Kind: captions
Language: en
the following is a conversation with
Jennifer Burns a historian of ideas
including the evolution of economic
political and social ideas in the United
States in the 20th century to today she
wrote two biographies one on Milton
fredman and the other on iron Rand both
of which I highly
recommend this was a super technical and
super fascinating conversation at the
end and I make a few comments about my
previous conversation with president
zalinski for those of you who may be
interested this is Alex region podcast
to support it please check out our
sponsors in the description and now dear
friends here's Jennifer
Burns you have written two biographies
one on Milton fredman and one on Ein
Rand so if we can we will focus on each
one separately but first let's talk
about the ideas that two of them held in
common the value of individual Freedom
skepticism of collectivism and the
ethics of capitalism can you talk about
the big picture ideas they Converge on
yeah so Milton Freedman and Ein Rand in
the biggest picture they're both
individualists and they're skeptical of
collectivities and collectivism so their
unit of analysis is the individual
what's good for the individual what
works for the individual and their
understanding of society kind of flows
from that
they also both use this focus on
individualism to justify and to support
capitalism as a social and economic
system so we can put them in a similar
category we can call them individualists
we could call them Libertarians of A
Sort they're also really different in
how they approach capitalism how they
approach thinking you know irand
developed her own moral and
philosophical system to justify
individualism and to connect the
individual to capitalism and to support
capitalism as a social and economic
system fredman struggles a bit more with
how to justify capitalism and he'll
ultimately come down to Freedom as his
core value like his God as he says and
so Freedom does connect back to the
individual but he's not justifying
capitalism for his own sake he's
justifying it for its ability to
underwrite freedom in the social sense
and also in the individual sense at a
high level are there interesting
differences between them you already
mentioned a few maybe in terms of who
they are personally maybe in terms of
how they approach the justification for
capitalism maybe other ways yeah for
sure so beyond this idea that that
Milton fredman takes a while to come to
his justification of capitalism morzin
ran kind of has it from the start she
really focuses on the core quality of
rationalism and rationality rationality
is the defining feature of human beings
and so she works from from there whereas
fredman Milton fredman eventually
converges on this idea of freedom so
that's one part of it the other is their
intellectual styles are really really
different their interpersonal styles are
really different so fredman has big
Ideas big principles that guide him but
he's also deeply empirical he spends
most of his career doing historical
research economic research pulling data
from how people actually make economic
decisions and live in the world and
using them to test and refine his
theories where Rand to some degree we
could say she's empirical and that she
lives through the Russian Revolution and
takes a very big lesson from that but
her style of thinking is really um first
principles an axiomatic approach going
from the basic uh idea of rationality
and then playing that out in different
spheres and so those are just very
different intellectual approaches and
then they lead in some ways to really
different ways of thinking about how you
get things done in the world irand is a
purist she wants to start with the pure
belief she doesn't want it to be diluted
you know one of her favorite sayings was
you know it's earlier than you think in
other words we're still moving towards a
place where we can really hold and
express these ideals purely fredman
although he didn't use this terminology
was much more a halfa loaf guy you know
like I'll take what I can get and then
I'll try to move to where I really want
to be but he is able to compromise espe
especially when he moves from being an
economist into being more of a political
thinker and so that's a really different
intellectual style and then it also
plays out in their lives in that Ein
Rand is incredibly schismatic I mean she
wants her friends to believe what she
believes and support what she supports
and she's willing to break a
relationship if it doesn't match Milton
fredman he also does tend to have
friends who agree with him
yet he's always willing to debate his
opponents and he's willing to do so with
a smile on his face you know he's a kind
of he's the happy warrior and he
actually will win a lot of debates
simply by his emotional affect and his
cheerfulness and his confidence where
Rand will lose debates because she gets
so angry in the face of disagreement so
yeah they have they have a lot of
similarities and a lot of differences
and and it's been really fascinating to
kind of dive deep into both of them I
just uh relistened to an Ran's I think
last lecture or at least it's called
that and just the the confrontational
nature of how she answers questions or
how she addresses critics and so on
there is a kind of Charisma to that so I
think both of them are very effective at
winning over sort of uh popular support
but in very different styles it seems
like H Rand is is very cranky but
there's I mean it's the most charismatic
cranky person I think I've ever listened
to
yeah I mean people talked about her
meeting her and coming to believe in her
ideas in a similar way as I did with
Marxism in that suddenly everything made
sense and that when they came to believe
in objectivism they felt they had this
engine for understanding the entire
world now after a while for most people
that then became confining but yeah that
certainty and and fredman had some of
that as well he he clothed it
differently he clothed it in happiness
where ran kind of closed it as you said
in crankiness or anger I mean there's
also an arc to ran she gets kind of
angrier and angrier and crankier and
crankier over the course of her life
yeah what I enjoyed about my research is
