M. Friedman School of Economics. Economist Milton Friedman: biography, ideas, life path and statements

Milton Friedman is an American economist who received the Nobel Prize in 1976 for his research on consumption, monetary history, and the complexities of stabilization policies. Together with George Stigler, he was the intellectual leader of the second generation of the Chicago School. Among his students are such prominent economists as Gary Baker, Robert Vogel, Robert Lucas Jr. Friedman's main ideas concern monetary policy, taxation, privatization, deregulation of public policy, especially in the 1980s. Monetarism also influenced the decisions of the US Federal System during the global financial crisis.

A Brief Biography of Milton Friedman: The Early Years

The future scientist was born in Brooklyn, one of the poorest areas of New York. His parents were emigrants from Hungary. The city from which they emigrated is now located on the territory of Ukraine (the city of Beregovo in the Transcarpathian region). Friedman's parents were selling textiles. Soon after the birth of the child, the family moved to Rahway, New Jersey. As a child, Friedman got into an accident, a scar on his upper lip remained with him for life. He graduated from high school in 1928 and entered Rutgers University. The young man majored in mathematics and economics. He originally intended to become a secretary. However, while studying, he met two scientists - Arthur Burns and Homer Jones, who convinced him that economics could help bring the world out of the Great Depression.

After graduating from university, he was offered two scholarships: in mathematics at Brown and in economics at Chicago. Friedman chose the latter and received his Master of Arts in 1933. His views were influenced by Jacob Wiener, Frank Knight and Henry Simons. There he met his future wife Rose. Then he studied statistics under Harold Hotelling and worked as an assistant to Henry Schultz. At the University of Chicago, Friedman met his two best friends, George Stigler and Allen Wallis.

Public service

After graduation, Fridman initially failed to find a job as a teacher. Therefore, he decided to travel to Washington with his friend Allen Wallis, where Roosevelt was just beginning to implement his "new course." Friedman later concluded that all government interventions were "ineffective cures for the wrong disease." In 1935, he worked for the National Resources Committee, where he first began to think about the interpretation of the consumption function. Then Friedman got a job at the National Bureau of Economic Research. He's Simon Smith.

In 1940, Friedman was promoted to professor at the University of Wisconsin, but returned to government service due to anti-Semitism. He worked on a military tax policy The federal government as an advisor. On duty, he advocated Keynesian government intervention in the economy.

Career and achievements

Milton Friedman was an adviser to the US Republican President Ronald Reagan and the British Conservative Prime Minister. His political philosophy extolled the virtues of the free market with minimal government interference. Friedman once noted that he considers his main achievement to be the elimination of conscription in the US. During his life, he wrote many monographs, books, articles in scientific journals and newspapers, was a guest of television programs, and lectured at various universities. His works were popular not only in the USA and Great Britain, but also in the countries of the socialist camp. The Economist magazine named him the most influential economist of the second half of the 20th century, and possibly the entire century. Although some polls give the palm to John Maynard Keynes.

Economic views

Milton Friedman is best known for drawing attention to money supply. Monetarism is a collection of views associated with quantitative theory. Traces of it can be found as far back as the 16th century. Together with Anna Schwartz, Friedman wrote a book entitled Monetary History of the United States of America, 1867-1960 (1963). Several reaffirmed the primacy of offering money over investing and government spending... Natural unemployment is inevitable, so it makes no sense to fight it. There is no need for the government to guide the economy through fiscal policy.

Developments in the field of statistics

The sequential analysis was developed by Milton Friedman. The main ideas came to him while serving in the military research department in Colombia. Subsequently, sequential statistical analysis has become a standard method of assessment. Like many of Friedman's other discoveries, today it seems unusually simple. But this is also an indicator of genius, who managed to penetrate the very essence of the phenomena. Today, consistent statistical analysis is a key tool for modern economists.

Milton Friedman: Capitalism and Freedom

The concept of monetarism began with the refutation of Keynesian theory. Later, Milton Friedman would call many of her provisions naive. In the 1950s, he made his interpretation of the consumption function. Capitalism and freedom are two concepts that Milton Friedman reintroduced into scientific circulation. Monetarism uses "Keynesian language and methodological apparatus", but denies the original assumptions of the theory state regulation economy. Friedman does not believe in full capacity utilization. In his understanding, there is always natural level unemployment, which is pointless to fight. The economist argued that in the long term, the Phillips curve looks like a vertical straight line, and predicted the possibility of such a phenomenon as stagflation. Therefore, the only effective policy of the state is to gradually increase the supply of money.

Milton Friedman is a renowned American economist, Nobel Prize laureate in economics, known to the world as an active supporter of classical liberalism (an economy free from the state). He is the person who directly influenced the economic success of the United States and countries. Western Europe.

Citizenship: USA
Date and place of birth: July 31, 1912, Brooklyn, New York, USA

Education and academic degree: BA in Economics and Mathematics from Rutgers University; MA in Economics from the University of Chicago

Family and Children:

Father: Geno Fridman - originally from Beregovo (Ukraine, Transcarpathian region); Milton Friedman himself says that his father "tried unsuccessfully to get results in a hopeless trade";
Mother: Sara Fridman - originally from Beregovo (Ukraine, Transcarpathian region), worked in a haberdashery shop;
Wife: Rosa Friedman - economist, graduated from Reed College and the University of Chicago, was born in Ukraine (Volyn region);
A son: David Friedman - 71 years old, American economist, writer and theorist of libertarianism, continues his father's work in his scientific works;
Daughter: Janet Friedman - lawyer;
Grandson: Patri Friedman - activist and theorist of political economy, the inventor of the concept of sistading (city on water); previously worked at Google and actively played poker; divorced, has two children.

Career:

1932 - graduated from Rutgers University and became a bachelor's degree in two specialties - in economics and mathematics;
1933 - Received a master's degree from the University of Chicago and entered the postgraduate study program at Columbia University;
1934-1935 - worked as a research assistant at the University of Chicago;
1935 - got a job at the National Committee for Resources and took part in a large-scale project to study consumer demand;
from 1937 - began a long-term cooperation with the National Bureau of Economic Research, where he worked as an assistant to Simon Kuznets;
1939-1940 - taught at the University of Wisconsin;
1940 - Kuznets and Fridman completed the joint research "Income from independent private practice" (about the income of private doctors), which became the basis for Fridman's doctoral dissertation;
1941-1943 - worked for the US Treasury Department in the tax research group;
1943-1945 - commissioned by the Ministry of Defense, took part in the work of the research group on mathematical statistics at Columbia University;
1946 - received a doctorate and got a job at the University of Chicago as an assistant professor of economics;
1947 - Friedman attended a meeting organized by Friedrich Hayek in Mont Pelerin, Switzerland, which brought together representatives of the liberal school of political economy, journalists and politicians from all over the world. The Mont Pelerin Society, created at this meeting, set itself the task of spreading the principles of the free market;
1950 Friedman was in Paris as a consultant to the US government on the implementation of the Marshall Plan, designed to rebuild the war-torn economies of Western Europe;
1951 - Awarded the John B. Clarke Medal of the American Economic Association;
1953-1954 - taught at the University of Cambridge (Great Britain) as a visiting professor, using his stay in Europe to study the economic and political problems of European countries;
1962 - Becomes Professor of Economics at the University of Chicago;
1962 - the first edition of the book "Capitalism and Freedom" was published;
1964 - served as an adviser on economic issues to Senator Barry Goldwater when he ran for the presidency of the United States;
since 1966 - has been a regular columnist in Newsweek magazine, thanks to which his views on the importance of state non-interference in social policy have been widely recognized;
1969 - Friedman published The Optimal Amount of Money and Other Essays, which included the most important works on the theory of money, written over two decades;
1967-1970 - Friedman was president of the American Economic Association;
1970-1972 - President of the Mont Pelerin Society;
1976 - received the Nobel Prize in Economics "for achievements in the analysis of consumption, the history of money circulation and the development of monetary theory, as well as for showing them the complexity of stabilization policy";
1977 - Graduated from the University of Chicago, honorably retired;
1980 - together with his wife he wrote the book "Freedom to Choose: Our Position", which gained such fame that its name was taken for a cycle of popular television programs about the economy;
1981 - was elected a member of the Presidential Council on Economic Policy, established by R. Reagan, which included independent experts;
1988 - Received the Presidential Medal of Freedom and the US National Medal of Science
1996 - together with his wife he founded The Milton and Rose D. Friedman Foundation for Educational Choice, the purpose of which is to inform society about the urgent need for choice in the field of education as an integral part of individual freedom;
2002 - The Cato Institute established the Milton Friedman Prize, which is awarded twice a year to scientists, political and public figures who have made a significant contribution to the development of human rights and freedoms;
2006 - Milton Friedman dies in San Francisco of a heart attack at the age of 94.

Friedman's biography

American economist Milton Friedman was born in Brooklyn (New York). When he was still a child, his parents Sarah Ethel (nee Loundau) Friedman and Jeno Saul Friedman, both of whom were originally from Eastern Europe, moved to Rahway, New Jersey. His mother worked in a haberdashery store, and his father, as F. later recalled, “tried unsuccessfully to achieve results in hopeless trading operations”. The family had a small and fickle income and could not get out of poverty. Nevertheless, she did not have to starve, and the atmosphere in the family was warm and friendly.

At the age of 16, F., by competitive selection, was admitted to Rutgers University with the right to receive a partial scholarship. In 1932 he was awarded a bachelor's degree in two disciplines at once - economics and mathematics. While studying at the University F. came under the influence of two assistants: Arthur F. Burns, who later became director of the US Federal Reserve, and Homer Jones, the future authority on the theory of interest rates. It was Jones that F. owed his thesis in economics and received a recommendation for continuing his specialization in this area at the University of Chicago.

After receiving his master's degree at the University of Chicago in 1933, F. transferred for a postgraduate internship at Columbia University (New York). At the end of 1934 he returned to the University of Chicago as an assistant research assistant. The following summer, he took part in a large-scale consumer budget research project for the National Committee on natural resources United States, Washington (District of Columbia). F.'s cooperation with the US National Bureau of Economic Research (NBER) began in 1937, when he began to work as an assistant to Simon Kuznets.

In 1940, they completed the joint scientific work "Income From Independent Professional Practices". This work later formed the basis for the dissertation, for which F. in 1946 was awarded a doctorate in economics at Columbia University. At the same time, one of the conclusions of the aforementioned study, namely that "medicine provides only limited opportunities for increasing the income of doctors of all specialties in comparison with the income of dentists", caused such widespread objections in the NBEI that the publication of the book was delayed until the end of the Second World War. ...

F.'s development as an economist can be traced back to his first independent steps in this science. His subsequent contributions to the theory and practice of economics were accompanied by unexpected results, he became a prolific researcher and popular writer-economist, participated in important research conducted by government and academic institutions, led the so-called. Chicago School of Economists. Despite the fact that many of his views on economic theory and public policy remain controversial, he, as the English economist John Barton put it, "provided us with a foundation for future research in macroeconomics."
During the Second World War, F. took part in the development of tax policy on the instructions of the Federal Treasury Department and, taking advantage of his stay in Washington, conducts research at Columbia University on military statistics. In 1945 ... 1946 he teaches economics at the University of Minnesota. Then F. returns to the University of Chicago and becomes an assistant professor of economics. With the assistance of the NBEI, F. begins work that has lasted for many years on the creation of monetary theory.

