#457 – Jennifer Burns: Milton Friedman, Ayn Rand, Economics, Capitalism, Freedom

30:00And they have a whole chapter on the Great Depression. And they, what they've literally done, Schwartz has done most of this. They've gone, Schwartz has gone to banks and said, show me your books. And then she's added up, column by column. How much money is in your vault? How much money is on deposit? How much money is circulating? And so they literally have graphs. You can see them in the book of how much money has been circulating in the US at various different points in time. And when they get to the Great Depression, they find the quantity of money available and the economy goes down by a third.

30:30And in some ways, this is completely obvious because so many banks have failed. And we don't have any type of bank insurance at that point. So if your bankers under your savings are there, the money essentially vanishes. And it's fractional reserve banking, right? So you've put in, they can loan up to 90 % on their deposits. And so Friedman and Schwartz present this argument that what really made the Great Depression so bad was this drop in the amount of money, the 30 % drop in the money. They called the Great Contraction. And then they go further and they say, well, how did this happen? And why?

31:09And they pinpoint the Federal Reserve, which is a fairly new institution at that time. And they say, what did the Federal Reserve do? The lender of last resort? What did it do in the face of what they're depicting as a massive unprecedented liquidity crisis? And they find it's not really doing much. And they really dig into the details. And they find that the Federal Reserve has gone through a sort of personnel change and some of the key leaders in the 1920s, Benjamin Strong is one of them. He's now deceased. And the dominance of the New York Federal Reserve, which in their telling is global, it's interconnected.

31:48It's seen a lot of financial things come and go. And they believe that the New York Fed had the understanding to recognize this as a liquidity crisis. We should be very generous. We should support all the banks. Their influence has diminished for the kind of banks that are more, they don't say like the rubes and the hicks, but it basically is. It's like people in charge don't know what they're doing. And so the Fed pursues this kind of policy of masterly inactivity. They don't see it as a problem. They don't do much. There's an enormous liquidity crisis. And that's their version of what the Great Depression is all about.

32:24That it's a financial system meltdown. It's a liquidity crisis. And that it in some ways, well, in many ways, they argue very strong counterfactual argument. The Federal Reserve could have prevented it. And it did not. And so it becomes then an institutional failure and a political failure, not a failure of capitalism as a system. And so this book comes out, it's a blockbuster. And even those economists, you've been like, Friedman is a crank. I don't buy it. Are like Friedman and Schwartz are on to something. Milton Friedman on a Schwartz are onto something. And so that really changes the game.

33:04And this is also one of his most influential contributions. Because Friedman and Schwartz becomes the playbook for the Federal Reserve. And we have lived through this, right? The financial crisis, the Federal Reserve is ready to loan. COVID, the Federal Reserve is all kinds of new things. Because no Federal Reserve chair wants to be in Friedman and Schwartz 2 .0 that somebody writes, or they're the bad guy who left the economy meltdown. So the specifics of what they say to do have obviously evolved as the system has changed. But this is a playbook for how to deal with economic crisis. It's Friedman and Schwartz.

33:44And so it's absolutely fundamental. And that is really going to be the place he makes his mark. There's a lot of things to say here. So first, the book we're talking about is the Amano Terry history of the United States, in part for which Milton Friedman won the Nobel Prize. You've also mentioned the influence of the Great Depression. If you're going to even just rewind to that. Yes. So he went to, I guess, college and Rutgers. That's right. And he was, you know, mathematical perclivities. So he was kind of wanted to be a mathematician. And so it's kind of a cool crossroads. It's interesting how the right time, the right person, arrives.

34:26So you describe this really well. So he had this choice to be a mathematician or an economist. An economist is University of Chicago, mathematician is Brown University, whichever. And then this is also the beginnings, as you've described, of mathematical economics. So he fits in nicely into this using I think you said the number of equations started going up for paper, which is a really nice way to put it. So really the right person at the right time to try to solve this puzzle of the economy melting down. It's so interesting. It's just one human. It's just from just zooming in. I know a single human making a decision about life.

35:11And it's it's hard to know when you're in it that the world is melting down from an economics perspective. And then I could do something about this to figure out what it is. And also I'm going to reject the mainstream narrative about why this happened. Yeah. So the other piece of the puzzle when he goes to Rutgers, he thinks he'll be an actuary. So Milton Friedman's family, his parents are immigrants, Jewish immigrants from Eastern Europe. They're pretty atypical and that they don't stay in New York, you know, and they move to Rauwe, New Jersey. And they put together a fairly middle class life as kind of they have a shop, they do some wholesale buying and selling.

35:53And then his father dies when he's 16. His life becomes more precarious. But it's never as precarious as he makes it up to be. He's got three older sisters. They are in a good living. And suddenly they all have better grades in high school than he does. But he's the one that goes to college. And but it's actually really important that he loses his father figure because he's then looking for other father figures. And he meets two Rutgers. One is Arthur Burns who will go on to have a huge influence in his career. No relation to me, by the way. But Arthur Burns is like him of fellow Jewish immigrant boy on the make.

36:31He's older. And he's making a career as an economist. And then there's Homer Jones who has gone to the University of Chicago and is studying with Frank and I at Chicago and says you have to go to Chicago. So he has these two mentors and and Burns in particular suggests, oh, I could be an economist. That could be my career path. You know, the idea to be an actuary for an insurance company. I'm not sure where he got that idea, but he just thought that was something he could do as someone who was good at math. And so the college really opens the perspective opens the door. And then I think it's really key that he again, he's he doesn't get he doesn't get an explanation that he buys for the great depression.

37:11So then he's looking for one. And the math part is really interesting aspect of his career. Now he actually comes to Chicago to study with a mathematical economist. Henry Schultz, but he gets there and he thinks Schultz is kind of dumb. He really does. He's incredibly arrogant and he he just thinks this guy's not that smart. And it seems that I mean, Schultz did some really important work in the early stages of mathematical economics, but a lot of the oral histories about him are like, yeah, he wasn't that bright. So Friedman's maybe on to something. So he falls into the set of students who are really enthralled with his other professor Frank Knight.

37:55And Frank Knight is against math and economics. Frank Knight is like, you know, a neoclassical economist, but not a mathematical economist. He's an old school liberal. He's really concerned about liberal democracy, economic liberalism. And Friedman is very deeply influenced by Knight. And he continues to pursue mathematical economics. So he'll go for part of his graduate career. He goes to Columbia University where he actually gets his PhD from and he works with a mathematical economist there. And so he comes out trained in what will eventually be econometrics, statistics and economics, early publications or and statistics.

38:34But it's not really where his intellectual heart and soul are. And eventually, he will turn very profoundly against mathematics in economics and become a sort of heterodox strain throughout 20th century economics. It says simple models are better. We need to work on empirical work often, empirical data, not construct elegant models. And and becomes really sort of countercultural within economics in that way. And the test of a good model is it should actually predict stuff that happened. It should predict stuff that happened. It should tie back to what's going on. I'm wondering which direction to go.

39:12So first, actually, if we get zoom out on the different schools of economics, just the basics. You mentioned neoclassical, we mentioned Kenziean economics, we mentioned what else do we mention? Well, the Chicago School of Economics. Where does Austrian economics fit into that pile and Marxian economics? And can we just even just linger and try to redefine Kenziean economics and Chicago School of Economics and neoclassical economics and Austrian economics because there's some overlap and attention. Okay, so schools of economics. So we could start with classical economics. Classical economics, we could think of Adam Smith as kind of your classic classical economists, the founder of the discipline.

39:57Classical economics does not really use math is very close to political economy. It's concerned with as Smith puts it, the wealth of nations, it's concerned to some degree with distribution, it's concerned to some degree with what makes a good political system. And what tends to really define classical economics when you're looking from a great distance is what's called the labor theory of value. So where does value come from in classical economics? It comes from the labor that a person puts into it. So maybe this in some ways comes from locks notion of property that you kind of mingle, you know, your labor with the natural world.

40:42We can say labor theory of value. So classical economics concerned with Smith is arguing against mercantilism for more free trade. Often goes by the name of political economy to show it's more capacious. It's thinking of politics and economics. You can still read these books today. The sentences are long, the words are different, but you can still follow along. So the real big transition from classical economics and political economy to economics as it's understood today comes with the marginal revolution. And the marginal revolution is a scientific revolution that happens in a couple of different places simultaneously.

41:23This is one of these things that you see in the history of science. Like, you know, there'll be some breakthrough. Like Darwin has a breakthrough, but like somebody else has sort of the same breakthrough at the same time. You totally, you know, differently. So there's a version of marginalism that's continental. You know, there's a version in the German speaking lands in front in the French speaking lands and in Britain. And they all kind of come together. And the shift is in the theory of value. So the theory of value in marginalism is on the margin. So say you have one apple and you want a second one.

41:59How much is getting going from one apple to two apple worth for you? Probably quite a bit. If you had 10 apples, maybe going to 11 apples doesn't matter that much. The marginal value is less. So what marginalism does, though most importantly, is it opens the door to math and economics. Because it means you can graph this. Now you can depict this relationship graphically. And there's some really interesting work in the history of economics that shows a lot of the people who developed marginalism were looking to physics as a model, physics, the queen of the sciences. And so they were thinking they imported terms from the natural world to describe the social world through the lens of economics terms like equilibrium.

42:50So the idea being that if you looked at a market, a market would reach equilibrium when everybody is bought and sold all that they want. Or the price will settle at an equilibrium price when it's really the demand and supply are matching up. And some of these ideas are things we would pick up at a microeconomics class. Oh yes. This is still out there. This is sort of the basic foundation of microeconomics, marginal analysis. And so in the German speaking intellectual tradition, this is the root of Austrian economics. And people picking up the marginal revolution in the German speaking lands are opposed to the historicists who are thinking in a more evolutionary way about how societies kind of grow and change.

43:41And they have a vision of economic ideas as applying differently to different types of social arrangements. Or the marginalists remember are inspired by physics. And this is a set of natural laws that applies anywhere to any sort of human society. So that's this first really big fissure that we'll see again and again. Are you historically minded? Do certain traits of economic life in here, ad here, and become expressed in certain types of societies? Or are there universal economic laws that flow through any type of society? So that's kind of a juncture, a break. And so marginalism, first people start using really geometry to kind of graph things.

44:29But marginalism is also opening up to the possibility of calculus and the possibility of creating models. But at that point in time, late 19th century, a model is something like a physicist does, like think of like an incline plane and how fast as a ball roll from one to the other. It's a physical representation of the world. And eventually economists will start to create mathematical representations of the world. But we're not quite there yet. So we're late 19th century. We have this we have this fissure. We have this introduction of marginal analysis that marks the juncture from classical economics to economics.

45:03So let's say now we have economics. But we still have this fissure between historical thinking and let's call it natural law thinking. That's not quite right. But physical laws versus contingency. And then in the United States, this ends up mapping onto debates about capitalism. And so more historically minded economists tend to be interested in the progressive movement. And which is invested in taming and regulating industrial capitalism and changing its excesses, you know, factory safety laws, wage laws, working conditions laws. Yet in general, American economists all use marginal analysis just in different ways.

45:50The ones who are more drawn to marginal analysis become known as neoclassical economists. Their neoclassical, the neo is because they're using marginal analysis. The classical is because they don't think we need to change the way the economy operates or the government operates. They're not progressive. Whereas the progressives are saying things like the we need to use social control. The state and the people collectively and democratically need to control the way economics unfolds and make sure things are fair and equal. So that school of thought becomes known as institutional economics in the United States by the 20th century.

46:31So it's part of the progressive movement late 19th century into the 20th century really becomes institutional economics. And it's quite dominant. And the neoclassical economists are still there, but they're very much a minority. And Frank Knight, Milton Friedman's teacher, is one of the minority neoclassical economists. And the institutionalists are much more progressive. Still. Is it fair to say that the neoclassical folks and even the classical folks versus the institutional economics folks, is they have a disagreement about how much government intervention that should be in the economy. So neoclassical is less intervention and then institutional economists, the progressive folks, is more intervention.

47:15Yes, yes, exactly right. So this is the situation in the 1920s. But the other piece I should mention is the first generation of progressive economists were very radical. They were closely allied with the socialist movement with labor radicalism. And many of them lost their jobs at universities. This is kind of kind of connects to the early, the dawn of academic freedom. This is before academic freedom. And they became, they were chasened and became much more mainstream. By the time we get to the 1920s, we don't really have radical critiques of society coming from economists. Much smaller profession, much less important that it is today.

47:58And fairly peaceful, because the 1920s are a fairly peaceful decade in the United States. So this is a situation when the Great Depression hits. And as I mentioned before, the head, the kind of most important institutional economist is Wesley Mitchell. And he has said, he's written a whole book on business cycles. But he doesn't see this business cycle coming and it hits and he doesn't have a good explanation for it. Now, perhaps the preeminent neoclassical economist was Irving Fisher. Now Irving Fisher is big into the stock market and Irving Fisher says some time late summer, 1929, stocks are going ever higher and will continue to go ever higher forever.

48:44And so he loses his reputation after the stock market crash. So so Milton Friedman is stepping into a field in which the greats have been discredited. And there's an enormous economic crisis all around. And everybody's struggling to figure out why the crisis happened. Yes. And the other thing he's stepping into is a world where in the United States, there's a great deal of anger at capitalism, at the system, unemployed people on the street in Europe. There's rising fascist movements, in Asia, there's rising fascist movements. And so everyone's very concerned about this. And Friedman is seeing a lot of this through the lens of Frank Knight, who feels like we are maybe reaching the end of what he calls liberalism.

49:28He calls himself an old fashioned liberalism. We're reaching the end of representative democratic government because representative democratic government cannot solve the social problems. And it had and capitalism as it has developed, Knight is very pro -capitalist, but he says it's generating inequality. And this is putting too many strains on the system. So Knight will become one of the people who helps Friedman think, how do I develop a new theory of capitalism that works in an era of mass democracy, where people can vote and people can express at the ballot box their unhappiness with what's happening economically.

50:08So this larger movement will generate of which, if a hi -hack is a part, Friedman is a part that becomes the very early stirrings of trying to think about a new sort of liberalism, which will eventually be called neoliberalism. Okay, so if we can just linger on definitions of things, so we mentioned what neoclassical is in the institutional economics is what's Kenzie in economics. And the Chicago School of Economics, I guess, is a branch of neoclassical that's a little bit more empirical versus maybe model -based. And Kenzie in his very model, model heavy, more intervention of government. And so the real battle is Kenzie versus everybody else.