I was able to get into this early moment
when she was different and a little more
open and then I kind of watched her her
clothes and her Harden over time would
it be fair to say that uh Milton fredman
had a bit more intellectual humility
where he would be able to sort of evolve
over time and and be convinced by the
reality of the World to Change sort of
the nuances of policies the nuances of
how he thought about economics or about
the world yeah absolutely fredman
believed in being able to say I was
wrong and there are some things he said
he was wrong about we we'll delve more
into monetarism and monetary policy but
he was able to talk about the ways his
ideas hadn't mapped on to the world the
way he thought they would he does a
really interesting interview at the end
of his life where he's beginning to
voice some doubts about globalization
you know which was he was sort of a
profit of globalization a cheerleader of
globalization he really thought it would
lead to a better world in all respects
and towards the end of his life it's
about two years before he dies there's a
note of doubt about how globalization
unfolded and what it would mean
particularly for the American worker and
so you can see him still thinking and
that to me I had sort of assumed he
became crankier and crankier and more
and more set in his way and and of
course there's a phase where where he
does become that way especially as he's
in the public eye and there's not room
for nuance but to find in the last years
of him life of his life him being so
reflective that was absolutely not
something Rand could do I think there's
a thread throughout this conversation
where we should actually also say that
you're kind of a historian of ideas I am
a historian of ideas yes and so we're
talking about today in part about two
people who kind of fought
for ideas for an idea like we mentioned
freedom for for capitalism and they did
it in very different ways and it's so
interesting to see sort of the impact
they both had and how the their uh
elucidation explanation of those ideas
like reverberated throughout society and
how we together as a society figure out
what works you know uh the degree to
which they have influence on the the
public the degree to which they have
influence on individual administrations
like the Reagan Administration Nixon and
so on and how it might return like fade
away and then come back in modern times
and it's so interesting if you just see
this whole world as a as a game of ideas
where we were like pushing and pulling
and trying to figure stuff out uh a
bunch of people got real excited over
100 Years Ago by communism and then they
try stuff out and then the the
implementation broke down and we keep
we keep playing with ideas so these are
the two greats of playing with ideas I
think that that's a thread that just
runs through this yeah and and of kind
of pushing back against that movement
towards communism social democracy but
but one one difference I didn't that I
really should emphasize Rand is a writer
of fiction she's a philosopher but she's
also a writer of fiction so she is
working almost in the Mythic register
much more in the psychological register
she's creating character that people
identify with and people relate to
experiences they've had and that's one
of the reasons she hits so deep and
she's also offering people you know I
read all the fan letters to her people
would say things like I read the
Fountain Head and now I'm getting a
divorce you
know you know having just um these
incredible realizations Milton Freedman
didn't get such didn't get S things or
um you know I'll meet someone and and
they'll say to me you know Ein Rand is
is the reason I went to medical school
you know like like a woman a couple of
woman said this to me a few years back
it never even occurred to me that I
could be a doctor until I read IR Rand
and I said I'm going to go to medical
school and so she has that really
intense impact on people so she thought
of herself as rational she thought of
rationality as kind of what she was
doing but she was actually doing a kind
of mytho mythopoetic psychological work
as well whereas fredman on the one hand
was much more rational there's a whole
set of economic thinking and he provides
a rational framework for understanding
the world and it's the framework of you
know neoc classical economics at the
same time he does pull on mythologies
you know of the idea of America and the
Gilded Age the frontier mythology the
individual immigrant the settler
mythology he pulls on these but he
doesn't create them and they and they
are he's more kind of playing a tune he
already has uh whereas I think ran
really does something a little bit
deeper and her ability to reach into
people's psyche and then take that
emotional
psychological experience and fuse it to
an intellectual world and a political
world and that's really what makes her
so powerful and so I think she comes
back in to relevancy in a different way
than fredman does because I think in
some way she's tapped into a kind of
more Universal human longing for
Independence and autonomy and kind of
self-creation and
self-discovery nevertheless there are
still pragmatic ideas that uh are still
important today for Milton fredman even
just on the economics level so let's dig
in um let me try I took some notes let
me try to summarize who Milton fredman
is and then you can correct me yeah okay
so he is uh widely considered to be one
of the greatest and most influential
economists in history not just the 20th
century think ever he was a an advocate
of economic freedom like we said and
just individual freedom in general he
strongly advocated for free market
capitalism and limited government
intervention in the
economy though you do give I've listened
to basically everything you have on the
internet you give some more depth and
Nuance on his views on this and in your
books he uh led the famed Chicago School
of economics and he won the Nobel prize
in economics in
1976 he greatly influenced economic
policies during the Reagan
Administration and other administrations
he was an influential public
intellectual highly influential not just
among economists he lived 1912 to 2006