In 1950, F. as a consultant on the implementation of the "Marshall Plan" developed by George, C. Marshall and providing for the restoration of the war-ravaged economies of Western Europe, arrives in Paris, where he becomes an active advocate of the idea of floating exchange rates. He predicts that the fixed exchange rates imposed by the Bretton Woods Agreement will eventually fail, as they did in the early 1970s. His knowledge in the field of theoretical and practical problems of the economies of European countries increased in the course of cooperation with Professor Fulbright (1953) from the University of Cambridge (England).

Having started working with S. Kuznets, working closely with economists Dorothy Brady, Margaret Reid and Rose Director, F. formulated and found practical confirmation of his hypothesis of "constant consumption income". In his book "Theory of the Consumption Function" ("A Theory of the Consumption Function"), published in 1957, F. proved that the concept of John Maynard Keynes, linking current consumption with current income, will inevitably lead to an erroneous course. Instead, F. put forward a theory according to which the consumer does not build his consumer calculations, with the exception of temporary ones, on current income, relying on expected or constant income. While recurring income is not always obvious, it could be calculated by a weighted average of recent income. Money... He called this averaging "distributed lag".

Investigating a wide range of practical data on consumption, F. found that the results did not disagree with his theory of constant income (in the 50s, Franco Modigliani presented an alternative, but similar to F.'s approach, theory of consumption, tied to life cycles and explaining the same economic phenomenon). Conclusion about constant income played an important role in causing an informed re-formulation of the quantitative theory of money. In subsequent works, F. will show that changes in money demand throughout the history of America have always been determined by changes in the sphere of constant income.

The importance of F.'s theory of constant income can hardly be overestimated. Much of the subsequent research on aggregate consumption confirms this theory, and the developed methodology for determining and assessing projected future incomes has aroused keen interest among macroeconomists everywhere. Moreover, the most important advances in econometrics during the 60s and 70s. were achieved thanks to the statistical methods of F., which he used precisely to estimate permanent income.

Publication in 1963 of the fundamental work "Becoming monetary system in the United States "(" A Monetary History of the United States "), written by F. in collaboration with a specialist in the field economic history Anna J. Schwartz, made it possible to highlight the importance of the theory of F. not only in the applied sense, but also in the field of the history of monetary circulation. The authors have collected extensive statistical materials on the issues of money circulation since the period of the American Revolution and have documented the comprehensive influence of the money supply involved in the state circulation on inflationary processes.

The chapter of their joint work on the era of the Great Depression accused the Federal Reserve of failing to maintain an adequate level of liquidity in the US banking system. They formulated in the above chapter the following thought: "The radical contraction of the money supply is, albeit tragic, but genuine evidence of the power of monetary policy, in contrast to the opinion of Keynes and his supporters regarding the reduction in the amount of money in circulation as a weakness of the banking system." Continuing to defend his arguments, F. in collaboration with the economist David Meiselman published in 1963 an article criticizing the main idea of Keynes and his followers. It showed that nominal consumer spending is determined rather by the money supply than by individual items of expenditure in the state budget. These considerations formed the basis of the so-called. theories of money circulation in the 80s.

According to F., “it's all about money,” because changes in the intensity of growth in nominal income are mainly due to changes in the growth of the money supply. The reciprocal criticism of the views of F. and Meiselman from the neo-Keynesians reflected the main directions of the debate of the 60s and 70s on the issues of monetary and fiscal policy, during which, however, F.'s main proposals had to be recognized as quite acceptable and legitimate.

Monetary economic theory F. gives a clear idea of the economic methods used by him. Economic models, he believes, should be judged by their ability to predict real economic results, and not by their speculative constructs. In addition, simple models based on the use of single equations for the phenomena occurring in the monetary sphere are much preferable to the models proposed by Keynes' supporters, which are based on a variety of systems of equations. Monetary doctrine of F. became a viable basis of existing doctrines, despite the excessive emphasis on one causal factor - the money supply, which could not but cause a certain skepticism among a number of researchers.

F.'s achievements are in one way or another connected with his analysis of the shortcomings of Keynes's theoretical calculations and an effective criticism of the Phillips curve, which approximately interprets the so-called. natural increase in unemployment. Critical analysis of the investigated phenomena allowed F. to exert a constant influence on the development of theoretical aspects economic policy and assessment of economic factors of unemployment for periods of rising inflation and periods of reduced employment of the working-age population. Moreover, his exhaustive analysis of the role of economic stabilization policies - and this was especially evident in his famous analysis of the use of lags in the development of economic stabilization strategies - clearly demonstrates how and in connection with which economic stabilization measures can unexpectedly produce the opposite effect.

F. was awarded the Nobel Memorial Prize in Economics in 1976 "for achievements in the analysis of consumption, the history of monetary circulation and the development of monetary theory, as well as for a practical demonstration of the complexity of economic stabilization policies." In the Nobel lecture, he returned to a topic raised in 1967 when he addressed the American Economic Association - to reject Keynes's remarks about the persistent relationship between the rate of inflation and unemployment. He came to the conclusion that over a long period, the Phillips curve nevertheless shifts upwards under the condition of a natural increase in unemployment.

In his opinion, the reason for this phenomenon was the adoption of the growth of unemployment as an increasing parameter instead of interpreting it as a constant numerical constant. For the short term, in his opinion, inflationary monetary and fiscal policy could only temporarily reduce the unemployment rate, since workers and corporations habitually seek to increase the level of income, which ultimately cannot but contribute to an increase in the price level (and, accordingly, the growth unemployment).

He showed that, under certain conditions, an increase in the slope of the Phillips curve could indeed be a perfectly valid explanation for the cause of economic stagflation in the early 1970s. However, the social cost of fluctuations in inflation turns out to be so high that F. becomes a consistent defender of "stability" as opposed to the "discretion" of monetary policy. A steady rise in the interest rate on monetary transactions could lead not only to stagnation in money supply fluctuations, but also to an increase in the unpredictability of forecasts of business activity in the private sector.

F. earned recognition as an adviser to President Richard M. Nixon, despite his disagreements with him on the establishment of tight price controls and wages in 1971 F.'s views on the importance of non-interference of the state in social policy gained wide recognition thanks to his constant publications in the column assigned to him since 1966 in the magazine Newsweek (News-week), as well as thanks to the earlier publication of the book Capitalism and freedom "(" Capitalism and Freedom ", 1962). His popular book "Free to Choose" (1980) even gave the title to the television screen saver for his series of conversations on social and economic issues.

Many of F.'s proposals, such as reducing the volume of state intervention in the economy, introducing hired military service, using the so-called. "Negative income tax»(Payments from the budget to persons with insufficient incomes), received practical implementation. Other proposals - getting an education on the basis of a guarantee of subsequent payment, giving up social protection and the minimum wage - still meet with serious opposition from politicians.

Despite the label “conservative” often glued to him by political opponents, F. turns out to be much closer to the classical liberalism of Adam Smith and John Stuart Mill than to the traditionally conservative wing of economic doctrine. He believes that the goals he pursues do not really differ from the goals of the modern liberal movement. He says: “The different approach to economic policy, especially for the uninitiated, stems mainly from the difference in forecasts of subsequent economic action, and not due to the dissimilarity of fundamental principles and concepts. " Although the award of F. Nobel Prize aroused a number of objections from professional economists and those with a keen interest in economic issues, the contribution of the laureate to theoretical and applied research was widely recognized. So, Paul Samuelson called him "the economic economist."

Returning from the University of Chicago in 1977, F. becomes a senior researcher at the Hoover Institution at Stanford University. For three decades he has been an active member of the American Economic Association, of which he was president in 1967.

F. married in 1938; his wife - Rose Director, economist; their acquaintance began with joint scientific work at the University of Chicago. They have a son and a daughter.

In addition to the Nobel Prize, F. was awarded the John Bates Clark Medal of the American Economic Association (1951) and honorary degrees from many American and foreign universities and colleges.

Hobbies, hobbies:
trips;
classical music.

Notes:

Friedman himself considers his main achievement in economic theory to be the theory of consumption function, which claims that people in their behavior take into account not so much current income as long-term;
thanks to Friedman, the US Army was transferred from a mandatory to a contract basis;
Friedman is an atheist, in his own biography he calls himself an "agnostic";
Friedman worked on research until the very last day of his life, the day after his death, an article was published in The Wall Street Journal under his authorship;
Mart Laar, prime minister and author of liberal reforms in Estonia, admitted that the only thing he read about economics before undertaking his reforms was Milton Friedman's book "Freedom of Choice";
Friedman advocated same-sex marriage, arguing that the state has no right to break into the bed of citizens;
supported the free circulation of drugs, repeatedly advocating the legalization of marijuana and prostitution.
in his opinion, if illegal drugs are legalized, like alcohol, there is no reason to believe that this will lead to an explosive increase in drug addiction;
was an opponent of the US Federal Reserve System (FRS);
In total, Milton Friedman has written over 30 books and over 400 articles.

Bibliography:

Capitalism and Freedom (1962);
"Role monetary policy"(The Role of Monetary Policy, 1967);
Research in the Quantitative Theory of Money (1956);
"If money spoke." - M .: Delo, 1998.
"Fundamentals of monetarism" (A Program for Monetary Stability);
Friedman M., Savage L. J. Utility Analysis for Choosing Among Risk-Assuming Alternatives. - S. 208-249.
Why does business tend to self-destruct? (The Business Community's Suicidal Impulse. Cato Policy Report, 1999);
Marshallian demand curve. - S. 250-303.
"The market as a means of development of society";
Free to Choose (1980);
M. Friedman, F. Hayek "On Freedom";
Methodology of Positive Economics;
Friedman M., Schwartz A. Monetary history of the United States 1867−1960. - K .: "Vakler", 2007. - 880 p.

Mediathek

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Friedman with Reagan
Bush Celebrates Friedman's Merit May 2002 Performance by Friedman in Old Age (one year before his death)

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Milton with his wife Rosa Milton and Rose Friedman Milton with his wife Rosa Friedman and his wife at the Milton and Rose Friedman gala dinner

David, son of Milton Friedman David Friedman, son of Janet - daughter of Milton Friedman Patry Friedman - grandson of Patry, grandson of Milton Friedman

The book of one of the most influential modern economists, Milton Friedman and his wife Rose Friedman, "Freedom to Choose" is one of the most famous works of liberal thought of the second half of the 20th century. Defending the values of individual, economic and political freedom, the authors provide convincing evidence of the ineffectiveness of the bureaucracy and the redundancy of its interference in the life of society on the example of state systems of social security, education, financial regulation, licensing of various goods and activities.

Milton Friedman, Rose Friedman. The freedom to choose: our position. - M .: New publishing house, 2007 .-- 356 p.

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The history of the United States is the story of an economic, but also a political miracle, made possible by the application in practice of two sets of ideas, which, by a curious coincidence, were formulated in documents published in the same year 1776. One set of ideas found expression in The Wealth of Nations, the masterpiece that made the Scotsman Adam Smith the father of modern economics. Another set of ideas was embodied in the Declaration of Independence, in which Thomas Jefferson expressed the dominant mentality of his compatriots. She proclaimed the formation of a new nation, which for the first time in history approved the principle according to which every individual has the right to be guided by his personal values: “We proceed from the self-evident truth that all people are created equal and endowed by their Creator with certain inalienable rights, which include life , freedom and the pursuit of happiness. "

Economic freedom is the most important prerequisite for political freedom. By enabling people to organize joint activities without coercion or centralized control, it limits the scope of political power. In addition, the free market ensures the dispersal of power and thus prevents the over-strengthening of the state.

Jefferson's ideal, formulated by him in his first inaugural speech in 1801, was "a wise and frugal government that would keep people from harming each other and in all other respects, would give them the freedom to share their efforts between work and improvement."

