Yes, sir? Dr. Friedman, is there an economic system
now or historically that has allowed free enterprise alone to determine which direction
the economy goes? And secondly- I have a three-part question.
Okay, fine. Secondly, in economics you have resources
and how to best use these resources is a value judgment, but it seems to me you can have
either free enterprise decide or government decide or some combination. Then don't you
think a combination would be the best alternative? And thirdly, if I can remember it, isn't there
some benefit to having the government steal our money? Which is what they do effectively;
they'll hold a gun to our head and say pay us 40 percent of your income or go to jail.
They take this money and they give it mostly to government employees. Well, the government
employees spend it. The marginal propensity to consume is pretty high. So the people who
were robbed have to do something creative to get the money back, and isn't this creative
activity the real wealth of . . . ? Well, I take it that they would have to be
still more creative if 98 percent were being spent by the government.
(laughter) No, the third part of your thing is just pure
fallacy from beginning to end, (laughter)
... because if those people who are now government employees were employed in creative activity
and productive activity they would also be spending their money, and we'd have a greater
total around. All you're doing...let's suppose for a moment- take the extreme case, that
that 40 percent is being used just to have people sit around. The fact that they spend
their money doesn't alter the situation. The only product there is is what the 60 percent
produce, and that 60 percent is divided among 100 percent. If those 40 percent were also
producing goods, then there would be more goods to go around among everybody. You are
just involved in a fallacy of looking at dollars, which is important sometimes, instead of looking
at the real product, the goods and services that people produce and people consume. Spending
isn't good; what's good is producing. What we want to have is more goods and services.
And as I say, the obvious indication that's clear is that if your logic were right, it
would apply for 50 percent, 60 percent, 70, 90, 98, 100 percent, and obviously you would
see that that would be a bunch of nonsense at that stage.
It is desirable to have some money spent by government for those things, those services
that we believe we can get more usefully and more effectively through government. If people
are getting their money's worth, fine. That's why it's very desirable to have governmental
expenditures take place at as local a level as possible, because you as a citizen of a
small community can judge whether you are getting your money's worth. You can decide
that you want to spend it. But when it comes to the federal government you tend to think
that you are spending somebody else's money, and you are in a way, but he's spending yours.
Now let me go back to the first two items. Is there any example of a society in which
the fundamental determination of the direction of activity was determined by free enterprise,
by free competition? Of course, most of history, most of societies today. Government does have
40 percent of our income that it spends, but it wastes half of it, so that as an effective
matter 80 percent of our resources are being determined by free enterprise now. And if
I go back to the whole period of the nineteenth century, to the whole period of the great
growth of the U.S.; to Britain in the nineteenth century, the period when Britain emerged as
a leader of the nations, at the height of Britain's power as the leading nation in the
world, at the time of Queen Victoria's jubilee--in 1899 I think it was or something- celebrating
the fiftieth anniversary, the golden jubilee of her reign--when Britain ruled the waves
and had an empire on which the sun never set, total government spending in Britain was 10
percent of the national income. So of course there have been many examples over time in
which free enterprise has dominated and predominantly been the major source of determination. Today
it's true in Hong Kong, in Taiwan, in many countries around the world.
Alright now, your second question is: does not the allocation of resources involve value
judgments and isn't it better to have that value judgment shared by government and the
people? Who is government? What's government? Is that something other than you and me? Is
that something other than us operating through a different mechanism? Who can make value
judgments? Only people. Resources don't make value judgments; governments don't make value
judgments; people make value judgments. And the question is: what is the most effective
way in which we as people can jointly, cooperatively express our values? Now, we express some of
them individually in the family at home, separately, people, you and I alone. We express some of
them by doing things for ourselves. We express some of them through voluntary groups--Boy
Scouts, churches, charitable organizations. We express some of them through cooperation
on a broader scale- on a free market through business enterprises that serve as intermediaries
between people selling their productive services, producing products and selling the products.
We express some of our values through doing things through government, and there is nothing
wrong with doing that, provided we keep in control and don't let the government become
the master instead of the servant. And the real problem is, in my opinion, that
as we move from the local community to the state, from the state to the federal government,
it becomes increasingly difficult for us to control the mechanism we have established
and that mechanism tends to control us. That was the great wisdom of the Founding Fathers
of this country, of the people who wrote the Constitution. That constitution was designed
to limit government's powers in order to preserve the freedom of the individual, and what has
happened in the past fifty years is that the fundamental character of the Constitution
has really been changed. We have broadened enormously the conception of what is a governmental
power and what is not, and have departed from that limited government until we have created
a Frankenstein, an unlimited government that threatens to destroy us.