50:53That is what eventually comes to pass in the United States and in the kind of overall developed kind of developed profession of economics. The other piece of the puzzle here is the introduction of mathematics. And it's been around the edges, but it will pick up speed in the 1930s like the econometrics society has found that they start publishing. People start using more statistical and mathematical tools to think about economics. And they're given a boost inadvertently by the rise of Kenzie in economics. So Kenzie is trained in the neoclassical tradition. He's an absolutely fascinating figure.

51:32He's been there in the piece negotiations at Versailles. He basically calls World War II. He's like, hey, we're going to have another war here. It caused by Germany because this piece treaty has been, you know, done in such a vindictive way. And people have made such bad decisions. He's there. He sees it happening. And so when the Great Depression unfolds, he basically comes up with a new theory for explaining what's going on. And the previous neoclassical understanding is sort of things go up and things go down. And when they go down, there's a natural mechanism to bring them back up. So when the economy is going down, prices are going down, wages are going down.

52:12Everybody's losing money, but eventually firms are going to realize, hey, I can hire people cheap. Hey, I can buy stuff cheap. I don't have a lot of competition. Maybe I should get in the game here. And then others will start to get in. And then you regenerate prosperity in that way. And so Ken says, sure, that's one theory, but something different is happening right now. Part of why it's happening is because we have work, the working class is more empowered now. They're not simply going to just take low wages and ride them down to the floor. We might not hit the floor. But also he says people might become too anxious to spend.

52:52They might not want to invest. And, you know, Keynes has these discussions of animal spirits, right? He's still enough of a political economist to think not just in terms of human rationality, but what are some other things going on in human beings? And people might decide to sit on their money. They might not invest it. And so what happens then is you could get stuck in a bad equilibrium. So in the neoclassical model of equilibrium kind of restarts and resets itself. And he says, no, we could get stuck here. We get stuck in the depression. And in that case, what has to happen? He says the government stimulates investment and the government itself invests.

53:32And then he argues that, you know, this is a student of his Richard Khan says, you know, as a government invests a dollar, it has like a multiplier effect. A dollar spent by the government kind of ramifies out throughout the economy. So it takes the government and puts it in the center, as opposed to say the banking system or the financial system, which would be the more freedman analysis. And for many economists of freedman's generation, and he's a weird generation, because it's the generation that becomes dominant is just like four years older, the men who become Keynesian economics, but that four years is really important because they come in to graduate school in economics and they get exposed to the new ideas of John Maynard Keynes.

54:11And they, you know, I think it's Paul Samuelson calls it like it was like a South Sea virus that that attacked all of the young, all of the younger economists immediately succumbed and like no one under 50 ever got the disease, right? Because they're, they're thinking is already set. And so Keynesian is, Keynes himself is very suspicious of math and economics. And, and he and freedman, it's fascinating. One of the first books by Yantengerman, a Dutch economist, to use math and economics, he used huge volumes. Volume one, Keynes pans it. Volume two, freedman pans it. So they're, they're in the same page, but what happens is as Keynesianism arrives in the United States.

54:56Franklin Roosevelt is not really a Keynesian. He's kind of an accidental or experimental Keynesian is Keynesian. And there's a bunch of different ideas in the United States that are very similar to Keynesianism. They're not theorized, but they're similar ideas that the government has to do something. So this all comes together and American economists realize that you can construct models in the Keynesian perspective. And if you can use numbers in these models, you can go to Washington DC with numbers. And you seem like you have a, you have a lot more authority. And so math becomes really twin into Keynesian economics.

55:41So the numbers are used as a kind of a symbol of expertise. We really know what the hell is going on because we have some numbers. Right. And we can create a model. And so we can say, okay, in the model, the interest rate is here and taxes are here. So let's play with government spending. Let's make it up. Let's make it down. And then we can get an estimation. It'll spit out. Here's predicted GDP. So the other piece of the Keynesian revolution is it really gets people thinking kind of holistically about the economy as one conceptual unit. And you then have what, Paul Samuelson will end up calling the neoclassical synthesis.

56:22And this is still in economics today. If you take micro, you're going to get supply and demand scarcity, marginal analysis. If you take macro, you're going to get a very different approach. And that's more Keynesian based. And so the idea is that, and this makes sense. I mean, you can think of this from statistics, right? The way things act individually versus when they're all added together, it can be very different. So, so there's this kind of uneasy piece where economists are using kind of neoclassical tools to analyze individual behavior and individual market behavior. And they're shifting to a different paradigm when they think about the economy as a whole.

56:58And in this paradigm of the economy as a whole, the federal budget, the taxing and spending power of the federal government become paramount. And that is called the fiscal revolution. And that's really the essence of Keynesianism. But the key thing to remember is that Keynesianism and Keynes are different. And there's this famous episode where John Maynard Keynes comes to DC and he goes to dinner and he comes back and he says to one of his friends in London, he's so yeah, it was really interesting. I was the only non -Keynesian there. Yeah. Yeah. So Keynesianism is more government intervention, fiscal policy.

57:39So put the government at the center of influencing the economy. And then the different flavors of whether it's Austrian economics or Chicago School of Economics is saying no, we have to put less government intervention and trust the market more. And the formulation of that from able to Friedman is trust the money more. Not trust, but the money supply is the thing that should be focused on. Yes. So the Austrians and the Chicago School see economic prosperity and growth comes from individual initiative, individual entrepreneurship, kind of private sources. The private market is what drives economic growth, not the public sector.

58:26And so for Friedman then the question is, what is a government's role? And because he's lived through the Great Depression, he's not laissez -faire. And he won't ever be laissez -faire. And now interestingly, Hayek, living through the Great Depression at first is laissez -faire. And he's like sure, like let it rip. And things get so bad that Hayek's like, okay, that's not going to work. Can we actually define laissez -faire? So what do we mean? Like what's the free market? What's laissez -faire? What's the extreme version here? So yeah, laissez -faire means leave a B in France. It's more often used as an insult than as an actual.

59:05Very few people are completely and totally laissez -faire. That would be like the pure laissez -faire would be this sort of pure, maybe pure anarchist position, like the state does nothing, or the state isn't even there. But it tends to, if I could maybe make it more precise, it would be focused on freedom of contract, would be essential. And that means like the buyer of labor and the seller of labor must have absolute freedom to contract. So that means no minimum wage law, no working hours law, no employment law, things like that. And this is all pre -progressive movement. A lot of things are that way.

59:46You imagine you're in 19th century America and you have a farm and you hire someone to help you in the farm. You offer the money, they take it. If they fall off a ladder and break their back, maybe you help them out, maybe you don't. But there's not a whole apparatus of legal liability and safety and things like that. So that would be one piece. Another piece of laissez -faire would be free trade amongst nations. So no regulation of who can invest in a nation or who can take money out of a nation. So Nippon Steel could come and invest in US Steel and there would be no grounds in which to reject that.

1:00:24Or you could as a billionaire in the United States relocate you and all your money to another country and the United States couldn't try to keep you and nobody else could stop you from coming in. And so and then in the context of economic crisis, laissez -faire would not encompass centrally provided relief because in the pure theory, again, very seldom applied purely but in the pure theory, the wages need to come down far enough and people need to be desperate enough to start taking work and to start the machine again. So the theory would be if you give people relief, they might not go back to work.

1:01:08Now, almost nobody says that in the Great Depression because the situation is so bad and it's it's, you know, people are starving on the street and people feel for humanitarian and ethical reasons. It's not okay to say that. The Austrians, though at first, Hayek and Lionel Robbins are like, this is a business cycle and it needs to run its course and it will be detrimental if we intervene. And then pretty soon, Hayek has to change his tune. So the Austrians are the most hardcore in terms of laissez -faire. Absolutely. And so Hayek will make the turn towards accepting more of a state and then we'll come to talk about how the state needs to support what he calls a competitive order, but his mentor, Ludwig von Mises, still remains very hardcore and is not really open to things like unemployment insurance or other other state -based interventions.

1:02:03What does Von Mises say about like human suffering that's witnessed in the Great Depression, for example? Like, what are we supposed to as economists, as humans that define policy? What are we supposed to see when people are like suffering at scale? Yeah, I wish I knew and answered that question. I don't know enough about Von Mises and his reaction in the Great Depression. I think I would hazard that he would look more to the down the road and say, well, if you start here, you're going to go places that are bad, but I don't factually know what he said in response. I do know that Hayek's position doesn't last very long.

1:02:45It's not a position you can hold to. Maybe you could hold to it in other cycles. The other thing that was interesting is I found very few Americans saying this. Most who were were kind of small town electeds or the most famous is Andrew Mellon quoted by Herbert Hoover. So not directly, you don't have him on record saying this, but apparently Hoover records in his memoirs that Mellon said something like liquidate real estate, liquidate stocks purge the rottenness out of the system, people will live a healthier life. And certainly there were members of the Federal Reserve who felt like it would create, they didn't say moral hazard, but it would create what we now call moral hazard.

1:03:33Bad habits, were we to intervene and to say failing banks because failing banks need to be taught a lesson, they need to be taught discipline. And so a lot of people I think saw it in the context of discipline. This is discipline. And if you remove the discipline, you'll be taking away something fundamental in society. So Milton Friedman never quite went all the way to laissez -faire. No, he didn't see that. And what's really interesting is the number of incredibly radical proposals that he and his teachers were floating. So I've mentioned Frank Knight. Another really important influence on Friedman was Henry Simons, who was a junior professor at Chicago.

1:04:14And Simons had this idea for what he called 100 % money, which would be a law that says banks have to hold 100 % of the deposits. They receive, they can't loan them out on the margin. So this would completely and totally have overhauled the US banking system. And he would have said there's a category of things called banks where you get deposits. And then there's going to be a category of sort of, he didn't say investment banks, but investment vehicles that will invest. So similar to what did happen in some ways in the banking reforms, in the 1930s, the investment banks were split from the deposit banks.

1:04:51And the banks that took deposits were much more highly regulated. And they were supported by the FDIC. But the point being the Chicago School had these very radical proposals for reform. Go off the gold standard. Restrict the currency, change the banks, immediately relieve payments now. What is important to note though is that they thought of all of those as emergency measures to get through the emergency, not as permanent alterations in the state of what had to be and not permanent alterations between state and market. Where the Keynesian Assumption is things have changed, times have changed.

1:05:30We're in a new dispensation and we need a new relationship. So Friedman is very, Milton Friedman is very open to doing things differently in a state of emergency. He will have different ideas during World War II than any other time. And that's why I argue I think he would have been supportive of at least the first rounds of coronavirus relief because I think he would have put his emergency thinking hat on. So in that way he was definitely more flexible. You mentioned Hayek, who is this guy, what's his relationship to Milton Friedman in the space of ideas and in the context of the Great Depression?

1:06:10Can we talk about that a little bit? Sure. So FAHEC is an Austrian economist who takes up a posting in London. And he's in a mentor, a mentee rather of Ludwig von Mises. He's writing about business cycles, Austrian capital theory, and the Depression hits. And he's one of the few economists who in the beginning really is not calling for much intervention. Although as he realizes how politically impalatable that is, he will develop a more softened version of Austrian economics that has a room for all range of social services. What's significant about Hayek is that he is also watching what's happening in Austria.

1:06:53That was happening in Germany. And he's really worried the same thing is going to happen to the Western democracies. And he sees the root cause of this is socialism. This shift towards an expanded role for government, which we've been talking about is happening in the United States. It's also happening in Britain. And so he writes this book that becomes incredibly famous. The road to Serfdom. Basically saying taking these steps towards a planned economy or an economy that's a modified form of capitalism is going to could. He's very clear that this is not an inevitability. But if the same steps are taken and people follow the same line of thinking, we may end up in a sort of coercive totalitarian state.

1:07:35So this becomes enormously popular in the United States. First of all, he's in good touch with Friedman's teachers, even before this book comes out. They see them as kindred spirits. Frank Knight is in touch with him. Henry Simon's is in touch with him. They all see themselves as liberals. They call themselves old -fashioned unreconstructed liberals. And so even before he becomes famous, Hayek will be trying to kind of organize thinkers and intellectuals who he believes shares his values of what we would call today classical liberalism and to kind of create a counter consensus to the one that's gathering.

1:08:10Now Hayek also chooses not to argue against Keynes and he feels that this is a huge missed opportunity that he should have staked out the case against Keynes and that because he did not, people come to believe there is no case against Keynes. Keynes is literally unanswerable. So Hayek will have this great regret. He will channel some of his regrets into sort of community building, specifically developing the Montpelloran Society. And it will fall to Friedman to really make that case against Keynes. But Hayek will end up at Chicago and Hayek really influences Friedman to think about what Hayek calls the competitive order.

1:08:54And how the state can and must maintain a competitive order. That is the system of laws, of norms, of practices that makes it possible for markets to function. And this is one of these key differentiators between the older philosophy of Lez -E -Fair and the newer reconceptualization of liberalism which says yes, we need a state. We need a state that's not intervening in markets under social democratic auspices but is structuring and supporting markets so that they can function with maximum freedom, keeping in mind that if there aren't basic social supports needed, the market is apt to generate the type of either inequality or social instability that will call the whole system into question.

1:09:45So Hayek is really key in promoting this modified liberalism. But from being a very prominent economist in the 1920s and 1930s as mathematics becomes the language of economics, Hayek is completely left out in the cold. Now Friedman to some degrees left out in the cold, but Friedman at least has proved the mathematical economists that he knows what they're up to and he's rejecting it from a position of expertise and knowledge. And he literally drives the mathematical economists out of Chicago. They're clustered in a group called the Coles Commission and he makes their life hell. They have to they flee.

1:10:24They flee the Friedman insult slot. But then when Hayek arrives at the University of Chicago, he would like to be considered for a position in the economics department and Friedman, Milton Friedman says, no way. You're not really an economist because you're not empirical because you just develop these theories. So he has an appreciation for Hayek as a social thinker, but not as an economist. So what Friedman decides to do, his answer to Canes will be deeply empirical, but it will also be theoretical and it will create an alternative intellectual world and approach for economists who aren't satisfied with Canesianism.

1:11:04And almost single -handedly, Friedman will introduce sort of political and ideological diversity into the field of economics because from his beachhead in Chicago, he will develop the theory of monetism. So what is monetism? The easy way to summarize it is his famous dictum of Milton Friedman's. Inflation is always and everywhere a monetary phenomenon. And it's fascinating that he becomes an expert in inflation because the first research and the first major research product of monetism is that theory of the Great Depression in a monetary history of the United States. And that is the theory of a deflation, all prices going down.