With the advent of the Great Depression in the early 1930s, attitudes toward the state began to change. The reason for the depression was the failure of the government in the monetary sphere, where it exercised power since the inception of the republic. Yet the government's responsibility for the depression was not acknowledged then or now. On the contrary, the depression has been widely interpreted as the failure of free market capitalism. This myth has seduced the public to join the changed intellectual view of the mutual responsibility of individuals and government. If earlier the emphasis was placed on the responsibility of a person for his own destiny, now a person was viewed as a pawn, which is influenced by forces beyond his control. The notion that the role of government is to serve as an arbiter, keeping people from mutual violence, has been replaced by another, according to which the government should play the role of a father, charged with the responsibility to force some to help others.

One policy was followed by another with the aim of "regulating" "distributing our efforts between work and improvement" by turning Jefferson's dictum upside down. A person who has the intention to serve only the public interest through government intervention is "guided by an invisible hand" to advance private interests, although this goal "was not part of his intentions."

We must realize why trying to replace voluntary collaboration with centralized governance can be so damaging. We have the opportunity to push the change in public opinion towards greater trust in private initiative and voluntary cooperation, rather than its opposite, totalitarian collectivism.

Chapter 1. Market Power

No society functions wholly and entirely on command principles, and likewise, none of them rely solely on voluntary cooperation. The big difference is what the combination is: is voluntary exchange an inherently illegal activity that thrives on the inflexibility of the dominant command element, or voluntary exchange is the dominant principle of the organization, complemented to a greater or lesser extent by the command elements. Illegal voluntary exchange can keep the command economy from collapsing, can help it survive for a while, and even make some progress. However, it is unlikely to lead to the undermining of the tyranny on which mainly rests command economy... On the other hand, an economy dominated by voluntary exchange has the potential for prosperity and personal freedom. It may not reach its full potential in any respect, but we do not know of a single society that has achieved prosperity and freedom, in which voluntary exchange is not the dominant principle of organization.

The key idea of A. Smith's book The Wealth of Nations is deceptively simple: if an exchange between two parties is voluntary, then it will only take place if each party is confident that it will benefit from it. A. Smith's ingenious insight was the realization that the economic order can arise as an unintended result of the actions of many people in pursuit of their own interests, was amazing in his time and remains so to this day.

The role of prices. In the process of organizing economic activity, prices perform three functions: they transmit information; create incentives for the introduction of less costly methods of production and, thus, allow you to direct available resources to the most significant goals; determine who gets what and how much, i.e. distribute income. Anything that prevents prices from freely reflecting supply or demand conditions affects the accuracy of the information. Private monopoly, i.e. control of a product by one manufacturer or cartel is one example. This does not prevent the transmission of information through the price system, but distorts the transmitted information.

Today, the government is the main obstacle to the free market system, the work of which it knocks down with the help of tariffs and other restrictions in international trade, fixing or other influence on individual prices in the domestic market, including wages, government regulation of certain industries, monetary and fiscal policy causing volatile inflation, and many other measures.

For the organization of production, the most important is information about relative prices, i.e. the price of one product compared to another. High inflation, and especially volatile inflation, drowns out this information with meaningless interference. A manufacturer's income - what it gets from its activities - is defined as the difference between sales and costs. He compares one to the other and produces such a volume of output that a small increase in production gives an equal increase in his costs and his profits. Higher prices move this limit.

Only people can receive income, and they extract it in the market way from the resources that they own in the form of corporate capital, securities, land or their own abilities. In countries like the United States, the main productive resource is the personal ability of people, what economists call "human capital." About three-quarters of all income generated in the United States from market transactions takes the form of employee benefits (earnings and salaries plus side benefits).

The amount of each type of resource we own is partly a matter of chance, partly a choice made by us or others. Chance determines our genes and, accordingly, our physical and mental abilities. Chance determines the nature of the family and cultural environment in which we are born, and, accordingly, the ability to develop our physical and mental abilities. But choice also plays an important role. Our decisions on how to use our resources, work hard or not bother, apply for a particular job, start a business, save or spend - all this can lead to waste or, conversely, to increase and improve resources.

In every society, however organized, there is always dissatisfaction with the distribution of income. It can be difficult for all of us to understand why we should receive less of those who we think are less deserving, or why we should receive more than many others whose needs seem to be just as great and the merit is not less. The grass in distant pastures looks greener, and so we blame the existing system. In a command system, envy and dissatisfaction are directed at the rulers. In the free market system they are directed to the market. One consequence of this has been an attempt to decouple the income distribution function from the other functions of the price system — information transmission and incentive creation. Much of the government's activity in the second half of the 20th century in the United States and other countries, which relied heavily on the market, was aimed at changing the mechanism of distribution of income generated by the market in order to ensure a different, more even distribution of income.

As much as we like it, it is impossible to use prices to convey information and create incentives to act on that information without using prices to influence income distribution.

The "invisible hand" of Adam Smith is usually viewed in relation to the sale and purchase of goods and services for money. But economic activity is by no means the only area of human life where a complex and delicate structure turns out to be the unintended result of the cooperation of many people pursuing their own interests. Consider language, for example. The values of society, its culture and customs - all this develops in the same way on the basis of voluntary exchange, spontaneous interaction, the evolution of a complex structure through trial and error, acceptance and rejection. No monarch issued a decree ordering that the music enjoyed by the people of Calcutta should be fundamentally different from the music enjoyed by the people of Vienna.

The structures created through voluntary exchange, be it language, scientific discoveries, musical styles, or economic systems, take on a life of their own. They have the ability to take different forms under the influence of circumstances. Voluntary exchange can generate uniformity in certain respects and diversity in others. It is a subtle process, the general principles of which are easy enough to comprehend, but almost impossible to accurately predict its results. These examples point not only to the wide scope for voluntary exchange, but also to the need for a broader understanding of what “self-interest” is. A narrow preoccupation with the economic market has led to a narrow understanding of "self-interest" as short-sighted selfishness, as an exclusive interest in immediate material reward.

Economics has always been accused of drawing far-reaching conclusions from the completely unrealistic concept of the "economic man", which is just a computing machine that only responds to monetary incentives. This is a huge mistake. "Self-interest" is not myopic selfishness. These are in fact the interests of the participants, their values, the goals that they pursue.

What should be the role of government. It is difficult to give a better answer to this question than Adam Smith did more than two centuries ago: the sovereign has only three duties to fulfill, first, to protect society from violence and invasion by other independent societies; secondly, to protect, as far as possible, each member of society from injustice and oppression on the part of its other members, or the obligation to establish a good administration of justice, and, thirdly, to create and maintain certain public structures and institutions, the creation and maintenance of which cannot be in the interests of individuals or small groups, because the profit from them can never pay the costs of an individual or a small group, although it can often pay them too much for a large society. "

The main challenge to achieving and maintaining a free society is precisely to ensure that the coercive forces given to the government to preserve freedom are limited to that function and do not become a threat to freedom. We must improve our methods of examining the benefits and costs of government intervention and demand that benefits clearly outweigh costs before taking action.

The fourth responsibility of government, which Adam Smith does not explicitly mention, is to protect the “disabled” members of the community.

In 1928, federal government spending accounted for approximately 3% of national income.

Our society is what we make of it. We can shape our institutions. Material and human factors limit the alternatives available to us. But no one can prevent us from building a society that relies mainly on voluntary cooperation to organize economic and other activities. A society that preserves and enhances the freedom of man, which shows the government its place, leaving it as our servant and not allowing it to become our master.

Chapter 2. Tyranny of Control

Discussing tariffs and other restrictions on international trade in Wealth of Nations, Adam Smith wrote: What appears to be reasonable in the course of action of any private family is unlikely to be unreasonable for the whole kingdom. If some foreign country can supply us with some commodity at a cheaper price than we ourselves are able to manufacture it, it is much better to buy it from her for some part of the product of our own industrial labor, applied in the area in which we have. some advantage ... In any country, the bulk of the people are always interested in buying everything they need from those who sell the cheapest. This position is so obvious that it seems ridiculous to prove it, and it would never be questioned if the cunning, self-serving arguments of merchants and industrialists did not cloud the common sense of mankind.

Today merchants and industrialists are far from alone in "self-serving interest." Indeed, there is hardly a single person who is not associated with "cunning, self-serving arguments" in one area or another. In Poggio's immortal words, "we have met the enemy, and they are ourselves." We condemn "special interests", but not when it is our "special interest". We lose more from measures taken in favor of other "special interests" than we gain from measures that are favorable to our "special interests."

Foreign trade regulation is usually protected, especially in relation to underdeveloped countries, as important remedy ensuring development and progress. For a poor country, freedom of trade at home and abroad is the best way to improve the well-being of its citizens. The economic regulation that spread to the United States in the middle of the 20th century not only limited our freedom to use our own economic resources, but also affected our freedom of speech, press, and religion.

International trade. Today, as always, tariffs enjoy a lot of public support under the euphemism "protection" - a good label for bad deeds. Proponents of import tariffs take it for granted that job creation is always desirable, no matter what the worker does in the workplace. This is fundamentally wrong. Another misconception that is rarely questioned is that exports are good and imports are bad. The truth is the opposite. We are unable to eat, dress or enjoy the goods we have sent to other countries. We eat bananas from Central America, we wear Italian shoes, we drive German cars, we watch Japanese TVs. Our gain from foreign trade lies in the goods that we bring into the country. Export is the price we pay for import.

"Protectionism" really means exploitation of the consumer. A country's “favorable trade balance” actually means that exports exceed imports; the amount of goods exported abroad is greater than imported. When you run your own household, you probably prefer to pay less for more, although when applied to foreign trade, this will be called an “unfavorable balance of trade”.

Another source of "unfair competition" is the subsidies provided by foreign governments to their manufacturers, which allows them to sell their goods in the United States at prices below cost. Let's assume that's the case. After all, who loses and who wins? In order to pay subsidies to their producers, foreign governments must tax their citizens. It is the taxpayers of these countries who actually pay the subsidies. American consumers benefit from this. They get cheaper TVs, cars, and other subsidized goods. Should we complain about this kind of foreign aid?

Why, when the United States sent goods and services abroad free of charge in the form of aid under the Marshall Plan and later in the form of foreign aid, it was "noble", and when foreign countries provide us indirect assistance in the form of selling goods and services below their value "Ignoble"? It is the citizens of these foreign countries that have every reason to be dissatisfied. They must experience declining living standards in favor of American consumers and those of their fellow citizens who own or work in subsidized industries. Obviously, if such subsidies are introduced unexpectedly or haphazardly, this negatively affects the owners and workers of American industries that produce similar goods. However, this is a common risk associated with doing business. Entrepreneurs never complain about unusual or random events that bring them good luck.

The free enterprise system is a profit and loss system. Any measures that make it easier to adjust to unexpected changes must be applied impartially in both domestic and foreign trade. In any case, violations are usually temporary. Suppose that, for whatever reason, the Japanese decide to subsidize the steel industry very heavily. Unless additional tariffs or quotas are introduced, US steel imports will skyrocket. This will drive down US steel prices and force producers to cut output, causing unemployment in the steel industry. On the other hand, steel products will become cheaper. Consumers of these products will have extra money to spend on other products. The demand for other goods will increase and, consequently, employment in the enterprises that produce them will increase.

The end result is not a net decrease in employment, but a gain in total output by allowing workers who can no longer produce steel to produce other products. A similar misconception arising from a one-sided view of the problem is the demand for tariffs to increase employment. The introduction of tariffs on imports of textiles will lead to an increase in production and employment in the domestic textile industry. However, foreign manufacturers who can no longer sell textiles in the US will receive less dollars. Now they can spend less money in the US. Exports will decline to counterbalance the decline in imports. In the textile industry, employment will increase, but employment in exporting industries will decrease. A shift in employment in favor of less productive sectors will lead to an overall decline in production. In fact, the need to confront foreign competition, rather than sit behind government barriers, would be more conducive to the development of a stronger and more efficient steel industry than we have today.