so that means he lived and worked
through some major world events where
his ideas were really important the
Great Depression with the New Deal World
War II with the postwar reconstruction
the rise and fall of the Breton Woods
monetary system as we may talk about the
Cold War and all the conflicts involved
in that sort of the the tensions around
communism and so on so the fall of the
Soviet Union and also he has some
interesting relationships to uh China's
economic transformation yeah since the
1970s the stack flation of the 1970s and
I'm sure there's a lot more
so uh can can you uh maybe continue this
thread and give a big picture overview
of the ideas he is known for yeah sure
and that's a great summary uh you learn
you learn fast so let me start with the
economics and and then I can kind of
transition to how he used those economic
ideas to become a real voice in the
American conservative movement in the
American political realm so I'll kind of
highlight
four ideas or contributions or episodes
um one was his work with Anna Schwarz in
revising our understanding of the Great
Depression and that's tightly related to
the second which is the school of
monitorisation of stagflation and the
explanation of that in the 1970s which
really is one of these these sort of
career making predictions and we can dig
into that and then in terms of technical
economics he's known for for the
permanent income hypothesis which he
develops with a group of female
collaborators that I can talk about so
those are kind of four technical pieces
and up being really brought together in
what becomes The Chicago School of
Economics he's he's undoubtedly the head
in the leader of The Chicago School of
Economics there's an earlier generation
that he learns from there's his
Generation Um there's also a Chicago
School of Law and economics that's
really profoundly influential and then
there'll be kind of a third generation
that he's somewhat distinct from but
that goes on to really shape economics
but let me go back to these kind of four
pieces and let me start with Great
Depression so Milton Friedman actually
lives through the Great Depression he's
in college when it hits and he is so
he's in college it's 1928 to
1932 and he's aware of the depression
and he's deciding should I study mathem
itics or should I study economics and he
hasn't he's had some good economics
teachers but it's really the context
it's looking around at the slow you know
dissolving of economic Prosperity so he
decides to go to Chicago he decides to
study economics and what's really
interesting is that the Great Depression
is so unexpected it's
unpredicted um it's unprecedented and
economists are really struggling to know
how to respond to it and so he's going
to arrive at the University of Chicago
when the field it's is struggling to
know what to do so he's in this kind of
really open space where the the
institutional economics of the
1920s has failed to predict which was
focused on business Cycles this is the
irony their big thing was charting and
understanding business cycles and then
we have the biggest business cycle of
all time and they haven't seen it coming
and they don't have a good explanation
for it and um what he will get at
Chicago
is the remnants of the monetary
understanding of the economy and so his
teachers they don't know exactly what's
going on but they look first to the
banking crisis they look first to the
the 1933 it's you know Bank runs
failures of maybe it's up to a third of
American Banks it's hu thousands of
banks are failing per week so they are
focused on that so that's the first kind
of imprint he will have the Great
Depression has something to do with a
banking system the second imprint he
will have is that all of his professors
are profoundly concerned about the
social crisis they want relief programs
they want them now they want Bank
regulation and financial reform they're
very active this is not Les a fair by
any stretch of the imagination so
Freeman has that imprinting and then
about so that's he gets there in
32 36 37 the ideas of John manard Kes
from Britain which has a different
explanation canes has a different
explanation of the Great Depression will
kind of make landfall in American
economics and be very profoundly
influential on most American e
economists but fredman already it's too
late for fredman he already has a
different perspective so keynesianism
unfolds I can say more about that but it
basically leads to more active federal
government participation in the economy
and what underlies a lot of that it's at
adaptation in America particularly is
the idea that
capitalism has failed capitalism has
revealed itself to have a profound flaw
in that it's two it's its cycles of boom
and bust create social instability chaos
it needs to be tamed it needs to be
regulated and so that becomes the the
kind of Baseline of politics in the
United States the understanding of the
New Deal the understanding of the
Democratic Party even to some extent the
understanding of the Republican party
and fredman never
quite never quite sure about that he has
a hunch that there's something else
going on and he does not buy that
capitalism has sort of ground to a halt
or the other idea is that capitalism has
gone through some sort of phase
transition and it worked great maybe
while we had a frontier this is a very
serious argument that people were making
United States used to have a frontier a
place where you know Europeans hadn't
fully settled of course they're pushing
out the native tribes that's another
story but that this Frontier is the
engine of economic growth and the
frontier is now over it's closed and
we're going to stagnate there's a theory
of secular stagnation and so to deal
with secular stagnation we're just going
to have to have a more active state so
fredman is suspicious of all these
assumptions and he has this idea that is
something to do with money money is
somehow important and so he it joins
together with Anna Schwarz who is uh an
econom she doesn't at this time hold a
PhD she's working for the National
Bureau of economic research and they
come together to do the study of money
in the US economy and it takes them 12
years to write the book and and they're
releasing their ideas and they're
