02:53:47.500 | - Take me through the arc of Ayn Rand's relationship

02:53:50.460 | with Nathaniel Brandon to their dramatic falling out in 1968.

02:53:54.220 | - Yes, so after "The Fountainhead,"

02:53:57.140 | "The Fountainhead" is auctioned to be,

02:53:59.700 | is sold to be a film.

02:54:00.820 | So Ayn Rand moves to Hollywood,

02:54:02.860 | where she's gonna help in the writing of the film.

02:54:04.520 | She wants a lot of creative control.

02:54:06.660 | And she's also still working in screenwriting

02:54:08.640 | and things like this.

02:54:09.480 | And so she gets a letter from a Canadian student

02:54:13.900 | who's written to her several times.

02:54:15.860 | And then he writes again and he says, "I'm at UCLA."

02:54:18.520 | And she's like, "Young man, you're so full of error.

02:54:20.500 | Why don't you come visit me and I'll straighten you out?"

02:54:23.620 | So he comes and they have this real meeting of the minds,

02:54:26.460 | they talk all night.

02:54:27.900 | He comes again, he brings his girlfriend, she loves him.

02:54:31.020 | And they start this very intense relationship

02:54:34.180 | of spending every weekend at her house, basically.

02:54:37.140 | Staying up all night, talking about ideas.

02:54:38.960 | He becomes completely converted

02:54:40.420 | to the objectivist worldview.

02:54:41.960 | Rand begins counseling him and his girlfriend

02:54:45.340 | about their relationship, very intense thing.

02:54:49.220 | Then eventually they graduate from college

02:54:51.260 | and they both enroll in a graduate program in Columbia.

02:54:54.060 | And they leave.

02:54:55.500 | And after they've left, Ayn Rand is just bereft.

02:54:59.360 | And within a few months, she packs up her home

02:55:01.980 | and she moves to New York.

02:55:03.500 | Here I am, I like New York better.

02:55:05.420 | And so that becomes the seedbed of the collective.

02:55:07.740 | And the Brandins, they get married.

02:55:10.340 | They change their name to Brandon.

02:55:12.540 | They've never publicly spoken on this,

02:55:15.900 | but many people pointed out it has the word Rand in the name.

02:55:20.420 | So it's some type of acknowledgement

02:55:22.540 | of how important she is to them.

02:55:24.580 | And time goes on and romantic feelings develop

02:55:28.380 | between Ayn Rand and Nathaniel Brandon,

02:55:30.260 | who's some 20 years her junior.

02:55:31.900 | And they discuss them and they realize that rationality

02:55:36.580 | has led them to the conclusion that they should be lovers.

02:55:39.260 | Right.

02:55:40.100 | Right, they've rationally decided this.

02:55:41.980 | But because they're rational, they need the consent

02:55:45.500 | or at least to inform their partners.

02:55:47.340 | They're both married.

02:55:48.220 | They're both married.

02:55:49.180 | So they call a meeting and they obtain the consent

02:55:53.640 | or maybe simply inform the others

02:55:56.260 | of the rationality of the choice.

02:55:58.100 | And then they say,

02:55:58.940 | but this is only going to be an intellectual relationship,

02:56:02.620 | but we'd like a few hours alone each week.

02:56:04.860 | And we don't wanna be deceptive.

02:56:06.320 | So we want you to know and approve of this.

02:56:08.220 | So the spouses bought into rationality,

02:56:10.620 | know and approve, one thing leads to another.

02:56:13.940 | It becomes a full romantic and sexual relationship.

02:56:17.340 | And although it's open within these four people,

02:56:19.280 | it is not open more broadly.

02:56:21.340 | And so in all these meetings of the collective,

02:56:24.300 | Alan Greenspan, all these other people coming up,

02:56:26.980 | drinking coffee all night, talking, talking,

02:56:29.300 | they all know that Nathaniel Brandon

02:56:30.980 | is objectivist number one.

02:56:32.660 | They don't know that there's a romantic

02:56:35.220 | and sexual relationship happening.

02:56:36.660 | It's kept a secret.

02:56:37.940 | And then when Atlas Shrugged comes out,

02:56:40.580 | it's panned by reviewers.

02:56:42.260 | People absolutely hate this book.

02:56:44.220 | And Rand is not Howard Roark.

02:56:46.860 | She falls into a deep depression

02:56:48.580 | because her masterpiece has been rejected.

02:56:51.340 | And so then the romantic relationship ends,

02:56:55.160 | but the close personal relationship continues.

02:56:58.260 | And then over time,

02:56:59.580 | Brandon who's still married to his wife,

02:57:02.380 | begins an affair with another young woman.

02:57:05.240 | And at this point,

02:57:06.080 | he has started the Nathaniel Brandon Institute

02:57:08.900 | to teach objectivism.

02:57:10.760 | And he's making good money.

02:57:12.420 | He's becoming quite famous.

02:57:13.740 | - She supported the institute.

02:57:14.940 | - She supported it.

02:57:15.820 | And at first it was to help her in her depression.

02:57:18.780 | She said, "The world needs to recognize your genius.

02:57:21.660 | "They missed Atlas Shrugged,

02:57:22.700 | "but I'm going to teach them.

02:57:23.900 | "I will bring the message."

02:57:25.540 | And it's very successful.

02:57:26.900 | It becomes its own business.

02:57:28.020 | It has a newsletter.

02:57:28.960 | It's a whole world.

02:57:29.940 | So that small cult around Ayn Rand

02:57:32.180 | expands to this whole social network.

02:57:33.920 | And it's very much a piece

02:57:35.500 | with this burgeoning conservative movement,

02:57:37.380 | objectivists are involved in criticizing the draft.

02:57:40.680 | And, you know,

02:57:42.540 | there's kind of a libertarian objectivist world going on.

02:57:45.900 | All of this is happening.

02:57:47.260 | In the meantime,

02:57:48.100 | Nathaniel Brandon has found a new partner

02:57:50.060 | and he does,

02:57:50.900 | but he doesn't tell Ayn Rand this

02:57:52.020 | because he knows she'll be upset.

02:57:53.760 | And so it goes on for years.

02:57:57.080 | And Ayn Rand knows something is going on,

02:58:02.080 | but she can't quite figure it out.

02:58:03.680 | And finally, Barbara Brandon says to Nathaniel Brandon,

02:58:07.580 | "You know, you have to tell her.

02:58:09.580 | "This has just gone on too long."

02:58:11.680 | So she finds out and the whole thing blows up

02:58:14.560 | and she exiles him and she breaks off contact with him.

02:58:18.520 | And nobody has ever told what happens.

02:58:21.160 | It's called the objectivist schism.

02:58:22.640 | You know, objectivism breaks in two

02:58:24.200 | because some people say,

02:58:25.580 | "How could Ayn Rand do anything wrong?"

02:58:28.880 | And other people say,

02:58:30.520 | "What is this letter all about?

02:58:32.040 | "And what did Nathaniel Brandon do

02:58:33.600 | "and I'm not just gonna take her word for it.

02:58:35.140 | "I need more information."

02:58:36.360 | And then a bunch of people,

02:58:38.600 | I've read all the accounts of this.

02:58:40.040 | A bunch of people are like,

02:58:40.880 | "Okay, they were having an affair."

02:58:42.880 | And a bunch of other people are like,

02:58:44.220 | "No, that couldn't possibly be happening."

02:58:45.920 | You know, and so the whole thing breaks up,

02:58:49.520 | but what I argue in my book is actually

02:58:51.840 | this is to the benefit of Rand's ideas

02:58:54.060 | because Rand herself was so controlling over her ideas.

02:58:58.600 | And now that she steps back from a public role,

02:59:02.560 | you know, objectivism flows

02:59:03.960 | into the student libertarian movement.

02:59:06.160 | Some objectivists become conservatives.

02:59:08.120 | It just kind of spreads out more generally

02:59:10.440 | and you don't have to drink the Kool-Aid.

02:59:13.080 | You don't have to take the official course.

02:59:14.920 | Nathaniel Brandon goes on to be part

02:59:16.360 | of the self-esteem movement,

02:59:17.760 | you know, the human potential movement, California.

02:59:20.720 | And Ayn Rand lives, you know, another 10 years or so,

02:59:24.720 | but she doesn't do major work after that.

02:59:27.480 | - So since we were talking about some of the

02:59:32.440 | although rationalized, some strange sexual partnerships

02:59:36.840 | that there were engagement in,

02:59:39.520 | I have to ask about the Fountainhead

02:59:41.440 | and the quote-unquote "rape scene" in the Fountainhead.

02:59:45.320 | Was she intending to add that there to be controversial?

02:59:50.120 | How are we supposed to read into it?

02:59:52.560 | Is it a glimpse into Ayn Rand's sexuality?

02:59:55.720 | And maybe broadly we can say,

02:59:58.160 | what was her view on sexuality, on sex,

03:00:02.480 | on power dynamics in relationships?

03:00:04.320 | - Yeah, I mean, there's also an objectivist theory

03:00:06.720 | of sexuality that probably the least convincing

03:00:10.360 | of all the parts of objectivism.

03:00:12.200 | And it goes something like,

03:00:14.160 | your sexual desires express your highest values

03:00:19.160 | and they are related in some ways to your rationality,

03:00:23.480 | right, which is also related to your highest values.

03:00:25.520 | So for her, that explained her attraction

03:00:29.920 | to Nathaniel Brandon and Nathaniel Brandon's attraction

03:00:32.720 | to her was a function of their highest values.