1:11:49And he will go back to an idea that Irving Fisher had popularized, but a very old idea, almost a truism, the quantity theory of money, which says the level of the price level is related to the amount of money circulating in an economy. So if you have more money prices go up, if you have less money prices go down. Now this seems like very basic and almost too basic to bear repeating, but Friedman is saying this very basic relationship holds true even in an advanced industrial economy. And that is what people have started to doubt. And if you think about money, you think about banks, you don't think necessarily about the federal budget spending and taxation.

1:12:35And what you see happens in American economics, the textbooks, previous to the Keynesian revolution, they spent a lot of time on money, they spent a lot of time on interest rates, you can do word counts and other scholars have done the word counts. And then word count for money after World War II just plummets and you start seeing things like taxation, budget, those things go up. So what happens is the economics profession shifts its attention. It just looks away from money to other things. And Friedman is one of the few who saying, no, money still matters, money still counts. And it's a very counterintuitive argument to make.

1:13:14It's a very historical argument to make. And this is absolutely fascinating to me. With Anna Schwartz, he develops this 150 year timeframe. He also has students working on episodes of hyperinflation in different periods of time. He's also looking back to ancient history and flationary episodes there. And he's saying, this is a law of economics. This is something that recurs throughout time. It's not historical, right? It's not contingent. It's a law of economics. And his Keynesian counterpoints are saying, no, that's not relevant any longer. Maybe once it was relevant, but it's not relevant today.

1:13:53Now, in some ways, they have a point because the, in order to pay for World War II, the federal government sells a lot of bonds. It issues a lot of debt. And it wants to pay this debt back at a low interest rate. And it wants people to keep buying it. It wants the low interest rate to be competitive with other interest rates. So once in general, low interest rates throughout the economy. And the Federal Reserve has been so discredited by the Great Depression that the treasury basically runs the Federal Reserve and says, keep interest rates low. And so that's what it's doing. And so the Federal Reserve has stopped being an independent entity.

1:14:36It's, it's just a sub sort of department of the Treasury. But in 1951, they negotiate what's called the Treasury Fed Accord. And the Federal Reserve gets its independence. But it doesn't really use it. But statutorily, it now has it. And so most economists are just observing a regime in which the Federal Reserve has no power, a regime in which there is really little inflation. The inflation that is seen as post, there's a little burst of inflation in the Korean War. And they're saying inflation is not really important. It's not really relevant. And money's not really relevant and important. And so to break through and to make the argument, that's why Friedman and Schwartz go to history.

1:15:18And they're able to make that argument for history. So then Friedman is coming out with a variety of papers that are saying, you know, when I look at economic fluctuations, he maps them side by side deflections. And the money supply and says, look, they fit. And other economists remember, they're building complicated mathematical models. And Friedman's doing extremely simple stuff. And they just think it's dumb. It's not interesting. It's not true. They just, they don't buy it at all. And so, but after a monetary history of the United States, they have to pay attention. So it's really in those years, Friedman is hammering this idea of monoturism.

1:15:56And it starts to become something respectable, bordering on respectable for other economists to look to and think about. And that's really the beginning of the kind of Keynesian monetary split, where if you start to give Friedman any credence, you're heading towards a monetary position. Now, at the same time, Friedman comes out very publicly in 1964 as a supporter of very gold water. And Keynesian economics has found a home in the democratic party. It's probably brightest moment in the sun is the administration of John F. Kennedy, who brings in a lot of Harvard and Yale professors, the Council of Economic Advisors.

1:16:38He proposes a series of spending programs that are really guided by the Keynesian philosophy. And the very gold water is tremendously controversial, part for his votes against civil rights, which Friedman really supports, part because he's the hardcore libertarian. And in age when that's not in the political mainstream or not discussed in the political mainstream. And I mean, he's just tremendously unpopular, particularly in all the educated precincts where Friedman lives. So Friedman is like an outcast on a pariah for his support of gold water. And so that actually really affects monetarism because people feel that this is now becoming a package deal.

1:17:17And so there's a great reluctance to embrace Friedman's ideas because it seems like he would then have to embrace his politics. So it's associated with conservatism. So this is the years when conservatism, there is a movement that calls itself conservatism. And Friedman is very tightly allied with this movement from the beginning, partly through his friendship with William F. Buckley. And a lot of people say to me, yeah, but Friedman's not conservative. And this is like a bigger, you'd have a whole separate podcast on this. But for now, I'll just say that conservative in the United States becomes a political brand that contains elements of conservatism that are recognizable across time and space, embrace of tradition, for comfort with hierarchy, et cetera.

1:18:07And it also has something new and different, which is Friedman's ideas about Milton Friedman's advocacy of more free markets, less government regulation, and the benefits of capitalism and the benefits of freedom. And that gets folded into American conservatism. In part, because Milton Friedman is such a powerful intellectual figure. And after his advocacy, goldwater media realizes, this guy is really smart. He has really interesting things to say. He makes great copy. He makes a great guest. And he starts writing a column for Newsweek magazine, which is a very big deal and a much more consolidated media environment.

1:18:44And he's quoted in all the newspapers. And so his public profile really starts to rise, right as he's pushing monetarism as an alternative to the Keynesian synthesis. Can we just linger on what is monetarisms? Yes, okay. I didn't even mention it. So like, okay, the money supply. Yes. So, money is this thing that you can leave it in the notion where people buy and sell stuff. And there's this fascinating, complex, dynamical system of people contracting with each other in this beautiful way. I mean, there's so many pot head questions I want to ask you about the nature of money. I mean, money is fascinating in that way.

1:19:28And I think for Milton Friedman, trusting the flow of money is really important. And the signals that pricing and money in general provides is really important. So yeah, and some of this, I could take some of this back again to Frank Knight. So, one thing Frank Knight said to all his students was the market is the best allocation mechanism we have. The market is what allocates resources in a situation of scarcity. The market allocates them the best. And Hayek will add to that by saying prices are information signals and a price sends information to buyers and sellers about how they should act.

1:20:13And these are the two of the strongest arguments for why the government should not intervene in the price system because it will blur information or because it will allocate less efficiently than market allocation will. And so what Friedman is really going to add to that is maybe going up a level and thinking in the macro about the whole economy and how money circulates through that economy as a whole. And so what he and Anna Schwartz do is they construct what are called monetary aggregates. This is adding together, say all the money that's on deposit in banks and all the money that's believed to be circulating in people's wallets.

1:20:56And you also have to really go back in time. We don't have credit cards. There is a stock market, but it's tiny in terms of the number of people who invests or aren't mutual funds. When travelers checks or introduce, this is like a big deal. So we have a very simple monetary system. And so Schwartz and Milton Friedman start measuring what they call the monetary aggregates. They focus on M1 and M2. And their favorite aggregate is M2. Which I believe is encompassing sort of deposits and circulating medium. The other thing to recall, there's some fine distinctions between money in savings accounts and money in checking accounts and money in savings accounts can earn interest and is generally believe not to circulate or money in checking accounts does not at that time bear interest and cannot legally bear interest.

1:21:57And so his thought of is circulating. And then there's different institutional architectures of postal savings banks and credit unions. So but Friedman is one taking the focus to these aggregate amounts and money and saying these really have a lot to do with economic booms and bus. When we have an expansion in the amount of available money, we see an expansion and economic activity. When we have a contraction in available money, we have a contraction. And so he says at this stage, the government through the mechanism of the Federal Reserve and its influence on interest rates. Can either make money more cheaply available and more freely available in the economy or can make money more expensive and slow things down.

1:22:50But the central core idea of monoturism is this is potentially very bad if the government can hit the gas and then hit the brake and hit the gas and hit the brake based on say what a politician wants or what somebody the Federal Reserve wants. You have a lot of instability in the system. And so one of the core policy proposals of monoturism is let's grow the money supply at a steady rate. And in the beginning, Friedman just says K % he doesn't even put a number on it because he says the number doesn't matter what matters is the steadiness in the growth rate because if it's a steady growth rate, it will fade away.

1:23:34And then people will make economic decisions based on the fundamentals, not based on what they think is going to happen, not based on hedging against inflation or hedging against deflation. They'll just be able to function. So this is sort of the paradox of monetary policy. When it's happening right, you don't see it, you don't notice it. When it's happening wrong Friedman argues it can just fundamentally destabilize everything. It can cause a great depression, it can cause an artificial boom. And so he's taking monetary policy at a time when most economists think it's completely irrelevant and saying this is the central game of the economy.

1:24:16Now we live in a world where we believe this and the Federal Reserve chair can't open their mouth without headlines being generated. When Friedman is saying this at a time when the Federal Reserve is like a mysterious and secretive organization, it's not well known, it's not deeply appreciated. Some of the only people who appreciate the Fed's power are hardcore rural populists who have constituents who think the banks and money power or the problem who are like throwbacks from the frontier days. So Friedman in the beginning has no constituency for this policy.

1:24:57He has no going back to summarize monetism. It's looking, it's using the quantity theory of money to analyze the macro economy. It's proposing a policy of slow and steady growth in the money supply. And then it is arguing that inflationary episodes when they emerge are profoundly driven by changes in the money supply not by anything else. And going even up a level as we started, how epic is it to develop this idea, to hold this idea and then to convince the United States of this idea that money matters? That today we believe is mostly correct for now. And so just this idea that goes against the experts and then eventually wins out and drives so much of the economy, the biggest, the most powerful economy in the world, so fascinating.

1:26:01Yeah, so I mean that's a fascinating story. And so what happens is Friedman has advanced all these ideas. He's royal the economics profession. He's built a political profile. And then he becomes the head of the American Economics Association. And he is asked in that role to give a presidential address. And so he gives his presidential address December 1967. And he says, I'm going to talk about inflation. And I'm going to talk about the trade off between inflation and unemployment. And this is what's generally known as the Phillips curve. And the Phillips curve in its original form is derived of post -World War II data.

1:26:42So it's derived of about 12 years of data. And it shows that when inflation goes up, unemployment goes down. And the idea would make sense that as the economy is heating up and lots of things are happening, more and more people are getting hired. And so this relationship has led policymakers to think that sometimes inflation is good. And if you want to lower unemployment, you could let inflation kind of go a little bit. And in the crude forms, it becomes to seem like a menu. Like you could take your model and you could plug in. I want this much unemployment. And it would say, well, great. This is how much inflation you should do.

1:27:24And so then you would target that inflation rate. So Freeman gets up and he says, this is wrong. This might work in the short term, but it's not going to work in the long term because in the long term, inflation has, first of all, it has a momentum of its own. Once it gets going, it tends to build on itself, the acceleration as thesis. It accelerates. And once inflation gets going, and the reason it gets going is because workers go to the store and they see the price level is gone up. Things have cost more. They ask for the wages to go up. Then people eventually, the wages go up too high and they will no longer be higherable or companies will decide, at these high wages, I can't hire as many workers, I'd better lay off.

1:28:14So if inflation keeps going, eventually over the long term, it will result in high unemployment. So he says theoretically, you could end up in a situation where you have high inflation and high unemployment. This hasn't been seen, but he says theoretically, this could happen. And then he goes and he says, and the government has started expanding the money supply started expanding the money supply in 1966. So we're going to get a bunch of inflation. And then we're going to get a bunch of unemployment. And he asked me about how long it will take. And then he says, once this all happens, it will take about 20 years to get back to normal.

1:28:50And he predicts the stackflation of the 1970s. Stagflation of the 90s. Again, again, against the mainstream belief represented by the Phillips curve. Yeah. And what's really what really makes it happen is that many of the economists who most deeply dislike Friedman and most deeply dislike his politics in the 1970s as as they're running their models, they start to say Friedman's right. They start to see in a data that he's right. And a very parallel process happens in Britain. Britain is going through a very similar burst of spending, burst of inflation. And so Friedman is indicated in a very profound way.

1:29:31In the way that he himself said would be the ultimate vindication, which is my theory should predict. So that prediction of stagflation is really the sort of final breakthrough of his ideas. And also, you know, there are importance to policy. And to thinking about how we should intervene or not in the economy and what the role of the Federal Reserve is because he's saying the Federal Reserve is incredibly powerful. And finally, people start to believe it. And I don't know if we said, but to make clear, stagflation means high unemployment and high inflation, which is a thing like you mentioned has not was not seen before.

1:30:11And he predicted accurately. And it also disproves the sort of the relationship, the inverse relationship between unemployment and inflation. Yeah. Now, I should say the Phillips curve is still out there. It's been expectations augmented. And it is relevant in the short term. But Friedman's warning is still very much apt that if you get too focused on unemployment, you can let inflation out of the bag. And so until very recently, the Federal Reserve's tradition has been focusing on inflation, believing that's fundamental. And that will keep unemployment low, rather than trying to lower unemployment at the cost of raising inflation.

1:30:56Can we go back to Frank Knight and the big picture thing we started with, which is the justification of capitalism? Yes. So as you mentioned, Milton Friedman searched for a moral justification of capitalism. Frank Knight was a big influence on Milton Friedman. And including on this topic of understanding the moral justification of capitalism, I think you spoke about Knight's case for capitalism was grounded in the idea that the ability to act in the face of uncertainty creates profit. And it should, because taking risks should be rewarded. So like this idea that taking risks in the face of uncertainty should create profit.

1:31:37And that becomes a justification that the ethics of capitalism, can you just speak to that? Yeah. So Knight is talking about where does profit come from? And to his mind, it comes from the entrepreneurial function and the risk taking function. And so he kind of weaves that into why capitalism works works best and why it's the most effective allocation machine and why it assigns responsibility in a way he believes that a socialist system never could. Now Knight though is not a booster of capitalism. It could be in part because he's just a darkly pessimistic kind of depressive guy. And so he's afraid capitalism is going to collapse and socialism or fascism is going to take over communism.

1:32:24And so he kind of descends into darkness there. Friedman as the more optimist believes with Hayek that you can develop a different approach to capitalism that would preserve the price system, preserve allocation, but build in social supports, build in a social minimum, things like this. But there's a moment in his career where he's really struggling to figure out like how do I make this case for capitalism? And basically the whole sort of conservative movement or people who we later call the conservative movement are struggling to make this case. And he starts thinking about what makes capitalism work is that if you put forth effort, you get a reward.