Consider the argument about the need to protect the dollar, the inadmissibility of a fall in its rate in relation to other currencies. This is a completely contrived problem. If exchange rates are determined in a free market, they can be set at any equilibrium market level. The dollar's price, if freely determined, serves the same function as other prices. It conveys information and creates incentives to act in accordance with this information, since it affects the distribution of income received by market participants. Why then all the fuss about dollar "weakness"? The immediate reason is that exchange rates are not determined in the free market. Central banks conduct large-scale interventions to influence the exchange rates of their currencies.

In the international arena, economic structures are intertwined with political ones. Freedom of international trade fosters harmonious relations between nations with different cultures and institutional structures, just as freedom of trade within a country fosters harmonious relations between people with different beliefs, views and interests.

Wherever we found any appreciable degree of personal freedom, a certain degree of progress in material comforts available to ordinary citizens, and a widely shared hope of further progress in the future, we also found that economic activity was carried out on the principles of the free market. Where the state assumed the functions of controlling every aspect of the economic activity of citizens, where detailed centralized economic planning reigned, there ordinary citizens were in political shackles, had a low standard of living and had little opportunity to influence their own destiny. The state, meanwhile, could flourish and create magnificent monuments.

The most striking example is the contrast between East and West Germany, once part of one state, and then divided into two parts by the vicissitudes of war. These two parts were inhabited by people of the same blood, the same culture, the same level of education and qualifications. Which one has achieved prosperity? Over the past 50 years in the United States, we have made great strides in expanding the role of government in the economy. This intervention was costly in economic terms. The restrictions on our economic freedom threaten to end two centuries of economic progress.

An integral part of economic freedom is the freedom to choose how our income is used. Currently, more than 40% of our income is managed by the federal, state (state) and local governments on our behalf.

The power of the majority in some cases is a necessary and desirable means [of achieving goals]. However, this is very different from the degree of freedom that you have when shopping in the supermarket. When you walk into the voting booth once a year, you almost always vote for the package, not for individual agenda items. When you “vote” in the supermarket every day, you get exactly what you choose, just like any other customer. The ballot box creates consensus without unanimity; the market is unanimity without consent. That is why it is advisable to use the ballot box only for making decisions for which consent is essential.

Another important part of economic freedom is the freedom to use the resources at our disposal. Today, you cannot freely offer your services as a lawyer, doctor, dentist, plumber, hairdresser, gravedigger, or many other jobs without first obtaining permission or license from a government official. You cannot work overtime on terms that are mutually acceptable to you and your employer if they do not comply with the rules and regulations set by government officials. Restrictions on economic freedom inevitably have an impact on freedom in general, even on such areas as freedom of speech and press. Freedom is one and indivisible, and everything that infringes upon freedom in any one area of our life affects freedom in other areas. Freedom cannot be absolute. Yes, we live in an interconnected society. Certain restrictions on our freedom are necessary in order to avoid even greater restrictions. Nevertheless, we have gone much further than this limit. The urgent need today is to lift the restrictions, not increase them.

Chapter 3. Anatomy of a Crisis

The depression that began in mid-1929 was a disaster of unprecedented proportions for the United States. In the realm of ideas, the consequence of the depression was the public's conviction that capitalism was an unstable system doomed to ever more serious crises. The public has joined a view that is gaining growing acceptance among intellectuals - that government must play a more active role to counter the instability generated by unregulated private production.

The depression also brought about far-reaching changes in the views of professional economists. The economic collapse has shattered the longstanding belief, which gained momentum in the 1920s, that monetary policy is a powerful tool for maintaining economic stability. Views have moved to the almost opposite extreme - "money doesn't matter." John Maynard Keynes, one of the greatest economists of the twentieth century, put forward an alternative theory (see, for example, for more details). The Keynesian Revolution not only captured the minds of professional economists, but also provided an attractive justification and recipe for widespread government intervention in the economy.

We have " banking system with partial redundancy ". Such a system works perfectly as long as everyone is sure that he can get money from his deposit at any time, and therefore applies to the bank for cash only when he really needs it. As a rule, new deposits of cash roughly balance withdrawals, so a small reserve is sufficient to cover the temporary difference. But when each depositor tries to get the entire amount of the deposit in cash, the situation changes radically - panic arises.

How can you stop an ongoing panic? One of the ways to stop the panic used during the 1907 crisis was through the agreed restriction of payments by banks. The banks remained open, but they agreed among themselves that they would not issue cash at the request of depositors. Instead, they operated through accounting records. They took into account checks drawn by some of their depositors to other depositors, decreasing the amount of deposits registered in their books on the accounts of some depositors, and increasing the amount on the accounts of other depositors. Another way is to enable reliable banks to quickly convert their assets into cash, not at the expense of other banks, but by providing them with additional cash.

Twelve regional banks, established by law and controlled by the Board of Governors of the Federal Reserve System in Washington, have been empowered to act as lenders of last resort for commercial banks. They could disburse such loans both in cash, with the Federal Reserve Bank notes that they were authorized to issue, and in the form of loans of deposit in their ledgers, which they could also create with the magic of an accounting pen.

After the Federal Reserve System failed to cope with the tasks entrusted to it when it was created in the early 1930s, an effective way to prevent panic was approved in 1934. The Federal Bank Deposit Insurance Corporation was created to guarantee the safety of deposits up to a certain upper limit. Insurance gives depositors confidence in the safety of their deposits. Under these conditions, bankruptcy or financial difficulties experienced by an unreliable bank do not cause an influx of demands to return deposits to other banks. After 1934, bank failures and an influx of claims against individual banks occurred, but they did not provoke the previous banking panic.

The Federal Reserve has remained completely consistent in only one respect. She blamed external factors beyond her control for all the problems, and ascribed all the good things to herself. In this way, she contributes to the spread of the myth that the private economy is unstable, although her own behavior invariably demonstrates that in reality the government is the main source of economic instability.

Chapter 4. From cradle to grave

The 1932 presidential election served as a political watershed for the United States. From the founding of the republic until 1929, government spending at all levels never exceeded 12% of the national income. Since 1933, government spending has been at least 20% of national income, and now it is over 40%, and two-thirds of that is federal spending. By these standards, the role of the federal government in the economy has increased approximately tenfold over the past half century. " New Deal”, Which appeared in the 1930s, included programs aimed at reforming the fundamental foundations of the economy. Some of them were abolished when the Supreme Court declared them unconstitutional, most notably the National Reconstruction Administration and the Agricultural Regulatory Administration. Other institutions still exist, such as the Securities and Exchange Commission, the National Labor Relations Office, and the national minimum wage.

The "New Deal" was interrupted by the Second World War, which at the same time helped to strengthen its foundation. One of the first pieces of legislation passed in the postwar years was the Employment Act (1946), which provided for the government to be responsible for maintaining “maximum employment, output and purchasing power,” which effectively elevated Keynesian politics to the level of law. The impact of the war on public opinion was a mirror image of the impact that depression had in its day. The latter convinced people that capitalism was flawed, and war that centralized government was effective. Both conclusions are wrong. The depression was caused by the mistakes of the government, not of private entrepreneurs. With regard to war, here it is necessary to distinguish between the temporary strengthening of government control with one main goal shared by almost all citizens who are ready to make great sacrifices in the name of war; it is quite another matter - the constant control of the government over the economy in order to promote the vague idea of "common interest", formed on the basis of completely different and significantly diverging goals of citizens.

Towards the end of the war, centralized economic planning seemed to be the breeze of the future. This conclusion was passionately supported by those who saw in it the dawn of a world of abundance, equally distributed. This was no less desperately feared by those who saw in this a turn towards tyranny and poverty. So far, neither the hopes of some, nor the fears of others have come true. The government has grown a lot. Government expansion today takes the form of welfare programs and regulatory activities. As W Allen Wallis put it in a slightly different way, socialism, which "suffered intellectual bankruptcy after its arguments for the socialization of the means of production were refuted one after another over the course of a century, now seeks to socialize the results of production."

There are hardly anyone who can question two seemingly contradictory phenomena: widespread dissatisfaction with the results of the burgeoning social welfare activities and unrelenting pressure to expand these activities further. The goals have always been noble and the results disappointing. Everyone agrees that welfare programs are a hell of a mixture riddled with fraud and corruption.

An attractive alternative to the existing welfare system is a negative income tax. The idea of a negative income tax has been widely supported by people and groups of different political orientations. In one form or another, the idea of a negative income tax was put forward by three US presidents, but this idea does not seem to be politically feasible for the foreseeable future.

Unemployment insurance is, in fact, the recognition by the state of its obligation to insure a person against damage associated with lack of work. The national insurance law is consistent with the doctrine of socialism and is hardly compatible with liberalism.

England and Sweden, long serving as examples of prosperous welfare states, began to experience increasing difficulties. Dissatisfaction grew in both countries. England faced increasing difficulties in financing the growing government spending. Dissatisfaction spilled out dramatically in the form of an impressive 1979 election victory for the Tories, won by Margaret Thatcher's pledge to fundamentally change the course of government.

Today in the United States, nine out of ten workers pay taxes to fund payments to those who do not work. Each individual worker does not “earn” social protection for himself and his family in the same sense that it can be said for a person who contributes to a private Pension Fund... He “earns” protection for himself only in a political sense, by meeting certain administrative requirements that entitle him to benefits. Today's retirees receive much more than the actuarial equivalent of taxes that they themselves paid and which were paid to them by their employers. To the young people who are now getting paid social taxes much less than the actuarial equivalent of taxes paid by them and their employers will be promised. Social security is by no means an insurance program under which individual contributions an equivalent insurance claim can be purchased. As even its most zealous supporters admit, "the relationship between contributions (ie payroll taxes) and benefits received is extremely small." Rather, social insurance is a combination of a special tax and a special social transfer program.

The long-term financial problems of the social insurance system stem from one simple fact: the number of recipients of social insurance benefits has increased and continues to grow faster than the number of employees who pay insurance premiums from their earnings. The social insurance program involves the redistribution of income from the young to the elderly. To a certain extent, such a redistribution has occurred throughout the history of mankind: children provided support to their elderly parents or relatives. Indeed, in many poor countries with high infant mortality rates, such as India, the desire to provide themselves with offspring that will support old age is the main reason for high birth rates and large families. The difference is that the social insurance system is compulsory and impersonal, while the previous practice was voluntary and personalized.

The country is increasingly divided into two classes of citizens: those who receive benefits and those who pay for them.

Starting small during the New Deal, government housing programs have grown rapidly. Ministry housing construction and Urban Development was established in 1965. Now it has 20,000 employees, and they spend more than $ 10 billion a year. State House housing stock often turn into slums and hotbeds of crime, especially youth. The most prominent example is the Prutt Igo public housing project in San Luis. It degraded to such an extent that part of it had to be blown up. At the time, only 600 of the 2,000 apartments were occupied, and it looked like a city's theater of war.

How can young people be expected to acquire good inclinations and values if they live in an area full of broken families and almost all live on welfare?

Dr. Gammon, in his report, developed a theory of bureaucratic crowding out: the more bureaucratic the organization, the more useless work crowds out useful work — an interesting extension of Parkinson’s Laws. Why are the results of all welfare programs so disappointing? No doubt their goals were humane and noble. Why haven't they been achieved? When you spend money, it can be your own money or someone else's; you can also spend it on yourself or on someone else. Combining these two pairs of alternatives gives us four possibilities (Figure 1).