03:00:35.720 | And in fact, Brandon imbibed this so deeply

03:00:38.040 | that the fact that he was later drawn sexually

03:00:40.560 | to a woman who was not particularly accomplished

03:00:43.040 | but was beautiful, caused him deep anguish and guilt

03:00:47.760 | for being non-objectivist.

03:00:49.400 | So this is the objectivist theory.

03:00:51.720 | Then the gender politics are just crazy.

03:00:55.160 | And we have to kind of back up and think,

03:00:56.560 | okay, so who is Ayn Rand?

03:00:58.440 | She's born in Elisa Rosenbaum in Russia.

03:01:01.280 | She is someone who stands out from the crowd

03:01:03.920 | from the beginning.

03:01:04.760 | She never really fits in.

03:01:06.760 | She's not conventionally beautiful

03:01:08.560 | by any stretch of the imagination.

03:01:10.120 | She struggles with her weight

03:01:11.440 | and she doesn't consider herself to have a beautiful face.

03:01:14.800 | She's very independent.

03:01:16.720 | She meets none of the metrics

03:01:18.600 | of traditional femininity at all.

03:01:20.720 | She finds love with a man who is very handsome

03:01:23.680 | but very passive, yet she writes in all her fiction

03:01:27.920 | about strong manly heroes.

03:01:30.120 | So this seems to be like a projection.

03:01:32.520 | The man she's actually with is not a strong manly hero.

03:01:35.680 | The hero she writes about,

03:01:37.080 | she probably wouldn't be able to be in the same room

03:01:38.760 | with them for more than one minute

03:01:40.040 | before they got in a raging argument, right?

03:01:42.760 | And then she develops this theory about women and men

03:01:47.120 | in that a woman should worship her man

03:01:51.560 | and a woman finds her true expression

03:01:54.680 | in worshiping the man she's with.

03:01:56.800 | So again, this is not at all how Ayn Rand lives her life.

03:01:59.720 | This is like this, I would say, compensatory theory

03:02:04.040 | for her lack of ability to conform

03:02:06.720 | to the gender norms of her day.

03:02:09.000 | She then articulates them in a very strong

03:02:13.360 | and almost distorted and exaggerated way to compensate

03:02:16.880 | for the fact that she doesn't actually meet them,

03:02:18.840 | can't actually enact them.

03:02:21.040 | The rape scene to some degree embodies that idea

03:02:24.920 | that to some degree that the woman should worship the man.

03:02:29.920 | I tend to read it more in terms of literary genre.

03:02:33.600 | So Rand is a screenwriter, a consumer of movies,

03:02:38.600 | and that rape scene is like paradigmatic

03:02:44.240 | for the romance genre.

03:02:46.440 | In other words, these like pulpy romance novels

03:02:50.360 | where the hero rapes the heroine

03:02:52.720 | and then they fall in love.

03:02:53.680 | That's just the trope of how it works.

03:02:55.720 | So it's crazy when you read it,

03:02:57.600 | but if you were reading a bunch of novels in this genre,

03:03:00.600 | you would find this is like very standard.

03:03:03.760 | And so, but that is a huge part of his appeal at the time.

03:03:07.240 | There's this feminist who hates Rand, Susan Brownmiller,

03:03:11.160 | and she wants to write an angry denunciation

03:03:13.560 | of the rape scene.

03:03:14.440 | So she goes to get the fountainhead and she's wondering

03:03:16.680 | how is she ever gonna find the scene in this 800-page book.

03:03:20.640 | It's a library copy 'cause she doesn't wanna buy it.

03:03:22.840 | And it just falls open to the rape scene

03:03:25.560 | because everybody's gone and read it

03:03:27.080 | because it's very racy and explicit for that time.

03:03:30.360 | So I'm almost positive she also knew that.

03:03:33.520 | Like if I put in this kind of taboo-breaking sex scene,

03:03:37.120 | that's also gonna probably be why people

03:03:39.000 | tell their friends about it.

03:03:40.000 | So I just, I think it's a mess.

03:03:42.280 | I think all of the gender and sexuality stuff

03:03:45.680 | is that she states is just a total mess.

03:03:49.920 | - I think it also reminds me of another guy related,

03:03:53.680 | Friedrich Nietzsche, who had very strong opinions on women

03:03:58.120 | and wrote about what women's role in society should be

03:04:02.600 | and different power dynamics and relationships

03:04:05.160 | and all that kind of stuff when he himself

03:04:07.320 | really had trouble getting laid.

03:04:09.080 | - Yeah.

03:04:09.920 | - And so you have to sort of always maybe chuckle

03:04:14.240 | or take with a grain of salt the analysis

03:04:17.600 | of power dynamics and relationship from these figures

03:04:19.840 | which failed in many regards in their own private life.

03:04:24.640 | You mentioned feminists.

03:04:27.840 | Would you consider Ayn Rand a feminist?

03:04:30.600 | - I mean, she's almost an anti-feminist

03:04:32.560 | because she then goes on and someone writes her a letter

03:04:38.920 | about like, should there be a female president or something?

03:04:43.200 | This is like the beginning of feminism.

03:04:44.760 | And she says, "No, no woman should ever be president

03:04:49.760 | "because if she's president,

03:04:53.120 | "she wouldn't be able to look up to any man

03:04:55.460 | "because she would be so powerful

03:04:56.840 | "and therefore she would be like corrupt

03:04:58.400 | "and like rotten in the soul and like unfit to be a leader."

03:05:01.360 | And it just makes no sense.

03:05:04.480 | - But that said, she's a woman

03:05:06.120 | and she's one of the most powerful intellects

03:05:07.600 | in the 20th century.

03:05:08.840 | - Yeah.

03:05:09.680 | - And so it's the contradictions.

03:05:12.200 | I mean, Nietzsche is full of contradictions of this sort.

03:05:15.620 | That the very fact that she's one of the most powerful minds

03:05:20.620 | in history to me means that she is a feminist

03:05:26.160 | in the spirit she embodies, right?

03:05:30.240 | In what she represents.

03:05:31.320 | - I mean, she lived the ideals of individualism in her life

03:05:34.560 | and set aside gender norms in her own life,

03:05:37.000 | but she did not see herself as part of any,

03:05:39.840 | she did not see herself as doing this

03:05:41.760 | for the benefit of other women

03:05:43.520 | or to change society's views about women.

03:05:46.680 | There was no collective essence to it.

03:05:48.480 | So if feminism has some sort of collective aspect to it

03:05:53.480 | or at least some identification,

03:05:57.520 | one needs to identify with a broader category of woman

03:06:00.240 | and feel their acting in behalf of that.

03:06:01.880 | She's definitely not doing that.

03:06:03.840 | And she did, you know,

03:06:06.760 | she was fair to women in her life,

03:06:10.200 | promoted them in her life,

03:06:11.520 | but did not, I mean, she was very negative about feminism.

03:06:14.960 | And then because like they dress terribly, you know?

03:06:18.080 | And then the other thing, it's really interesting.

03:06:20.160 | She had, there's all these kinds of homoerotic themes

03:06:22.880 | in her writing.

03:06:24.280 | And for that reason, many gay men were drawn to her writing.

03:06:28.960 | And then she would say like,

03:06:29.920 | "Homosexuals are dirty, terrible people."

03:06:32.080 | You know, she would denounce people for being homosexual.

03:06:34.800 | So there's a whole actual literature of like gay men

03:06:37.000 | wrestling with Rand and how she,

03:06:40.080 | like what she says about gay people.

03:06:42.120 | So yeah, it's hard to make sense of.

03:06:45.720 | And I just think of the enormous pressures.

03:06:49.240 | I wanna be charitable.

03:06:50.080 | I just think of the enormous pressure she was under

03:06:52.600 | in the culture she was raised in,

03:06:54.000 | the expectations that were placed upon her

03:06:56.200 | and her just utter inability to meet any of them.

03:06:59.040 | And it came out in this very tortured set of ideals

03:07:02.600 | that she tried to promote.

03:07:04.840 | And this kind of lack of ability to introspect in herself

03:07:09.480 | and to, it was probably too painful to introspect

03:07:12.960 | and to think about that.

03:07:13.920 | So she just tried to rationalize her way through it.

03:07:18.360 | And it came out in these very strange theories.

03:07:21.440 | - Why do you think that Ayn Rand is,

03:07:24.280 | maybe you can correct me, but as far as I can see,

03:07:27.200 | never mentioned in the list of great thinkers in history

03:07:29.840 | or even the great thinkers of the 20th century,

03:07:32.280 | or even the great female thinkers of the 20th century.

03:07:36.080 | So you have somebody like Simone de Beauvoir, Hannah Arend.

03:07:41.080 | I almost never see her in the list.

03:07:42.920 | If you Google those silly lists, top, whatever,

03:07:47.920 | top thinkers of the 20th century, she's not mentioned.

03:07:50.920 | Why is that?

03:07:52.040 | - You know, a lot of people just deeply dislike Rand.

03:07:54.960 | They deeply dislike her ideas

03:07:56.680 | and they don't think they're profound

03:07:58.640 | because they're disconnection from other ideas

03:08:02.320 | and other understandings of human society.

03:08:04.560 | I think where you could look at them and say,

03:08:07.800 | these ideas are very provocative and they're very deep

03:08:11.720 | 'cause she's not taking anything for granted

03:08:13.880 | and she's flipping everything around

03:08:15.520 | and forcing you to really think.

03:08:17.640 | To a lot of other readers, to her critics,

03:08:20.120 | they just look absurd.