1:33:01So then you could say, well, people get what they deserve under capitalism. But then he kind of stops and he says, that's not really true because we're born with such different endowments. And there's a huge quotient of luck, right? So some people are just in the right position and some people aren't. So if I say capitalism is moral because people get what they deserve, that's not really true. And he also kind of has like an ethical reaction, which he ends up calling like an aesthetic reaction. He's kind of like, it just doesn't feel right to say that. And so he struggles for a while with like, what do I say?

1:33:36And then he basically says capitalism, it can't be the core discipline of the market can't be the core to your ethics. It has to be something else. So that's when he will decide his freedom is individual freedom. That's really the ethical core. And capitalism makes individual freedom possible because capitalism is dedicated to maximizing that. And so the defense of capitalism comes through freedom. And at his stage in history, he's able to set aside nice worry about inequality and say, when I look at the data, and this is true for the macro data at mid -century, incomes are actually converging, right?

1:34:15And it also, if you look historically, if the country goes from say a more feudal agrarian society to a more market -based society, incomes will converge. Now then they might start to diverge, but Friedman's in the moment when he's seeing the convergence. And so that's what he's really focused on. So he believes he can justify capitalism through the ethic of freedom. And he also believes that inequality is a problem that can be addressed through specific policies. And it's not a fundamental feature of capitalism. In other words, he doesn't see capitalism as an engine of inequality the way that Frank Knight did and the way that maybe some critics on the left would.

1:34:53How did he conceive of freedom? So individual freedom, economic freedom, political freedom, civil freedom. What was the tension? The dynamic between those different freedoms for him. So he really begins focusing on economic freedom. And he says it's really important to focus on economic freedom because in the United States, we don't value it enough. So by economic freedom, he means the ability to keep what you've earned, the ability to make decisions about your business, the ability to make decisions about the work that you do. So this will translate into things like there shouldn't be a minimum wage.

1:35:30He believes the minimum wage has bad social effects, but he also believes you should be free to accept a job at a wage that you yourself have determined is acceptable to you. And there should be very minimal regulation questions around safety and other things because the market will ultimately, if you create an unsafe product, it won't sell and that will be that's sort of your incentive. So he really centers economic freedom because he thinks especially and he's really speaking from his vantage point in the universities and speaking to the kind of liberal consensus of the 50s and 60s. He thinks economic freedom has been undervalued in the American context so he really wants to push that forward.

1:36:09He's really kind of taking political freedom for granted. Now later in his career when he becomes famous, he's traveling the world, he spends time in Chile and this country is now being ruled by dictator, Augusto Pinochet, who starts introducing economic freedom, but there's no political freedom. And Milton Friedman believes eventually these two things are going to go together and tell us Pinochet, you've got economic freedom and eventually is going to bring, it's going to mean political freedom. Pinochet is like, okay fine, not really interested in that. I want to know what I should do about inflation.

1:36:41But then when Milton Friedman leaves Chile, he is attacked and vilified for having been a supporter. He's a terminated that he's a supporter of the regime, which he's not, but he realizes he has talked too much about economic freedom and he hasn't talked enough about political freedom. He's kind of assumed political freedom because he's come from the American context. So then he starts recalibrating them and saying you know what, if you don't have political freedom, you're never going to be able to hold on to economic freedom. So he sees that they need to go together and they don't naturally go together and so he starts to become more clear in talking about political freedom.

1:37:18Now let's fast forward to the end of his life and he's witnessing the emergence of what we call the Asian Tigers. So capitalist economies that are doing very well, but they don't have political freedom. But then he observes, you don't have political freedom in that you can't vote in a free and fair election. But they also don't have a stotsie. They don't have a KGB. They're not, you know, hauling people off for their wrong opinions. So then he says they have something called civic freedom. And so we kind of defines this third sphere, civic freedom of, you know, debate, discussion, interpersonal relations, but you can't be political.

1:37:55So, this is a late in life edition. I don't think it's fully theorized. I think what it shows is that during the Cold War, he very much believed economic and political freedom, you know, capitalism and freedom, democracy, the United States, capitalism. This all went together. And he starts to see at the end of his life the emergence of different social systems that are using market trading and allocation, but aren't giving people similar freedoms. And he's kind of puzzling over that. Now he always believes that China will democratize. And he thinks China's on the path to democratization. In part, because Chile does democratize it eventually.

1:38:34Punish is voted out and it's become a democratic capitalist and very prosperous country. And he thinks as exactly what's happening in China, he sees Tiananmen and he isn't live long enough to get to where we are now in which doesn't look like political or civic freedom is coming to China anytime soon. And he did oppose the dual track system of China, meaning like the market is bottom up, the government in China is top down and you can't have both. He thought you couldn't have both. Yeah. He thought eventually the market would triumph. Well, it's a really powerful idea to say, okay, maybe there's not political freedom, but just hold on to the economic freedom.

1:39:15And eventually that's going to give political freedom. Is that correct to say like start to work on the economic freedom and the political freedom piece will take care of itself? That's what he believed. That's what he believed. Yeah, I think it's more complicated than that, right? The people who gain out of a system of economic freedom could decide to collude in a system where there isn't political freedom. That's certainly a scenario. But that was again, that's that core idea of freedom, right? And that core belief that people want freedom and that people are drawn to freedom. Just to go back to Frank Knight a little bit, he wrote an essay called The Ethics of Competition, the metaphor that the economic life is a game.

1:39:59And then maybe that extends the society as a whole, like the entirety of it is a competitive game. And Milton Friedman, I think, adapted some of this, appreciated some of this, is the game can you speak to this metaphor? Yeah, I think what the metaphor of the game does is it asks you, okay, well, what are the rules then? And let's focus on the rules that keep the game going. So he didn't use the concept of an infinite game, but I think that's an interesting one. A game that all the players are in and keep going again and again and again. And so that helped Knight along with Hayek shift from the allocation question, who's getting what are things allocated fairly to the more structural question of like, what are the rules of the game that we need to keep this system going?

1:40:48And so for a while that led to the discussion of monopoly, well, we need rules against concentration. Or we need the rule of law. Everyone needs to be treated equally. People need to know what it, you know, what they're up against. And then going back to monetarism, the core of monetarism is a rule. Friedman called it a monetary growth rule. And so again, what keeps the economic game going is a rule about how much the money grows that everybody knows. Nobody's guessing. Nobody's changing the rules to help their side or to help, you know, the people they're with. We all know it's there. It's clear.

1:41:30It's easy. And so that emphasis on rules, I think, really has a through line. It goes into Hayek's competitive order and then it goes into the monetary growth rule. And then, you know, today, monetary policy makes use of monetary policy rules. We have not abandoned discretion, but rules are used as a heuristic or a check and those come out of Friedman's thinking. And so it's something it's really profound. And it was always counter posed to discretion, which Friedman worried would be subject to capture or political corruption. If you had discretion in policymaking or if you had discretion in these very big areas, then people would stop competing against each other in a market.

1:42:18And they would turn their attention to getting control of the rules or the rule makers. So if there's clear transparent rules, then you're free to play the game. Yes, exactly. But then depending on the rules, the game can turn out the equilibrium that arrives at might be different. So that speaks to the mechanism design, the design of the rules. Yeah. And that was again, to go back to the idea separating new liberalism or neoliberalism from classical liberalism with more of a focus on what are the rules that are needed? What is the competitive order that we want to set out? How do we design in social safeguards?

1:43:00How do we think about it? And so that shift towards monetary policy and focusing on stable monetary growth, that becomes really important in the post 70s era is one of the basic rules of how capitalist economy should function. And it becomes really important because they see the example of, say, countries most notably in Latin America where monetary rules weren't followed in different governments played politics with their currencies. And that created huge upheaval and huge social loss, economic loss, just economic disaster. So my friend lived, she's a poker player, philosopher of sorts, great human being.

1:43:42She has a podcast called Win -Win that everybody should listen to. And the whole purpose of the podcast and her whole way of being in spirit is to find win -win solutions. So do you think of economic life as having such win -win solutions? So being able to find rules where everybody wins, or is it always going to be zero sum? I definitely believe in win -win, but with a big asterix, like you can have win -win, but it can feel like win -lose, which is it's not just, are people getting more? It has a lot to do with do people feel they're getting more and do people feel they're getting what's fair and equal.

1:44:23So you could have a situation, you know, for instance, if you look at the history of going back to Chile, it has steady growth, steady income growth, steady diminution of inequality, and a high level of discontent within the society, and a high level of belief that the society is corrupt and unfair. And that's what matters, how people feel about it, how people perceive it, matters. And you can't, you know, we saw this recently, you can't just come out with a bunch of statistics and tell people you're winning in this game if they feel like they're losing. So that goes to all the non -rational factors and all the comparative factors that people have when they think about where they are, these are the other people in society.

1:45:13So we're just incredibly social creatures. We're incredibly attuned to our status, to rising and falling to where we sit, these are the others. And so that absolutely has to be attended to. It can't just be an economic analysis. That's so interesting that the experience of the economy is different than the reality of the economy. You know, on the topic of corruption, I think the reality of corruption versus the perception of corruption is really important in a lot of these nations. You take Ukraine, for example, the perception of corruption has a big impact on the economy. You don't want to invest, you get very cautious as a business person.

1:45:51The reality of corruption can be way different than the actual perception. But if narratives they cold, it's a self -fulfilling prophecy that it has a big effect on the psychology that people involved. It's interesting. Yeah, I mean, this goes back to Keynes' Analysis of the Great Depression, right? If people won't invest. If they're spooked, if the investing classes are spooked, you could be in real trouble. And in some ways, the simple analysis of the problem and proposal of a solution was enough to restore eventually the path to economic prosperity, right? That's Franklin Roosevelt, nothing to fear, but fear itself.

1:46:32You know, the sense of we know we have a future, we have optimism, then you believe in it and to go back to like thinking about money, right? Money works because we all believe in it. You know, it's a form of social trust and it's a form of belief and faith in our society and in the other people in it. And when that breaks down, the money system won't break down as well. Is there something Milton Friedman said and thought about, you know, how to control the psychology of humans at scale? No, I mean, what's interesting is he does talk, especially in his later work. He says, we have fiat currency and this is an experiment, you know, and we don't know how it's going to turn out.

1:47:12And it's turning out okay right now, but we've always had a commodity -based, based or backed currency of some form or another. And this is the first time. And so, so who really knows, so far so good. And he also is very attuned. It's interesting in his later writings when he's thinking about this, to sure, I could design a monetary system that would be different, but when I look at history, I see that monetary systems have always say incorporated the role of the state. Because it's so important to people. And so therefore, my theoretical designs really have to be tempered by what it I've actually seen happen in history.

1:47:50So maybe we could speak to this tension between how much government intervention is okay for Milton Friedman. So he was against minimum wage, but he was for guaranteed minimum income. Can you explain actually the difference between the two? Yeah, so this was one of the discoveries I made in my research. I found a paper from 1938. He wrote advocating what we would call today a universal basic income, a minimum income. And he basically sees this as part of the effort to create a new liberalism, right? And he basically says we have advanced societies, we have prosperous societies, we have decided in keeping with our morals and our ethics that people should not be starving in an advanced society like this.

1:48:34The question is how are we going to make that happen? And he ended up believing the best thing to do is to put a floor under everybody. And he said you get that based on your income. If you have a lot of income, you don't get it. If you have a little income, you might get a little bit of it. If you have no income, you get enough of it. And he believed in the beginning, you should base that on, you know, what was required to buy food, right? That that would be kind of an objective. You could objectively determine the nutrition and the price of food. And so that for him, it's important. He says it's keeping with a liberal polity because it's not intervening in the price system.

1:49:12It's not intervening in economic relations. And it does not, in his view, require a bureaucracy to administer. It is not in his view, require that you qualify for it by virtue of being in a protected class. You just get it as kind of part of your membership in this general citizenship body. And so that to him was really different than a minimum wage because it did not interfere with the work bargain. His belief about minimum wages was specifically that it priced out unskilled labor. That what an unskilled laborer had to offer was a willingness to work for a very low wage. And if you set the minimum wage to high, businesses instead of hiring that higher -prace labor would not hire or like we could think of today, right?

1:50:03They put an electronic checkout, you know, or something like this where you don't actually need the labor. So he really believed the minimum wage had that perverse incentive. Now there's, this is a live debate on what minimum wages do. And there seems to be a level at which you can set them that they can not have that perverse effect. And in fact, can kind of create people with more spending money that then powers the economy. So he had a very sort of clinical analysis of that rather than an empirical one or really abstract analysis. But the minimum income is fascinating because it seems very leftist to us.

1:50:39But what it is is it's purely individualistic. And it never really happened because it was so purely individualistic because American social policy typically identifies like this group of people is deserving and will give them benefits. So the classic example is soldiers veterans. Another example is mothers raising dependent children. These people deserve money. The rest of you, you better go out and work. And so Friedman's proposal it really caught on in the 60s. It ultimately went nowhere, but it was no litmus test, no income analysis. Just we're going to give you this much. Everyone's going to get this much.

1:51:19And he decided once mass taxation had come in, you could do it through taxes. And you could just rebate people who didn't pay income taxes, got a rebate. That actually came to pass. It's the earned income tax credit. And it's considered extremely successful you know, by policy analysts. It does what it's supposed to do. It's not that expensive. And so I see that as a kind of paradigm of his thinking in that instead of creating a bureaucracy that does some form of redistribution or instead of trying to intervene in the market for labor or the market for something else, the market for housing. You provide a cash grant that people spend for themselves.

1:51:59And so interestingly, that's what happened in the emergency situation of COVID. Right. That's exactly what people did. They followed that model. We just get money out quick. And there's a lot of discussions still about UBI is something that should be done. And I think it's always going to be hard to pull off because I think Americans and their elected representatives don't want to provide a universal benefit. They want to provide a targeted benefit because they believe there's like a moral component here. And Friedman advanced the policy that was really abstract. And really just you know, kind of it was devoid of judgment.

1:52:36It was like pure and beautiful in that way, but like utterly impractical. And it really focused on not interfering with the market and the signals that the market provides like it was really against price controls. But it's kind of reason. Yeah, exactly. Oh, you could say, okay, but how does this not interfere with the market, right? If you provide people with a minimum income, that change their incentives to work, etc. I mean, there's a big body of research on this. Most of it seems to show one, it's way better than the current benefits cliff where you have to not work to get your benefits. And any incentive impact on working seems to be much lower than would be expected.

1:53:17But I'll let the, you know, the economist, the social science to spite that one out and figured out empirically. Hopefully we should be able to. Yeah, there's been a bunch of studies. It's interesting, even just how you conduct studies like this, how you do these kinds of experiments, especially if you're empirically minded. You know, because these a lot of the studies I saw is pretty small. Right. And so how do you make big conclusions about about how to run the world, how to run the economies from such small studies? It's all a fascinating experiment of ideas. And it's also inspiring to see individuals.

