THE FRIEDMAN INVENTIONS
Tyler, Gus
In a persuasive tract, Free to Choose (Harcourt Brace Jovanovich, 1979), Milton and Rose Friedman propound an economic system that does not exist, never has existed, and is unlikely ever to...
...The machinery for the epochal changes . . . was a government formed from the ablest, most self-sacrificing of clan bureaucrats...
...Utility bills: can we "import" gas, electric, and phone services...
...The most effective way to counter it [the danger of monopoly] is not through a bigger antitrust division at the Department of Justice or a larger budget for the Federal Trade Commission, but through removing existing barriers to international trade," recommend the Friedmans...
...But, even with these positive "socialistic" traits, the proposal calls for closer scrutiny...
...They entered a gentlemen's agreement that freedom should not flourish anywhere in Europe...
...Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment...
...Ridiculous, argue the Friedmans...
...To check the power of the South, which had managed to push through lower tariffs in 1842 and 1846, the North resolved to block the "admission of any more slave states" (in John Blum, et al, The National Experience...
...In Japan the concentration of capital . . . was accumulated by the government policy of subsidy and artificial encouragement...
...a select clique of financiers was subsidized and encouraged by the same government...
...Smith tells why...
...These global companies do their manufacturing in other lands—through wholly owned subsidiaries, Contractors, joint ventures, and so forth...
...At a later point, the government decided to divest itself of certain enterprises: primarily those that were not most immediately defense-connected...
...The Friedman formula—sue 'em—is hardly their invention: American courts are flooded with "malpractice" cases against companies, schools, cities, doctors, lawyers, accountants, even parents...
...second, that the peace was founded on free trade...
...The period from 1871 to 1914 is generally tagged as "The Age of Imperialism...
...But, whoever imagines, upon this account, that masters rarely combine is as ignorant of the world as of th . subject...
...Barking Cats" is a charming concept the Friedmans propound, in which they assert that social institutions, like biological species, do not violate their nature...
...so the government with the aid at first of goyokin (loans) from these same magnates, and together with its limited revenues, chiefly] . . . land tax, had itself to develop industry...
...Early in The Wealth of Nations, Smith rails against the eternal efforts of the "masters" to conspire against both employees and consumers and, in searing passages that the Friedmans do not quote, Smith exposes the slick ways in which the masters gave the impression that their victims were the truly guilty parties...
...What had happened was that those "who live by profit" had amassed a disproportionate portion of the nation's money in their hands through methods that Adam Smith described so clearly...
...The Friedman solution: do away with the commissions...
...The New Deal program was based on a simple assumption...
...And since no entrepreneur who "intends only his own gain" will continue to turn out products for which there is no foreseeable market, production slowed and halted—to bring on recession and depression...
...and, if his "hands" organize to balance the bargaining process—to make it a bit more "voluntary" he will appeal to the government to outlaw such a conspiracy of the "necessitous...
...The crisis was overcome by direct federal aid and by formation of a monopoly—measures apparently so abhorrent to the Friedmans that they simply refuse to mention them...
...Finally, one wonders how this book has managed to become a best seller...
...The diagram of this laissez-faire Elysium is drawn so cleverly that a man from Mars would find it almost faultless...
...Voluntary" means no governmental compulsion...
...Sooner or later, in defense, we learn to do as the Japanese do—for that is far cheaper than growing unemployment, costly unemployment insurance, lengthening relief rolls, loss of income, rise of disease, crime, death...
...Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages above their natural level...
...Although the Friedmans refer to British life in the 19th century as a "golden age," the gold of the Empire did not drip down generously to Britain's working classes...
...In 1867, the Shogunate (the military dictatorship) that was the real power in the land, based on the feudal Daimyos and using the emperor as a puppet, was deposed by the lower Samurai, ambitious members of the warrior class who were not part of the establishment...
...Hong Kong police merely make cursory passes through the area...
...After all, the bank failures were not the cause of the crisis but the result of a downward turn in the business cycle...
...In deference to the pending election and to farmer sentiment, Congress lowered most duties by 10 percent in 1872, but even then many rates, which in the time of Henry Clay had stood at about 25 percent, had climbed to 500 percent, and industrialists were not yet satisfied" (Blum, p. 387...
...They are animals whose character depends on who 288 inhabits their skin...
...More often than not, such producers will get government subsidies (or they will sell in their own closed market at inflation prices) so they can "dump" profitably on the American market...
...It comes from an 285 order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it...
...The lead story reads: Many young workers in Hong Kong, especially those employed in the smaller factories that dominate every local industry, work in cramped, unhygienic and dangerous conditions that would not have surprised Shaftesbury or Dickens...
...Metternich crushed revolutions in the Italian states of Romagna, the Duchies, and Bologna...
...In the long-run, the workman may be as necessary to the master as the master is to him, but the necessity is not so immediate...
