And now, back to our story…
Friedrich Hayek founded the Mont Pelerin Society in 1947 along with Friedman, Aaron Director, Frank Knight and George Stigler, to discuss the future of what was then called liberalism, but in strictly economic terms - very different from what we would consider the term to mean today.
Liberalism in their view was an adherence to free market values above all else. It was a way for Hayek to promote the ideas found in his publication, The Road to Serfdom, which was met with moderate acclaim at first. Eventually, Hayek gained a cult following among libertarians and Reagan era economists who viewed big government as an existential crisis that threatened capitalism.
They called themselves “neoliberals.” And thus a new philosophy was born.
During his tenure, Hayek had trouble overcoming the long shadow of Keynes and by 1962 he retreated to the University of Freiburg in Germany which opened the door for new leadership at the society. Milton Friedman was the clear successor and heir apparent.
The Mont Pelerin Society remains active even today advocating for the rule of law, the rights of the individual and the preeminence of free markets.
Now, before Friedman took over the society, the members were coalescing around counterarguments to Keynes’ General Theory. Even supporters of Keynes such as the great Jacob Viner, a close Chicago School associate of Knight, Friedman and Stigler, agreed almost wholly with Keynes and his recommendations to handle the Depression. But he was the first to break with the norm and hero worship to suggest that Keynes was only correct to the extent that the Depression was an existential social and political crisis. For him Keynes was the axe behind the glass to be broken in case of emergency.
This view was polite compared to how it would evolve among Mont Pelerin society members throughout the 50s and 60s. Friedman, in particular, could best nearly anyone in tearing apart any argument that contained the hint of government intervention. Over time his positions would solidify and take on an almost manic fanaticism, though delivered with his cool, wry, fuck you sort of sensibility.
Goldwater and the Economics of Racism and Colonialism
The thing with these economic libertarians is that they were theorists without a policy home. Academics who were shouting at the rain as they continued to live in the shadow of the great man. What they really required was a host body to put their ideas to the test. In 1964, shortly after taking over the society, Milton found his man.
Friedman surged out of academia in ‘64 for his association with the most uncompromising conservative political movement in America: the presidential campaign of Arizona senator Barry Goldwater. While Friedman would always bristle at being called a conservative, the conservative movement of Goldwater was a convenient marriage of ideas for Friedman’s neoliberals.
In pure policy terms Friedman believed the government should provide families with vouchers to buy their children slots at either public or private schools. The resulting competitive market for education would surely liberate Black people in America more thoroughly and efficiently than any government mandate. Friedman actually had a lot to say about the plight of Black people in the United States, blaming government’s attempts to help improve their standing in American society rather than centuries of institutional racism.
One of his principle beliefs and a point he would repeatedly hammer home:
It was the fault of government that Black schools were worse than white schools.
Therefore, Black people were less educated.
And thus, minimum wage put wages above what they were worth in the world.
For reference, the clip we played of him claiming this on the podcast was part of a lecture series he gave in 1977 when the minimum wage was $2.30. So essentially he was arguing that Black schools in America produced students that weren’t worthy of earning $2.30 an hour and that the free market would allow businesses to pay them what they were really worth.
These were the ideas that were tremendously appealing to Goldwater but the big hairy concept behind it all that galvanized him most was was the concept that the only legitimate role of government was to establish the institutions necessary to uphold free market capitalism: a military to defend the nation, a police force to protect businesses and citizens and a central bank to ensure there is enough money supply to facilitate exchange.
Anything out of the realm of these areas would serve to slow the wheels of commerce and create chaos in the markets, and therefore society. While Goldwater wound up getting trounced and these ideas weren’t ready for primetime, a new class of young politicians took note of Friedman.
The Times They Were a-Changin’
Change was in the air in the 1960s. Music. Attitudes. Baby Boomers coming of age. Liberalism and conservatism were moving further and further apart. I don’t want to undercut what was happening in the ‘60s because there was actually a growing battle between economists during this time that’s quite fascinating, but I think it’s overkill to get too far in the weeds.