Category I: you are spending your money on yourself. Let's say you are shopping at the supermarket. Obviously, you are very motivated to spend your money sparingly and get the most value for every dollar you spend. Category II: you are spending your money on someone else. For example, let's say you buy Christmas gifts. You are also interested in spending money sparingly. Category III: you spend other people's money on yourself, for example, you dine at the expense of the company. You don't care much about cutting costs, but you are interested in getting as much as possible for the money. Category IV: you spend other people's money on another person. You pay for someone's lunch at the expense of the firm. You don’t care about the savings, or about how to feed your guest with dinner.

All social security programs fall under Category III. In our opinion, it is this property of spending on social security programs that is the main source of their failure. Legislators vote to spend other people's money. Program bureaucrats also spend other people's money. Unsurprisingly, program costs are skyrocketing. But that's not all. The temptation to get other people's money is great. Many, including program bureaucrats, will try to spend money on themselves and not on someone else. This temptation to succumb to corruption or fraud is strong and may not always be resisted or suppressed. This explains why so many programs benefit middle- and high-income groups rather than the poor for whom they were supposedly created. In addition, the net winnings of the recipients of a given transfer will always be less than the total amount of the transfer. Costs associated with lobbying legislators and regulators, contributions to political campaigns, etc. are net losses that harm taxpayers and do no good to anyone.

These two consequences of the subsidy chase explain the reasons for the pressures for more spending, more programs. The initial measures did not help achieve the goals set by the fine-minded reformers who promoted social programs... From this they conclude that the measures taken were not enough.

Qualities such as independence and the ability to make decisions on their own are atrophied in the recipients of subsidies.

You can only spend other people's money by taking it away, as the government does. The use of force is thus at the heart of the welfare state — an unsuitable means of perverting good ends. What needs to be done? It is worth sketching out the main elements of such a program, not in the vain hope that it will be adopted in the near future, but in order to provide a vision of the direction in which we should move, a vision that can guide the cumulative change.

The program consists of two major components: 1) reforming the existing social security system by replacing the patchwork of specialized programs with a single comprehensive program to supplement cash income, i.e. the introduction of a negative income tax combined with ordinary income tax; 2) the curtailment of the social insurance system without refusing to fulfill current obligations, which will gradually force people to take care of their own future.

The reform will provide a guaranteed minimum for all people in need, regardless of the reasons for this, and at the same time will cause as little harm as possible to their character, independence or interest in improving their situation. Equally important, a negative income tax would free up a huge army of bureaucrats running a myriad of welfare programs.

A negative income tax will help eliminate the current demoralizing situation in which individuals, i.e. bureaucrats who run programs control the fate of other people. This will help eliminate the existing division of people into two classes: those who pay contributions and those who receive support from social funds.

Chapter 5. Created Equal

In the early decades of the United States, "equality" meant equality before God; "Freedom" meant the freedom to control one's own life. Subsequently, equality was increasingly interpreted as “equality of opportunity” in the sense that no one should be arbitrarily deprived of the right to use their abilities to pursue their goals. Neither equality before God nor equality of opportunity conflicts with the freedom to control one's own life.

A completely different understanding of equality has emerged in the United States in recent decades - equality of results. All people should have the same standard of living or income. Equality of results is in clear conflict with freedom. Efforts to ensure this equality have been the main reason for the increasing role of government and the government's restrictions on our freedom.

The key to what T. Jefferson and his contemporaries understood by equality lies in the following provision of the Declaration: "All people are created equal and endowed by their Creator with certain inalienable rights, which include life, freedom and the pursuit of happiness." Equality before God, i.e. personal equality is important precisely because people are not the same. Because people have different values, tastes and abilities, they choose completely different lifestyles. Personal equality requires respect for people's right to control their lives, rather than imposing values or judgments on them. Jefferson had no doubt that some people were superior to others, that they were the elite. But this did not give them the right to dispose of others. If the elite had no right to impose their will on others, then no other group, even the majority, had such a right either.

The government was called upon to protect this right from both its fellow citizens and from external threats, rather than granting the majority unlimited power.

Chapter 6. What's wrong with our schools?

We have always been rightly proud of the wide availability of school education, as well as the role played by public schools in creating favorable conditions for the assimilation of new members of our society, preventing fragmentation of society and discord, creating conditions for people of different cultural and religious backgrounds. , lived together in harmony.

Professor West has shown convincingly that the transition of education to government control in England, as in the United States, was the result of pressure from teachers, officials and well-meaning intellectuals, not parents. He concludes that government control over education has led to a decline in the quality and diversity of schooling.

In the middle of the 19th century, the state school system was interpreted not as "socialist", but simply as "American." The US Constitution severely limited the powers of the federal government, and therefore it did not play a significant role. State governments have largely outsourced control of schools to the local community. Close parental control over the political leadership of the school system partially replaced the competitive environment and ensured the fulfillment of the most widely shared wishes of parents.

In the aftermath of the Depression, there was a rapid shift in power from the local community to larger structural units — the city, county, state, and, even later, the federal government. Dr. Max Gammon proposed a theory of bureaucratic substitution; according to him, “in a bureaucratic system, an increase in costs is inevitably accompanied by a decrease in production ... Such systems act like“ black holes ”in the economic universe, simultaneously sucking in resources and reducing“ output ”.

This theory is fully applicable to the analysis of the consequences of the growing bureaucracy and centralization of the public school system in the United States. From the 1971/1972 to 1977/1978 academic year, the total teaching staff in US public schools increased by 8%, and the cost per student in dollar terms increased by 58% (11% adjusted for inflation). The costs have clearly risen. The number of students decreased by 4%, the number of schools also decreased by 4%. At the same time, the quality of education has dropped even more.

In the field of schooling, parents and children are consumers, while teachers and school administrators are producers. The centralization of schooling has led to larger divisions, less consumer choice, and greater power of producers. In the field of schooling, only high-income people retained the freedom to choose. We can send our children to private schools, essentially paying twice for their schooling: paying first the taxes that finance the public school system, and then paying the tuition fees a second time.

School education should not remain in this state. One way to dramatically improve learning is to give all parents more control over their children's learning. Simple and effective way to provide parents with more choices, while maintaining available funding sources, are vouchers.

Suppose the government tells you, “If you free us from the cost of your child’s education, we will give you a voucher, a piece of paper that can be exchanged for the amount of money indicated on it, but only on the condition that you use it to pay for your child’s education. a child in one of our approved schools. " This will give each parent more choice. Public schools will be forced to compete with each other and with private schools. One of the benefits of a voucher plan is to stimulate a gradual shift towards direct parental financing of education.

A vast market will emerge that will attract many participants, both those currently working in public schools and those working in other areas. Many new schools will be created by non-profit groups. Others will be created for the purpose of making a profit. It is impossible to predict the final structure of the school industry. Competition will determine it. Only one assumption can be made: only schools that can meet the needs of their clients will survive - just like restaurants and bars. The competition will take care of that.

The obvious selfish interest of education officials is the main obstacle to the introduction of market competition in the field of school education.

In modern America in the sphere higher education the problems are the same as in primary and secondary: quality and equity. However, the absence of a requirement for compulsory higher education makes a big difference. Students have a wide variety of colleges and universities to choose from if they wish to continue their education. A wide selection mitigates the quality problem but exacerbates the equity problem.

Quality. Since no one goes to college or university against their will, there are no educational institutions that do not meet, at least minimally, the requirements of students. However, at government-funded universities, attendance is low and only 50% of students graduate. In private educational institutions, the picture is completely different. The college sells tuition and the students buy it. As in most private markets, both parties have an interest in being useful to each other.

Private colleges also generate income from memorials and academic activities. Donors make donations because they want to contribute to the development of desired destinations. In addition, the buildings named after them, the professors' salaries and fellowships also perpetuate the memory of these individuals, and therefore we consider them to be memorials. In our impression, the educational activities of universities in general are all the more satisfactory the more the market plays a role.

Justice. There are two main arguments commonly used to justify taxpayer funding for higher education. One is that higher education provides “ social benefits”, Exceeding the benefits received by the students themselves. The second argument is that public funding is needed to ensure “equal educational opportunity”.

If higher education increases the economic productivity of people, they also benefit from higher wages, so they have a personal interest in training. Adam Smith's "invisible hand" makes private interests serve the public interest. Subsidizing education distorts private interests and thus conflicts with the public interest. It is the additional students who would go to college with subsidized tuition who believe that the benefits they receive are less than their costs. Otherwise, they would have paid the costs themselves.

It is highly desirable that every young person - regardless of the income of his parents, social status, place of residence or race - should have the opportunity to pursue higher education, provided that he is willing to pay for it either immediately or upon graduation from his higher income. which will receive thanks to higher education.

Spending on education is like investing in a start-up small business and is a venture capital investment. The most satisfactory way of financing such enterprises is not a fixed loan, but investment in shares, i.e. “Buying” a share in the company and receiving a share in the income in return. With regard to education, an analogue of this can be “buying” a share in an individual's future earnings, advancing him the funds necessary to finance his studies, provided that he agrees to pay the investor a predetermined share of his future earnings. Thus, the investor will be able to get back more from the relatively successful people than his initial investment, which will compensate him for the losses that he will suffer from the losers. Although, in our opinion, there are no legal obstacles to the conclusion of private contracts on this basis, we believe that they have not become widespread due to the difficulties and costs of obtaining money from debtors over the long term.

In 1955, Milton Friedman published a draft "equity" financing of higher education, carried out by government agency that could provide funding or assistance in funding training for anyone who meets certain minimum requirements. He will provide some kind of limited annual amount for a specified number of years on the condition that this money will be spent on education in one of the recognized educational institutions. The recipient will promise in return in each subsequent year to pay the state a certain percentage of earnings in excess of a certain amount for each thousand dollars received from the state. These payments can be easily combined with the payment of income tax and thus the additional administrative costs are kept to a minimum.

Chapter 7. Who protects the consumer?

It is not from the benevolence of a butcher, brewer, or baker that we expect to receive our meal, but from their self-interest. We do not appeal to their humanity, but to their selfishness and never tell them about our needs, but about their benefits. No one but the beggar wants to depend primarily on the goodwill of their fellow citizens.
Adam Smith. Research on the nature and causes of the wealth of nations

Can we rely entirely on the “invisible hand” of Adam Smith? A string of economists, philosophers, reformers and social critics say we can't. Selfishness will lead sellers to deceive their buyers. They will use the ignorance and ignorance of their customers to cheat them and give them bad goods. In addition, critics argue that if you put your trust in market forces, the consequences of the deal could affect the people who were not involved in the deal. The air we breathe and the water we drink can be affected. It is argued that the market should be complemented by other mechanisms that would protect the consumer from himself and from selfish sellers, would protect each of us from the side effects of market transactions.

This criticism of the "invisible hand" is correct. The question is whether the mechanisms recommended or adopted in addition to the market are serving their purpose, or, as is often the case, the drug will be more dangerous than the disease.

Whatever the stated goals, all social movements of the last two decades have one a common feature... They are all directed against economic growth. Agencies created in response to the demands of social movements impose high costs on one industry after another to meet the increasingly detailed and extensive demands of the government. They oppose the release and sale of certain goods; they require investments for non-productive purposes in accordance with terms set by government bureaucrats.