...Within the city is the] Walled City, a virtually ungoverned town of 30,000 people crammed into 21/2 acres of squalor...
...Smith then goes on to tell why the masters can "force" their workmen into bad bargains: It is not, however, difficult, to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms...
...Second, many companies, especially those in a monopoly position, may simply decide to continue polluting full force and to pass on the cost to the consumer...
...While it may be true that the ICC has fallen into the hands of the railroads and the truckers, it is not true that FTC has fallen into the hands of the funeral directors and insurance companies...
...They get cheap TV sets or automobiles or whatever it is that is subsidized...
...What are the facts...
...The Friedmans' "free trade" was England's peculiar form of 19th-century mercantilism imposed on the other "advanced" countries of Europe...
...The agreement was that the monarchs of the world would unite, lending their troops to one another, to make sure that the peasants and proletarians down below would remain down below forever...
...That's silly, of course...
...By 1914, the Powers were empires: British, French, German, Dutch, Belgian, Russian, Italian...
...The bench is being drowned under the onrush in many states...
...The war over the tariff became the continuing bone of contention between North (proprotectionist) and the South (antiprotectionist...
...What shall we import: land from abroad or cheaper mortgages...
...That sine qua non of capitalist society—the Friedmans' beloved market—was weak and getting weaker...
...In all such disputes, the masters can hold out longer...
...The sale of some industries to private entrepreneurs, points out Norman: [did not divide] Japanese industry into two sharply defined groupings, the one related to the armament industries where government control was maintained, and the other embracing all the remaining non-strategic industries which were suddenly to be exposed to the vicissitudes of pure laissez faire...
...The colonialization of China, Africa, India, Indochina, the Near East were all treated as "minor" matters—although the process involved the enslavement of hundreds of millions of people...
...that is to say that the government retained paternalism as before, both in the military and non-military enterprises after the sale of government factories, but in a form appropriate to each of these two sectors of industry...
...Yet, if the Friedmans envision a capitalist system in which capitalists will NOT behave as Adam Smith said they would, then the Friedmans must also expect that cats will bark...
...And this is the economy that the Friedmans cite as the dramatic example of "free markets...
...That war was won by the North, not the South...
...As another story in the same issue puts it: If the workers in the factories are poorly protected, even less protected are the thousands of home workers on whom both foreign and local companies rely for sewing dolls' clothes and assembling or painting small toys like 279 soldiers or rubber animals...
...Banking capital [notes Norman] while growing out of all proportion to industrial capital, by the end of the 19th century gave a striking example of concentration, in this way continuously strengthening the position of the financial oligarchy or Zaibatsu...
...but many against combining to raise it...
...In 1845, the American observer Coleman wrote of Manchester: "Wretched, defrauded, oppressed, crushed human nature lying in bleeding fragments all over the face of society...
...This proposal is not altogether without merit, albeit quite inconsistent with the essence of laissez faire, since its enforcement would require close government inspection and the imposition of a punitive tax to direct social policy...
...They wanted cheap food for cheap labor and cheap raw materials for their mills and factories...
...To get the economy back on its feet, Roosevelt used the taxing and borrowing power of government to put people on public payrolls, to encourage higher wages, to provide unemployment insurance and social security, to invest in needed programs that the private sector shunned—to "expand aggregate demand...
...With their newly found monopoly position, they then proceed to raise the price as any monopolist would...
...But if there were no major clashes among the great powers in the years 1815-1914, it was primarily due not to free trade (that, as we shall see, hardly existed) but to the decision of the Powers—Austria, Russia, Prussia, and France, with the blessing of England—to close ranks in a war, armed war, against freedom, a principle that the Friedmans allege to value highly...
...Its essence was not to grant freedom but to deny liberty—even and especially to peoples who before the arrival of the imperial conqueror were somewhat "free to choose...
...Roosevelt also informally authorized the acquisition of the Tennessee Coal and Iron Company by U.S...
...The distinction to be made is rather in the different forms of paternalism adopted by the government after 1880...
...Masters too sometimes enter into particular combinations to sink the wages of labor even below this rate...
...Theodore] Roosevelt acted forcefully [in 1907]," records John A. Garraty (The American Nation...
...Economic recovery would very likely have begun in early 1931, just as it 289 had in early 1908...
...1815—the year of Waterloo—was also the year of the Congress of Vienna, Metternich's mechanism to make certain that Europe would never again be plagued by a Napoleon, the bastard child of the French Revolution...
...They simply want "government" out of the act, so that those "who live by profit" may go their uninhibited way...
...Pantheon, 1975...
...The Friedmans do have a second weapon in their arsenal against monopolies, in particular those that derive from government agencies that set prices and control admissions to the trade...
...A landlord, a farmer, a manufacturer, or merchant, though they did not employ a single workman, could generally live a year or two upon the stocks which they have already acquired...