arguing and fredman is writing papers
giving talks saying money is really
important um and nobody's really
believing him he's a crank he's at
Chicago he's out you know Chicago is a
well-known University but he's sort of
considered a crank and then in ' 63 he
and Hest Schwarz published this book and
it's you know 800 Pages it's a
reinterpretation of the history of the
United States through money like the
central character is money whether it's
spec Greenback or the US currency and
they have a whole chapter on the Great
Depression and they what they've
literally done Schwarz has done most of
this they've gone Schwarz has gone to
Banks and said show me your books and
then she's added up column by column how
much money is in your Vault how much
money is on deposit how much money is
circulating and so they literally have
graphs you can see them in the book of
how much money has been circulating in
the US at various different points in
time and when they get to the Great
Depression they find the quantity of
money available in the economy goes down
by a third and in some ways this is
completely obvious because so many
banks um have failed and we don't have
any type of B Bank Insurance um at that
point so if your bank goes under your
savings are there the money essentially
vanishes and it's fractional Reserve
banking right so you've put in they can
loan up to 90% off on their deposits and
so fredman and Schwarz present this
argument that what really made the great
depression so bad was this drop in the
amount of money the 30% drop in the
money they called the Great contraction
and then they go further and they say
well how did this happen and why and
they pinpoint the Federal Reserve which
is a fairly new institution at that time
and they say what did the Federal
Reserve do the lender of Last Resort
what did it do in the face of what
they're depicting is a massive
unprecedented liquidity crisis and they
find it's not really doing much and they
really dig into the details and they
find that the the the Federal Reserve
has gone through a sort of personnel
change and some of the key leaders in
the 1920s Benjamin strong is one of them
he's now deceased and the dominance of
the New York Federal Reserve which in
their telling you know is Global it's
interconnected it's seen a lot of
financial things come and go and they
believe that the New York fed had the
understanding to recognize this is a
liquidity crisis we should be very
generous we should support all the banks
their influence has diminished for the
kind of uh banks that are more um they
don't say like the Rubes and the Hicks
but it basically is it's like the people
in charge don't know what they're doing
and so the FED pursues this kind of
policy of masterly inactivity they don't
see it as their problem they don't do
much there's an enormous liquidity
crisis and that's their version of what
the Great Depression is all about that
it's a financial system meltdown it's a
liquidity crisis and that it in some
ways well in many ways they they argue
very strong counterfactual argument the
Federal Reserve could have prevented it
and it did not and so it becomes then an
Institutional failure and a political
failure not a failure of capitalism as a
system and so this book comes out it's a
blockbuster and even those economists
you've been like Freedman is a crank I
don't buy it are like Freedman and
Schwarz are on to something Milton
Freedman on a Schwarz are on to
something and so that really changes the
game and this is also one of his most
influential contributions because
Freedman and Schwarz becomes the
playbook for the Federal Reserve and we
have lived through this this right the
financial crisis the Federal Reserve is
ready to loan Co the Federal Reserve
does all kinds of new things because no
Federal Reserve chair wants to be in
Freeman Schwarz 2.0 that somebody writes
or they're the bad guy who let the
economy melt down so you know the
specifics of what they say to do have
obviously evolved as the system has
changed but this is this is a playbook
for how to deal with economic crisis
it's Freeman and Schwarz and so it's
absolutely fundamental and that is
really going to be the place he makes
his Mark there's a lot of things to say
here uh so first the book we're talking
about is the a monetary History of the
United States in part for which milon
Freeman won the Nobel Prize uh you've
also mentioned the influence of the
Great Depression if you could even just
rewind to that yes so he went to I guess
College in ruter that's right and he was
uh you know mathematical proclivities so
he was kind of wanted to be a
mathematician
and so it's it's kind of a cool
Crossroads um it's interesting how the
right time the right person arrives
right so you described this really well
that so he had the choice to be a
mathematician or an economist and
Economist is University of Chicago
mathematician is Brown University
whichever and
then uh this is also the beginnings as
you've described of mathematical
economics so he fits in nicely into this
using what I think you said the number
of equations started going up per paper
which is a really nice way to put it so
really the right person at the right
time uh to try to solve this puzzle of
the economy melting down it's so
interesting just one human it it's just
from uh just zooming in on know a single
human making a decision about life and
it's it's hard to know when you're in it
that the world is melting down from an
economics perspective and that I could
do something about this to figure out
what it is and also I'm going to reject
the mainstream narrative about why this
happened yeah so uh the other piece of
the puzzle when he goes to recers he
thinks he'll be an actuary so Milton
freedman's family his parents are
immigrants Jewish immigrants from
Eastern Europe they're pretty atypical
and that they don't stay in New York you
know and and they move to raway New
Jersey and they put together a fairly
middle class life as kind of they have a
shop they do some wholesale buying and
selling and then his father dies when
he's 16 his life becomes more precarious
um but it's never as precarious as he
makes it out to be he's got three older
sisters they earn a good living