1:53:57And maybe small groups of individuals like the Chicago School of Economics to sort of shake out what we believe in how we run the world. Yeah, inspiring. Yeah. You call Milton Friedman the last great conservative. Maybe to be a little bit sort of controversial and make bold statements that get everybody excited. But what do you mean by that? And what makes a great conservative? So I was really thinking of that in terms of kind of American political identities. And particularly the 20th century conservative movement, which people are always saying this isn't conservatism. And I'm saying, yes, in America conservatism is different.

1:54:41It looks different. It feels different. Conservatism in America builds in a big component of what we could call libertarianism, pro -capitalism, anti -government ideas. And critics will say, but conservatism is about conserving institutions and practices. And it has a role for the state and an organic community but in the United States, it's always had since the 20th century. This also this anti -statist let's let the market rip. It's not worry about what the market does to establish traditions. The market is our tradition. Capitalism is our tradition. So that was really synthesized. You know, many people were there, but Friedman and the importance of his books, Freedit, Chews, Capitalism and Freedom, the television series he did all of these were like core components of this American conservatism synthesis as it evolved.

1:55:36And I really see that as having broken down. It is scattered into different pieces. And we don't know where they're going to come back together again, but you know, Friedman's push for open global markets, unfettered free trade that's getting pushback on both the left and the right. That I think is just a major sign that both parties have turned away from this vision. I don't know what they've turned to, but the way that Friedman brought these pieces together, I think that political moment has passed. That's what I was trying to talk about with the book title. There's another way, though, in which I think of him also as a conservative, which is that within the field of economics, he went back to this older idea, the quantity theory of money, and said, this still has value.

1:56:26This can be applied in the modern day. It is something to teach us. He pushed back against this trend towards mathematicalization. He kept writing books. He can still pick up a Friedman book and read it. There's lots of economics, articles, and outputs, like unreadable, unless you're in the field. I think in that way, he was trying to conserve methodologically and intellectually the traditions of the field. The work that he and particularly on a short -stead, that litter recounting of things and deep analysis of data from the field, that was completely unfashionable in his time. Now, he's gone back to it with big data and with computers, but he helped bring that forward and preserve that tradition.

1:57:09I think of him intellectually as a conservative. If you think of the mode of his thought. What makes a great conservative is one who takes those older ideas and makes them fresh for a new time period. I think that's exactly what he did. You've also spoken about the fact that the times when he was out in public, there was more of an open battle of ideas, where conservatism often had Willie Muffbuckley. He had a more vibrant, deep debate over ideas, where it seems less deep now. That is the thing that it's hard, especially for the students I teach today to be like, there were arguments about ideas and conservatives won a bunch of them.

1:58:03That happened in the 70s, late 1960s, 1970s, when one set of arguments was about economics. This idea of stimulating the economy by spending more. It has a downside. The downside is called inflation. The downside is called too much regulation. You've gone too far in bottling up the actual sources of economic growth and dynamism. We have to let those free. In social policy, there was also a critique. The great society had all these ways of ideas of ending poverty. People came and analyzed them and said, the programs aren't helping. In some ways, you've actually created engines to trap people in poverty because you've given them a benefit and said if they actually start to work, they lose the benefit.

1:58:51You've created all these perverse incentives. These ideas were fought out. They were empirical. They were controversial. They were based on really deep research and really deep argumentation. Seems that era has passed. It seems like we're driven much more quickly by moods rather than thought through ideas. Right now, it seems like the ideas come they follow the political mood and try to put together the underpinning of it, where it really was the opposite for much of the 20th century. It does seem like we lead with emotional turmoil. The ideas follow versus lead with the ideas and the emotion of the masses respond.

1:59:37Right. Exactly. If we think of the evolution of conservatism, it was a whole set of ideas that was crafted refined in the 1950s, 1960s, 1970s. They really found their emotional standard bearer, translator, salesperson in Ronald Reagan who incidentally had been following these ideas as they developed and had been honing his ability to express them and apply them politically. It's a very opposite if we look at Trump as the political definer of the era. There's a set of ideas, but it was more attitudes, impulses, vibes, and the ideas are coming after that, trying to figure out how they patch on. It's interesting to watch to see that difference.

2:00:24Hazard that a lot of it just has to do with the immediacy of the media environment. We're in, and it's just power of the media messages to get out so fast. What do you think Milton Friedman would say about Donald Trump, about him winning in 2024 and just in general this political moment? I think he would love Doge. I think that's, you know, goes without saying. I think he would focus on that part because I think he would really love it. He would be very alarmed by the idea of tariffs and very alarmed by the return to protectionism. I mean, I think he believed that part of what made the world peaceful in the second half of the 20th century, as opposed to during World War II, was the world was knit together more by trade, and that was the great hope that people traded with each other.

2:01:16They wouldn't fight. He's also a proponent of the freeing movement of capital. He'd absolutely oppose this idea that Niponstia wasn't allowed to invest in the United States. I think he would struggle, and he wholeheartedly embraced Reagan, and he worked to minimize the parts of the Reagan legacy. He didn't like. I think he would find it harder to embrace Trump because he's not of that style. He just had a different style, but I'm guessing he would have come around through the, I think he would just say, okay, we have a chance to reduce the size of government. At the same time, those spending plans of the Trump administration are not physically conservative in any way, and that was his concern.

2:02:05It was not so much with debt, but with the feeling that there's no mechanism to stop the growth of government, that it just grows and grows and grows. So he ended up believing even deficits aren't so bad because they make politicians cautious. He thought about continuing to spend. But I have to believe he would be concerned about the potential threats to the US currency's position as the world's reserve currency with increased levels of debt and spending. He was concerned about low interest rates. He died, I think it's 2000 and 2004, 2006, but it was in the beginning. He didn't see the zero low bound, but he saw low interest rates and he said, this isn't necessarily good.

2:02:53Everyone's talking about low interest rates as if they're good, but there should be a price on capital. There should be a price on this. It shouldn't be so low. And so he had some of still the macro insights that I think are important. You wrote the Wall Street Journal essay titled How Inflation Ended Neoliberalism and Reelected Trump. So can we weave that into this discussion in terms of inflation and Trump? What's the main idea of the essay? So the main idea is kind of looking back and saying so today we have been living in a world where people have been focused on monetary policy, steady monetary policy, free trade, reducing regulation.

2:03:44This is all called the neoliberal era. And my argument was a lot of that arose, was driven by inflation. So we have Milton Friedman predict inflation in 1967. It starts breaking out in the 1970s, Britain and the United States. And every institution was designed around stable prices. Once inflation broke out, prices were no longer stable. So for example, tax rates were inflation adjusted. So if your income went up because of inflation, you might bump from a low tax rate to an extremely high tax rate. But you don't actually have more money. On paper, you have more money, but everything costs more.

2:04:26So you don't actually have more money in your taxes have gone up. That kicks off the taxpayer revolt. There's a whole shift of American corporations towards focusing on financial investments because the tax breaks they used to get for depreciation for building new factories are not inflation adjusted. So they no longer pay off in an inflationary environment. And then when Paul Volcker comes in in 1980s, early 1980s and starts fighting inflation really pushes up interest rates to bring down inflation. And that completely reorders the banking sector because banks had statutory legal limits on the interest they could charge.

2:05:07And once general market interest rates exceeded that, it was proliferation of new financial forms to take advantage of that. So my point was the era we live in was ushered in by inflation. And then everyone turned against all the formulations we had and said, well, these have hollowed out our industrial base. These have, we've got too much immigration. We've got too much economic openness. We need to reshore. We need to focus. We need to turn against all these things. We need to spend more. We've disinvested. And the net result of that turning away, I argued, is people forgot about inflation. They really forgot it could ever exist.

2:05:51And you had a whole set of theories on the left, modern monetary theory that basically said we don't really need to worry about inflation. Can spend what we want. And low and behold, inflation came back. And so my argument is that is now open the door to the presidency of Donald Trump, which is potentially a deeply transformative moment that will change the size and shape of government. That may change our foreign policy profoundly. That may change our immigration policy. It may change the demographics of our country. All of that in my thesis is that it's all been made possible by inflation. And so the great mistake of the past years was to forget how fundamental inflation was to the rise of the last political order and to finally underestimate how much inflation would change the current political order.

2:06:47So I just think it's one of these things. This is why I think you should study history because I think if you had studied history, you would be aware of this. And it's so easy for people to forget just like the banks forgot that interest rates could ever go up. They got so used to it. And it's only a 10, 15 year thing. But to them, that seems like forever. So I really do believe what history teaches you to do is just have a much vaster scope in your vision and then take into account the possibilities of so many things happening that are different than what's happening today. And so I just hope we don't forget about inflation entirely.

2:07:23But here's the thing is a quite a strong chance that Trump's policies will initiate even worse inflation. And then they will prove to be his undoing. So the ironies of inflation could be continuing. Like you said, Milton Friedmer would be a big fan of doge. So if you was still here today and rolled with Elon Musk and Vivek, what advice would he give? What do you think he would focus on in terms of where to cut, how to cut, how to think about cutting? You know, his signature policy move I talk about this is taking the price mechanism and trying to make that into the policy. And that seems sort of obvious to us today.

2:08:09But in the era that he came in. So there would be rent controls. Let's take away rent controls. Let's let housing prices set themselves. Or he was very against national parks. I actually think the national parks are good. So I hope that doge people don't take this up. But that rather than an allocation to fund the national parks, they should be funded by the revenue that they bring in when people visit them. And so I think he was always looking to let's let prices make the decisions here. So I think that would be one of the key pieces. The other thing I think he'd really be thinking about he read about this a lot about occupational licensure and barriers to entry.

2:08:49And he felt like one of the worst things that government does. And sometimes it's private entities that do this is create barriers to entry to protect industries and markets. So he talked about this in the case of medical profession, which I think is actually not a good example because I think we all have a collective investment in having medical doctors be highly trained. But so for instance, you could look at nail technicians or hair cuttings. Often these licensing requirements or there's a sort of big kerfuffle. I think it's DC past a law that to run a child care center, you have to have a college degree.

2:09:22Well, what does that do? I mean, that just enfranchises a whole bunch of would be entrepreneurs. You don't happen to have a college degree, but probably could be really good at this particular business. So I think he would be saying look out for where private interests have used this state to protect themselves and clear away those types of barriers and let competition through prices guide outcomes. Yeah, so open up for more competition and allow for more signals from the market to drive decisions. Yes, yes. Which would actually naturally lead to cutting a lot of the bureaucracy of government.

2:10:03I think the other thing he would probably be arguing for is again, go back to the design of the minimum income or the negative income tax that there's a way he rent ultimately decided to run it through the tax system, right? The government's already collecting this data. They already have your information and they can just send the money out through the system rather than having a social bureaucracy where you have to come in in person, you have to fill out forms, you have to document, do you own a car, what's your income, who lives in the household. So I think he would say and hit his analysis of that was what that who that really benefited was the bureaucracy that processed that paper that implemented those norms and that if you could pull that away, you could get help out where it was needed much quicker without having this drag of people doing sort of unproductive work of administering these systems.

2:10:57So I think trying to cut administrative overhead and what he didn't have then which we have now is the technology that we have and the ability to send benefits out via smartphone or just to move so much faster and to handle information on a mass scale so much faster. It's painful, but I think one of the big things you can do is just that which is digitalize. I don't know if that's the word, but just convert everything to where the speed of signal can be instantaneous. So there's no paperwork that goes immediately and then that means that the pricing signals and all these kinds of things are just immediately available to people.

2:11:43That seems to be the low hanging fruit government, IT systems could be vastly improved them on. But that would result again with a lot of people getting fired. And I think somebody submitted a question for me saying like, where's what are your thoughts as a person who cares about compassion? What are your thoughts about government employees, which there's a lot of that are going to be hurt by doge. And it's always a really difficult question. A lot of people get fired to make room for a new system. That's going to lead to a lot of pain. There is going to be a lot of pain. I don't know what the solution is.

2:12:26I think that's also part of why Friedman favored a minimum income. He talked about it being sort of counter cyclical. In other words, when things were really bad, the spending level on it would naturally go up. This is what economists today call an automatic stabilizer. And then when it's not needed, the cost of it goes down. I mean, maybe there's a way to make it sweeten it with honey and have people take buyouts or things like that. That would certainly be a way better way to go. I did a podcast with Javier Malay. He has consistently praised Milton Friedman and cited him as one of his inspirations.

2:13:05So what do you think Milton Friedman would say about what's going on in Argentina and what Javier Malay is trying to do in Argentina? Yeah, I think he would appreciate it. I mean, I think Malay is much more of an Austrian inspired thinker. But I think he definitely appreciates Friedman. And on the macro level, Friedman always understood it's really painful to treat inflation. But the more you put it off, the harder it is. So I think he would be trying to get him as he's doing to just message that short -term pain, long -term gain. I think he'd be very supportive. I think he'd be thrilled to see also that Malay is very good at explaining these abstract ideas and putting his policies in a framework of the bigger picture.

2:13:52That was really meaningful to Friedman. I don't know how politically persuasive it is overall. Malay is very intense. He doesn't have the same sort of gifts of salesmanship and setting people at ease that say someone like Ronald Reagan had. But it seems to be that's what his country was calling for right now. Yeah, he has more chainsaw, more blanket. He Javier recollects this line from Milton Friedman. I don't know if this is accurate. But if you strive for equality over freedom, you often get neither. But if you strive for freedom, you often get both. Do you think there's true to this? You know, I think on the big picture, definitely.

2:14:36I mean, we've seen focusing too much on equality. Because equality is such an alluring word, it can lead you to downgrade all kinds of other things that are really important. But I really think it depends on how you're defining freedom. I mean, the statement is too big and too broad. So if you're talking about freedom, if by freedom, you mean not having to pay taxes if you're successful, I think that can have all kinds of knock -on effects. The idea that people are able to prosper when they're educated, whereas education is going to come from. How is that going to be paid for and supported? Again, to go back to night if you're generating too much inequality or people are feeling that you're generating too much inequality, sometimes they value that more than they value freedom.

2:15:34And so I think the balance, I think there has to be more of a balance. And it's just it's hard to make such global statements. You have to break them down into what actually do you mean. But again, Malay is coming from a very different context, a very different country that has seen so much up evil, so much government intervention, so much inflation, so much political turmoil. He's probably thinking about it differently than freedom was thinking about it. Yeah, I mean, there was, there probably still is a real threat of hyperinflation. There seems to be a very high level of corruption or the capacity for corruption.