...Although the Friedmans make no reference to these conditions, they are obviously aware of the miseries of the masses as detailed in the writings of Charles Dickens...
...Instead of requiring firms to erect specific kinds of waste disposal plants or to achieve a specified level of water quality in water discharged into a lake or river, impose a tax of a specified amount per unit of effluent discharged...
...Now a few facts on the Meiji Restoration...
...not merely to discourage foreign competition but to eliminate it...
...There also were wars of nation against nation, despite the original hope at Vienna that the Powers would try to avoid any discord that might unleash revolution...
...Although the masters are generally the tyrants and their workers the tyrannized, the public somehow gets a contrary impression...
...In a sense, the Friedmans are right about the "peaceful" character of their chosen century as contrasted with the previous 100 years that culminated in the Napoleonic wars, and the subsequent period that included World War I and World War II...
...Why then do the Japanese do this seemingly idiotic thing unless, being Asians, they are exempt from Adam Smith's dictum about economic self-interest...
...The historic turning point in the people's use of government for economic salvation was, of course, the 1930s: depression and recovery...
...This put the lenders of money in a superb position...
...To the Friedmans, however, this is the way things should be: capital pours in from all the great nations to employ Hong Kong labor...
...These are always conducted with the utmost silence and secrecy, till the moment of execution, and when the workmen yield, as they sometimes do, without resistance, though severely felt by them, they are never heard of by other people...
...In chapter 11 of Book One, in a section Smith marks "Conclusion," he warns against the generally antisocial political proposals of those "who live by profit...
...The crash reflected the growing economic difficulties plus the puncturing of an unsustainable speculative bubble...
...At best, it is a nostalgic recall of the time they adore most, the century from 1815 to 1914, when free trade linked the world in a benign peace: "The century from Waterloo to the First World War offers a striking example of the beneficial effects of free trade in the relations among nations...
...The three great "examples" concocted by the Friedmans to prove that their system works are but a few samplings of the many fables they fabricate to make their case...
...In 1831, Russia entered Warsaw to deny Polish independence...
...That last saving phrase suggests that, to make a case, the Friedmans are prepared to describe white as a "somewhat diluted form" of black...
...The first thing these autocratic bureaucrats did was to industrialize Japan by entering the economy as entrepreneur and owner of the decisive sectors of industry...
...As early as 1828— about a dozen years after Waterloo—the United States enacted a tariff so high that the South called it the "tariff of abominations" and John Calhoun invoked the doctrine of nullification...
...They were forming all kinds of alliances: Holy, Triple, Quadruple, and so forth...
...So here is the truth about Japan in the years immediately following the Meiji Restoration: the government was the entrepreneur and owner of all major industry...
...In the next 50 years, there was little improvement...
...This is the Friedmans' "exemplar," Hong Kong today, a haunting echo of the slums and sweatshops of New York's old East Side at the turn of the century...
...namely, that in a "market" economy, the machine will grind to a halt unless there is a "market...
...You must also assume that the stupid company did not anticipate some such future cost and did not tack that item on to the original price of the poison it was peddling...
...India relied on central economic planning—on the model of the Britain of its time...
...Pretty clever, eh...
...Castlereagh, Britain's foremost spokesman at the Congress of Vienna, put it bluntly: "The existing Concert [of the Powers] is their only perfect security against the revolutionary embers more or less existing in every state of Europe...
...The Japanese do it because this is their way of exporting not only goods but also unemployment...
...In which case the public will have to pay for being poisoned...
...The authors propose widespread decontrol—from the licensing of doctors to the regulation of transportation rates...
...or that the National Labor Relations Board is run by that highly "interested party," the unions...
...hence, it is no surprise that they would get rid not only of such agencies as the ICC (rate setters and admission controllers) but also of the Safety Products Commission, the Food and Drug Administration, the Occupational Safety and Health Administration, the Environmental Protection Agency, social security, minimum wages, and public schools...
...The free flow of goods was the first to be inhibited by the tariff barriers and other discriminatory measures which were erected with increasing frequency and height after 1880...
...In the tariff of 1869, rates were raised on copper, steel rails, marble, nickel...
...Although the Friedmans advance a theory about the "natural history of government intervention" that suggests that federal agencies are all alike (cats don't bark), their ire against government, one suspects, would not be quite as wrathful as it is, if every agency really fell into their "natural" mold...
...By raising a breed of "barking cats," to use their very own phrase...
...In 1848, just about all Europe broke out in a rash of revolutions: France, Germany, Hungary, Croatia, Galicia, Transylvania, Naples, Tuscany, Piedmont, Sardinia, and Bohemia—to list a few...
...In any Hong Kong resettlement (housing) estate from early morning to late at night whole families, from children of 5 to grandparents of 70, can be seen sewing, shipping, assembling and painting...