To sum it up, Kennedy brought in a slew of ivory tower Keynesians and Johnson followed suit by sequestering his economic advisers on his ranch to think big. They emerged with Medicare and Medicaid. So, a lot was happening at the time but you can imagine how tweaked the neoliberal crew over in Mont Pelerin were with the expansion of big government.
I do, however, want to highlight one specific policy that was developed on the eve of the ‘60s because it plays an important role in what we’re about to cover as we head into the ‘70s. Something called the Phillips Curve.
The Phillips Curve was a theory developed by William Phillips, known as A.W. Phillips, a New Zealand economist who spent the majority of his career at the London School of Economics. Phillips studied the patterns of wages and inflation over long periods of time, research that had been done in other quarters at the time. But in 1958 he was the first to commit it to the theory we now know as the Phillips Curve.
Based on the observation that high unemployment usually created a stable or even declining level of wages, he went on to theorize that there was an inverse relationship between inflation and unemployment. When unemployment was low, it pressured prices and helped create inflation. Conversely, when unemployment was high, inflation tended to cool. What makes the Phillips Curve so vital to our discussion of Friedman and Keynes is that it was immediately accepted and understood to be inherently true. This lent credence to Keynes’ belief that full employment was one of the primary ways to achieve stability in pricing and the economy as a whole.
Then along came the 1970s. Suddenly, in the United States especially, inflation was on the rise but so was unemployment. Worse, GDP went into decline for six consecutive quarters, confounding economists and politicians. This scenario was dubbed Stagflation and it caused a complete crisis in the field of economics. The Phillips Curve had failed and policy makers were at a loss for how to mitigate the situation. Nearly every policy maker, that is, except Milton Friedman who was ready for his close up.
Bow Chicka Wow Wow. Free Love. Free Sex. Free Markets.
The ‘70s did for Friedman’s career what the Depression did for Keynes.
Stagflation caused a crisis among economists, especially those who considered themselves devout Keynesians. Neoliberals with a kind interpretation of Keynes suggest that even he would have grown to reject the strict doctrine ascribed to him by academics, and that he would have eventually adopted the monetarism and price theory stances of the neoliberals. His more aggressive detractors simply used this period to dismiss Keynes altogether as a relic as though this brief period could undermine the whole of economic thinking for the better part of the 20th Century.
The oil shock, Middle East crisis, an overheated economy, inflation, post-Vietnam War debts, Nixon’s financial shock of obliterating the Bretton Woods Agreement, the application of punitive tariffs - so much contributed to this period of Stagflation. But as usual, whoever possesses the simpler message unusually controls the narrative in a crisis.
And so there it was. The final tipping point. The man with the plan and the simple cure-all answer was prepared to solve the world’s problems with two simple words: Free Markets.
Friedman applied free markets to everything. Racism? Colonialism? Inequality? Pollution? Housing? Birth rates? Civil rights? Everything could be cured by the mighty free market. If only government would get out of fucking the way and just set it free.
There’s plenty to tell about what constitutes a free market. Before we get there and head into the Reagan era, which saw a full embrace of Friedman, the little fucker took to the road to sell his ideas to the world.
(This is where you’re going to start hating this little prick.)
In the 1970s, Friedman traveled to Cape Town, where he gave a speech arguing against universal suffrage for Black South Africans. The “political market” of voting, he insisted, would unfairly weight South African politicians toward “special interests.”
He would express utter disdain for anyone who even suggested that America and Europe took advantage of poor societies through colonialism. That, he insisted, was the free market at work.
Perhaps most famously, Friedman led a group of economists from the Chicago School to consult with Augusto Pinochet in Chile shortly after the U.S. helped assassinate the socialist leader, Salvador Allende and clear the way for the dictator to take over. This story would haunt Friedman for years but his take on it was entirely different and actually more accurate.
Friedman did indeed advise Pinochet and there was coordination between our government and that of Pinochet to try and establish trade with Chile and stabilize their currency, which was raging out of control with inflation and volatility. But some made it seem like Friedman opened an office in Pinochet’s palace and drafted the Chilean Constitution together over cigars. In reality, he simply espoused the same theory he had been pushing since his earliest days in Chicago. Monetarism created free markets.