03:08:21.600 | Like, how could you even make these contentions?

03:08:25.320 | And I think that because she's not without precedence

03:08:29.640 | and she's not without followers,

03:08:31.040 | but she doesn't knit herself into an intellectual community

03:08:35.120 | the way that these other thinkers do very naturally,

03:08:39.840 | that you can see who they influence,

03:08:42.720 | you can see who they're in dialogue with.

03:08:45.040 | You know, I think my book was one of the first

03:08:47.400 | to really take Rand and say,

03:08:48.920 | she's a figure in American history.

03:08:50.760 | Here's who she's connected to.

03:08:52.280 | Here's who she's influenced.

03:08:54.280 | And I got a lot of pushback for that.

03:08:56.360 | You know, I think now people are more open to it.

03:09:00.160 | But I think the people who compile these lists

03:09:02.600 | really dislike her work.

03:09:04.960 | And they think it's shallow

03:09:06.440 | because they find her fiction overdrawn.

03:09:10.760 | They find her work in the mythic register simple.

03:09:13.960 | And she's also a grand systematic thinker

03:09:17.560 | in an age that's over systems.

03:09:19.680 | You know, she's almost,

03:09:20.760 | she's creating an inverse Marxism, right?

03:09:23.280 | Marx was writing in 1848.

03:09:25.160 | You know, he's not a thinker of the mid 20th century.

03:09:28.440 | So I think that's part of it.

03:09:31.000 | The lack of a legacy

03:09:32.200 | and the dislike of what she had to say

03:09:34.240 | and the feeling that she's too detached.

03:09:36.760 | Her insights are not insights

03:09:38.240 | because they're too idealized

03:09:40.040 | rather than being rooted in a theory of human nature

03:09:43.520 | that people find plausible.

03:09:44.880 | - You study and write about history of ideas

03:09:51.200 | in the United States over the past 100 years,

03:09:53.480 | 100 plus years.

03:09:54.480 | How do you think ideas evolve and gain power

03:09:59.320 | over the populace, over our government, over culture?

03:10:04.320 | Just looking at evolution of ideas

03:10:06.680 | as they dance and challenge each other

03:10:08.840 | and play in public discourse.

03:10:13.320 | What do you think is the mechanism

03:10:16.440 | by which they take hold and have influence?

03:10:19.280 | - Yeah, I mean, there's a couple of different ways

03:10:22.160 | I think it happens.

03:10:24.160 | I really am interested in the relationship

03:10:27.560 | between the thinker and then the reader

03:10:31.400 | and the interpreter of the ideas

03:10:33.960 | and then the conditions on the ground

03:10:36.360 | that make that idea resonate or not resonate.

03:10:39.280 | And so I think a lot,

03:10:44.040 | so as an intellectual historian,

03:10:46.040 | I'm studying ideas and I'm always putting them

03:10:48.000 | in their historical context.

03:10:49.280 | Like what is happening that is making these things resonate,

03:10:52.360 | that is making them, people seek them out.

03:10:55.120 | So for Ran's case, she has this credibility

03:10:59.080 | because of her experience of communism,

03:11:01.200 | which is one of these defining moments of the time.

03:11:04.800 | And then I think the idea comes out in a sort of pure form

03:11:08.080 | and then other people rework it

03:11:10.000 | and reshape it as they read it.

03:11:11.920 | And I'm really interested in how people form communities

03:11:14.400 | around these ideas.

03:11:15.360 | So a bunch of people started calling themselves objectivists

03:11:19.240 | and getting together to read Ran's work.

03:11:22.120 | That was spontaneous and ground up

03:11:24.880 | and wasn't supported by any money.

03:11:27.680 | Nobody planned it, it just happened.

03:11:29.680 | Friedman's a different case in that he joins

03:11:31.760 | an established tradition of thought

03:11:33.440 | that's been institutionalized in universities.

03:11:35.880 | So people are signing up and paying money

03:11:38.000 | and getting credential to learn these ideas.

03:11:40.320 | So to my mind, these are two different ways,

03:11:42.720 | but really emblematic ways of how ideas spread.

03:11:46.320 | So Ran, I think of those more bottom up,

03:11:48.480 | like people encounter the idea in a book,

03:11:51.040 | they're kind of blown away by it

03:11:52.360 | or they imbibe it without even realizing

03:11:54.400 | they're imbibing it.

03:11:55.280 | And then they're like,

03:11:56.120 | well, maybe I don't like Franklin Roosevelt so much,

03:11:58.160 | or maybe I'll look another time at Barry Goldwater.

03:12:01.800 | And then whereas Friedman, you get the idea more top down,

03:12:05.600 | I know I'm getting the idea,

03:12:06.840 | I know I'm being positioned

03:12:08.120 | within a sort of elite discourse of economics.

03:12:11.200 | And so I think they kind of go top down and bottom up

03:12:13.840 | and then they hit the events, right?

03:12:16.320 | Friedman's ideas wouldn't have gone anywhere

03:12:18.560 | without that episode of stagflation

03:12:21.400 | that really made people think they proved out.

03:12:24.080 | And I think Ran's ideas really caught fire

03:12:26.560 | in Cold War America that's looking for a statement of like,

03:12:29.360 | what does it mean to be an individual?

03:12:31.680 | What does it mean to live in this mass society?

03:12:34.240 | Because it's also a time of great social conformity

03:12:37.320 | and where people are suddenly,

03:12:38.760 | they're working for large corporations.

03:12:40.840 | They've been served in a large military.

03:12:44.000 | The United States is stepping out onto the world stage.

03:12:47.520 | Everything is bigger.

03:12:48.360 | What does it mean to be an individual in that world?

03:12:50.120 | And that's where Ran's ideas catch fire.

03:12:52.440 | So I think a lot about that,

03:12:54.560 | about how they trickle through different levels of society

03:12:56.600 | and then how ideas collide with experience,

03:12:59.480 | I think is critical.

03:13:00.480 | - What do you think about like

03:13:01.560 | when they actually take power in government?

03:13:04.400 | So I think about ideas like Marxism

03:13:07.640 | and how that evolves into the Bolshevik Revolution

03:13:11.760 | and how that like takes hold in its implementations.

03:13:14.520 | Or you can think about Nazism and with Hitler

03:13:18.000 | where it goes from a small number of people

03:13:21.120 | that get real excited about a thing

03:13:22.640 | and then like somehow just becomes viral

03:13:25.680 | and takes hold in power and then that has its consequences.

03:13:30.520 | - When I think about this sort of historical path

03:13:35.560 | of communism and the kind of logics

03:13:37.160 | and dynamics of communism,

03:13:39.480 | I mean, in many ways it has some echoes with Ran

03:13:43.840 | in that the ideology in its purest form

03:13:47.480 | is almost, it's a rationalist ideology of some ways.

03:13:50.480 | It's an analysis of history

03:13:51.760 | and how things are supposed to be.

03:13:52.880 | And I think you mentioned Hannah Arendt.

03:13:55.000 | I think she is one of the most kind of penetrating analyses

03:13:57.960 | of communism, which she really puts in the category

03:14:01.200 | of like it's a logical ideology.

03:14:04.680 | Logic leads inexorably to its conclusions

03:14:07.360 | and then experience crops up and experience is different.

03:14:10.840 | And what is a sort of cult of rationality do

03:14:14.640 | when it hits experience?

03:14:15.720 | Well, it tries to bend experience to its will.

03:14:18.400 | And that I think is really the story

03:14:20.560 | of communism writ large.

03:14:22.520 | So the question though is why does it catch fire?

03:14:28.560 | Why does it draw people into political allegiance?

03:14:31.320 | I think in the case of communism,

03:14:33.040 | it's this dream of a more ethical world,

03:14:36.680 | dream of equality, dream of the powerless rising up

03:14:39.800 | against the powerful.

03:14:40.720 | I mean, that's drawn in so many.

03:14:44.120 | And then you had the whole addition of Leninism,

03:14:48.120 | which gave a kind of international cast to that

03:14:50.680 | and helped people think about what are the relations

03:14:53.600 | between poorer and richer countries

03:14:55.320 | and what can we expect out of them and what might happen,

03:14:57.480 | gave a sort of a framework for thinking about that

03:15:00.320 | in a time when the world was becoming more interconnected

03:15:04.080 | and those differences were becoming more obvious.

03:15:06.520 | Fascism to me is unleashing more something primal,

03:15:12.640 | something sort of dark and primal within people.

03:15:16.800 | And it's more a permission structure to indulge in that

03:15:21.520 | that is normally not there.

03:15:23.120 | Those impulses are normally channeled or held down.

03:15:25.520 | And it seems that when the fascist regimes come into power,

03:15:28.680 | they give people permission to let those forces out.

03:15:32.560 | - I think on communism,

03:15:33.800 | going back to that lecture that Ayn Rand gave,

03:15:37.880 | I think what rings true to me a little bit

03:15:41.600 | is that what fuels it is a kind of,

03:15:45.000 | maybe not resentment, but envy

03:15:47.720 | towards the people that have nots versus the haves.

03:15:53.880 | And there is some degree to which Nazism has the same

03:15:56.560 | kind of envy towards some group,

03:15:58.680 | resentment towards some group.

03:16:00.320 | So it's given the environment of hard times,

03:16:03.840 | hard economic times,

03:16:05.760 | combined with the more primal just envy

03:16:09.360 | of not having and seeing somebody who has it

03:16:12.840 | and just constructing a narrative around that,

03:16:16.000 | that can become a real viral idea.