...They were testing their strength and plotting their spheres of influence...
...Miserable as the circumstance of these home workers is, they are a kind of "middle class" below whom are the true lumpen, described by the Wall Street Journal on March 25,1980...
...that FDA is run by the pharmaceutical houses...
...The phrase comes from a piece that the Friedmans wrote for Newsweek a few years ago, in which the authors ridiculed the notion that you could change the behavior of the Food and Drug Administration by putting "well-meaning people in charge...
...The truth is that government agencies—like government itself, including the Executive, the Legislature, and the Courts—are not just cats and dogs that meow or bark...
...it ran all railroads except the narrow gauge up to 1906...
...As a consequence, the government was the chief entrepreneur in mining and heavy industrial production...
...If ten years after exposure you develop cancer, and if you can afford a lawyer, and if you can prove direct cause and effect, you will get some money on your death bed—if the company is still in existence...
...Had the Federal Reserve System never been established," say the Friedmans, "there is little doubt that the same measures would have been taken as in 1907—a restriction of payments...
...We are in our present squeeze in large part because we did open our doors to oil imports to the point where we became dependent on the Persian Gulf states who, through their worldwide monopoly (oligopoly), in the form of OPEC, are presently strangling us...
...In addition to the Crimean War and the FrancoPrussian War that the Friedmans mention, there were the Opium War (1842), the ItalianAustrian War (1859), the Prussian-Danish War (1864), the Seven-Week War between Prussia and Austria (1866), the BulgarianSerbian War (1885), the Japanese-Chinese War (1895), the Greek-Turkish War (1897), the Boxer Rebellion (1900), the Boer War (1902), the Russo-Japanese War (1905) to name a few...
...Ironically, today the United States (not England) stands almost alone as an island of "free trade" in an ocean of global "protection...
...Will the cost of medical care come down if we open our doors...
...The notion that the post-Waterloo century was "peaceful" is a Friedman fiction...
...The same happened in 1929— but on a much more massive scale...
...In terms of the prices paid, they were bargains" (In Japan: The Story of a Nation: Alfred A. Knopf, 1970...
...The remedy worked...
...In Origins of the Modern Japanese State: Selected Writings of E. H. Norman, John W. Dower, ed...
...In 1907, "productive facilities had expanded beyond the country's immediate capacity to consume," records one history (Blum, p. 554...
...The Friedman formula is, of course, an extension of their laissez-faire dogma...
...Within a week, "banks throughout the country reacted to the 'panic' by 'restriction of payments,' i.e., they announced that they would no longer pay out currency on demand to depositors who wanted to withdraw their deposits...
...But does the absence of state interference really mean that parties are "free" to enter "voluntary" contracts...
...286 Consider other factors in the world of reality...
...Perhaps the clue appears on page 222: "Perfection is not of this world...
...To widen the market and to narrow the competition is always the interest of the dealers...
...That's the Friedman story about the bitter but better medicine they uncovered in the annals of 1907...
...The United States was a party to the process, taking half of Mexico by force in 1848, and elevating itself to a world power in the war against Spain in the last decade of the 19th century...
...Now a few facts...
...In a persuasive tract, Free to Choose (Harcourt Brace Jovanovich, 1979), Milton and Rose Friedman propound an economic system that does not exist, never has existed, and is unlikely ever to exist except in the fantasies of authors who perceive its present reality in Hong Kong, its past in the golden age between Waterloo and World War I, and its future in a world conforming to the Friedman formula...
...So they repealed the Corn Laws (1846) to bring in foodstuffs at low prices from overseas...
...But then the "interested parties" (like the railroads) "go to work to make sure that the power is used for their benefit...
...They are the ones who pay for the subsidies...
...Invoking the name of their master, the Friedmans state on page one: "Adam Smith's key insight was that both parties to an exchange can benefit and that so long as cooperation is strictly voluntary, no exchange will take place unless both parties do benefit...
...Who undertook this mission...
...Here's their view: In 1907, a depression hit America...
...that EEOC is run by General Electric...
...Transportation: can we "import" railroad, bus, subway service...
...8) Smith describes, as clearly as Marx, the inevitable class struggle and the unfair advantage capitalists have over their workers: What are the common wages of labor depends everywhere upon the contract usually made between these two parties, whose interests are by no means the same...
...People turn to their elected officials to protect the public interest because the people have no other instrument of equal might to counterbalance the built-in power of those "who live by profit...
...Just about the only sector of the economy where "imports" might have an impact on prices in the United States would be the area of manufactured commodities...
...As they see it, "Hong Kong, a Crown colony," is "the modern exemplar of free markets and limited government...
...There are no comprehensive figures for injured illegal child workers—those aged 13 or under...
...By this Friedman formulation, the Japanese, for instance, are a foolish people who tax their citizens in order to provide us with cheaper goods...