incidentally they all have better grades
in high school than he does but he's the
one that goes to college and um but it's
actually really important that he loses
his father figure because he's then
looking for other father figures and he
meets two at Ruckers one is Arthur Burns
who will go on to have a huge influence
in his career no relation to me by the
way but um Arthur Burns is like him a
fellow Jewish immigrant boy on the M
he's older um and he's making a career
as an economist and then there's Homer
Jones who has gone to the University of
Chicago and is studying with Frank
Knight at Chicago and says you have to
go to Chicago so he has these two
mentors and and burns in particular
suggests oh I could be an economist that
could be my career path you know the
idea to be an actuary for an insurance
company I'm not sure where he got that
idea but he just thought that was
something he could do as someone who was
good at math and so the college really
opens the the perspective opens the door
um and then I think it's really key that
again he's he doesn't get um he doesn't
get an explanation that he buys for the
Great Depression so then he's looking
for one and the math part is really
interesting aspect of his career now
he actually comes to Chicago to study
with the mathematical
Economist Henry Schultz but he gets
there and he thinks Schultz is kind of
dumb he really does he's incredibly
arrogant and he he just thinks this
guy's not that smart and it seems that I
mean Schultz did some really important
work in the early stages of mathematical
economics but a lot of the oral
histories about him are like yeah he
wasn't that bright you know so fredman's
maybe
so he falls into the set of students who
were really enthralled with his other
Professor Frank Knight and Frank Knight
is against math and economics um Frank
Knight is like you know a neoclassical
Economist but not a mathematical
Economist he's an old school liberal
he's really concerned about liberal
democracy um economic liberalism and and
fredman is very deeply influenced by
Knight and he continues to pursue
mathematical economics so he'll go for
part of his graduate career he goes to
Columbia University where he actually
gets his PhD from and he works with a
mathematical Economist there and so he
comes out trained in what will
eventually be
econometrics statistics and economics
his early Publications or in statistics
but it's not really where his
intellectual heart and soul are and
eventually he will turn very profoundly
against mathematics in economics and
become a sort of heterodox Str
throughout 20th century economics that
says simple models are better um we need
to work on empirical work off empirical
data not construct elegant models and um
and becomes really sort of
countercultural within economics in that
way and the test of a good model is it
should actually predict stuff that
happen it should predict stuff that
happen it should tie back to what's
going on I'm wondering which direction
to go so first actually if we could zoom
out on the different schools of E
economics yeah just the basics you
mentioned neoc classical we mentioned
kenian economics we mentioned uh what
else did we mention well The Chicago
School of Economics right where does uh
Austrian economics fit into that pile
and marxan economics and can we just
even just linger and try to redefine
kenian economics and Chicago School of
economics and neoclassical economics and
um Austrian economics because they
there's some overlap and tension okay so
schools of Economics so we could start
with classical economics classical
economics we could think of Adam Smith
is kind of your classic classical
Economist the founder of the discipline
classical economics does not really use
math is very close to political economy
it's concerned um with as Smith puts it
The Wealth of Nations it's concerned to
some degree with distribution it's
concerned to some degree with what makes
a good political system
and what tends to really
Define classical economics when you're
looking from a great distance is What's
called the labor theory of value so
where does value come from in classical
economics it comes from the labor that a
person puts into it so maybe this in
some ways a comes from Lock's notion of
property that you kind of mingle you
know your labor with the natural world
we can say labor theory of value so
classical economics concerned with um
Smith is arguing against mercantilism
for more free trade um often goes by the
name of political economy to show it's
more capacious it's thinking of politics
and economics um you can still read
these books today the sentences are long
the words are different but you can
still follow along so the real big
transition from classical economics and
political economy to economics as it's
understood today comes with the marginal
Revolution and the marginal Revolution
is a scientific revolution that happens
in a couple different places
simultaneously right this is one of
these things that you see in the history
of science like you know there'll be
some breakthrough like Darwin has a
breakthrough but like somebody else has
sort of the same breakthrough at the
same time you totally you know
differently so there's a version of
marginalism that's um Continental there
you know there's a version in the German
speaking lands in F in the French
speaking lands and in Britain and they
all kind of come together and the
shift is in the theory of value so the
theory of value in marginalism is on the
margin so say you have one apple and you
want a second one how much is getting
going from one apple to two Apple worth
for you probably quite a bit if you had
10 apples maybe going to 11 apples
doesn't matter that much the marginal
value is less so what marginalism do
does though most importantly is it opens
the door to math and economics because
it means you can graph this now you can
depict this
relationship
graphically and there's some really
interesting work in the history of
Economics that shows a lot of the people
who developed
marginalism were looking to physics as a
model physics the queen of the sciences
and so they were
thinking they they imported terms from
the natural world describe the social