03:16:19.240 | - Yeah, it seems like communism is more animated

03:16:22.120 | by this idea of injustice.

03:16:23.680 | You know, the world is unjust.

03:16:25.080 | It should be different.

03:16:26.520 | And fascism seems like the process of scapegoating, right?

03:16:30.880 | We've identified the source of the problem

03:16:34.240 | and it's this group.

03:16:36.160 | And they need to be punished

03:16:38.520 | for what they've done to the rest of us.

03:16:40.560 | - There is a primal thing going back to literature in 1984,

03:16:44.960 | two minutes of hate,

03:16:46.560 | where you can get everybody real excited

03:16:49.360 | about hating a thing.

03:16:51.680 | And there's something primal about us humans

03:16:55.000 | where you, once you're in that state of hate,

03:16:58.040 | anyone can direct that hate towards anything.

03:17:01.920 | - Yeah.

03:17:02.760 | - Towards, yeah, towards any group,

03:17:05.960 | towards any idea, towards anything,

03:17:08.320 | 'cause we could get caught up

03:17:10.120 | in the mass hysteria of the hatred.

03:17:12.640 | It's a dangerous thing.

03:17:14.040 | - Yeah.

03:17:15.440 | - You floated the idea, I forget where,

03:17:19.320 | of pivoting for your next book

03:17:22.160 | towards maybe writing about postmodernism,

03:17:26.360 | which is a set of ideas

03:17:28.960 | almost the opposite of Ayn Rand's philosophy.

03:17:30.960 | So can you maybe explain your curiosity

03:17:34.800 | about, first of all, spaces of ideas,

03:17:37.280 | but maybe postmodernism?

03:17:40.600 | - Yeah, I mean, I think in the broadest sense,

03:17:43.120 | what I'm interested in,

03:17:44.720 | kind of two dimensions that guide me

03:17:46.880 | in doing intellectual history.

03:17:48.360 | One is what I talked about,

03:17:49.360 | like how does an idea go from a book,

03:17:52.680 | an elite space, out to more popular dimensions?

03:17:56.200 | Like how does that happen?

03:17:57.200 | What happens to the idea along the way?

03:17:58.680 | How is it distorted or changed?

03:18:00.440 | And the other is just search for meaning

03:18:02.360 | in a post-Christian era or a secular era.

03:18:05.440 | Like what are people coming up with?

03:18:07.960 | And I think to replace that void

03:18:11.520 | in their religious or spiritual lives,

03:18:13.120 | I think both Rand and Friedman

03:18:15.080 | offered these sort of alternatives, right?

03:18:16.960 | Objectivism, quasi-rationalist religion.

03:18:20.160 | People take economics as a theory of the world

03:18:25.080 | that you can almost believe in it, right?

03:18:27.960 | It can almost take that place.

03:18:29.400 | And in both cases, how do those ideas travel?

03:18:31.560 | When I think about postmodernism,

03:18:33.640 | you know, it first struck me,

03:18:35.160 | if you read the original "Postmodern Thinkers,"

03:18:39.040 | it's really tough going.

03:18:40.280 | I mean, I make my students do it and they suffer.

03:18:42.760 | I think they see it's worthwhile,

03:18:44.160 | but it's no fun to read Derrida, you know?

03:18:46.840 | But somehow it's trickled down into,

03:18:49.720 | how do we go from like Derrida to Tumblr?

03:18:52.200 | And I sort of realized like,

03:18:53.560 | oh, this has happened with postmodernism.

03:18:55.680 | It's followed the same path, you know,

03:18:58.440 | that say from Milton Friedman's economic theory

03:19:01.360 | to, you know, free to choose on YouTube.

03:19:03.120 | We've had a similar path of, you know,

03:19:04.680 | high French theory down to Tumblr.

03:19:07.320 | And, you know, I, you know,

03:19:09.480 | sexually identify as an attack helicopter

03:19:11.400 | or whatever it may be, you know?

03:19:12.440 | And so that was really interesting.

03:19:15.640 | And then I also thought, you know,

03:19:17.120 | well, at the same time,

03:19:19.920 | this is clearly a structure of meaning.

03:19:22.200 | And I actually think it's followed

03:19:24.240 | the same path of objectivism,

03:19:26.040 | which is turning into its opposite,

03:19:28.600 | like distilled down and then turning into its opposite.

03:19:31.040 | So if objectivism was a group of people

03:19:33.760 | who considered themselves individualist,

03:19:35.520 | who ended up deeply conforming

03:19:37.480 | to the dictates of a charismatic leader,

03:19:39.880 | you know, postmodernism started about disrupting binaries.

03:19:43.400 | That was, we're gonna be fluid.

03:19:45.440 | We're gonna go beyond the border.

03:19:46.600 | We're gonna disrupt the binary.

03:19:48.680 | And it's devolved in its popular forms

03:19:50.840 | to the reinscribing of many different binaries.

03:19:53.920 | Oppressor and oppressed, you know,

03:19:56.120 | has become this like paradigmatic set of glasses

03:19:58.480 | you put on to understand the world.

03:20:00.400 | So I think the dynamics are very, very similar.

03:20:02.760 | So I think it's something in the traffic of the idea

03:20:05.400 | from its pure form to its popular form,

03:20:09.160 | and then how it gets politicized

03:20:11.200 | or mobilized in different ways.

03:20:12.520 | And behind it all,

03:20:13.360 | I think, is this human longing for meaning

03:20:16.200 | and the inadequacy of the traditional ways

03:20:19.200 | that need was met at this point in time.

03:20:22.240 | - By the way, that going from pure form to popular form,

03:20:25.660 | I remember, this might be before the internet,

03:20:28.440 | but when I was in college reading Derrida and Foucault,

03:20:32.360 | and like not knowing context at all,

03:20:35.560 | it was just interesting.

03:20:36.720 | All right, this is,

03:20:38.200 | like I'm able to read pure encapsulations of an idea

03:20:41.880 | and just kind of like, oh, all right,

03:20:43.200 | well, that person believes that,

03:20:45.400 | and you just kind of hold it.

03:20:46.680 | But then you realize,

03:20:48.080 | if you actually take the pure form of that idea

03:20:50.480 | and then it creates a community around it,

03:20:52.480 | you realize like what that actually becomes.

03:20:54.960 | And you're like, oh yeah, no, I don't.

03:20:57.060 | That's not, although I do consider myself sexually

03:21:02.520 | an attack cop after, that's it.

03:21:04.160 | Identify sexually, yes, beautiful.

03:21:06.340 | Okay.

03:21:09.480 | - Your process of researching for,

03:21:13.400 | let's say the biographies of Milton Friedman and Ayn Rand

03:21:16.440 | seems like an insane amount of work.

03:21:20.040 | - Yeah.

03:21:20.880 | - You did incredible work there

03:21:22.800 | going to the original sources.

03:21:25.420 | Can you maybe speak to that,

03:21:27.160 | what is required to persevere

03:21:30.560 | and to go for so many years,

03:21:35.020 | to go so deep to the sources?

03:21:38.160 | - So, I mean, I go to the archive.

03:21:40.840 | That's where I feel like I'm,

03:21:42.920 | I feel like I'm communing with the dead in some ways.

03:21:45.520 | I'm seeing what they saw in some ways,

03:21:48.360 | reading what they felt.

03:21:49.960 | And I tell my doctoral students,

03:21:53.240 | it's gotta be something that gets you out of bed

03:21:54.680 | in the morning because there comes a point

03:21:57.220 | in your doctoral career when nobody's,

03:21:59.680 | there's nowhere to go, there's nowhere to be.

03:22:01.820 | You gotta be getting up

03:22:02.660 | 'cause you're interested in what you wanna study.

03:22:04.280 | And so with Rand, it was this real sense of discovery.

03:22:06.560 | Like I am discovering, I wanna know about this woman,

03:22:09.040 | I wanna know where she fits.

03:22:10.720 | And the only way to find out is to do the research.

03:22:13.560 | And so, yeah, I just, I like to go deep.

03:22:18.560 | It's really interesting to me.

03:22:20.500 | And I should say in both of these cases,

03:22:23.320 | I've done it in an institutional structure.

03:22:25.240 | I don't know that I would do it independently.

03:22:27.240 | So the first was a graduate program in history,

03:22:29.360 | was at UC Berkeley.

03:22:30.920 | And so I had coursework and then I had structures

03:22:34.800 | and I did have people to check in with and read,

03:22:36.520 | but I had a great deal of latitude.

03:22:38.160 | I'm very grateful for it.

03:22:39.200 | People are like, you wrote a dissertation

03:22:40.760 | on Ayn Rand at Berkeley?

03:22:41.840 | I'm like, yeah, hell I did.

03:22:43.840 | Berkeley's like, it's a great place.

03:22:45.520 | And at the time I was there,

03:22:47.120 | there was absolute room for free inquiry.

03:22:49.560 | - Oh, can you just like linger on that?

03:22:51.360 | So when you said that you're doing that,

03:22:53.880 | doing a dissertation on Ayn Rand,

03:22:56.520 | was there, did people get upset?

03:23:00.420 | - No, I did have a friendly critic

03:23:03.880 | who took it upon himself to throw at me everything

03:23:06.800 | he thought the outside world would throw at me.

03:23:09.140 | I think maybe five or 10 years earlier,

03:23:11.800 | it wouldn't have been possible.

03:23:13.480 | But the most important thing I had to,

03:23:15.600 | the person I really had to convince

03:23:18.360 | this was worth doing was myself,

03:23:20.320 | because I knew it was an unconventional choice

03:23:23.040 | for the field and for a dissertation.