2:16:11So it's a really messy situation. So Havir Malay, likes to recollect this great line from Milton Friedman that if you strive for equality over freedom, you often get neither. But if you strive for freedom, you often get both. Do you think there's a truth to this? Yeah, I think in the macro, for sure. I mean, we've seen if you really put equality as your goal, it's such a it's such a seductive ideal and people believe in it so much that they can carry out horrible crimes in the name of equality. But then focusing on freedom, I just these words are too big. They're so hard to define. And so I think you have to ask what is the freedom you're talking about?

2:16:55If you're talking about the freedom of ordinary people to be entrepreneurial, to make their own way, to start new things, to continue what they're doing, to keep what they've earned for sure. I think that can increase the equality overall. If you're talking about lower taxes, if freedom is just a code for lower taxes, there has to be, I mean, lower taxes in general, great. But if you're one of the top generators of wealth, there has to be some way to ensure that, say, education, right? People prosper when they're well educated. That's when economies do better. Education is generally state -funded.

2:17:34And you need some way to support that. And provide for those institutions that structure society that make competition possible. So I think it's just a really broad statement. Again, Malay is coming from a really different context. He's coming from the South American context, from such upheaval, such economic devastation in pursuit of the goal of equality that I think trying to rebalance with that emphasis on freedom, I definitely see where he's coming from. If we can pivot a little bit, we've talked about Reagan. What is the interesting story about how Milton Friedman navigated the Reagan and maybe even the Nixon administration and how he was able to gain influence?

2:18:17Well, the Nixon administration is an interesting case because, so I've been talking about inflation and the different consequences it had. One consequence it had is that it began to undermine the Breton Woods currency system.

2:18:36That ended up inadvertently putting the US dollar at the center of the world economic system. But under Breton Woods, countries of the industrialized west agreed to trade their currency in set ratios, that government set. So a Frank was worth so many dollars or a term in Mark was worth so many Franks. And then also under this system, countries could come to the United States and they could trade the dollars that they held for gold because the US was on a sort of modified gold standard. There was a ratio of gold to paper money. And so the system was set up and very quickly most countries were the dollar was at the heart of it and that the converting into and out of dollars was really the mechanism of trade for many of these countries.

2:19:25So Friedman said, you know, what we should have is floating exchange rates. This is an idea again of instead of having a top down design of policy, an administered policy, we will have policy set by prices and usually be able to trade currencies on an open market. They should trade and they should fluctuate and that would be fine. Totally outlandish idea. But he was pinpointing the fact that Breton Woods had an instability and that instability began to emerge in the time of inflation. So you have more and more dollars being printed. They're worth less and less. If European nations keep trading their currency for dollars, they're going to be importing inflation into their own economies.

2:20:14So they say, we don't want these dollars. We'd like some gold instead. And they have the right to go to the treasury, send in an order and get gold out. And so they start doing this more and more and it becomes, it's called the gold drain. And United States starts running out of gold. They're aware this is happening through the 60s or trying various things to fix it. And when Nixon comes into office in 68, Friedman sends him a memo and it says, this is going to be a real problem. He says something like this is a running store and you have to lance it right away. You know, some very graphic metaphor.

2:21:02Otherwise, it's going to explode. And Nixon just, you know, files the memo away. Nixon loved people to think he was influenced by and following the wisdom of Milton Friedman, but he didn't actually want to do that. He just wanted the political benefit that came from it. So then comes the moment where the US Treasury Department realizes we're going to run out of gold. What should we do? And they everybody decamps to camp David. And Nixon decides we're just going to stop redeeming currency for gold. It's called slamming the gold window shut done. And he also at that same meeting decides to institute price controls.

2:21:47He does a whole bunch of stuff. It's an emergency. He calls it the new economic plan, which is an unconscious echo of the Soviet new economic plan. So a problematic name, a problematic policy. And Friedman is living at the price controls, but he's like actually, it's great that you close the gold window. Let's go all the way to floating exchange rates. And this idea was heresy within the Treasury Department. Everyone's very committed to the idea of the gold standard convertibility, possibility, the United States at the core of the financial system. Kind of hemahe, but at this point, Friedman has a very close relationship with George Schultz.

2:22:26And George Schultz is a high level appointee who will eventually over the course of the next administration has become the Treasury Secretary. And so Friedman is feeding Schultz all his ideas about how we should move to floating exchange rates, how we shouldn't try to reconstruct Bretton Woods. And the people in Treasury, it's funny, because I read some of their accounts and actually Paul Volcker is in the Treasury Department at this time. And he can kind of sense that Friedman is in here somewhere, you know, like feeding a spa side of ideas. He doesn't quite know. And you know, then in the oral history, Schultz talks about this quite a bit.

2:23:02So at any rate, Friedman exerts this behind the scenes influence. And what Schultz does is just kind of let Bretton Woods fade away. He doesn't make grand pronouncements. It just slowly the world shifts to a regime. For a while, it was like a regime of steady prices, and they call it a steady regime of changing prices or whatever. The language changes, the reality changes, and they kind of end up where they are. So that's a real measure of Friedman's influence. If there had been another economist in Schultz's ear that said, no, catastrophe is imminent. We have to go back to Bretton Woods. He probably would have worked harder.

2:23:41The US government would have worked harder. And so that becomes one of these pieces of globalization. And you know, what people don't realize is there used to be in addition to these floating set capital ratios, you couldn't bring capital in and out of different countries. You know, you had to register. You couldn't invest for all these rules and strictures. And the falling of Bretton Woods really blows that all open. It's a precursor to globalization. So Friedman is right there. Now, he's very ambivalent about Nixon. I mean, he sees that Nixon is not an honest person. He thinks he's very intelligent.

2:24:15And Nixon's dream is to create a new centrist majority. So he does many things to go back on his supposed economic principles and ideals. So Friedman is not like this. He doesn't like the price controls. He's in communication with his old mentor Arthur Burns, who's now the chair of the Federal Reserve. And Burns is basically doing everything wrong in monetary policy. And I described this in the book in some detail. These English letters back and forth. And basically, as I see it, Burns doesn't have a solid theory of inflation. And the more Friedman pushes him, it's almost like Burns is willfully ignoring Friedman and kind of doing the opposite of what Friedman says.

2:24:56So Burns is running a very loose monetary policy. Inflation is quite considerable over the 70s. I mean, we were all spooked by what did it get to 6 % something like that. Recently for a very short time, this is inflation going over 10 percent, hovering in 8 % for basically the whole decade of the 70s. Going up and down was extremely elevated rates. And so Carter presidency largely follows foreign policies, part of it, but the failure to tame inflation as part of it. And then Reagan comes in. And now Reagan loves Friedman and Friedman loves Reagan. Very mutual feeling. The Reagan administration creates like an advisory economic board, Friedman's on it.

2:25:34He's retired now. He's entering his kind of golden years. He really has Reagan's ear. And here what he does is he convinces Reagan of his theory of inflation, which is inflation has been caused. It's a monetary phenomenon that has been caused by bad monetary policy. Inflation has an accelerating dynamic. The only way to end inflation is by really showing and signaling that government policy has changed. And when you do that, it's very painful for a short amount of time. People will suffer. But then you will come out on the other side into stable prices. And this is what you need for economic prosperity.

2:26:15So the man who implements this policy, Paul Volcker, he's definitely influenced by Friedman. Buys the big picture of Friedman. He even buys Friedman's specific technique of the monetary growth rule and of the focus on monetary aggregates, which Friedman has said, right, money matters, aggregates matter. And that's what money is. Pretty quickly, Volcker finds that because of inflation and the financial deregulation and response to it, the aggregates don't work the way Friedman said they would. And so the specific policy Friedman recommends Volcker tries it for a year, so it doesn't work super well.

2:26:55But what does work is letting interest rates go high, go above inflation to a point where both the general citizenry and the financial markets believe like, oh, they're actually serious about inflation. And because we've had a decade of inflation with all these presidents saying, you know, not forward, we're going to whip inflation now, the monetary policy has lost credibility. This is why people focus so much on credibility today because once it's lost, it's really hard to get it back. And one way Volcker gets it back is interest rates over 20%. Unemployment very high is high is 25 % in like construction sectors.

2:27:32And as this is happening, Milton Friedman is whispering in Reagan's ear, this is the right thing. Stay the course. This is going to work. Now interestingly, he hates Volcker. Volcker hates him. And Friedman will never give Volcker credit for this policy, but he will give Reagan credit for this policy. But he owes credit himself for keeping Reagan from wobbling on this policy and just pushing it through. And he also tells Reagan very pragmatically, you better do this now. You've got a four -year term. Do this in the first two years of your term. Things will have turned around by 1984 when you run for reelection and you'll benefit from it.

2:28:11And that's absolutely what happens. If we could take a small tangent, sort of a question I have to ask about, this is too much about woods and maybe the gold standard, maybe just have a general discussion about this whole space of ideas. There's a lot of people today that care about cryptocurrency. What do you think that Milton Friedman would say about cryptocurrency? And what role crypto might play in the economy? Whether he would be for this idea against this idea. And if we could look at it for today, and also just 10, 100 years from now. There's a clip. I think it's in 1992 where people say, oh Friedman predicted cryptocurrency, because he's talking about how payments will eventually be electronic.

2:29:02So in some ways, he definitely, as he was looking at the computer and money, he knew these would come together in some way. I think he probably would see a use case for crypto. He definitely would not buy the stronger forms, I think, of cryptocurrency in which we could be heading towards a future in which there's many different currencies that compete or that are distributed or there's a stateless currency. And he addresses this very, very clearly because Ajayak's denationalization of money is a paper in the late 70s. Ajayak argues for this kind of competing currency model or regime. And so he's responding to that.

2:29:40He's responding to people writing about free banking. And he basically says, look, even if you developed a variety of competing currencies, eventually society would converge on one. And that's because people just want one currency that they know they don't want a bunch of different options. Even in places where there have been options to do that, they've been used very minimally. And then he says, secondly, the state always steps in. He says, technically, theoretically, it doesn't have to. I could draw you a model. I could tell you about how it could work without the state, but in actual reality, all human societies through time and space.

2:30:16The state eventually becomes involved in the provision of money because it has so many knock -on effects to so many people. So sure, I think he would, again, find a use case for crypto. Think it's interesting, but I don't think he would see it as this is going to displace state money. And we're going to have a variety of distributed currencies. The other thing he really stresses is that a change in a monetary system only happens amid great, great crisis. So again, you see in countries where the state is not controlling the money well. That's when people are more turning to crypto, but he says because money is so fundamental, they're going to be so much political pressure on any country that gets the currency profoundly wrong, that the government will fall and another one will replace it.

2:31:07So if you look at episodes of hyperinflation, they don't go on very long because they're so upsetting to people. If we can go back in time, we've talked about it a bunch, but it's still a fascinating time. The Great Depression, the University of Chicago, there's these folks like Jacob Viner, Frank Knight, Henry Simons, all of these influence, they're thinking of Milton Friedman. There's this room seven situation in the University of Chicago. Just going back there, even just speaking almost philosophically, what does it take to explore ideas together, sort of like deliberate, argue in that space?

2:31:47Maybe there might be interesting stories about that time. It was just be interesting to understand how somebody like Milton Friedman forms. The seat is planted in the flower blooms. Yeah, yeah. So he gets to University of Chicago. He makes fast friends. It's a third and fourth year, they become what I call them the room seven gang. So room seven is they find an old store room in the basement, they take it over, and that's where they have their jam sessions. What made this world come together was Frank Knight. There was a charismatic leader, and there are a bunch of acolytes who clustered around him.

2:32:27That I think was a key piece of ingredient. Then there was a sense that they were on to something that the rest of the economics field had forgotten or was rejecting. So there was like that sense of mission. So that seems to have been there was a formal education piece, and then there was a parallel education piece rooted in admiration for thinker, a shared admiration. Then what that led Friedman to do, what I found syllabi that he had from non -economics courses, lists of books, and he'd written the prices of different ones he wanted to read. So he had John Stuart Mill on Liberty, like 50 cents written in the margin.

2:33:07So he began to educate himself. He gave himself a parallel curriculum alongside this very formal economics curriculum. He started reading the traditions of political liberalism and then talking them through with friends and then developing like a shared sense of mission. That the incredible thing is of those friends in the group, they scattered for like 10 years and then they all came back together. George Stigler, his great friend, was hired at Chicago, Aaron director, who was his wife's brother, was at Chicago. So many of these people continued. He became Frank Knight's colleague. So that was the base.

2:33:45That was what really grew him. That really profound peer group. Now the other piece I talk about a lot is Friedman was a collaborator, an open -minded collaborator, and he had incredible connections with economists who were women. And he basically found first in the figure of honest shorts, later in the figure of this group of women who were his wife's friends, this kind of untapped pool of talent. And so he immersed himself in this whole other world of consumption economics. And that resulted in his more technical work on a theory of the consumption function, which is the theory of permanent income.

2:34:23So for Friedman intellectual work and intellectual production was always done in this very social context. In a context that blended friendship and intellectual partnership. And he really, he only had a handful of friends who were not also economists interested in the same questions he was. So he just lived and breathed ideas all day long. Can you speak to the jam sessions? Like, what do we know about the jam sessions? What are we talking about here? You're sitting in a room. Are they analyzing, are they reading papers and discussing papers? Are they arguing more like overbears kind of situation?

2:34:59Yeah, more arguing overbears. And in this case, there's several people who say it was all about Frank Knight. What did he say? What did he mean when he said it? Is he right? And so Knight was very, he would say one thing and then say another. If you read him, it's very hard to follow what he's actually saying because he's full of qualifications and ironies and blends. And so he would throw out these pieces and then the students would kind of clutch at them. And then they would come back together and try to assemble this sort of worldview. And then Frank Knight fell into this terrible depression.

2:35:32And to cheer him up, they planned a big party. And they went back through all of his previous writings and they assembled them into a book that was published. This is the ethics of competition. And you can read the introduction written in part by Milton Friedman. So not only were they talking about Knight and what he said, but then they started pouring over his work. And one of them described it as like a general equilibrium system, where you like had to like know all the parts and then all the sudden and all fit together in a whole. So if we step back what they were doing was getting inside the mind of a great thinker and understanding the ways that all fit together and then kind of testing their ideas against knights.