world through the lens of Economics
terms like
equilibrium um so the idea being that if
you looked at a market uh a market would
reach
equilibrium um you know when everybody
is bought and sold all that they want or
the price will settle at an equilibrium
price when it's really the demand and
Supply are matching up and some of these
ideas are things we would pick up at a
microeconomics class oh yes ex this is
still out there this sort of the basic
Foundation of microeconomics marginal
analysis and so in the German speaking
intellectual tradition this is the root
of Austrian
economics and people picking up the
marginal revolution in the German
speaking lands are opposed to the
historicists um who are thinking in a
more evolutionary way about how
societies kind of grow and change and
they have a vision of economic ideas as
applying differently to different types
of social Arrangements where the
marginalists remember are inspired by
physics and this is a set of natural
laws that applies anywhere to any sort
of human society so that's this first
really big fisser that we'll see again
and again are you historically minded do
certain traits of economic life um
inhere adhere and become expressed in
certain types of Societies or are there
Universal economic laws that flow
through any type of society so that's
kind of a juncture a break and so
marginalism first people start using
really geometry to kind of graph things
but marginalism is also opening up to
the possibility of calculus and the
possibility of creating models but at
that point in time late 19th century a
model is something like a physicist does
like think of like an incline plane and
how fast does the ball roll from one to
the other it's a physical representation
of the world and eventually economists
will start to create mathematical
representations of the world but we're
not quite there yet so we're late 19th
century we have this we have this Fisher
we have this introduction of marginal
analysis that marks the the juncture
from classical economics to economics so
let's say now we we have economics but
we still have this fisser between
historical thinking and let's call it
you know natur natural law thinking
that's not quite right but physical laws
versus
contingency um and then in the United
States this ends up mapping onto debates
about capitalism and so more
historically minded
economists um tend to be interested in
the Progressive Movement and which is
invested in taming and regulating
industrial capitalism and changing its
excesses you know um Factory safety laws
wage laws working conditions laws um yet
in general American economists all use
marginal analysis just in different ways
the ones who are more drawn to marginal
analysis become known as neoclassical
economists they're neoc classical the
Neo is because they're using marginal
analysis the classical is because they
don't think we need to change the way
the economy operates or the government
operates they're not Progressive whereas
the progressives are saying things
like the we need to use um social
control uh the the state and the people
collectively and democratically need to
control uh the way economics unfolds and
and make sure things are fair and equal
so that school of thought becomes known
as institutional economics in the United
States by the 20th century so it's part
of the Progressive Movement late 19th
century into the 20th century it really
becomes institutional economics and it's
quite dominant and the neoclassical
economists are still there but they're
very much a minority and Frank Milton
freedman's teacher is one of the
minority neoclassical economists and the
institutionalists are much more
Progressive um still is it fair to say
that the neoclassical folks and even the
classical folks versus the institutional
economics folks it's they have a
disagreement about how much government
intervention that should be in the
economy so neoclassical is less
intervention and then institutional
Economist the progressive folks as more
intervention yes yes exactly right so
this is the situation in the
1920s but um the other piece I should
mention is the first generation of
progressive economists were very radical
they were took closely allied with the
Socialist movement with labor radicalism
and many of them lost their jobs at
universities this is kind of connects to
the early the dawn of academic freedom
this is before academic freedom and they
became they were chasing they became
much more mainstream by the time we get
to the 1920s we don't really have
radical critiques of society coming from
economus much smaller profession much
less important than it is today and
barely peaceful because the 1920s are a
fairly peaceful decade in the United
States so this is a situation when the
Great Depression hits and as I mentioned
before the head the kind of most
important institutional Economist is
Wesley Mitchell and he has said he's
he's written a whole book on business
Cycles but he doesn't see this business
cycle coming and it hits and he doesn't
have a good explanation for it now
perhaps the preeminent neoclassical
Economist was Irving
Fischer now Irving fiser is big into the
stock market and Irving fiser says
sometime in late summer
1929 stocks are going ever higher and
will continue to go ever higher forever
and so
he loses his reputation after the stock
market crashed so so mil and Freedman is
stepping into a field in which the
greats have been discredited and there's
an enormous economic crisis all around
and everybody's struggling to figure out
why the crisis happened yes and the
other thing he stepping into is a world
where in the United States there's a
great deal of anger at capitalism at the
system unemployed people on the street
in Europe there's Rising fascist
movements in Asia there's Rising fascist
movements and so everyone's very
concerned about this and fredman is
seeing a lot of this through the lens of
Frank Knight who feels like we are maybe
reaching the end of what he calls
liberalism he calls himself an
oldfashioned liberalism we're reaching
the end of Representative democratic
government because representative
democratic government cannot solve these
social problems and it h and capitalism