03:23:24.800 | But once I convinced myself,

03:23:27.120 | I just said, well, I'm gonna do this and see.

03:23:29.160 | And because it was unconventional,

03:23:30.840 | it ended up standing out.

03:23:32.080 | And when it really was the time,

03:23:34.660 | I started it during second Bush administration,

03:23:39.300 | second George W. Bush, second term.

03:23:42.460 | People were interested in just conservatism in general

03:23:45.140 | and felt no matter where they stood

03:23:47.520 | on the political spectrum felt like objectively,

03:23:49.400 | we don't know enough about this and this is a problem.

03:23:51.460 | And so they were open to learning more.

03:23:53.320 | So I really kind of caught that wave in scholarship

03:23:56.840 | and caught that wave in American culture

03:23:58.320 | where people wanted to know more.

03:23:59.560 | - I wish you'd probably say that.

03:24:00.760 | I mean, Ayn Rand is at the very least,

03:24:04.480 | as you've mentioned, a kind of gateway to conservatism.

03:24:07.160 | - Yes, I called her the gateway drug

03:24:09.240 | in that people start with Rand, they're taken by her.

03:24:13.440 | In some ways she takes the worldview of Milton Friedman

03:24:17.400 | in terms of what capitalism can accomplish economically.

03:24:21.680 | And then she puts it in this mythopoetic register

03:24:24.460 | and she fictionalizes it.

03:24:25.660 | So once people have absorbed that, they want more.

03:24:29.760 | They go on to learning more of the ideas behind that vision

03:24:33.400 | or they have become true believers, they've converted.

03:24:36.160 | And so then they head off to work for a politician,

03:24:38.920 | to work for a think tank, to work for a party.

03:24:40.560 | It's absolute traffic.

03:24:41.520 | Now, not everyone.

03:24:42.360 | There's plenty of people who read Ayn Rand

03:24:43.560 | who don't take the politics in.

03:24:45.320 | It's a nice story, it's interesting,

03:24:47.160 | just an episode in their life.

03:24:49.800 | But for others, it's really foundational.

03:24:51.600 | It really, really changes them.

03:24:52.760 | So those were the people I wanted to track very deliberately.

03:24:55.180 | I wasn't trying to do in the round everything about Ayn Rand.

03:24:58.780 | I was like, Ayn Rand and the American right,

03:25:01.240 | goddess of the market, Ayn Rand and the American right

03:25:03.400 | is the title.

03:25:04.240 | So where did they take her,

03:25:06.560 | those who took her in this political direction?

03:25:08.360 | What difference did she make?

03:25:10.200 | - If we return to like the actual, your process.

03:25:13.920 | - Yeah.

03:25:14.760 | - So you're showing up and you're reading sources

03:25:17.680 | and you're like, is it kind of like the process of discovery?

03:25:21.640 | You're just kind of like taking it all in

03:25:23.400 | and seeing what unifying ideas emerge

03:25:28.600 | or maybe special moments that illustrate an idea emerge.

03:25:32.740 | - Yeah, I mean, I know with the biography of a person,

03:25:36.780 | I am already given a start and an end date

03:25:39.540 | and a rough narrative of what happens.

03:25:41.580 | So I have a kind of structure.

03:25:43.900 | And then with Rand, both with Rand and Friedman,

03:25:46.860 | I started by reading their major books

03:25:49.100 | before I really read anything about them

03:25:50.780 | 'cause I wanted my own experience of the material

03:25:53.900 | to be fresh.

03:25:54.780 | And I had read some Ayn Rand, but not a lot.

03:25:57.620 | Similarly, I had read some Friedman, but not a lot.

03:25:59.840 | So I had first is like, let me read the major stuff,

03:26:02.000 | get oriented and then just dive into the archive

03:26:05.120 | and see what's there.

03:26:06.300 | Who are they talking to?

03:26:08.560 | What's going on?

03:26:10.360 | In Rand's case, I was interested in her in the United States,

03:26:14.960 | not her in Russia.

03:26:15.800 | I didn't have the language skills to do that.

03:26:18.400 | So I start her in the United States

03:26:20.040 | and I start when she publishes her first book

03:26:22.240 | and she starts getting letters.

03:26:23.920 | And who is she writing to?

03:26:25.280 | Who's writing to her?

03:26:27.120 | And then I start to uncover this world

03:26:28.760 | of kind of nascent conservatism.

03:26:30.320 | And I'm kind of putting that together.

03:26:31.760 | And once I have enough, I say, well, that's a chapter.

03:26:34.920 | I'm gonna cover that chapter.

03:26:36.760 | And then there's gonna be, the book has come out.

03:26:39.980 | And so now I need to start a different chapter.

03:26:41.600 | What's her life like after the book has been published?

03:26:44.080 | And then I look for that, but I'm really,

03:26:46.760 | although I have this very high level structure,

03:26:48.780 | it's coming out of the archive, the material I'm finding.

03:26:52.720 | And if I'm not finding the material there,

03:26:54.760 | I won't cover it in great detail.

03:26:57.160 | Or if I've decided it's outside my ambit,

03:26:59.720 | I'm not gonna go into great depth on it.

03:27:01.940 | - And you're trying to understand the relationships.

03:27:03.820 | It's so fascinating, like reconstruct in a dark room,

03:27:08.100 | trying to reconstruct, shine a light on relationships

03:27:11.280 | through reading letters.

03:27:13.080 | It's interesting.

03:27:13.920 | - Yeah, yeah.

03:27:14.740 | I mean, correspondence is really, really helpful.

03:27:17.080 | Drafts, correspondence, and someone this famous,

03:27:20.880 | they have oral histories, other people write about them.

03:27:23.640 | So you're reading all these different things

03:27:25.160 | and kind of triangulating and trying

03:27:26.700 | to sort of put them together.

03:27:27.840 | And then think about how do I present this

03:27:30.540 | in a compelling story and what do I need to explain?

03:27:33.900 | And then also for me, what was really helpful

03:27:36.080 | is that because I teach and I am explaining

03:27:39.360 | the kind of broad sweep of 20th century history.

03:27:41.740 | So I know that Rand's involved in a labor action

03:27:46.440 | at Warner Brothers, but through my teaching,

03:27:48.840 | I realized, oh yes, this is a moment

03:27:50.560 | of labor strikes across the country.

03:27:53.040 | And so then that really changes the origin story

03:27:56.360 | of Atlas Shrubbed, because she's looking at labor actions.

03:28:00.200 | And she originally is thinking of the book

03:28:02.080 | as being called "The Strike."

03:28:03.900 | So she's really responding in real time

03:28:06.420 | and being inspired by what's happening

03:28:08.480 | in the mid-1940s in the United States.

03:28:12.320 | So then I can kind of take that and run with that

03:28:14.680 | and figure out where to go.

03:28:16.120 | - So you're super passionate about teaching.

03:28:18.840 | You mentioned Milton Friedman,

03:28:19.960 | had a very interesting way of teaching.

03:28:24.960 | So what's your, how do you think of teaching?

03:28:27.920 | Teaching history, teaching history of ideas,

03:28:30.040 | teaching bright young minds about the past?

03:28:33.340 | - Yeah, I mean, it's great.

03:28:34.380 | It's really inspiring.

03:28:35.800 | The ways the old school kind of dominating way

03:28:39.000 | in which Friedman taught would not fly

03:28:40.880 | in today's university wouldn't be permitted

03:28:44.560 | and also the students wouldn't respond to it.

03:28:47.200 | So I try to share my enthusiasm.

03:28:50.520 | I think that's like almost the number one thing I bring

03:28:52.760 | is my enthusiasm.

03:28:53.720 | Like, look how neat and interesting these ideas are.

03:28:56.560 | I try to keep my own views out pretty much.

03:28:59.440 | I try to give the fairest possible rendition I can

03:29:02.840 | of each thinker.

03:29:03.680 | If I find someone really disturbing,

03:29:06.040 | I might sidebar at the end of the lecture

03:29:08.040 | and say this kind of, you know, I find this unsettling

03:29:10.600 | and this, you know, tells me something about myself.

03:29:13.300 | But most of the time I'm bringing people

03:29:16.080 | into the, like the biography of a great thinker,

03:29:18.480 | the context of them.

03:29:19.680 | And then we, in the lecture,

03:29:21.400 | we'll literally read the work together

03:29:23.440 | and we'll talk about it.

03:29:24.440 | And I'll ask the students, what are you finding here?

03:29:27.000 | What's jumping out at you?

03:29:28.400 | Kind of breaking down the language

03:29:32.160 | and really teaching them how to do deep reading.

03:29:34.540 | So I feel like that is my contribution right now.

03:29:37.160 | We're having trouble reading collectively.

03:29:39.780 | We're having trouble paying attention collectively

03:29:42.040 | and I'm trying to cultivate their skills to doing that

03:29:46.200 | and showing them how I do it.

03:29:47.560 | And also modeling, like this is how I would read a text.

03:29:49.820 | This is what jumps out to me when I look at, you know,

03:29:53.040 | Thomas Kuhn or something like this.

03:29:55.080 | And just show them that studying a history of ideas

03:29:58.200 | is really fun.

03:29:59.080 | I feel incredibly privileged to do it, you know?

03:30:01.440 | And the other thing is,

03:30:02.760 | I think this is the time for students in college,

03:30:06.360 | figuring out who they are,

03:30:07.940 | their minds are developing and growing.

03:30:10.200 | They can really handle complicated, hard ideas.