The history of the Interstate Transport and Commerce Commission illustrates the natural logic of government intervention. Real or imagined evil entails a requirement to take appropriate action. A political coalition is being formed that includes sincere, well-intentioned reformers and equally sincere interest groups. The incompatibility of the goals of the coalition members is misinterpreted with the use of lofty rhetoric. The coalition is seeking legislation from Congress (or the state legislature). The preamble pays homage to rhetoric, while the main body of the law grants the power to “do something” to government officials. Perfect-hearted reformers celebrate their triumph and turn their attention to new things. Stakeholders are set to work to capitalize on these powers. As a rule, they succeed in this. Success breeds new challenges that require increased government intervention. The bureaucracy levies its tribute in such a way that even the original special interests no longer benefit. Ultimately, the results turn out to be completely opposite to the goals of the reformers and, moreover, the goals of the interest groups themselves are not achieved. However, this type of activity is so firmly rooted and associated with so many interests based on the law that the abolition of the originally adopted legislation is almost impossible. Instead, demands are made for the adoption of more and more laws in order to overcome the consequences caused by the previous law, and a new cycle begins.

It is undoubtedly desirable to protect people from harmful and useless drugs. However, it is equally desirable to stimulate the development of new drugs and make new drugs available to those who need them as quickly as possible. As is often the case, one great goal conflicts with another great goal. Safety and caution, on the one hand, can mean death, on the other.

There is now considerable evidence that FDA regulation is harmful and has done more harm by stalling progress in the production and distribution of beneficial drugs than good, protecting the market from harmful and ineffective drugs. Avoiding risk is a top priority for the FDA, so we have safer drugs, but no more effective ones.

It is by no means accidental that the Office, despite its best intentions, by its actions discourages the development and marketing of new and potentially useful drugs. Put yourself in the shoes of the FDA official responsible for approving or disapproving a new drug. There are two mistakes you can make: 1. Approve a drug that has an unanticipated side effect that will cause death or serious deterioration in the health of a relatively large number of people. 2. Deny approval of a drug that could save the lives of many people or alleviate immense suffering and has no adverse side effects. If you make the first mistake and endorse, for example, thalidomide, your name will appear on the front pages of all newspapers. You will fall into severe disgrace. If you make the second mistake, who will know? Even with the best intentions in the world, you would unwittingly prohibit many good drugs or delay their approval to avoid even the remote possibility of marketing a drug with the side effects of newspaper hype.

It is a widespread misconception that the behavior of social organisms can be shaped at will. This is a fundamental mistake of many so-called reformers. This explains why they so often believe that it is the people and not the "system" who are to blame; that the problem can be solved by "driving out the fraudsters and putting in their place people with the best intentions." This also explains why reforms, once their objectives are clearly achieved, often do not go in the right direction.

Consumer Product Safety Commission. Obviously, the goal of making goods safer is noble, but at what cost is it achieved and what are the criteria for achieving it? “Unjustified risk” is hardly a scientific term that lends itself to objective definition. A safer bike can be slower, heavier, and more expensive than a less "safe" bike. By what criteria can bureaucrats from the Commission determine how much speed can be sacrificed, how much weight can be added, and how much additional costs can be imposed on the consumer in order to get some (what exactly?) Amount of additional security?

Most of these questions cannot be answered objectively, and yet they need to be answered unequivocally when developing and publishing standards. The answers will reflect, in part, the arbitrary judgments of government officials responsible for these issues, less often the judgments of consumers or consumer societies interested in the product in question, but mainly the influence of the manufacturers of those products.

When goods enter the market in the normal course of things, there is always room for experimentation, trial and error. Of course, bad goods are made, mistakes are made, unexpected defects are discovered. However, mistakes are usually made on a small scale and can be gradually corrected. Consumers can experiment on their own and decide which properties they like and which ones they don't. When the government, represented by the Commission, comes into play, the situation changes. Many decisions must be made before a product is subjected to mass trial and error in use. Standards cannot be tailored to suit a variety of needs and tastes. They must meet all needs in a uniform manner. Consumers are inevitably deprived of the opportunity to experiment with many alternatives. Mistakes will still be made, in which case they will almost certainly be large.

The environmental movement is responsible for the emergence of one of the fastest growing areas of federal government intervention. The EPA, created in 1970 “to protect and improve the physical environment,” is gaining increasing authority and authority. The standards he sets impose on the industry, local authorities and state governments spend tens of billions of dollars a year. About one-tenth to a quarter of new capital equipment spending is targeted at pollution abatement.

Preserving the environment and preventing excessive pollution are real challenges in which government has an important role to play. When it is easy to identify all the costs and benefits of any action, and the people who have suffered and benefited from it, the market provides excellent tools to ensure that only those actions are taken that outweigh the costs of all those involved. But when the costs and benefits, or the people affected, cannot be identified, then there is failure. market regulation resulting in side effects or harm to the "third party".

Government intervention is one way we can try to compensate for “market failures” and make better use of the funds we are willing to pay to keep air, water and land clean. Unfortunately, the same factors that make the market fail also make it difficult for governments to make satisfactory decisions. In general, it is no easier for the government than for market participants to establish who exactly suffered the damage or won, as well as to assess the amount of damage or benefit to each of them. Attempts to use government to correct market defects have often led to the replacement of market defects with government errors.

We should not talk about “eliminating pollution”, but about the need to create mechanisms for agreeing an “acceptable” level of pollution, i.e. a level where the benefits of pollution abatement slightly outweigh the sacrifices of other fine things (houses, clothing, etc.) that would have to be discarded in order to reduce pollution. If we go further, we will sacrifice more than we gain.

In an effort to control pollution, the same approach is applied as for regulation railways and freight transport, food and drug control and industrial safety. This system lacks effective mechanisms to balance costs and benefits. By reducing the problem to issuing directives under threat of force, the system creates a situation involving crime and punishment, not buying and selling; operates in the categories "right or wrong", not "more or less." As a result, the system has the same defects as similar regulation in other areas.

Many economists agree that a much more effective way to control pollution than the current method of targeted regulation and control is to impose market discipline by charging discharge fees.

Perfection is impossible in this world. There will always be low quality products, charlatans and fraudsters. But in general, market competition, when given ample space, protects consumers better than alternative government mechanisms that are increasingly imposed on market activities.

Another market invention is the trademark. It is in the best interest of General Electric, General Motors, Westinghouse or Rolls-Royce to have a reputation as a manufacturer of trustworthy and reliable products. Quality is the source of their high reputation, which can influence the price of the company more than the factories and plants owned by it.

Chapter 8. Who protects the worker?

If the Gallup polls asked the question: “Who is responsible for improving the worker’s situation?” The most common answer would be “trade unions”, then “government”, although, perhaps, the answers “no one” and “I do not know” would prevail. However, the history of the United States and other Western countries over the past two centuries demonstrates the fallacy of such answers.

in the United States, more than three out of four workers are not union members. It is a delusion to identify the interests of the "trade union" with the interests of its members. Of course, in most trade unions there is a connection, and quite close, between these interests. Nonetheless, there are many cases where unionists - acting legally or through abuse and misappropriation of union funds - have benefited from their own members. This substitution of concepts is the cause and consequence of the general tendency to reassess the influence and role of trade unions. Trade union actions are always visible and widely reported in the press. “Bargaining and market conventions,” in the terminology of Adam Smith, by which the earnings of most workers in the United States are determined, are much less visible, receive less attention, and as a result, their importance is greatly understated.

Despite the appearance that unions are protecting low-paid workers from employer exploitation, the reality is different. The most successful unions invariably include workers whose professions require qualifications and who would receive high salary and without trade unions. These unions are making high wages even higher. British school teachers and municipal officials illustrate the general principle. Their unions do not negotiate with the taxpayers on whose money they live. They are dealing with government officials. The weaker the link between taxpayers and the officials with whom the unions deal, the stronger the propensity for officials and unions to collude at the expense of the taxpayers. This is another example of what happens when people spend other people's money on other people. This is why unions of municipal employees are stronger in major centers such as New York City than in small towns, and for the same reason teacher unions have become more powerful after control over school activities and education spending has become more centralized and more distant from the local community.

The key to understanding this situation is the most elementary principle of economics. The law of demand says: the higher the price of a product, the fewer people who want to buy it. Making some kind of labor more expensive will reduce the number of jobs of that kind. Raising carpentry prices will reduce the number of houses built, and houses under construction will use methods and materials that require less carpentry.

A successful union is cutting the available jobs in the area it controls. As a result, individuals who would like to get a job at the wages set by the unions cannot do so. They are forced to look for another job. Greater labor supply in other jobs will lead to lower wages in these jobs.

How unions manage to impose high stakes? One way is violence or the threat of violence: the threat to destroy the property of employers or beat them up if they hire non-union members. The easier way is to get the government to help. Another way of imposing wage rates is through minimum wage laws. Advocates of these laws present them as a way to help people on low incomes. In fact, they only harm them. Despite all the rhetoric about helping the poor, they are demanding that the minimum wage be raised even more in order to better protect their members from competition.

The minimum wage law forces employers to discriminate against people with low qualifications. Take a teenager with a low educational level and low qualifications, whose services cost, say, only $ 2 an hour. He may agree to work for such a pay in order to acquire a higher qualification and in the future to get a better-paying job. However, the law requires him to be hired only if the employer agrees to pay him $ 2.9 an hour (1979). Unless the employer is willing to add 90 cents for charity reasons to the $ 2 this teen costs, he won't get a job. It has always been a mystery to us why for young man it would be better not to be hired for a $ 2.9 an hour job than to be hired for a $ 2 an hour job.

We believe that the minimum wage law is one of the most discriminatory laws against blacks. First, the government creates schools in which many young people, mostly blacks, study so poorly that they cannot acquire qualifications to earn good money. The government then punishes them a second time by preventing them from offering their workforce for low wages that would encourage employers to train them in the workplace. And all this in the name of helping the poor.

An alternative to imposing wage rates is to directly limit the number of those who could take a given job. Healthcare is an excellent example, as much of the work of community health organizations has focused on limiting the number of practicing doctors. Successful capsizing, as well as imposing wage rates, requires government assistance.

For most workers, the most reliable and effective protection is having multiple employers. Due to the need for his services, the employer is interested in paying him the full cost of his labor. If his own employer does not do it, then someone else will readily do it. Competition for his services is the real defense of the worker. When workers receive higher wages and Better conditions of labor in a free market, when they receive a raise as a result of competition between firms for the best workers and as a result of competition among workers for better jobs, these higher wages are not paid at the expense of others. They can only be a consequence of increased labor productivity, increased capital investment, and an increase in the diversity of skills and craftsmanship. The whole pie gets bigger, the bigger slice goes to the employee, but also to the employer, investor, consumer, and even the tax collector. This is how the free market distributes the fruits of economic progress among people. This is the secret of the tremendous improvement in working conditions over the past two centuries.

Chapter 9. The cure for inflation

Money. The existence of a common medium of exchange is based on an agreement that owes its existence to the mutual recognition of what is to some extent fiction. Agreement or fiction are not ephemeral things. Although the value of money rests on fictions, money serves an extremely useful economic function. At the same time, it is a kind of veil. The "real" forces that determine the wealth of a nation are the abilities of its citizens, their diligence and ingenuity, the resources at their disposal, the way of their economic and political organization, and so on.

Strikingly different things have been used as money at one time or another. The word pecuniary [monetary] comes from the Latin pecus, meaning cattle, one of many things that was used as money. The objects used as money had one thing in common - they were accepted at a certain place and at a certain time in exchange for other goods and services with the confidence that others would accept them in the same way.

The faster growth of the amount of money in comparison with the amount of goods and services leads to inflation, to an increase in prices expressed in this money. Today, when all recognized means of exchange have nothing to do with goods, the amount of money is determined in each major country by the government. The government, and it alone, is responsible for any dramatic increase in the amount of money. It was this fact that was the main source of confusion with the causes of inflation and the means of curing it.