as it has developed Knight is very Pro
capitalist but he says it's generating
inequality and this is putting too many
strains on the system so Knight will
become one of the people who helps
fredman think how do I develop a new
theory of
capitalism that works in an era of mass
democracy where people can vote and
people can express at The Ballot Box
their unhappiness with what's happening
economically so this this larger
movement will generate of which fa hyek
is a part fredman is a part becomes the
very early stirrings of trying to think
about a new sort of liberalism which
will eventually be called neoliberalism
okay so if we can just Linger on the
definitions of things so we mentioned
what neoclassical is and the
institutional economics is what's Kenzie
in economics and The Chicago School of
Economics I guess is a branch of
neoclassical that's a little bit more
empirical versus maybe model based and
kenian is very model model heavy more
intervention of government yes and
there's a that's so the real battle is
Kian versus everybody else that is what
eventually comes to pass in the United
States and in the kind of overall
developed the kind of developed
profession of Economics the other piece
of the puzzle here is the introduction
of mathematics and it's been around the
edges um but it will pick up speed in
the 1930s like the econometrics uh
Society has founded they start
publishing
um people start using more statistical
and mathematical tools to think about
economics and they're given a boost sort
of inadvertently by the rise of
Keynesian economics so so kees is
trained in the neoclassical tradition um
he's a absolutely fascinating figure
he's been there in the peace
negotiations at Versa he basically calls
World War II he's like hey we're gonna
have another War here caused by Germany
because this peace treaty has been you
know done in such a vindictive way and
people have made such bad decisions he's
there he sees it happening and so when
um the Great Depression unfolds he
basically comes up with a new theory for
explaining what's going on and the
previous neoclassical understanding is
sort of things go up and things go down
and when they go down there's a natural
mechanism to bring them back up so when
the econom is going down prices are
going down wages are going down
everybody's losing money but event firms
are going to realize hey I can hire
people cheap hey I can buy stuff cheap I
don't have a lot of competition maybe I
should get in the game here and then
others will start to get in and then you
regenerate prosperity in that way and so
Kan
says sure that's one Theory but
something different is happening right
now part of why it's happening is
because we have work the working class
is more empowered now they're not simply
going to just take low wages and ride
them down to the floor we might not hit
the floor but also he says people might
become too anxious to spend they might
not want to invest and you know canes
has these discussions of animal spirits
right he's still enough of a political
Economist to think not just in terms of
human rationality but what are some
other things going on in human beings
and people might decide to sit on their
money they might not invest it and so
what happens then is you could get stuck
in a bad equilibrium so in the
neoclassical model the equilibrium kind
of restarts and resets itself and he
says no we could get stuck here we get
stuck in the depression and in that case
what has to happen he says the
government stimulates investment and the
government itself invests and then he
argues that you know uh this is a
student of his Richard Khan says you
know as a government invests a dollar it
has like a multiplier effect a dollar
spent by the government kind of ramifies
out throughout the economy so it takes
the government and puts it in the center
as opposed to say the banking system or
the financial system which would be the
more fredman analysis and for many
economists of fredman's generation and
he's a weird generation because it's
it's the the generation that becomes
dominant it's just like four years older
the men who become keyy in economics but
that four years is really important
because they come in to gradate school
in economics and they get exposed to the
new ideas of John May AR kanes and they
you know I think it's PA Samson calls it
like it was like a south sea virus that
that attacked all of the young all of
the younger economists immedately
succumbed and like no one under 50 ever
got the disease right because their
their thinking is already set and so um
keynesianism KES himself is very
suspicious of math and economics and and
he and fredman is fascinating one of the
first books by Yan tingman a Dutch
Economist to use math and economics
these huge volumes volume one um KES
pans it volume two fredman pans it so
they're they're in the same page but
what happens is as keynesianism arrives
in the United States Franklin Roosevelt
is not really a Keynesian he's kind of
an an accidental or experimental
Keynesian Keynesian and there's a bunch
of different ideas in the United States
that that are very similar to
keynesianism they're not theorized but
there similar ideas that the government
has to do something so this all comes
together and and American economists
realize that you can construct models in
the Keynesian perspective and if you can
use numbers in these models you can go
to Washington DC with
numbers and you seem like you have a you
have a lot more Authority and so math
becomes really twinned into Keynesian
economics so numbers are used as a kind
of uh um a symbol of expertise we we
really know what the hell is going on
because we have some numbers right right
and we can create a model and so we can
say okay in the model the interest rate
is here and taxes are here so let's play
with government spending let's make it
up let's make it down and then we can
get an estimation it'll spit out here's
predicted GDP so the other piece of the
Keynesian Revolution is it really gets
people thinking kind of holistically
about the economy as a one conceptual
unit and you then
have what Paul Samuelson will end up
calling the neoclassical synthesis and
this still in economics today if you
take micro you're going to get supply