...Although modestly better employers than local companies, foreign firms in Hong Kong are there to take advantage of the colony's chief assets: hard work, cheap labor, and few restrictive laws...
...And if the workers are doing poorly, it's their own damn fault for not making a better bargain in an economy where they are free to choose...
...They were getting ready for the big event of 1914...
...In a chapter entitled "The Anatomy of Crisis," the Friedmans try to prove that laissez faire was—and is—basically sound, that the New Deal response was unnecessary, and that the sooner we rid ourselves of its heritage the better...
...What would you think of someone who said, 'I would like to have a cat provided it barked...
...The McKinley Tariff was followed by the Dingley Tariff (1897) and by the Taft Tariff (1909) that "was a triumph for the protectionists" (Blum, p. 566...
...but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow citizens...
...As Edwin 0. Reischauer put it: this sale of the governmentowned companies led to "the concentration of Japan's nascent industrial resources in the hands of the few persons able to buy them from the government...
...The facts are, however, that the bankers did not do it on their own in 1907-08...
...The Friedmans' favorite century was one of 280 domestic repression and colonial oppression, spawning cocky conquerors who—in their insatiable pursuit of markets, materials, and political prowess—finally clashed in World War I. In 1820, liberal uprisings in Spain and Naples were put down by France and Austria...
...There will always be shoddy products, quacks, con artists...
...Since Britain's prosperity in the 19th century, like that of Japan in the 20th, also depended heavily on exports, England called upon all other countries to open their markets...
...284 In his discussion "Of the Wages of Labour" (chap...
...Because capitalists are not kittens but beasts of prey, progressive movements have sought to tame the tiger, through such efforts as antitrust laws, whose use you might expect the Friedmans to encourage to promote "free" enterprise...
...And it did turn the "recession into one of the most severe that the United States had experienced to that time...
...The Powers closed ranks to carry through their counterrevolutions...
...But all we get from the Friedmans on this subject is a piece of a paragraph that reads: The stock market crash was important, but it was not the beginning of the depression...
...The Marxist conclusion: do away with the capitalists...
...That century, wrote the Friedmans, "was one of the most peaceful in human history among Western nations, marred only by some minor wars—the Crimean war and the FrancoPrussian war are the most memorable—and, of course, a major civil war within the United States...
...That's the way it starts...
...The biological laws that specify the character of cats are no more rigid than the political laws that specify the behavior of governmental agencies...
...insurance companies raise rates, doctors and others tack the rate on to the bill...
...And, if that is so, then the whole Friedman formula of laissez faire is a fabulous fraud a magic show in which water burns...
...Please note: the first industrialization was not undertaken by private enterprise but by government...
...Here the Friedmans are, of course, just echoing the arguments of American socialists who have long held that, in a capitalist 287 society, public agencies set up to regulate the capitalists will often end up being run by the capitalists...
...it rejected an 1872 petition to allow private telegraph lines and made the business a government operation...
...Although a wide field for industrial investment lay fallow," writes Norman, "the merchant princes were reluctant to become pioneers working this field...
...The former are disposed to combine in order to raise, the latter in order to lower the wages of labor...
...Taking advantage of cheap labor and tax favors in other lands, they bring their commodities into the United States to undersell and to destroy their American competition...
...The Friedmans' omission of governmental intervention in 1907, however, is only a minor error compared with their omission of all references as to just what brought on the crises of 1907 and 1929 in the first place...
...The existence of the Reserve System prevented this drastic therapeutic measure...
...Although the Friedmans are aware of widespread monopoly in the United States and inveigh against it at great length, they do not note the connection between these "conspiracies" and the innate tendency of the capitalist to "conspire...
...The Friedmans reject the Rooseveltian way...
...Here is the finding by E. Herbert Norman, widely recognized as a student of early and modern Japan: "The instrument in all this," he writes of the Restoration, "was a state which was autocratic but never so inflexible as to be in danger of cracking...
...employment grows...
...Criminal organizations rule the twisting alleys...
...You must also assume that the original investors in the product have not sold the company for a handsome capital gain and have not moved their money into the manufacture of new menaces for sale to some patsy...
...and what is more, countries of whom only Britain had a built-in interest in total freedom of trade...
...the consumer ultimately pays for it all...
...Most of them complied, not because they liked Adam Smith (who had written a hundred years earlier), or had even heard of him, but because they were dependent on Britain for manufactured products and, especially, for machinery for capital goods to underpin their own nascent capitalism...
...Not content to wield their market power, masters enlist government on their side as well...
...Adam Smith—the Friedmans' guru never was able to resolve the dilemma of the need for an open market, on the one hand, and the inherent compulsion of the employer-seller to close the market, on the other hand...
...Its sole weakness is its inconsistency with the external, the real, world...
...End result: once more the people pay for their own poisoning...