03:30:13.160 | They don't always have the context behind them.

03:30:14.920 | So I need to give them the hard ideas and then show them,

03:30:16.960 | this is kind of the context of what's happening in the world.

03:30:19.960 | But really, I'm just, I'm showing them the landscape.

03:30:23.440 | I don't have time to go deep.

03:30:25.720 | We have a 10 week quarter, you know, giving them a flyover.

03:30:29.400 | And then I want them to know how to go deep

03:30:32.080 | and know where they wanna go deep.

03:30:33.800 | - Do the thing that Milton Friedman did,

03:30:35.480 | which is in parallel.

03:30:38.520 | - Yes, do their own parallel curriculum.

03:30:40.600 | Exactly, exactly.

03:30:42.160 | - What advice would you give

03:30:43.800 | in terms of reading about ideas you agree with

03:30:46.360 | and reading ideas you disagree with?

03:30:48.520 | - I mean, even though I think the passion is important

03:30:50.920 | for the teaching of the ideas,

03:30:52.480 | like dispassion is more important

03:30:54.540 | for the reading and understanding of them.

03:30:56.640 | So a lot of people have said to me like,

03:31:00.360 | I could never write about Ayn Rand,

03:31:01.720 | like she makes me so angry.

03:31:03.840 | You know, and I've never become,

03:31:05.720 | I don't get angry reading her.

03:31:07.300 | Like, I'm like, oh, there you go again, you know,

03:31:09.680 | or like, well, that's gonna cause trouble, lady.

03:31:11.760 | You know, and so I guess I'm approaching it

03:31:15.800 | with a sort of charity, but also with,

03:31:17.680 | I'm not, I don't have huge expectations.

03:31:19.740 | I'm not expecting to have the light shine on me.

03:31:22.240 | I'm not expecting to agree.

03:31:23.600 | I'm like, I can be very clinical about it.

03:31:26.280 | So that's what's worked for me.

03:31:28.120 | It might not work for others,

03:31:30.640 | but, and then I just try to find the humor in it.

03:31:33.800 | You know, like how funny is it?

03:31:35.720 | Like these different aspects of them.

03:31:37.420 | You know, like when teaching my students

03:31:39.860 | about Oliver Wendell Holmes,

03:31:41.100 | like his dad wrote a poem about him.

03:31:44.500 | He called him the astronaut

03:31:46.280 | about how he came from outer space.

03:31:47.920 | He seemed like he came from outer space.

03:31:49.500 | I'm like, this is his dad's view of his son.

03:31:52.340 | Like, that's how weird of a guy he was, you know?

03:31:55.160 | And so I try to like find that,

03:31:56.660 | keep alert for those funny kind of human touches

03:31:59.180 | that like, these are ultimately just people, you know,

03:32:01.740 | people with ideas that they spent enough time polishing up

03:32:04.300 | and developing that we still want to read about them

03:32:06.040 | a hundred years later.

03:32:07.700 | - What about the dramatic formulation

03:32:09.380 | of that same question?

03:32:10.620 | Do you think there's some ideas that are good

03:32:12.300 | and some of that are evil?

03:32:14.060 | Do you think we can draw such lines

03:32:15.780 | or is it more complicated like the old Solzhenitsyn line

03:32:20.140 | between good and evil

03:32:20.980 | that runs through the heart of every person?

03:32:23.340 | - I mean, I philosophically agree with Solzhenitsyn for sure.

03:32:27.300 | I do think some ideas pull on the good side

03:32:29.420 | and some ideas pull on the bad side, like absolutely.

03:32:32.540 | And I think that's probably,

03:32:34.820 | that's probably why people dislike Rand so much

03:32:37.140 | is they feel like she's giving license to the bad side

03:32:40.340 | and she's saying it's okay to be selfish and it's okay.

03:32:42.820 | You know, they feel like she's unloosing the dark forces.

03:32:45.720 | And, you know, in some cases that may be true,

03:32:50.740 | but I also, she's also unloosing some of the light forces

03:32:54.240 | in terms of reflecting on yourself and trying to be true.

03:32:57.580 | But definitely there are ideas that are dangerous

03:33:00.740 | to play with and their ideas that I think give license

03:33:03.220 | to the darker sides of human nature.

03:33:06.160 | But I think you can see that in the historical record.

03:33:11.340 | So I think that it's possible to show that.

03:33:15.900 | And obviously there's some places, you know,

03:33:17.980 | like Germany, they think the ideas are so dangerous

03:33:20.680 | they can't be allowed to circulate.

03:33:22.540 | And in some contexts that may absolutely be true.

03:33:24.940 | - And then still, even that we should take

03:33:28.500 | with a grain of salt because perhaps censorship

03:33:31.020 | of an idea is more dangerous than the idea.

03:33:33.020 | So all of that, that's the beautiful thing about us humans.

03:33:36.540 | We are always at attention trying to figure out

03:33:40.420 | what ideas are the ones that are going

03:33:42.020 | to help humanity flourish.

03:33:45.100 | Pothead question, do humans have ideas or do ideas have us?

03:33:50.100 | So where do ideas come from?

03:33:52.140 | You have Milton Friedman sitting there

03:33:53.660 | after Rutgers trying to figure out what he can do

03:33:56.180 | about the Great Depression, what, where?

03:34:00.620 | Do you ever think about this?

03:34:02.700 | Like I sometimes think that ideas are,

03:34:04.940 | aliens are actually ideas.

03:34:06.700 | They're just kind of like travel through human brains

03:34:10.460 | and like captivate us and we get all real excited.

03:34:15.460 | Like with the monolith in 2001 Space Odyssey,

03:34:21.420 | a monolith lands and everybody gets excited

03:34:24.420 | and somehow this idea just gets everybody

03:34:28.260 | to be on the same page and it reverberates

03:34:31.740 | through the community and then that results

03:34:34.460 | in an implementation of some action that results

03:34:37.420 | in us figuring out that that idea was actually bad

03:34:39.780 | and then we learn new ideas.

03:34:41.700 | But it feels like the idea is riding the show.

03:34:44.260 | - Yeah, I mean, I think in a lot of cases,

03:34:46.540 | I think it's true.

03:34:47.780 | You know, there, Keynes has this famous quote like,

03:34:50.020 | you know, most men are slaves of some defunct economist.

03:34:52.940 | You know, and so-- - That's funny, that's funny.

03:34:56.540 | - So I do think that we, like it's really hard

03:34:59.620 | to have an original thought.

03:35:01.060 | You know, we are social creatures,

03:35:02.620 | we encounter the same situations again and again.

03:35:05.740 | And so it's really hard, you're born into these traditions

03:35:09.140 | of thinking and being and knowing

03:35:11.340 | and most people are never gonna question them

03:35:13.500 | and most people are never gonna become aware of them.

03:35:15.700 | So again, that's some of the work of what I do

03:35:18.020 | as an intellectual historian is like, let's become aware.

03:35:21.180 | Let's realize that you're carrying a map

03:35:23.100 | that's orienting you to the world in a certain way, right?

03:35:26.500 | And so I think you have to work really, really hard

03:35:30.340 | to have an original idea.

03:35:31.580 | And even then, it's not a completely original idea.

03:35:34.820 | It's a reworking and a reassembling of ideas others have had.

03:35:38.620 | So I definitely think it's possible

03:35:41.060 | to create autonomy in the realm of ideas

03:35:43.740 | and to be an autonomous consumer of ideas.

03:35:46.500 | But I think on balance, most people are not.

03:35:50.620 | And that's fine, they wanna have experiences,

03:35:52.580 | they wanna do other things with their life, you know.

03:35:55.100 | - Well, Jennifer, thank you so much

03:35:56.940 | for this journey through ideas today

03:35:58.780 | and thank you so much for your incredible work.

03:36:01.500 | It was really fun and fascinating to talk with you today.

03:36:05.260 | Thank you. - Thank you.

03:36:07.180 | - Thank you for listening to this conversation

03:36:09.340 | with Jennifer Burns.

03:36:11.340 | And now, let me try to reflect on

03:36:13.620 | and articulate some things I've been thinking about.

03:36:16.780 | If you'd like to submit questions or topics

03:36:19.340 | that I can comment on in this way here

03:36:22.180 | at the end of episodes, go to lexfriedman.com/ama

03:36:26.260 | or contact me for whatever other reason

03:36:29.660 | at lexfriedman.com/contact.

03:36:33.100 | Please allow me to say a few words about my interview

03:36:35.980 | with the president of Ukraine, Volodymyr Zelensky.

03:36:39.260 | Now that a few days have passed

03:36:41.700 | and I've had the chance to think

03:36:43.020 | about the conversation itself, the response,

03:36:45.940 | future upcoming conversations, and what it all means

03:36:49.420 | for the war in Ukraine, for global geopolitics,

03:36:52.860 | and for us humans in general.

03:36:55.500 | I've gotten a lot of heartfelt, positive words

03:36:57.860 | from all sides, including, at least so far,

03:37:01.380 | literally everybody who knows me personally inside Ukraine,

03:37:05.020 | which includes a lot of soldiers

03:37:06.900 | and many high-profile figures,

03:37:09.060 | some who are supportive of the president

03:37:11.460 | and some who are critical of him.

03:37:13.980 | Literally all private communication

03:37:16.060 | has been positive and supportive.

03:37:18.140 | This is usually not the case with me.

03:37:20.340 | Friends usually will write to me

03:37:22.180 | to criticize and to disagree.

03:37:24.660 | That's the whole point of friendship,

03:37:27.180 | to argue and have fun doing it.