Friedman did, however, consider his advice to Pinochet a success in that inflation was ultimately brought under control and the economy recovered. Did Pinochet murder dissidents and allow American business interests to take root and subjugate the working class in Chile? You bet. But such trivial measures were beside the fact. On planet Friedman, only the markets and free trade mattered because he believed they would help overcome inequality and injustice.
Friedman didn’t have to dither long in foreign nations. In the ‘70s, he was just warming up. Pretty soon, as we covered in a prior episode, a happy go lucky shill for corporate America, and former actor, moved into D.C. and invited the neoliberal crew from the Chicago School to take a seat at the adult’s table.
Reagan and his advisors were interested in only one economic policy. Monetary policy as espoused by Milton Friedman and the Chicago School of Economics. Monetarism had come to be viewed as the antidote to Keynesian economics, a reductive examination of the great man’s work, but easy to package, easy to understand and easy to sell.
Political interpretations of Milton Friedman’s impact on public policy largely depend upon one’s personal beliefs. His advocacy of free markets and deregulation is easy to digest when viewed strictly through an ideological lens. His ability to speak plainly about economic theory allowed him to reach an audience of everyday consumers and citizens. His intellect, quick wit and penchant for debate made him a formidable opponent in any venue.
But these factors also reduce the importance of his research, which upended a half-century of economic theory and earned him the grudging respect of even his detractors. His central contribution to the discipline of economics is what is referred to as monetarism. Put simply, it’s the belief that adjustments in money supply are a greater determinant of economic growth than any other policy, especially fiscal policies of government spending that had become synonymous with Keynesianism.
Critically, monetarism states that employment, inflation and production are all primarily impacted by growth and velocity of money supply - how much there is and how fast it moves through the economy - and interest rates that can either spur or stifle investment. What’s important to understand is that monetarism was already a tool in Keynes’ arsenal, but to be used alternately with fiscal policy depending upon current circumstances.
Where Friedman veers from Keynes is in the belief that monetarism was the only tool that mattered and that fiscal policy created more harm than good. This key differentiator relied on other factors to be present, or rather, eliminated. Most notably regulations.
The Reagan team would go all in on monetarism and add another twist, though this too was blessed by his majesty Milton. Reagan was looking for a way to sell tax cuts to the rich to a skeptical public that while rooting for a comeback led by The Gipper, wasn’t entirely ready to give things away to the rich.
But Reagan courted a supply side economist named Arthur Laffer, who illustrated the relationship between tax rates and tax revenue in what became known as The Laffer Curve. On his curve, he argued that if taxes are too high it will then discourage production and activity. Therefore, in order to stimulate economic growth it was imperative to cut taxes.
To understand where Laffer exists in the pantheon of great economists, all you have to do is visit The National Museum of American History. There you will find the fucking cocktail napkin that Arthur Laffer drew his theory on compete with a dedication to one of the two men who pocketed the napkin: Donald Rumsfeld and Dick Cheney. True motherfucking story. Says everything you need to know about the depth of knowledge or perhaps depravity of the modern Republican Party that they would save a fucking cocktail napkin from a party when Ford was president, whip it out six years later and show it to the president like, “Oh, we almost forgot. Here’s your entire tax theory sir!”
Friedman was no republican. And, as he said, he was hardly a conservative. He was a true libertarian who believed in the divinity of the markets. He would mostly favor the Reagan years for its accomplishments in cutting taxes and deregulating industries, but he was actually critical of other things that aren’t as obvious. For example, he was appalled by the war on drugs. Drugs were a choice and chasing them was a waste of time and money. He criticized Reagan’s foreign intervention and massive increase in government spending on the military. It was unnecessary in Friedman’s view because it was on foreign entanglements that had nothing to do with protecting free trade and commerce.
This is where it gets murky with Friedman. As soon as you want to punch this motherfucker square in the face, he says something like, “we should legalize drugs and stop spending money on building up the military to fuck with Latin America.” He was also standing on pretty solid ground when he criticized urban renewal and how the government ran public housing.
Where you’re justified in punching him in the fucking face is his rationale. He didn’t give two fucks about killing people. Didn’t think racism was a problem so long as the minimum wage was eliminated, because that was the root of the problem. He thought drugs should be legalized, but only because it was a waste of resources to chase drug dealers. If people got high, fuck them. Just don’t spend my tax money trying to stop them. And in terms of public housing, he might have been right about the outcome but he also disagreed with the intent. Housing isn’t a right or something to strive for.