...According to the Friedmans, Japan at the time of the Meiji Restoration (1867) was a 282 perfect example of how a free-enterprise economy can expand, provided the government keeps hands off...
...Children and teenagers are driven into factory life by the four forces that shape the lives of most of Hong Kong's 4,400,000 people— poverty, limited and expensive educational opportunities, minimal social welfare provisions, and overcrowded slum housing...
...The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention...
...it did the same with telephone lines in 1890...
...But even more so is their claim that the century was characterized by "free trade...
...The Friedman schema is internally logical...
...To pay for the subsidies, the foreign government must tax its citizens...
...Workers are not the only victims of this system...
...So long as Britain was the "workshop of the world," this system worked...
...There aren't any building inspectors, regular municipal garbage collections, or city water and sewage services...
...Business activity reached its peak in August 1929, two months before the stock market crashed, and had already fallen appreciably by then...
...It's doubly nonsensical when we note that the chief inflationary factors in the cost of private housing are financing (more than doubled as a percentage of final cost in the last couple of decades) and land (more than tripled...
...So let those "who live by profit" go their way...
...In the three years to 1975, 142 workers aged 14 or 15 were injured in the manufacture of plastic products and more than 500 aged 16 to 17...
...And so long as people are as self-seeking as the Friedmans insist they are (and should be) those who can will try to put their economic adversaries in a "necessitous" posture...
...The new regime set about modernizing Japan: namely, industrializing the society...
...We rarely hear of the combinations of masters though frequently of those of workmen...
...Indeed, the employer (or seller) who would put himself at the mercy of the whimsical market when he knows he can manipulate that market would hardly be the self-seeking person whom the Friedmans envision and extol as the sine qua non of a free-enterprise economy...
...But, again, in the world of reality, the "free trade" dream turns into a nightmare...
...But agricultural imports can have little impact on an America that is the food basket of the world...
...he will import labor from "necessitous" regions...
...Exposed parties cry for insurance...
...In sum, the Friedman formula for dealing with monopoly is, at best, a feeble flourish of an outmoded phrase and, at worst, a cop-out ‘before the challenge of corporate "conspiracy...
...the economy expands...
...If that is not so, then democracy is a sham and our "freedom to choose" our government is no freedom at all...
...The unique feature of Japanese industrialization, as differentiated from just about every state in Western Europe, was the "monopolistic and state control of strategic industries—strategic whether because of their connection with naval and military defense or because of their importance in export industries intended to compete against foreign products and hence requiring subsidy and protection...
...we gain...
...Multinational manufacturing corporations in the United States use "free trade" to establish monopolies...
...The inclusion of the United States in the framework of this "century" of free trade borders on the comic...
...It is often maintained," they write, "that while a let-alone, limited government policy was feasible in sparsely settled 19th-century America, government must play a far larger, indeed dominant, role in a modern urbanized and industrial society...
...The Friedmans' other remedy is to sue the offending company...
...The formula is an economy that runs itself without governmental intervention in a society that separates politics from economics...
...A scrutiny of the Friedman century of peace would probably disclose that there was not a single year without war: revolution or counterrevolution, nationalist upheaval or imperial suppression, colonial conquest, or just plain-old war between countries...
...In this Friedmanesque formulation, "cooperation" refers to the competition in the marketplace of seller versus buyer, employer versus employee, and one company versus another...
...To prevent the recurrence of such suffering, a Federal Reserve Act was passed in 1913, empowering the Feds to issue Treasury notes—just printed money—to supply banks with cash to appease customers "on the run...
...But, as Hobsbawm continues, 281 . . . after 1873 the situation of the "advanced" world was one of rivalry between developed countries...
...0ne widow says simply: "If I don't work we will starve...
...This fatal flaw is most apparent when the Friedmans depart from their smooth syllogisms to refer to the world as it is to Hong Kong today, free trade in the 19th century, and the Meiji Restoration in Japan— as evidence of how well their formula works in practice...
...Once more we encounter a new fable, the Friedman fiction about 1907...
...In a democratic society it is a prime purpose of government to protect the worker and the consumer against those conspiratorial predators whom Adam Smith understood so well and who, given the chance, will try to monopolize both economic and political power to "deceive" and "oppress" the people...
...As Friedman points out, when America was flooded by "highly trained refugees from Austria and Germany" in the 1930s the number of foreign doctors admitted to practice medicine did not rise, thanks to the AMA, which the Friedmans regard as a union-monopoly...
...Such a social order will not only bring greater material gains but also the underpinnings for lasting democracy and peace—they say...
...consumers benefit...
...With great dramatic facility, the authors contrast Japan with India, the former a success because politics did not intervene in economics, and the latter a failure because of interference by the state...
...Regulatory agencies are created, say the Friedmans, to satisfy the demands of "sincere high-minded reformers" (like farmers) who ask for a commission (like the Interstate Commerce Commission) to protect them from predators (the railroads...