and demand scarcity marginal analysis if
you take macro you're going to get a
very different approach and that's more
Keynesian based and so the idea is that
and this makes sense I mean you can
think of this from statistics right the
way things act individually versus when
they're all added together can be very
different so so there's this kind of
uneasy piece where economists are using
kind of neoclassical tools to analyze
individual behavior and individual
Market behavior and they're shifting to
a different Paradigm when they think
about the economy as a whole and in this
Paradigm of the economy as a whole the
federal budget the taxing and spending
power of the federal government become
Paramount and that is called the fiscal
Revolution and that's really the essence
of keynesianism but the key thing to
remember is that keynesianism and Canes
are different and there's this famous
episode where John manard kees comes to
DC and he goes to dinner and he comes
back and he says to one of his friends
in London he oh yeah it was really
interesting I was the only non-c in
there yeah you know uh so keynesianism
is more government intervention fiscal
policy so put the government at the
center of influencing the economy and
then the different flavors of whether
it's Austrian economics or Chicago
School of Economics is saying no we have
to put less government intervention and
Trust the market more and and the
formulation of that from Milton Friedman
is trust the money more the the not
trust but the money supply is the thing
that should be focused on yes so so the
austrians and the Chicago schools see
economic prosperity and growth comes
from Individual initiative individual
entrepreneurship kind of private sources
the private Market is what drives
economic growth not the public sector
and so for fredman then the question is
what is a government's role and because
he's lived through the Great Depression
he's not Les a fair and he won't ever be
Les a fair now interestingly hyek living
through the Great Depression at first is
Les a fair and he's like sure like let
it rip and things get so bad that
Hayek's like okay that's not going to
work can we actually define l a fair so
what what do we mean like what's the
free market what's Le Fair what's what's
the extreme version here so yeah Le fair
means leave a be in France it's more
often used as an insult than as an
actual um very few people are completely
and totally Le a fair that would be like
the pure Le Fair would be the sort of
pure maybe pure Anarchist position like
the state does nothing or the state
isn't even there um but it tends to if I
could maybe make it more precise it
would be focused on freedom of contract
would be essential and that means um
like the the buyer of Labor and the
seller of Labor must have absolute
freedom to contract so that means no
minimum wage law no working hours law um
no employment law things like that that
that was and this is all pre-
Progressive movement a lot of things are
that way right you you know imagine
you're in 19th century America and you
have a farm and you hire someone to help
you on the farm you offer the money they
take it if they fall off a ladder and
break their back maybe you help them out
maybe you don't right but there's not a
whole apparatus of legal liability and
safety and things like that um so that
would be one piece another piece of Le
Fair would be free trade amongst Nations
um so no regulation of who can invest in
a nation or who can take money out of a
Nation so nepon steel could come and
invest in US steel and there would be no
grounds in which to reject that um or
you could as a billionaire in the United
States relocate you and all your money
to another country and the United States
couldn't try to keep you and and nobody
else could stop you from coming in um
and so and then in the context of
economic crisis Le Fair would would
not Encompass centrally provided relief
because in the pure Theory again very
seldom applied purely but in the pure
Theory the wages need to come down far
enough and people need to be desperate
enough to start taking work and to start
the machine again so the theory would be
if you give people relief they might not
go back to work now almost nobody says
that in the Great Depression because the
situation is so bad
and it's it's you know people are
starving on the street and feel for
humanitarian ethical reasons it's not
okay to say that the austrians though at
first Hayak and Lionel Robbins are like
this is a business cycle and it needs to
run its course and it will be
detrimental if we intervene and then
pretty soon Hayek has to change his tune
so the austrians are the most hardcore
in terms of Li Fair absolutely and so
Hayek will make the turn towards
accepting more of a state and then we'll
come to talk about how the state needs
to support what he calls a competitive
order but his mentor lud vanon mises
Still Remains very hardcore and is not
um really open to things like
unemployment insurance or um other other
state-based interventions what does vona
say about like human suffering that's
witnessed in the Great Depression for
example like what are we supposed to as
economists as humans that Define policy
see what are we supposed to see when
people are like suffering at scale yeah
I wish I knew an answer that question I
don't know enough about Von misus and
and his reaction in the Great Depression
I think I would Hazard that he
would look more to the down the road and
say well if you start here you're going
to go places that are are bad but I I
don't I don't factually know what he
said in response I do know that hak's
position doesn't last very long it's not
it it's not a position you can hold to
maybe you could hold to it in other
Cycles the other thing that was
interesting is I found very few
Americans um saying this it most who
were were kind of small town electeds or
the most famous is Andrew melon quoted
by Herbert Hoover so so not directly we
don't have him on record saying this but
apparently Hoover records in his Memoirs
that melan said something
like liquidate real estate liquidate
stocks you know Purge the rotness out of
the system people will live a healthier
life and certainly t