03:37:30.260 | There was none of that here, at least so far.

03:37:33.580 | So thank you for your support.

03:37:35.460 | In kind words, it means the world.

03:37:37.700 | The most common message was please keep pushing for peace.

03:37:43.140 | I will.

03:37:43.980 | But online, on the interwebs, I saw a lot of attacks,

03:37:49.860 | sometimes from swarms of online accounts,

03:37:51.980 | which, of course, makes me suspicious

03:37:54.180 | about the origin of those attacks.

03:37:55.900 | One of my friends in Ukraine,

03:37:58.540 | who, by the way, thinks the attacks are all propped up

03:38:01.260 | by Ukrainian bot farms, said there's no need

03:38:04.740 | to say anything extra.

03:38:06.940 | Let the interview stand on its own.

03:38:09.540 | Just keep focused on the mission of pushing for peace.

03:38:13.220 | Basically, he's a Ukrainian version

03:38:15.180 | of my other friend, Joe Rogan,

03:38:17.860 | who, to this day, says don't read the comments.

03:38:20.900 | This is generally good advice, and I try to follow it,

03:38:24.180 | but I'm also a human being.

03:38:25.740 | I wear my heart on my sleeve,

03:38:27.420 | and this interview, this war, for me, is deeply personal.

03:38:32.420 | And the level of vitriol, misrepresentation,

03:38:35.620 | and lies about the conversation and about me personally

03:38:38.940 | was particularly intense and disingenuous.

03:38:42.460 | So I thought I would use this opportunity

03:38:44.140 | to say a few words, just speak a bit more

03:38:47.180 | about how I approach this conversation

03:38:49.100 | with President Zelensky and conversations in general.

03:38:52.980 | This interview is something I poured my heart and soul into,

03:38:56.540 | preparing a lot.

03:38:58.860 | I've described parts of the preparation process I follow

03:39:01.660 | in the outro to the Zelensky conversation,

03:39:04.220 | but in general, let me say that I've read a lot,

03:39:07.500 | listened to a lot, and had a lot of private conversations

03:39:10.700 | with people on the ground.

03:39:12.700 | I have many flaws, but being unprepared

03:39:15.500 | for this conversation is not one of them.

03:39:18.020 | Two low-effort attacks got to me a bit, if I'm being honest,

03:39:22.900 | though I am learning to take it all in stride.

03:39:25.900 | First attack is that I'm unprepared, uninformed, or naive.

03:39:31.620 | I don't give a damn about the trolls,

03:39:34.620 | but I want people who listen to me,

03:39:37.220 | who support me, who care about my words

03:39:39.460 | to know that this is not the case.

03:39:41.860 | It never will be the case for future conversations,

03:39:45.060 | especially ones of this importance.

03:39:48.420 | I work extremely hard to prepare.

03:39:50.820 | Second low-effort attack that got to me a bit

03:39:55.580 | is that I'm a shill for Zelensky or a shill for Putin.

03:39:59.580 | Both accusations were hurled readily and freely

03:40:02.980 | by the online mob of all persuasions,

03:40:05.460 | by the left and the right in the United States and Europe,

03:40:09.140 | by the pro and the anti-Zelensky people in Ukraine

03:40:12.300 | or of Ukrainian origins,

03:40:14.060 | and by the pro and anti-Putin people in Russia

03:40:17.740 | or of Russian origins.

03:40:19.500 | As I've said over and over, this is not the case

03:40:24.620 | and will never be the case.

03:40:26.700 | I'm a shill for no one.

03:40:28.660 | More than that, I just simply refuse to be caught

03:40:31.260 | in any one single echo chamber.

03:40:33.820 | It's an ongoing battle, of course,

03:40:35.580 | because social media algorithms

03:40:37.340 | and the various dogmatic groups and tribes out there

03:40:40.540 | want to pull you in to their warm embrace of belonging

03:40:44.900 | and humans want to belong.

03:40:47.460 | But the cost of the path I have chosen

03:40:50.740 | is that I will never belong to any one group.

03:40:54.180 | In the end, like many of us must, I walk alone.

03:40:58.540 | And I try to do my best to do what is right

03:41:02.740 | to my independent heart and mind,

03:41:05.300 | not what is popular with any one group.

03:41:08.540 | My goals for this conversation were twofold.

03:41:11.340 | First, give a large platform to President Zelensky

03:41:14.700 | to explain his perspective on the war

03:41:16.940 | and to do so in a way that brings out the best

03:41:19.460 | in who he is as a leader and human being.

03:41:21.940 | Second goal was to push for peace

03:41:25.820 | and to give him every opportunity possible

03:41:28.060 | to signal that he's ready to make peace

03:41:30.780 | and to provide his vision for what that might look like.

03:41:33.780 | And just to be clear, by peace, I mean long lasting peace

03:41:38.620 | that minimizes suffering of people in the region

03:41:41.100 | and maximizes the flourishing of humanity

03:41:44.660 | in the coming decades.

03:41:46.020 | The war in Ukraine has led to over 1 million casualties

03:41:51.420 | and growing every single day.

03:41:53.360 | For some people, torn apart by loss,

03:41:57.260 | tormented and forced into a state of anger and hate,

03:42:00.540 | peace is a dirty word.

03:42:02.960 | To them, nothing less than justice must be accepted.

03:42:08.140 | I hear this pain.

03:42:11.940 | I've seen the bodies and the suffering.

03:42:14.540 | It's true, peace will not bring back your loved ones,

03:42:20.100 | but it will prevent further slaughter of more people,

03:42:23.120 | each of whom are someone else's loved ones.

03:42:26.020 | So again, the second goal of this conversation

03:42:30.320 | was to push for this kind of peace.

03:42:33.060 | So how did I approach it?

03:42:37.620 | Every conversation is its own puzzle,

03:42:40.000 | so let me try to explain my approach for this one.

03:42:42.500 | As I've said, I read and listened to a lot of material

03:42:46.260 | since February 24th, 2022.

03:42:49.540 | There would be many weeks over the past three years

03:42:51.580 | where I would spend every day, over eight hours a day,

03:42:55.380 | of focused reading and research.

03:42:58.660 | There were several rabbit holes

03:43:00.400 | that I consistently returned to and researched,

03:43:03.560 | but the most important line of inquiry

03:43:05.200 | was always peace talks, not just in this war,

03:43:08.820 | but in other wars in modern history.

03:43:11.020 | For this specific war, as part of the background prep,

03:43:15.660 | I would take notes on every single perspective I could find

03:43:18.760 | on every single major diplomatic meeting and negotiation

03:43:22.020 | that happened in Ukraine-Russia relations since 1991.

03:43:27.760 | There is a lot of material to go through,

03:43:30.100 | and there are a lot of perspectives,

03:43:32.700 | even on the very 2019 meeting

03:43:36.060 | that President Zelensky spoke about in this podcast.

03:43:39.100 | Just as a small but important example,

03:43:41.600 | Andrei Bohdan was interviewed twice by Dmitry Gordon

03:43:45.380 | and gave a deep inside look

03:43:47.780 | of the administration of President Zelensky,

03:43:49.860 | including that very 2019 meeting.

03:43:52.820 | The two interviews are 7 1/2 hours, by the way,

03:43:56.600 | and from my interviewer perspective

03:43:59.420 | are a masterclass of interviewing.

03:44:01.600 | Andrei Bohdan worked directly with President Zelensky

03:44:06.000 | as the head of the Office of the President of Ukraine.

03:44:09.020 | He was there for the 2019 face-to-face meeting

03:44:11.780 | between Vladimir Zelensky and Vladimir Putin

03:44:14.820 | at the Paris Summit,

03:44:16.380 | along with French President Emmanuel Macron

03:44:19.340 | and German Chancellor Angela Merkel.

03:44:22.300 | This was part of the Normandy format peace talks.

03:44:26.400 | In those two interviews,

03:44:28.120 | Andrei Bohdan gave a very different perspective

03:44:31.320 | on that 2019 meeting than did President Zelensky

03:44:34.920 | to me in our conversation.

03:44:36.760 | The perspective being that the failure

03:44:39.640 | to negotiate a ceasefire and peace

03:44:42.520 | was not a simple one-sided story.

03:44:44.720 | I don't think this is the right time for me

03:44:47.760 | to dive into that data point and be critical.

03:44:51.600 | I'm not interested in being critical

03:44:53.000 | for the sake of criticism.

03:44:54.880 | I am interested, once again, in productive conversations,

03:44:58.840 | critical or otherwise, that push towards peace,

03:45:02.280 | the kind I described earlier.

03:45:04.820 | This is merely an example of a data point

03:45:07.600 | I was collecting in my brain.

03:45:09.200 | There are many, many others.

03:45:11.660 | But all of it taken together made it clear to me,

03:45:15.720 | and I still believe this,

03:45:17.360 | that it is indeed very difficult but possible

03:45:21.540 | to negotiate long-lasting peace with Vladimir Putin.

03:45:25.200 | It is certainly true that Ukraine is best positioned

03:45:29.180 | to negotiate from a place of strength.

03:45:32.280 | After the invasion of February 24th, 2022,

03:45:35.660 | I believe there were three chances

03:45:38.080 | where peace was most achievable.

03:45:40.820 | First chance was March and April of 2022

03:45:43.940 | with a successful defense of the North.

03:45:45.900 | Second chance was the fall of 2022

03:45:50.340 | with a successful counter-offensive in Kherson and Kharkiv.

03:45:54.700 | The third chance is now.