2:36:12And what's fascinating is one of the first papers that Friedman publishes in statistics is a rebuttal of Frank Knight. He publishes a rebuttal of Frank Knight's ideas about risk and uncertainty. And Frank Knight, he kind of took a black swan argument. He said, risk, you can calculate uncertainty. You can't like, existentially philosophically. You can't get your hands around it. It is the black swan. And Friedman publishes this statistical paper and he says, I can put uncertainty on a graph. And so there's that sort of Freudian killing of the father element when he comes back. And he will, you know, in some ways turn his back on Knight's approach and Knight's pessimism even while it's like a foundation of his thinking.

2:37:00Fascinating. Is there something you could say about the thinking process that Milton Friedman followed, like how he developed his ideas? You mentioned there's a strong collaborative component, but there's another story I saw about that I think his son recalled about the argument number system. Yes. Yes. By the way, if you can explain that as the tangent of a tangent, that's really awesome. I think it's like number one, if the other person is right. Number two means you were right and I was wrong. And the number system evolved in some ways to be quick and efficient. But in other ways, they also were really clear about it.

2:37:43So you know, something like there's kind of like three reasons behind it. First is if you use a number, it reminds the listener that it's really hard to say the words I was wrong. So you're kind of calling on their sympathy by using number reminding them that you're doing a hard thing. And then it's also reminding them that you're in this family with this code. And so you're signaling your membership and your closeness and your love really. And so it's supposed to be an easy way to disagree without breaking the relationship. Yeah. So admitting you're wrong now comes with this warm fuzzy feeling.

2:38:23Yeah. Yeah. And that's really, I mean, that's so powerful. I think so much of the friction of human interaction can be pulled down to just not being able to admit they are wrong. Yeah. Officially and quickly and regularly and just often. Yeah. To be able to do that, that's really, that's really powerful. Yeah. I think there's a really a really neat aspect of their family life for sure. Sorry. That's a fun story. But like, can we just generalize to how he engaged in collaboration, how he developed his ideas. Is there like a thinking process? So he taught at the University of Chicago and he tended to teach for six months and then have six months off.

2:39:04And he spent the summers in New Hampshire or Vermont. He had to right near that border, they had two different houses. And that to him was the deep thinking time. And so when he's at Chicago, he's teaching, he's arguing, you know, some people love his teaching style very much in charge, very much keeping students on their toes, confrontational others found it too much overwhelming kind of shut them down intellectually and they couldn't, they couldn't cope with it. And so I think it was kind of go time when he was teaching in that case, he was, that was a lot of social time interacting, talking other professors going out and giving papers, arguing with the people at Yale or Harvard, then he would go and do these very deep dives over the summer.

2:39:48He would also regularly do these trips to New York to see on a Schwartz. So it was 12 year collaborator, they didn't have phone calls were really expensive, they did have quite an extensive correspondence, but then they would do these meetings. So he would basically come in at the beginning of the summer, going to Rauwe, stop in New York, see Schwartz, and then again, on the way back to Chicago. So you have these deep check ins at that point. The other thing that happened is people would come visit him in New Hampshire. And so he would have these, he had a studio separate from the house, he would go and he would work and then at night, his friends would come, his friends are all economists, there's a whole cluster of economists, they all clustered within driving distance of the Dartmouth library, so that they could get their hands on books.

2:40:31And so they would come over and then they would argue and talk into the night. So I think he did need that that deep focus time, but it was not like he also lived a very engaged, very embedded social life. A part of which was his marriage, is there something you could say about love, about marriage, about relationship, they made the whole thing work? It was vibrant and they wrote a biography together. They did. I mean, they were very complimentary, they were kind of the yin and the yang. She was very introverted, somewhat suspicious of others skeptical, and he was extremely extroverted, optimistic, high energy.

2:41:14And they also were at a time when it was really clear, for broader society, these are the roles of a man, these are the roles of a woman. And they pretty much adopted those. Now, no, Rose Friedman did some very important economic work. She's part of the early stages of the theory of the consumption function. She didn't complete her degree because she really knew there wasn't, if she wanted to be married and have children in the world, she lived in, there wasn't a real pathway to also being an economist. I do think that a lot of that, it's not, it feels very gendered, like he's a man out in the world and she's in private.

2:41:51It's interesting because her brother Aaron director was the same way. He was very private man, very shy, very introverted, and he exerted this quiet intellectual influence on all of his friends. So I think that was just kind of a family treat of being more quiet, preferring to be behind the scenes. It wouldn't have worked any other way. His Friedman was so out there, so, you know, so extroverted. And there's a bit of a sad thing she said. She said, when I married Milton, I lost half of my conversations. When David came along, I lost the other half. So this is a household that was just dominated by male voices, in which she didn't have a lot of room.

2:42:30What was tricky for me in my research is she didn't leave much of a trace. She put together Milton Freeman's archive and she took herself out of it. So I really had trouble finding her actual voice in the historical documents and she didn't want to leave that behind. So absolute essential piece of his success because she's the one who pushed him to do the newsweek column, to do free to choose. And she really wrote capitalism and freedom. She took all his random notes and she put them together into a book. And that became this kind of testimony of his ideas. But she shared many of his ideas and she, you know, without, when I think of Friedman, if you take away Shwar, honest Shwar, if you take away Rose Friedman, if you take away the other woman who collaborated with him, you have a much thinner resume than the one he actually has.

2:43:18Yeah, it's always sad. And it always makes me wonder about the private secret conversations between partners. Yeah, because they're, you know, they're, they might not show up in the record, but they probably influence the person more than no, I'm saying anything else. Those quiet little conversations. Yeah. If we can switch our path to another great mind of the 20th century, I and Rand, we talked about some of the similarities here about them being fighters for freedom and fighters for capitalism. What is Iran's philosophy? You can give a big 10 tons of summary of objectivism. Yeah. So she called it objectivism.

2:44:06Triedness, she used to do this thing like I can, I can stand on one foot and say it. So it goes something like epistemology, reason, ethics, selfishness, politics, capitalism. You know, that was kind of how she summarized it. So what she did, there's a couple of things she did with objectivism. First of all, she says the key defining element of humanity is rationalism, the rational faculty. So that's what defines what humanity is. Therefore, there is an objective reality that we can access and know with our reason. That's the objective epistemology. And the one social and economic system that lets rationality flower and is based upon rationality is capitalism.

2:44:50And then rationality only works in her view as an individual capacity. And that rationality teaches that what you should do is pursue your interests. And so she ends up calling that selfishness. Now it's tricky because selfishness has so many strong and negative connotations. And she meant, I think, something closer to like self -actualization because she really tried to create this idea and express the idea that to be truly selfish did not mean trampling on others. It meant just being motivated by your own kind of internal measures and metrics. And so in her fiction, she tries to show this by showing the false selfishness of some of Peter Keating who's an architect who kind of steps over everybody to advance his career.

2:45:52And she says that's not true selfishness because true selfishness would recognize it's false to take others work and pass it off as your own. Now the other big piece of objectivism is a very approach that's really inspired and related to Friedrich Nietzsche's idea of re -valuing values or genealogy of morals. And so she says, what's happened here is Western culture has converged on this idea of altruism as good, being selfless and altruistic is good. And this has led us to communism and has led us to devalue the individual in favor of the collective. So what we need is a new moral code which elevates selfishness, which elevates the individual and which takes all the things that we have been told are bad and actually says their values.

2:46:47This is what she's trying to do with objectivism. I mean, it is about as ambitious as this of an intellectual project as there can be. And that's what really draws people in, yet at the same time she's flying in the face of the way human morals and ethics and societies have evolved. And she's not able to single handedly recreate them the way she wants them to be. Yeah, I mean, she's not doing herself any favors by like taking on the words and trying to rebrand them completely, like writing the virtue of selfishness. It's like, can we just call it self -actualization? Yeah. There's a negative connotation to selfishness and a positive connotation to altruism.

2:47:27So she sometimes it seems takes on the hardest possible form of argument. Yeah, I mean, she had a student and a, you know, who ended up being very close to her in a Samuel Brandon and he was a Reverend advisor and he said, can you please not use selfishness, like just come up with another word? But part of her liked it. Part of her wanted to provoke and unsettle. She didn't want to give that up. I mean, people should listen to her, her public talks, the, her whole aura, the way of being is provocative. And she's a real powerhouse of an intellectual. So like she loves the challenge and that just listening to her in itself is just inspiring because you could, you could see the individualism radiate from her.

2:48:18Yeah. I mean, that was, that was one of the things I found in researching and writing about her. Like she's an incredibly unusual human being. And you know, and so that was, that was like her strength, right? Because she's so unusual, but it was also her downfall because she looked to herself as a model or to get insight about humanity and she never quite processed how different she was from other people. So just because we talked about Milton Friedman so much, can we just return to what to you, given everything we said, because the interesting difference is about Iron Rand, her ideas related to, to Milton Friedman.

2:49:00Yeah. I mean, broadly, we could put Milton Friedman and Iron Rand in some sort of category together, but she has this focus on ethics and rationality and this desire to be revolutionary, that's much stronger than Friedman. Friedman wanted to overthrow the economic consensus. He didn't want to overturn the moral basis of Western society. So she's also, she does something. So in one of Frank Knight's essays, he talks about the ethics of competition and he says, you basically cannot build an ethics out of competition because it would be monstrous to do so, because it would say the winner of this competition is ethically right.

2:49:45And that would open the door to sort of might, makes right. And this is what Friedman struggles with. And he says, I can't take capitalist outcomes as ethical unto themselves. I can't do it. It doesn't feel right. And there's this line where Frank Knight says, no one would ever do this. And I was like, oh, Frank Knight, you haven't read on Ranjit. You know, hold my beer. Yeah. You're a little too early, because that's what she does. She takes the outcomes of capitalism and of marked competition and says, these have ethical meaning. And this is where ethical meaning in hears. And it is ethical to try to succeed and to succeed in a capitalist society.

2:50:21Now what she's able to do is create a fictional world in which people succeed in her fictional capitalist world through ethical behavior. And so she doesn't really have to wrestle with a capitalist world in which people succeed through fraud and corruption and, you know, all the other things that might go into someone's success. She creates the best possible take on success under capitalism. And then she holds that up as an ideal. And I think what's important is that so few people have done that. And she comes at a time when everybody is emphasizing a downsize of capitalism. And she says there's another way to look at it.

2:50:57Here are the good sides of capitalism. And like you said, she was operating, which I really loved the phrasing of that in the mythic register. Yeah. So she was constructing these characters, these capitalists that are like the highest form. These great heroic figures, almost romanticizing them. Yeah. Yeah. You mentioned we, the living as one of the books that you like of hers the most. But can we stay in the mythic register with the fountain head and Alice Rugged? What do you are some sort of memorable, inspiring moments, insightful moments from those books that maybe scenes or ideas that you take away from them that are important for people to understand?

2:51:47Yeah. So the fountain head is this story of a struggling architect, Howard Rourke. And she kind of follows his life and his career. And the message is really, it's a version of two thine own self be true, right? And Rourke's designs are two of on guard. Nobody appreciates him. And he just keeps doing what he wants to do and is focused on his own visions, his own genius. I think that's been really inspiring to kind of creators of all types. I think it's fairly unrealistic as a portrait of human achievement. But it's an aspirational idea. I mean, one phrase that comes to mind is there's a character I forget which one who is in some sort of adversarial relationship with Howard Rourke and says something to him like, well, Mr.

2:52:35Rourke, what do you think of me? And Rourke says, I don't think of you. You know, in that charan was the ideal. You're not thinking of other people. You're you're an island unto yourself. You know, you're focused on your own goals, your own capacities. And you're not doing it to impress other people or to be better than other people or to dominate other people. You're doing it because you're expressing your inner your inner soul in a way. So that has been very captivating to so many in the fountain head is one of those books we talked about that causes, you know, people read it and they make changes in their life or they feel called to their their higher self.

2:53:12And I think there's also the scene where Rourke with the Dean of Architecture School that's speaking to the what you're saying. I think to me is inspiring. So this is the Dean of Architecture that expels Rourke and it brings him into a meeting thinking Rourke will plead for a second chance. And the Dean says that Rourke's work is contrary to every principle we have tried to teach you, contrary to all established precedents and traditions of art. Do you mean to tell me that you're thinking seriously of building that way when and if you are an architect and then in a gangster like way Rourke says yes and then Dean asks my dear fellow who will let you and Rourke replies that's not the point.

2:53:58The point is who will stop me. Yes. I mean, you know, Rans coming from communist Russia but it has a bit of the don't mess with Texas flavor. You know, I might say that really resonates with this idea of anyone who's felt like they're, you know, fighting the powers that be. Yeah, it's interesting. I thought you might be going to a quote where he says something like I, I inherit no tradition. You know, I stand at the beginning of one. And I really think Rans thinking about herself, you know, when she says that she inherits nothing. She stands at the start. But, you know, the fountain head comes out in the middle of World War II and it's it's not expect, Rand is an unknown writer.

2:54:37This is kind of a strange book. It's, you know, classic story. It's turned down by 12 publishers before one takes a chance on it and Rand really loved this story. The editor who read it said this book is great. And his boss said, no. And he said, if you don't take this book, I'm quitting. You know, and so she, you know, she idolized him for doing that. So they print it and it becomes the best seller just the word of mouth. So it's not advertised. Doesn't it gets one good book review, but it people tell each other how much they like this book and it keeps printing and selling out printings made into a movie.

2:55:11And so it lands in this time when Americans are engaged in this great collective endeavor of World War II. They're making all kinds of sacrifices for the collective. And I think paradoxically, as they do that, they're drawn to this vision of someone who doesn't have to compromise at all, you know, who is leading their life exactly as they want to. You know, meanwhile, they might be sleeping on an ocean liner because they've been drafted to fight in this war. And they're reading the fountain head and they're feeling better about themselves. And so it's also really interesting. The fountain head is hugely popular in India, which is fascinating.

2:55:42And you know, talk to people about this and they basically say, this book comes like a breath of fresh air into a very traditional and conformist culture. And people just latch onto it and they love it, you know, and it gives them that feeling of freedom and possibility that they're hoping for. Yeah. I mean, it really is a book. Alice Rugg can be a bit of that too, but it's more of the philosophy of objectiveism into details and the nuance of that seeps into Alice Rugg. The fountain head is very much like a thing that makes you change the path of your life. Yeah. And that, I mean, that's beautiful to see that books can have that power.