No government wants to take responsibility for causing inflation. Government officials always find some kind of excuse: greedy businessmen, demanding labor unions, profligate consumers, Arab sheikhs, bad weather, and any other reason that has even the appearance of plausibility. No doubt businessmen are greedy, trade unions are demanding, consumers are profligate, Arab sheikhs have inflated oil prices, and the weather is often bad. All this can lead to an increase in prices for certain goods, but cannot cause an increase in the price level. This can lead to temporary spikes in inflation up or down, but it cannot cause permanent inflation for one very simple reason: None of the purported culprits have the printing press at their disposal.

Why are modern governments increasing the amount of money so quickly? Why do they cause inflation, realizing all its danger? Inflation occurs when the amount of money increases significantly faster than production, and the faster the amount of money per unit of output increases, the higher the inflation rate. In the United States, the accelerated growth in the amount of money in circulation over the past fifteen years has occurred for three interrelated reasons: due to the rapid growth of government spending; because of the government's full employment policy; because of the erroneous policy of the Federal Reserve System.

Funding government spending by increasing the amount of money tends to be extremely attractive to the President and Congress. This gives them the opportunity to increase government spending - handing out sweets to voters - without legislating additional taxes and loans from the population.

Inflationary income. Funding government spending by increasing the amount of money seems like magic, like getting a substance out of the void. Let's take a simple example: the government is building a road by paying expenses with freshly printed Fed banknotes. It looks like everyone's gotten better. Road builders are paid and can buy food, clothing, and pay for housing. Nobody pays higher taxes. At the same time, a new road appeared where it did not exist before. Who paid for this? The answer is that all the owners of the money paid for the road.

The additional amount of money increases prices if it is used to induce workers to build the road rather than engage in any other productive activity. This price increase persists as the surplus money circulates in the stream of expenses, which moves from workers to sellers of goods, from these sellers to others, and so on. The rise in prices means that money that people used to have can now buy less than before. Additional printed money is equivalent to cash tax. If the extra money drives up prices by 1%, then each money holder will end up taxing 1% of their cash balances. The physical equivalent of these taxes are goods and services that could have been produced with the resources expended on the construction of the road.

John Maynard Keynes wrote about inflation after the First World War: right ways overthrowing the existing foundations of society than spoiling the currency. This process attracts all the hidden forces economic laws on the side of destruction and does it in such a way that not a single person in a million is able to diagnose. "

The analogy between inflation and alcoholism is instructive. When an alcoholic drinks, there is a positive effect first; negative consequences come the next morning. When a country plunges into inflation, the initial effect appears to be positive. Increasing the amount of money allows those who have access to it - primarily the government these days - to spend more without forcing anyone to spend less. The number of jobs is increasing business activity brightens up, almost everyone is happy - at first. This is a positive consequence. The increase in spending then leads to higher prices: workers find that their wages, even if they have increased in dollar terms, have less purchasing power; businessmen find that their costs have increased so much that additional sales will not be as profitable as expected unless prices can be raised even further. Negative consequences are beginning to appear: rising prices, falling demand, inflation combined with stagnation.

Treatment for alcoholism is easy to administer: stop drinking. But it is difficult to fulfill, since this time the negative consequences come earlier than the positive ones. An alcoholic who quits drinking experiences severe torment until he awaits a happy state when the irresistible urge to drink disappears. Inflation is the same. The initial side effect of a slowdown in the growth rate of the quantity of money is agonizing: a slowdown in economic growth and a temporary increase in unemployment, which are not at first accompanied by a decrease in inflation. The beneficial effect will manifest itself in about a year or two in the form of lower inflation, economic recovery, and capacity building for rapid non-inflationary growth.

History knows no examples of ending inflation without an intermediate period of slowing economic growth and increasing unemployment. On this empirical foundation rests our judgment that there is no way to avoid the side effects of inflation treatment. However, they can be mitigated. The most important way to mitigate side effects is to slow inflation gradually but steadily — the course must be announced in advance and must be followed consistently to inspire confidence.

Progressiveness is needed to give people time to re-adjust their agreements, as well as to push them to do so. Many people are bound by long-term contracts - on employment, on the provision and receipt of cash loans, on manufacturing or construction - which are based on the expectation of the likely rate of inflation. These long-term contracts are making it difficult for inflation to drop sharply and mean that such an attempt will be a huge loss for many. If you give people time, these contracts will be completed, renewed, or renegotiated so that they can adapt to the new situation. Another tool that has proven to be effective in mitigating the adverse side effects of inflation treatments is the inclusion of an automatic inflation adjustment mechanism known as a sliding scale in long-term contracts.

For example, loans are usually provided in a fixed dollar amount for a fixed period of time with a fixed annual rate percent, say, $ 1,000 per year at 10%. The alternative is to set the interest rate not at 10%, but say, 2% plus inflation, so that at 5% inflation, the interest rate is 7%; with inflation of 10%, the rate will be 12%. Or you can agree that the debt should be repaid taking into account inflation. In our simplified example, the borrower would owe $ 1,000, adjusted for inflation, plus 2% for using the loan. With inflation of 5%, he will owe $ 1,050, and with inflation of 10%, he will owe $ 1,100; in both cases 2% will be added for the loan.

Chapter 10. The tide is changing

Our own history bears witness to the importance of an intelligent climate. This climate shaped the activities of a remarkable group of people who gathered in 1787 at Independence Hall in Philadelphia to write the constitution of the new country in which they were involved. They were immersed in history and were greatly influenced by contemporary public opinion in England. They viewed the concentration of power, especially in the hands of government, as the greatest danger to freedom. Based on this, they prepared a draft Constitution. This document was aimed at limiting the power of the government, maintaining the decentralization of power, giving a person control over his own life.

Later in the 19th century and in the early decades of the 20th century, the intellectual climate in the United States began to change. There has been a shift from a belief in individual responsibility and reliance on the marketplace to a belief in public responsibility and reliance on government. Once the change in public opinion was massive, as it happened after the Great Depression, a constitution created by a completely different intellectual climate could at best only slow the increase in government power, but not prevent it.

Today, inflation, high taxes and sheer inefficiencies, bureaucracy and overregulation resulting from the increased role of government are forcing people to take the initiative in their own hands, looking for ways to get around the obstacles posed by the government. Pat Brennan turned into a celebrity of sorts when she and her husband entered into competition with the United States Postal Service in 1978. They opened a basement facility in Rochester, New York, which ensured that in downtown Rochester, packages and letters were delivered on the same day they were sent and at a lower cost than the Postal Service. Their business soon began to flourish. Of course they broke the law. The postal service sued them, they made it to the Supreme Court and lost. Local businessmen provided financial support to them.

Pat Brennan stated the following: I think we are in for a silent riot, and we may be just the beginning. Look, people are opposed to bureaucrats, although several years ago they did not even dare to think about it in fear that the authorities would crush them ... indifferent. So this is not a question of anarchy, but the fact that people are beginning to look at the power of bureaucrats in a new way and reject it. "

Interests directed versus unorganized interests. Fragmentation of power and conflicting government policies are rooted in the political realities of a democratic system that operates on the basis of concrete and detailed legislation. Such a system tends to give excessive political power to small groups with clearly directed interests, to place more emphasis on the explicit, direct and immediate consequences of government action than perhaps the more important but hidden, indirect and remote consequences, to set in motion a process that brings about sacrificing the common interest, placing it at the service of special interests, and not vice versa. In politics, the "invisible hand" acts exactly the opposite of the "invisible hand" of Adam Smith. For people with the intention of promoting a common interest, an “invisible political hand” leads to the promotion of a special interest, contrary to their own intentions.

Consider the government's program to favor the merchant marine by subsidizing shipbuilding and trading operations, and assigning much of the coastal trade to US-flagged ships. Taxpayer costs are estimated at approximately $ 600 million, or $ 15,000 per year, for each of the 40,000 employed in the industry. Shipowners, managers and workers have a very strong interest in adopting and implementing these measures. They spend lavishly on lobbying and political donations. On the other hand, if you divide $ 600 million by the 200 million population, that's $ 3 per person per year, or $ 12 for a family of four. Who among us will vote against a congressional candidate just because he imposed these costs on us? How many of us would think it wise to spend money to prevent these measures, or at least spend time getting information about such things?

Bureaucracy. City meeting in New England is an image that immediately comes to mind. The people who are running know and can control the people who are running; each person can express their point of view; the agenda is short so that everyone can get enough information on both important and minor issues. As the scope and role of government expands — to cover a wider area or population, or to perform a wider range of functions — the bond between the governed and the governor weakens.

The bureaucracy required for government to function is increasing and wedging more and more between citizens and the representatives they choose. It becomes, on the one hand, a mechanism through which special interests can achieve their goals, and on the other hand, a bearer of an independent special interest, thus acting as an important component of a new class,

Almost a hundred years ago A.V. Dicey explained why rhetorical appeals to the general interest are so compelling: “The beneficial effects of government intervention, especially in legislative form, are manifested directly, directly and, so to speak, graphically, while the harmful effects of this are revealed only gradually and indirectly and are outside the field our vision. Therefore, the majority of people will inevitably look with excessive favor on government intervention. "

In our opinion, we need the equivalent of the First Amendment to the Constitution to limit the power of government in the economic and social spheres - a kind of economic bill of rights... A written constitution is neither a necessary nor a sufficient condition for the development or maintenance of a free society. Although Great Britain has always had only an "unwritten" constitution, it has become a free society. Many Latin American countries, whose constitutions repeat the United States' constitution practically word for word, have not succeeded in establishing a free society. For a written or unwritten constitution to be effective, it must be supported by public opinion, the majority of the population and its leaders. When the intellectual climate of a society changes, so does politics.

As the wave of public opinion supporting New Deal liberalism has reached its peak, the nationwide debate sparked by the development of such a Bill of Rights will ensure that public opinion will turn towards freedom rather than totalitarianism. It will spread a better understanding of the challenges posed by the increased role of government, and possible ways their solutions.

Limiting taxes and budgetary spending. Passing the amendments will restrict the budget and change the basic environment in which legislators make decisions. The goal is to get special interests to compete with each other for a share of the fixed pie, rather than allowing them to collude with each other and increase the pie at the expense of taxpayers.

The gradual decline in the share of our income that is spent by the government will serve as a major contribution to the development of a freer and stronger society. But that will be just one step in that direction. Many of the most destructive forms of government control over our lives do not require large expenditures from the government: for example, control over tariffs, prices and wages, licensing of employment, regulation of production and consumption. In this respect, the most promising seems to be the establishment of general rules that limit the powers of the government.

International trade. Today, the Constitution states: "No state may impose any import or export duty or levy without the consent of Congress, unless it is absolutely necessary to comply with the state's inspection laws." The amendment can be worded as follows: "Congress cannot impose any duties or taxes on imports and exports, except in cases where it may be absolutely necessary for the implementation of inspection laws." The attack on all tariffs consolidates our interests as consumers against our special interests as producers.

Control over wages and prices."Congress should not pass a single law restricting the freedom of sellers of goods or labor to set prices for their products or services."

Employment licensing."No state shall enact or enforce laws that limit the right of any citizen of the United States to engage in any activity or profession of its choice." All three previous amendments can be superseded by a single amendment, which is modeled on the Second Amendment to the Constitution (guaranteeing the right to possess and carry weapons): - or by the state. "

Taxation. On paper, tax rates are highly differentiated - from 14 to 70%. But there are so many loopholes and special privileges in the law that high stakes are almost one appearance. A low flat rate of less than 20% on all revenues will generate more revenue for the budget than the existing cumbersome structure.