...An employer who "intends only his own gain" (Adam Smith's phrase) will not simply open a plant anywhere and wait for workers to appear...
...First, if Friedman is right about "barking cats," won't the "interested parties" (companies) infiltrate the agency that determines the level of poison and the proper tax...
...Behind the revolution (Restoration) were the Chonin, the wealthy merchants and financiers of Osaka (where 70 percent of Japan's wealth was concentrated) wfu...
...Hong Kong, however, is not the Friedmans' first love...
...The federal government played a major role—with public funds and with special dispensation to the House of Morgan to trustify iron and steel...
...so are consumers...
...Hardly...
...How would opening our doors bring down the high interest rates that were imposed on the nation by monetarists, like Friedman, who sought to restrict the money supply...
...When we open our doors to a legitimate foreign competitor (not an American attacking his American competitors from a foreign base) we can not expect that such a rival, whether a Japanese carmaker or a European steelmaker, will respect the rules of "free trade...
...To widen the market may frequently be agreeable enough to the interest of the public...
...The workers so described are, however, a kind of "aristocracy of the proletariat" in Hong Kong...
...For Adam Smith, the compulsion of the capitalists to "conspire" was in the very nature of those "who live by profit...
...Horrified by what he saw in Manchester, de Tocqueville (much admired by the Friedmans) wrote: "Civilization works its miracles and civilized man is turned back almost into a savage...
...indeed, they hail it...
...Should we complain about such a program of reverse foreign aid...
...and the law, besides, authorizes, or at least does not prohibit the combinations, while it prohibits those of workmen...
...Will we bring down the price of food by opening our doors to foreign imports...
...That demand spurred supply and that, in turn, spurred demand to get us back on the road to recovery...
...But since people do love freedom, as the Friedmans should know, the century following Waterloo was a continuum of wars: the Powers engaged in battles against peasants, workers, democrats, lesser peoples seeking self-determination, 'and against "backward" natives resisting imperial conquest...
...Wages, as a percentage of cost, have been cut in half...
...He explains why: The interest of the dealers in any particular branch of trade or manufacture is always in some respects different from, and even opposite to, that of the public...
...They lose...
...Harper & Row, 1966) — sending Secretary of the Treasury George C. Cortelyou to New York and allowing him to deposit huge amounts of government cash in New York banks...
...In these and other "minor" wars, small powers, like Prussia, were becoming big powers...
...In short, this alleged century of free trade that the Friedmans invent lasted, at best, for about 25 years, or about one generation, when transient circumstances served the purposes of Britain and its momentarily dependent clients...
...Their fundamental fiction is that under laissez faire all the parties in the economy are free to make their own bargain and hence must be mutually benefited...
...Harcourt, Brace & World, 1968...
...But at the end of 13 months, "economic recovery began...
...Hong Kong is the Friedmans' proof positive that an urban industrial society does not require governmental guidance...
...If that is what the Friedmans call "the natural history of government intervention," then their medicine is no medicine at all...
...So banks collapsed in three great avalanches in 1930, 1931, and 1933—as the Feds stood "idly by...
...It did, of course, impose "serious inconveniences on business...
...The ultimate beneficiaries were a "relatively 283 small group of businessmen, some of whom were later to develop into the great financial magnates the Japanese call the Zaibatsu, 'the financial clique.' " The Zaibatsu, need it be noted, were close—by class and even family ties—to those running the government...
...In the realm of ideas," write the Friedmans, "the depression persuaded the public that capitalism was an unstable system destined to suffer ever more crises...
...it confiscated the shipyards in 1881...
...that OSHA is run by industrialists...
...In most cases, the subjugation of lesser peoples required no "major" war because the victims were too weak to resist rape...
...But that is not the Friedman remedy...
...The Friedmans' violence to verity in depicting Hong Kong today or the Western world in the past century is trivial, however, alongside their incredible inversion of the truth about the Meiji Restoration in Japan...
...Such "dumping" doesn't bother the Friedmans...
...and . . . true wisdom is to keep down the petty contentions of ordinary times, and to stand together in support of the established principles of social order...
...the government sold off some of the enterprises to its Zaibatsu intimates at bargain prices to foster private monopolies...
...Maybe a bit here and there...
...The workmen desire to get as much, the masters to give as little as possible...
...Japan," they write, "relied primarily on voluntary cooperation and free markets on the model of the Britain of its time...
...The result of this divestiture was to transfer a public monopoly to a private oligopoly...
...but the government made certain that the entire economy defense and nondefense— remained under paternal control...
...But as their steel and auto hit our shores, the hidden export (unemployment) pours across our land...
...Despite this open record of America as a protectionist nation from 1828 to 1914, the Friedmans write simply that when Britain called for free trade "other nations .. . including the United States, adopted a similar policy, if in somewhat diluted form...