03:45:56.460 | As he has stated multiple times publicly,

03:45:59.660 | Donald Trump is very interested in making peace.

03:46:02.780 | It is likely that the U.S. financial support for this war

03:46:06.180 | will continue to dwindle.

03:46:08.040 | So the leverage and the timing for peace negotiation is now.

03:46:12.080 | There is unlikely to be another chance like this

03:46:16.100 | for a long time.

03:46:18.460 | Just to zoom out on the conversation piece of this,

03:46:22.000 | I interviewed Donald Trump and may do so again.

03:46:25.620 | I interviewed Vladimir Zelensky and may do so again.

03:46:28.740 | And it seems likely that I will interview Vladimir Putin

03:46:32.380 | in Russia, in the Kremlin.

03:46:34.580 | I understand the risks and I accept them.

03:46:38.840 | The risks for me are not important.

03:46:40.700 | I'm not important.

03:46:42.180 | I merely want to do my small part in pushing for peace.

03:46:45.180 | In a moment in history, when there's a real chance

03:46:48.700 | for that peace to actually be achieved.

03:46:51.000 | I may be speaking too long, I'm sorry.

03:46:55.100 | But I can probably speak for many more hours.

03:46:57.140 | So this is in fact me trying to be brief.

03:46:59.500 | So again, my two goals were to bring out the best

03:47:03.420 | in President Zelensky as a leader and a human being,

03:47:06.660 | and to give him every opportunity possible

03:47:09.020 | to signal that he's ready to make peace

03:47:11.900 | and to lay out his vision for what

03:47:13.860 | that peace might look like.

03:47:16.020 | Like I said, step one through 10 is prepare well.

03:47:19.900 | I did, but step 11 is the actual conversation.

03:47:24.740 | There the specific psychological and personality quirks

03:47:27.860 | and qualities of the guests matter a lot.

03:47:30.060 | My job is to try to cut through the bullshit walls

03:47:32.140 | we put up as human beings and reveal directly

03:47:35.260 | or indirectly who the person truly is and how they think.

03:47:39.980 | With Zelensky, he is a deeply empathic

03:47:43.540 | and emotional human being who personally feels

03:47:46.860 | the suffering of the people of Ukraine in this war.

03:47:49.740 | This is a strength and perhaps also a weakness.

03:47:54.300 | But it is an important part of the reason why I said

03:47:57.220 | many times that he is a truly historic figure.

03:48:00.940 | Very few leaders in recent history would be able

03:48:04.460 | to pull off what he did, to stay in Kiev,

03:48:07.560 | to unite the country, to convince the West

03:48:09.940 | to join the war effort to the degree they did.

03:48:12.820 | He is also a showman, to borrow the title

03:48:16.780 | of the biography I recommended.

03:48:19.140 | A man with many layers of humor and wit,

03:48:22.300 | but also ego and temper.

03:48:25.580 | Sometimes fully self-aware and sometimes losing himself

03:48:29.500 | in the emotional rollercoaster of a painful memory

03:48:32.380 | or a turn of phrase that he can use as a springboard

03:48:36.420 | for a angry soliloquy.

03:48:38.780 | Add to this, the fact that we didn't agree to anything.

03:48:42.980 | What we will talk about or how long we will talk about it.

03:48:47.300 | The interview could have easily been five minutes

03:48:49.540 | or three hours.

03:48:51.020 | So I had to quickly gain his trust enough to open up

03:48:54.460 | and stay for a long form conversation.

03:48:57.220 | But push him enough to reveal the complexities

03:48:59.880 | of his thought process and his situation.

03:49:03.700 | This is where humor and camaraderie was essential

03:49:06.540 | and I would return to it often.

03:49:08.280 | Though it was very difficult given the stakes,

03:49:10.900 | the heaviness, the seriousness of the topic of the war.

03:49:14.260 | So in this case, the approach I followed

03:49:17.340 | for this conversation is constant nudges

03:49:19.220 | and questions about peace.

03:49:21.180 | Often using almost childlike statements or questions.

03:49:25.500 | I generally like these kinds of questions.

03:49:27.900 | On the surface, they may seem naive, but they're not.

03:49:31.620 | They are often profound in their simplicity.

03:49:34.340 | Like a lot of questions that children ask.

03:49:37.420 | Remember, it was a child who pointed out

03:49:40.380 | that the emperor was not wearing any clothes.

03:49:42.680 | I like the simplicity, the purity,

03:49:45.260 | the boldness of such questions

03:49:46.620 | to cut through the bullshit to the truth.

03:49:49.000 | And that truth is that hundreds of thousands of people

03:49:52.940 | died in this war and are dying every day.

03:49:56.220 | And all the other problems,

03:49:59.060 | from corruption to suspended elections to censorship

03:50:02.940 | cannot be solved until peace is made.

03:50:05.080 | I give the president every single chance

03:50:08.740 | to signal willingness to negotiate,

03:50:11.300 | knowing that both Trump and Putin

03:50:13.740 | will listen to this conversation.

03:50:15.380 | I don't think he took it

03:50:18.060 | and instead chose to speak very crude words

03:50:20.980 | towards Vladimir Putin.

03:50:22.240 | This is fully understandable,

03:50:25.380 | but not directly productive to negotiation.

03:50:28.100 | To clarify, I have hosted many conversations

03:50:31.700 | that were intensely critical of Vladimir Putin,

03:50:34.420 | from Sergei Plotkin to Stephen Kotkin.

03:50:37.420 | But this conversation is with a world leader

03:50:40.100 | speaking about another world leader

03:50:42.260 | during a historic opportunity for peace.

03:50:46.260 | Crude words of disrespect,

03:50:48.020 | while powerful, may harm negotiations.

03:50:51.260 | Peacemaking in this situation requires compromise

03:50:56.100 | in order to avoid further death and suffering.

03:50:59.540 | And I believe it requires treating the other leader

03:51:02.300 | with the seriousness you expect him to treat you with.

03:51:05.640 | This is what I was pushing for.

03:51:08.140 | All that while also putting my ego aside

03:51:11.660 | and letting the president shine,

03:51:13.340 | which is necessary to accomplish both goals one and two

03:51:16.820 | that I mentioned previously.

03:51:18.780 | This is also why I wanted the president

03:51:21.060 | to speak about Elon and Trump,

03:51:23.100 | to extend the olive branch

03:51:24.540 | for further avenues of peacemaking.

03:51:26.940 | This is not about politics.

03:51:28.680 | It is, once again, simply about peace.

03:51:31.820 | Now, all of this, my words, my attempts,

03:51:35.580 | were taken out of context

03:51:37.060 | and used to attack me by some online mobs.

03:51:40.540 | As an example, President Zelensky said in a mocking tone

03:51:44.200 | that he thinks that Vladimir Putin

03:51:45.540 | is simply irritated by people who are alive in Ukraine.

03:51:50.140 | And I answered, quote, "If you believe this,

03:51:54.180 | "it will be very difficult to negotiate.

03:51:56.620 | "If you think that the president of a country

03:51:58.180 | "is completely crazy,

03:51:59.660 | "it is really hard to come to an agreement with him.

03:52:03.780 | "You have to look at him as a serious person

03:52:06.580 | "who loves his country

03:52:08.060 | "and loves the people in this country.

03:52:10.580 | "And he conducts, yes, destructive military actions."

03:52:14.300 | The president interrupted me at this point and said,

03:52:18.460 | "Who are you talking about now?

03:52:20.580 | "Who loves this country?"

03:52:22.660 | And I said, "Putin.

03:52:25.100 | "Do you think he doesn't love his country?"

03:52:27.560 | And the president answered, "No."

03:52:29.760 | Again, this is not a podcast conversation

03:52:33.660 | with a historian or activist.

03:52:35.540 | And I somehow, out of nowhere, just for fun,

03:52:38.140 | waxed poetic about Putin's or Zelensky's

03:52:41.340 | or Trump's love of nation.

03:52:43.440 | It is a conversation with a world leader

03:52:47.380 | discussing the opportunity to negotiate peace

03:52:51.220 | when a large number of people are dying every single day.

03:52:54.280 | Even if the hardball is over with hate,

03:52:58.780 | leadership now requires sitting

03:53:00.980 | at the negotiation table and compromising.

03:53:03.780 | This may be painful, but it is necessary.

03:53:06.440 | There are a few other places in the conversation

03:53:09.340 | where some online mobs took my words out of context

03:53:12.380 | and used them to call me naive

03:53:14.700 | and to call for more war,

03:53:16.780 | saying peace is impossible with a man

03:53:19.180 | who they claim is the second coming of Hitler.

03:53:21.520 | My friends, if you make such attacks on this conversation,

03:53:27.500 | it is in fact you who are naive

03:53:30.420 | and ignorant of the facts of history and geopolitics.

03:53:33.840 | Peace must be made now,

03:53:37.940 | in order for death and suffering to stop,

03:53:41.100 | in order for Ukraine to have a chance to flourish,

03:53:44.020 | and in order for the drums of a global war to stop beating.

03:53:49.140 | A global war that would cripple humanity.

03:53:51.780 | This was my goal, once again, to push for peace,

03:53:57.600 | and I will continue this effort to the best of my ability.

03:54:01.760 | Thank you.

03:54:04.020 | I love you all.

03:54:04.860 | (audience applauding)

03:54:08.020 | (upbeat music)

03:54:10.600 | you

Jennifer Burns: Milton Friedman, Ayn Rand, Economics, Capitalism, Freedom | Lex Fridman Podcast #457

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