Corporate income tax also suffers from many disadvantages. This is a hidden tax that the population, without realizing it, pays through prices when purchasing goods and services. It creates double taxation of corporate income: first time - corporations, second time - shareholders after distribution of income. It punishes capital investment and is thus a hindrance to productivity growth. It must be canceled.

An amendment is needed here to remove the existing Sixteenth Amendment authorizing taxes on income and replace it with the following: “Congress has the power to establish and levy taxes on income individuals from whatever source they would be obtained, without the distribution of these taxes among the states and without regard to any censuses or estimates of the population, provided that a flat tax rate applies to all income in excess of professional and business expenses, and fixed personal discount. The word "person" excludes the corporation and other artificially created persons. "

Inflation protection. An extension of the Fifth Amendment provision is required, stating that “no one shall be deprived of his life, liberty or property without due process of law; private property should not be taken for public use without fair compensation. " The related amendment should establish that: “All contracts between the US government and other parties entered into in dollars and all amounts in dollar terms contained in federal laws, should be adjusted annually taking into account changes in the general price level in the previous year. "

Conclusion. Two intertwined ideas of personal freedom and economic freedom have found their greatest realization in the United States. These ideas are still with us in many ways. We are saturated with them. They form the basis of our being. But we deviated from them. We have begun to forget the fundamental truth that the greatest threat to human freedom is the concentration of power in the hands of government or anyone else. Fortunately, we are awakening. We again recognize the danger of a super-governed society, come to understand that good goals can be perverted by unsuitable means and that trust in the ability of free people to control their own lives in accordance with their own values is the surest way to the fullest disclosure of the potential of a great society.

Economist Milton Friedman was born in Brooklyn, New York City's underprivileged neighborhood. The future Nobel laureate came from a family of Hungarian émigrés - textile merchants. Soon the Friedmans with the baby in their arms moved to New Jersey, where they settled in the town of Rahway. Here in 1928 Milton graduated from high school with the highest marks in the exact sciences.

The young man continued his studies at Rutger University at the Faculty of Economics and Mathematics. After receiving a specialty, Friedman planned to work as a secretary, but life decided otherwise. Arthur Barnes and Homer Jones are economists whose acquaintance changed Milton's plans. New friends managed to convince the young man that the economy is a way to bring the country out of a depression.

After a brilliant graduation from Rutgers University, the up-and-coming young economist was asked to continue his studies at Brown and Chicago. Milton chose a Chicago scholarship, earning his master's degree in 1933. But the young scientist did not stop there, continuing to study the theory of statistics under the guidance of the leading American economist G. Hotelling.

Academic success did not help Milton find a teaching position. He was forced to leave Chicago for Washington in 1935, where he found work on the Natural Resources Committee. Having become acquainted with Roosevelt's New Deal, Milton came to the conclusion that the state's economic policy is ineffective.

Since 1937, Friedman began a long-term collaboration with the Bureau of Economic Analysis. Together with leading economist Simon Kuznets, under whom Friedman worked, the scholars are writing Income from Independent Individual Practice. Later, the book became the basis for Friedman's dissertation. Since 1941, the scientist worked for the Ministry of Finance, doing tax analysis. After receiving his doctorate in 1946, Milton began teaching at the University of Chicago.

Friedman predicted the emergence of electronic currencies.

Friedman's main ideas and projects

During his long life (the economist died in 2006), Friedman published a number of books and put forward many innovative economic theories. So, working as a consultant during the implementation of the Marshall Plan, he suggested that a fixed exchange rate would lead to the collapse of the national currency. This is what happened in the European economy in the 70s, so now most countries use a floating exchange rate.

The scientist received the Nobel Prize for economic research in 1976. But he attributed to his merits not only the receipt of an honorary award, but also the abolition of military service with the subsequent transition of the US army to contracts.

Friedman advocated an end to government intervention in the American economy, but the scientist considered his own theory of consumer behavior to be his main achievement.

Since 2002, there has been an award named after the scientist. It is presented annually by the Cato Institute and is called “For the Development of Freedom”.

The incredible performance of a scientist is the key to his success. Born into poverty, he has managed to become the world's leading economist through an irresistible desire for knowledge.

Milton Friedman
Milton friedman
Born: July 31, 1912
Place of birth: Brooklyn, New York, USA
Died: November 16, 2006
Place of death: San Francisco, USA
Country: USA
Scientific area: economics
Alma mater: University of Chicago
Known As: Creator of the Theory of Monetarism, Pioneer of the Chicago School

Milton Friedman (eng. Milton Friedman; July 31, 1912, Brooklyn, New York, USA - November 16, 2006, San Francisco, USA) - American economist, Nobel Prize laureate 1976 “for achievements in the analysis of consumption, history of money circulation and the development of monetary theory, as well as for a practical demonstration of the complexity of economic stabilization policy ”.

Graduated from the University of Chicago; PhD, Columbia University; professor at Chicago and Cambridge (1953-1954). President of the American Economic Association in 1967. He was awarded the J. B. Clark Medal (1951). Milton Friedman's wife- Rose (Rose) Friedman (1910-2009) was also a renowned economist. In honor of the scientist, since 2002, the Cato Institute has been presenting the "Prize Milton Friedman for the development of freedom ".

Milton Friedman was born on July 31, 1912 in the New York district of Brooklyn in a family of recent Jewish emigrants from Beregovo (Austro-Hungarian Empire, now Ukraine).
Graduated from Rutgers (1932) and Chicago (1934) universities. In 1932 he became a bachelor in economics and mathematics. During his studies, his views were influenced by faculty assistants and future chief economists in America - Arthur Burns, who later became director of the US Federal Reserve, and Homer Jones, one of the recognized experts in the field of interest rate theory. Thanks to Homer Jones, Friedman wrote thesis in economics and received recommendations for in-depth study of this area at the university. In 1933 he received his master's degree and was a postgraduate fellow at Columbia University.

In the fall of 1934 Friedman again transferred to the University of Chicago, where he worked as an assistant researcher until 1935. He then became an employee of the US National Committee for Natural Resources, took part in a large-scale consumer budget research project for the committee, and in 1937 began a long-term collaboration with the National Bureau of Economic Research, where he worked as an assistant to Simon Kuznets.

For some time Friedman taught at the University of Wisconsin (1940). In 1940, Kuznets and Fridman completed the joint study Income From Independent Professional Practices, which became the basis for Friedman's doctoral dissertation.

From 1941-1943, Friedman worked for the US Treasury Department in the tax research group. Until the end of World War II, he served as Deputy Director of the Military Statistical Research Group at Columbia University.

After the end of the war, Friedman received his doctorate and returned to the University of Chicago to work as a professor of economics (1946).

In 1950 Friedman advised the implementation strategy of the "Marshall Plan" developed by J. Marshall, came to Paris, where he defended the idea of floating exchange rates. He predicted that the fixed exchange rates introduced as a result of the Bretton Woods accords would eventually collapse, as happened in the European economy in the early 1970s.

Milton Friedman was awarded the 1976 Nobel Prize in Economics "for his achievements in the analysis of consumption, the history of money circulation and the development of monetary theory, and for his practical demonstration of the complexity of economic stabilization policies."

In his Nobel speech, he returned to a topic that had been raised in 1967 when he addressed the American Economic Association - to reject Keynes's remarks about the persistent relationship between the rate of inflation and unemployment. Friedman came to the conclusion that the Phillips curve nevertheless shifts upward over a long period under the condition of a natural increase in unemployment.

On November 16, 2006, Milton Friedman passed away in San Francisco, California from a heart attack at the age of 94.

A number of Friedman's works were created in collaboration with his wife over 68 years - the economist Rose Friedman.

A family
The wife is the economist Rose Friedman.
Son - David Friedman, American economist, writer and theorist of libertarianism.
Grandson - Patri Friedman, activist and theorist of political economy, inventor of the concept of sistadding.
Professional position

Friedman recommends completely abandoning consistent monetary policy, which still leads to cyclical fluctuations, and adhere to the tactics of constantly increasing the money supply. In Monetary History of the United States (1963), Friedman and Anna Schwartz analyzed the role of money in economic cycles, particularly during the Great Depression. Later, Friedman and Schwartz co-authored the monumental studies Monetary statistics of the United States (1970) and Monetary trends in the United States and the United Kingdom. United Kingdom, 1982).

Nevertheless, Friedman himself considers his main achievement in economic theory to be the Theory of Consumption Function, which claims that people in their behavior take into account not so much current income as long-term income.

Friedman is also known as a consistent advocate of classical liberalism. In his books Capitalism and Freedom and Freedom of Choice, he argues that government intervention in the economy is undesirable. Despite the enormous influence in American politics, out of the 14 points he proposed in "Capitalism and Freedom", only one has been implemented in the United States - the abolition of mandatory conscription.
Criticism

Friedman's views (as well as the Chicago School of Economics in general) are sharply criticized by Marxists (including Western ones), leftists, anti-globalists, especially Naomi Klein, who considers him guilty of negative developments in the Chilean economy during the Pinochet dictatorship and in Russia during the Yeltsin presidency. ...

In their opinion, a completely free market leads to the impoverishment of the vast majority of people, an unprecedented enrichment of large corporations; the withdrawal of the education system from the control of the state leads to the transformation of school into a business, in which a full-fledged education becomes inaccessible to many citizens, a similar situation is observed in medicine.
Main works
Economic work

The Role of Monetary Policy (1967)
Money and economic development (1973)

Political works

Capitalism and Freedom (1962)
Free to Choose (1980).

Works on statistics
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Two Lucky People: Memoirs. - Chicago: The University of Chicago Press, 1998 .-- 660 p. - ISBN 978-0-226-26414-1 (hardback); ISBN 978-0-226-26415-8 (paper) (with Rosa Friedman). Favorite chapters

Bibliography

In the collection Theory of consumer behavior and demand / Ed. V. M. Galperin. - SPb .: School of Economics, 1993:
Friedman M., Savage L. J. Utility Analysis for Choosing Among Risk-Assuming Alternatives. - S. 208-249.
Friedman M. Marshallian Demand Curve. - S. 250-303.
Friedman M. Methodology of positive economic science // THESIS. - 1994. Issue 4. - S. 20-52.
Friedman M. Quantitative theory of money. - M .: Delo, 1996 (?).
Friedman M. If money spoke. - M .: Delo, 1998.
Friedman M. Fundamentals of Monetarism. - M .: TEIS, 2002.
In the collection of Friedman and Hayek on freedom / Series "Philosophy of Freedom", vol. II. - M .: Socium, Three squares, 2003:
Friedman M. The relationship between economic and political freedom. - S. 7-26.
Friedman M. The Mighty Hand of the Market. - S. 27-72.
Friedman M. Freedom, Equality and Egalitarianism. - S. 73-106.
Friedman M. Capitalism and freedom. - M .: New publishing house, 2006 .-- 240 p. - (Library of the Liberal Mission Foundation).
Friedman M., Friedman R. Freedom to Choose: Our Position. - M .: New publishing house, 2007 .-- 356 p. - (Library of the Liberal Mission Foundation).
Friedman M., Schwartz A. Monetary history of the United States 1867−1960. - K .: "Vakler", 2007. - 880 p. (Review of the magazine "Business").
Friedman M. Market as a means of society development // Publications of the "Free Environment" project.

Literature
Illarionov A. Friedman and Russia: The fate of a great economist as an answer to the question why some countries prosper, while others decline // Cato Institute Publications. - 18.11.2007
Ebenstein L. Milton Friedman: A Biography. - New York and Basingstoke, England: Palgrave Macmillan, 2007-272 p. - ISBN 978-1-4039-7627-7.
Usoskin V.M.Money World of Milton Friedman. - M .: Nauka, 1989.