...he will locate in a community of "necessitous" men and women...
...When the Great Depression came in 1929, however, the Feds failed to do what they should have done because—according to the Friedmans—there was a power struggle between the Washington and New York branches of the system...
...For a while, the British did favor free trade, not because they were so persuaded by Adam Smith but because the policy suited the rising capitalist class...
...For the Friedmans to propose with a straight face that the United States now open its doors even more widely so we shall become the dumping ground of the world is about as realistic as expecting dogs to meow...
...We seldom hear of this combination because it is the usual, and one may say, the natural state of things which nobody even hears of...
...After all, the manufacturers of thalidomide ended by paying many tens of millions of dollars in damages—surely a strong incentive to avoid any similar episode...
...q 290...
...Yesterday's barking dog can become tomorrow's meowing cat, if we throw out Hoover and put in Roosevelt...
...To make their case, they bury Dickens in a smoothly lined coffin: "The standard of living of the ordinary citizen improved dramatically," aver the Friedmans, "making all the more visible the remaining areas of poverty and misery portrayed so movingly by Dickens and other contemporary novelists...
...So, the panic of 1907 was not overcome simply by the banks' refusals to honor the demands of their depositors...
...You can not demand that cats bark or that water burn...
...To crack food prices here, we have to break that oligopoly called agribusiness, whose tentacles run from "seed to store," underpaying farmers and overcharging consumers...
...Their subsidies promote their exports, keep their factories running at about 100 percent of capacity, thereby increasing productivity and, also, cutting down on such social costs as unemployment insurance and welfare...
...Steel when the bankers told him that the purchase was necessary to prevent an extension of the panic...
...This issue—far more than slavery—brought on the Civil War...
...the government immediately went into debt by borrowing from its bankers, and then raised further capital by taxing the cruelly overtaxed peasantry...
...The masters, being fewer in number, can combine much more easily...
...Social surveys taken by Booth and Rowntree at the end of the 1800s showed some 40 percent of the working class living below the "poverty" level...
...But as E. J. Hobsbawm notes in Industry and Empire (London: Weidenfeld & Nicolson, 1968), "once a local economy was on its feet, its need of Britain diminished rapidly," and the once dependent nation now began to protect its infant industries against British competition...
...Once more, the same sad story of penniless people in the grip of merciless exploiters, a throwback to primitive capitalism in all its savagery...
...Let us put this prescription to the reality test, starting with those sectors of our economy where inflation hits consumers hardest: fuel, food, housing, health care—in all of which monopoly is a factor...
...Its purpose was not merely to be protective but to be prohibitive...
...For capitalists "conspire" just as naturally as cats meow...
...Just what those "growing economic difficulties" were the Friedmans never say, for to explain what happened—to reveal the way in which those "who live by profit" have repeatedly unbalanced the economy by amassing too much at the top while withholding too much from those below— would totally shatter the many myths that the Friedmans manufacture about laissez faire...
...Let's consider each of these...
...Every day that I live I thank God that I am not a poor man with a family in England...
...This army is totally outside even Hong Kong's labour laws...
...As a consequence, the "deceived" and "oppressed" workers and consumers (two terms alluding to the same persons) lacked the purchasing power to buy what the economy could produce...
...However, one hospital alone handled 12 cases last year of children as young as 11 who had suffered industrial injuries...
...To protect the consumer in this jungle, the Friedmans do propose two strategies: an effluent tax and law suits...
...they propose another remedy for recessions: leave it to the bankers...
...In 1977, in the May 1 issue, the Manchester Guardian ran a set of firsthand reports on conditions in exemplary Hong Kong...
...In March 1908, a run on the bank forced the Knickerbocker Trust to close its doors...
...We have no acts of parliament against combining to lower the price of work...
...The answer was given by the United States Supreme Court many years ago when it declared that "necessitous" men are not "free" men, for such sad souls— like that woman in Hong Kong—must either submit or starve...
...bankrolled the Restoration...
...In chapter 10 on "Inequalities of Wages and Profits," Smith writes: "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices...
...Can we import housing...
...The McKinley Tariff of 1890 "raised an already scandalously high tariff scale even higher...
...There are two thoughts here: first, that the period under discussion was one of peace...
...that EPA is run by Hooker Chemical...
...One hour in Hong Kong will dispose of that view...
...Whenever the legislature attempts to regulate the differences between masters and their workmen," writes Smith, "its counsellors are always the masters...
...he will gather with like employers to hold down or beat down wages...
...Will we bring down the price of fuel by opening our doors to imports...
...How would the Friedmans keep capitalists from behaving like capitalists...
...Noting that "the interest of the proprietors of land is inseparably connected with the general interest of the society" and that "so also is that of those who live by wages," he then concludes, "but the interest of those who live by profit has not the same connection with the general interest of the society...
Vol. 27 • July 1980 • No. 3