It’s what makes him such an appealing figure to libertarians who think he’s some sort of god. And the temple that housed his religion was in the second city.
We’re on a Mission from God
The Chicago School would produce a number of concepts that built upon the idea that anything that restricted the freedom of the markets was inherently evil. They were the ones who pioneered the war on unions, referring to them as monopolies in that they fostered a concentration of power within a functional class.
An Englishman named Ronald Coase traveled to the Mecca of economic theory in Chicago to put forward a theory that stated, “when transactions costs are zero and rights are fully specified, parties to a dispute will bargain to an efficient outcome, regardless of the initial assignment of rights.” Essentially, he was arguing that irrespective of rights or authority, absent regulations and in a free market, the right and just outcome will always emerge.
Coase was met with almost universal derision for his theory at first. But in one evening, at this same gathering, uncle fuckbreath soaked up the oxygen and in a matter of two hours converted every one of the twenty one opponents to Coase to his way of thinking. Every single one. The translation of his idea, which has since become known as the Coase Theorem was that neither the government’s intervention nor the free market guarantee a just and proper outcome to a dispute. But between the two, in every case, the government’s solution will be inferior. Therefore, regardless of the outcome, the free market will always know better than human interventions.
Chicago School Economists Gary Becker and Richard Posner would double down on the Enlightenment theories of Le Mercier, an Enlightenment theorist we’ve covered before, and create new concepts around the notion that government exists only in the area of national defense and domestic law enforcement. Future theorists such as John Lott in the Chicago Law School would build on Becker’s theories in particular to conclude that the only way to reduce crime was to legalize concealed hand-guns and that, “women and Blacks obtain the largest benefits from discretionary concealed handgun laws.”
Cutting taxes on the rich.
Legalizing concealed weapons.
Eliminating government from all but war and domestic policing.
Pillaging and colonizing foreign nations in the spirit of free trade.
Deregulating industries and allowing them to self police regardless of their impact on the environment or working poor.
Eliminating social programs like Medicare, Medicaid, Social Security and Food Stamps.
This is the Chicago way.
These ideas that Unf*ckers recognize as the most dangerous, cynical and damaging influences on modern public policy from Nixon forward…They belong to the Chicago School of Economics and its high priest Milton Friedman. That’s how we got here, Unf*ckers. That’s the whole story.
Before I offer our conclusion, I want to dip back into history for a moment to talk about what could have been.
For a brief spell from 1938 to 1944, the most popular professor on campus was a man named Oskar Lange. Lange was a Polish economist and dedicated socialist who won the hearts of the students and colleagues through his brilliance and congenial nature. He put Hayek in his place and prevented the likes of Friedman from gaining too much attention. Lange would move back to communist Poland and be professionally neutered by the regime never again to hold the level of respect in academia. And in this vacuum emerged a fiery Friedman who attacked Lange’s work with a vengeance and asserted himself as the alpha in Chi-Town.
I bring this up prior to our conclusion to demonstrate how the slightest changes, happenstance in history can alter the course of human affairs. I bring it up because the big “what if” here is what if Oskar Lange stayed? What if there was no natural opening for Friedman? Why even ask the question?
Because anything that has been done can be undone if we understand how it happened. Anything can be reverse engineered and every little step in the journey, each brick in the wall matters. Even a podcast.
…And in conclusion…
John Maynard Keynes believed that left to our own devices, we would be guided by our lesser instincts. He saw firsthand the ravages of war and the indiscriminate punishment of the Great Depression. He studied the frequent boom and bust cycles of the Industrial Revolution and understood that markets would be manipulated by those in power seeking to retain it. And that history would repeat itself if the greed of man wasn’t somehow reined in.
Friedman, on the other hand, would romanticize this period.
He called it the, “closest approach that the United States has had to true free enterprise capitalism. Anybody was free to put up an enterprise.”
Like so many who have followed in his footsteps, Friedman looked wistfully upon the past when America was supposedly great. Recall from our Reagan episode that Make America Great Again was Reagan’s campaign slogan before it was revived by professor orange von fucknugget.
The land was free to take. Or was it stolen from native peoples?
Anyone was free to put up an enterprise during this period, except banks wouldn’t lend money to Black people and women couldn’t even vote.
It was the true invention of the American spirit, even if manufacturing plants belched and spewed toxins in the air, children were forced to work in mines and on production lines, and the absence of regulations made everything from our food supply to our places of work more dangerous than a virus.
What kind of fucking monster would romanticize this period?
One who believed that progress at any cost in a market where one was free to push the human condition to extremes is the definition of morality.
Keynes saw firsthand the devastation of the so-called free markets when men were free to do as they pleased and succumbed to depravity. And he dedicated the whole of his being, to the detriment of his health, to determining new ways of running the world to prevent such occurrences in the future.
Friedman did everything in his power, guided by ego and dogma, to undo this work and return to one of the worst periods in American history for human health and equality.
But this is also a tale about the dangers of orthodoxy and groupthink. Friedman assembled a cult of intellectuals bound and determined to explain away everything they saw, touched and felt by claiming an impossible cure: A free market. A free market of all things. As though externalities, to borrow a Chicago economist term, didn’t exist or matter. As though greed, corruption and pollution weren’t factors. Everything was boiled down to a simple equation, which made their arguments pure because they could never be settled.
I liken his dedication to anyone who explains away reality and consequences through a prism of religious belief. Why do children die? God’s plan. Why do bad things happen? God’s plan.
If your theory on life is impossible to prove then all you have to stand on is faith. The market, in Friedman’s world, is a deity that requires such faith. Omnipotent, omniscient and omnipresent. And should anything run afoul to it, like a clergy member, he can simply suggest that a system or a person or institution somehow failed to adhere to the impossible standard of perfect markets. Something that cannot and has not ever existed.
Then there is the groupthink aspect of this orthodoxy. In many ways the Chicago School came to resemble a religious enclave where no one dared question the high priest of free markets. His disciples would argue on the margins and take issue with certain mathematical aspects of equations and possible outcomes, but on the whole they bought into the doctrine. In this way, he stands in stark contrast to the likes of Keynes whose circle of influence was entirely secular.
The Bloomsbury Group grounded Maynard. At the slightest hint of imperialist or colonialist tendencies, they would attack him with vigor and remind him that his place in history was to improve the lot of humans and contribute to a collective understanding of welfare, intellectualism, love, art and romance. These were the ultimate goals he was to aspire to.
The markets were a means to an end for Keynes. To Friedman, markets were both the means and the end.
As the architect of agreements and policies that settled two world wars and the Great Depression, whether they were fully adopted or not, Keynes was influenced by what he knew to be true: that absent guardrails in the form of regulations and government intervention, the worst of us would inevitably overwhelm the best of us.
His was an economics of human nature. His was an economics of welfare, of kindness. And his seminal work was aptly titled in that it allowed for change. It was a “General” Theory, not a specific remedy or gospel that would work in all cases.
Friedman believed the government was built on a tyrannical bureaucracy. That the tyranny of big government would stifle the free expression of the pure markets. In this he was less an economist and more of a theologist who interpreted the device of an invisible hand as some sort of deity that would produce a just result.
But his dogma ignores the true tyranny that underlies the reality of the world we live in, not the world he hoped could exist. The real tyrannical force that must be subdued and controlled is the tyranny of man that, left to its own devices, will endeavor to control the mechanisms of the market by virtue of greed.
Today we live with the tyranny of information, controlled by a precious few who would manipulate the masses into believing that somehow, an invisible force of a phantom market could somehow hold the best interests of humankind in its heart. It’s not possible.
The markets, to the extent they exist in freedom, are exactly heartless. Blind to the externalities the purists discarded as abnormalities and aberrations. The pollution, the carnage of war, climate change, racism, all of it.
Blind, above all, to the one driving force intrinsic to our nature as a species: Greed.
Fuck. Milton. Friedman.
Here endeth the lesson.
Binyamin Appelbaum- The Economists' Hour: False Prophets, Free Markets, and the Fracture of Society
Zachary D. Carter- The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes
Thomas Piketty- Capital and Ideology