2:56:19And you know, Rand knew that she was doing that and she knew what she was doing. You know, she, this wasn't an accident and people say, oh, she's a bad writer. No, our characters are so heavy handed. You know, she started as a screenwriter. She started as someone who analyzed films for movie studios. She knew exactly how to manipulate plot and character and drama. And she also knew that she was writing, you know, people say, oh, Rand is for, you know, adolescence, Adolesce teenagers love Rand. And that's kind of who she was writing for. And she said, you know, I'm writing for people as they start out on their life and they're thinking about who they want to be.

2:56:56So she's not writing, you know, for the weary middle age, she's writing for the young who are looking for inspiration. You know, people say that to me sometimes about certain books like Rand, but also about the alchemist. I know a lot of people for whom they alchemist and their adults and their brilliant people, the alchemist changed their life. And the same can be said about the fountain head. And I sometimes get criticized for using words that are too simple. I think simple words can have power and the cliche thing sometimes needs to be said. And sometimes if effectively needs to be said in an over the top way in the in the mythic register, because that's the thing that resonates with us.

2:57:46Yeah. Because we are like heroes of our own story. Yeah. We need to hear that message sometimes to take the bolster up, to take the risk, to take the leap. Yeah. And I mean, the other thing she, she knew she was doing kind of propaganda in a way. She was like, I'm doing pro -capitalist propaganda. She has a degree for the University of Leningrad. You know, she raised up in Soviet Russia. She said, we need to present the case for the other side in the same way. And that's what she did. Why do you think she's so divisive? People either love her or hate her? I mean, I think it's because of that purity that I'm willing to say, sort of you get what you deserve and that kind of lack of charity.

2:58:28And part of that in her work is because she creates this fictional world where she can set everything up just so. And so you don't have contingency or accident or bad luck or you don't really have a lot of children. You don't have handicapped. You know, you don't, you don't, you just have this idealized world. And I think it's really infuriating for people who feel that's so inaccurate. How can you be deviving a social theory and philosophy around this? And how can you be missing? What seems to many people, she's missing the kind of ethical instinct or the altruistic or charitable instinct? And so they just become enraged at that.

2:59:07And they don't, they don't want to see anyone go that far. And they're outraged that someone went that far. You know, did the thing that Frank Knight said, no, I'm going to do. Yeah, it's just, it's very unsettling. Would you say that's her main blind spot, the main flaw of objectiveism is just how black and white it paints the world? Or if not, what would you say are the flaws of objectiveism? So I mean, the big flaws that is justified through a fictional world, you know, it's not justified through reference to the real world, you know, it's, it's not empirical and in a way, it's not, um, and and Rand herself would say that she's not writing about things how they are, but how they should be.

2:59:54And so that idealism, it just really undermines it as a mechanism to understand where we're actually living. And that is a big contrast with Milton Friedman who would focus on how things are versus how things should be. And then I think it's the problem of elevating rationality or any other mode of insight or thinking. And so what happens in Rand's life, and I describe this in some detail in the book is she essentially creates a cult of reason around her and people who are drawn into this cult. It's called the collective. It's a group of young people in New York City who are drawn to her work.

3:00:36And she's already famous, but she's writing Atlas Shrug and so she's sharing drafts of Atlas Shrug as she goes along. And one of the members of the collective to bring all of this together is Alan Greenspan, later behead of the Federal Reserve. And he's incredibly taken with her. He's one of these people who says, I was a narrow technical thinker. I never thought about ethics or politics or anything bigger in Chelliamet Iron Rand. And she really opened my mind. So he's part of this tightening group. But over time in this tightening group, they think of themselves. We are all individualists. We're dedicated to individualism and capitalism.

3:01:09We're different than everybody else. Over time, they all come to share. Iron Rand's views and opinions on everything from music to art to clothes. You know, there's she gets a dining room table and a becomes incredibly conformist because they've all believed they're acting rationally. And they believe that to act rationally is to agree with Iron Rand. And they believe there's no other way to make decisions than rationality. And so to disagree with her is to be irrational. They don't want to be irrational. So people get really caught up in this very damaging cult like circle around her. Plus for a cult of reason, they get awfully emotional when there's any disagreement with the man.

3:01:58I mean, it's kind of hilarious. It's absurd. But it's, I mean, it's also beautiful to watch this singular figure. We've talked about several singular figures in like Frank, right? That shakes up the world with her ideas. Yeah. And of course, it would form a cult. And of course, that cult would be full of contradictions and hypotheses. Yeah, I mean, it's amazing. So Murray Rothbard, a famous anarchist, falls into the Iron Rand cult. And then he disagrees. And there's some type of show trial where he's told he's wrong about everything. And then he has a little pseudo cult of his own and two of his cult members switch over to Iron Rand.

3:02:44And then one of them to show the gesture, their breaking of their relationship, males him a dollar bill that's been torn in half. I mean, this is high theatrics, right? Okay, that was sticking on the drawing of theatrics. Who was Nathaniel Brandon? Oh, yes. Can you take me to the arc of Iron Rand's relationship with Nathaniel Brandon to their dramatic falling out in 1968? Yes. So so after the fountain had the fountain had his auction to be a sold to be a film. So Iron Rand moves to Hollywood, where she's going to help in the writing of the film. She wants a lot of creative control. And then she's also still working in screenwriting and things like this.

3:03:26And so she gets a letter from a, there's a Canadian student who's written to her several times. And then he writes again and he says, I'm at UCLA. And she's like, young man, you're so full of error. Why don't you come visit me and I'll straighten you out? And so he comes and they have this real meeting of the minds. They talk all night. He comes again. He brings his girlfriend. She loves him. And they start this very intense relationship of spending every weekend at her house basically staying up all night, talking about ideas. He becomes completely converted to the objective of worldview. Rand begins counseling him and his girlfriend about their relationship.

3:04:04You know, very intense thing. Then eventually they graduate from college and they both enroll in a graduate program in Columbia and they leave. And after they've left, Iron Rand is just breathed. And within a few months she packs up her home and she moves to New York. Here I am. I like New York better. And so that becomes the seedbed of the collective. And the Brandon's, they get married. They change their name to Brandon. They've never publicly spoken on this. But many people pointed out it has the word Rand in the name. So it's some type of acknowledgement of how important she is to them. And time goes on and romantic feelings develop between Iron Rand and Nathaniel Brandon.

3:04:47Some 20 years are junior. And they discuss them and they realize that rationality has led them to the conclusion that they should be lovers. Right. Right. They rationally decided this. But because they're rational, they need the consent or at least to inform their partners. They're both married. They're both married. So they call a meeting and they obtain the consent or maybe simply inform the others of the rationality of the choice. And then they say, but this is only going to be an intellectual relationship. But we'd like a few hours alone each week. And we don't want to be deceptive. So we want you to know and approve of this.

3:05:25So the spouse is bought into rationality, know and approve. One thing leads to another. It becomes a full romantic and sexual relationship. And although it's open within these four people, it is not open more broadly. And so in all these meetings of the collective, Alan Greenspan, all these other people coming up, but you know, drinking coffee all night, talking, talking, they all know that Nathaniel Brandon is objectiveist number one. They don't know that there's a romantic and sexual relationship happening. It's kept a secret. And then when Atlas shrugged comes out, it's panned by reviewers.

3:05:59People absolutely hate this book. And Rand is not Howard Rark. She falls into a deep depression because her masterpiece has been rejected. And so then the romantic relationship ends, but the close personal relationship continues. And then over time, Brandon, who's still married to his wife, begins in a fairer with another young woman. And at this point, he has started the Nathaniel Brandon Institute to teach objectiveism. And he's making good money. He's becoming quite famous. She supported the institute. She supported it. And at first, it was to help her in her depression. As he said, the world needs to recognize her genius.

3:06:38They missed Atlas shrugged, but I'm going to teach them. I will bring the message. And it's very successful. It becomes its own business. It has a newsletter. It's a whole world. So that small cult around I'd Rand expands to this whole social network. And it's very much a piece with this burgeoning conservative movement of objectives are involved in criticizing the draft. There's kind of a libertarian objectiveist world going on. All this is happening. In the meantime, Nathaniel Brandon has found a new partner. And he doesn't tell I ran this because he knows she'll be upset. And so it goes on for years.

3:07:15And I ran, knows something is going on, but she can't quite figure it out. And it finally, Barbara Brandon says, Nathaniel Brandon, you know, you have to tell her. This is just gone, gone on too long. So she finds out. And the whole thing blows up. And she exiles him. And she breaks off contact with him. And nobody has ever told what happens. It's called the objective schism, you know, objectiveism breaks into because some people say, how could I ran do anything wrong? And other people say, what is this letter all about? And what did Nathaniel Brandon do? And I'm not just going to take her word for it.

3:07:52I need more information. And then a bunch of people, I've read all the accounts of this. A bunch of people are like, okay, they were having an affair. And a bunch of other people are like, no, that couldn't possibly be happening. You know, I'm so sorry. The whole thing breaks up. But what I argue in my book is actually this is to the benefit of Rand's ideas because Rand herself was so controlling over her ideas. And now that she steps back from a public role, you know, objectiveism flows into the student libertarian movement. Some objectiveists become conservatives. It just kind of spreads out more generally.

3:08:27And you don't have to drink the cool aid. You don't have to take the official course. Nathaniel Brandon goes on to be part of the self esteem movement, you know, human potential movement, California. And I'm Rand lives, you know, another another 10 years or so, but she doesn't do major work after that. So since we were talking about some of the, although rationalized some strange sexual partnerships that they were engagement in, I have to ask about the Fountainhead and the the quote unquote rape scene in the Fountainhead. Was she intending to add that there to be controversial? How we supposed to read into it?

3:09:09Is it a glimpsent to Iran's sexuality? And maybe broadly, we can say, what was her view on this on sexuality, on sex, on power dynamics and relationships? Yeah, I mean, there's also an objectivist theory of sexuality that probably the least convincing of all the parts of objectivism. And it goes something like your sexual desires express your highest values. And they are related in some ways to your rationality, right, which is also related to your highest values. So, so for her, that explained her attraction to Nathaniel Brandon Nathaniel, Brandon's attraction to her was a function of their highest values.

3:09:53And in fact, Brandon imbibed this so deeply that the fact that he was later drawn sexually to a woman who was not particularly accomplished, but was beautiful, caused him deep anguish and guilt for being non -objectivist. So this is the objectivist theory. Then the gender politics are just crazy. And we have to kind of back up and think, okay, who's Iran? She's born at least a Rosenbaum in Russia. She is someone who stands out from the crowd from the beginning. She never really fits in. She's not conventionally beautiful by any stretch of the imagination. She struggles with her weight. And she doesn't consider herself to have a beautiful face.

3:10:31She's very independent. She meets none of the metrics of traditional femininity at all. She finds love with a man who is very handsome but very passive. Yet she writes in all her fiction about strong manly heroes. So this seems to be like a projection. The man she's actually with is not a strong manly hero. The hero she writes about, she probably wouldn't be able to be in the same room with them for more than one minute before they got an arranging argument, right? And then, then she develops this theory about women and men in that a woman should worship her man. And a woman finds her true expression in worshiping the man she's with.

3:11:14So again, this is not at all how Iran lives her life. This is like this. I would say a compensatory theory for her lack of ability to conform to the gender norms of her day. She then articulates them in a very strong and almost distorted and exaggerated way to compensate for the fact that she doesn't actually meet them. It can't actually enact them. The rape scene to some degree embodies that idea that the to some degree that the woman should worship the man, I tend to read it more in terms of literary genre. So Rand is a screenwriter, you know, a consumer of movies. And that rape scene is paradigmatic for the romance genre.

3:12:03In other words, he's like pulpy romance novels. The hero rips the heroin. And then they fall in love. That's just the trope of how it works. So it's crazy when you read it. But if you were reading a bunch of novels in this genre, you would find this is like very standard. And so that is a huge part of his appeal at the time.

3:12:29There's an angry denunciation of the rape scene. So she goes to get the fountain head and she's wondering how is she ever going to find the scene in this 800 page book. It's a library copy because she just want to buy it. And it just falls open to the rape scene because everybody's gone and read it. Because it's very racy and explicit for that time. So I'm I'm almost positive she also knew that like if I put in this kind of taboo breaking sex scene, that's also going to probably be why people tell their friends about it. So I just I think it's a mess. I think all of the gender and sexuality stuff is that she states is just a total mess.

3:13:07I think it also reminds me of of another guy related features Nietzsche who had very strong opinions on women and wrote about what women's roles of society should be in different power dynamics and relationships and all that kind of stuff when he himself really had trouble getting laid. Yeah. And so you have to yes, it's sort of always maybe chuckle or take with the grain of salt, the analysis of power dynamics in relationship from these figures which which failed in many regards in their own private life. You mentioned feminists. Would you consider iron ran to feminists? I mean, she's almost an anti -feminist um because she then goes on and someone writes her a letter about like should there be a female president or something?

3:14:00This is like the beginning of feminism and she says no, no women should ever be president because if she's president, she wouldn't be able to look up to any man because she would be so powerful and therefore she would be like corrupt and like rotten in the soul and like unfit to be a leader and just it just makes no sense. But that said she's a woman and she's one of the most powerful intellects in the 20th century. Yeah. And so it's the contradictions, I mean, Nietzsche's full contradictions of this sort that the very fact that she's one of the most powerful minds in history to me means that she is a feminist in her in the spiritual bodies, in which she represents.

3:14:48I mean, she lived the ideals of individualism in her life and set aside gender norms in her own life, but she did not see herself as part of any, she did not see herself as doing this for the benefit of other women or to change society's views about women. There was no collective essence to it. So if if feminism has some sort of collective aspect to it or at least some identification, one needs to identify with a broader category of woman and feel they're acting in behalf of that, she's definitely not doing that. And she did, you know, she was fair to women in her life, promoted them in her life, but did not, I mean, she was very negative about feminism and then because like they dress terribly, you know, and then the other thing, it's really interesting, she had, there's all these kind of homo -erotic themes in her writing.

3:15:41And for that reason, many gay men were drawn to her writing. And then she would say, like homosexuals are dirty, terrible people, you know, she would denounce people for being homosexual. So there's a whole actual literature of like gay men wrestling with rangel and how she like what she says about gay people. So yeah, it's hard to make sense of and I just think of the enormous pressures, I want to be terrible, I just think of the enormous pressure she was under, in the culture she was raised in the expectations that were placed upon her and her just utter inability to meet any of them. And it came out in this very tortured set of ideals that she tried to promote.

3:16:22And it's kind of lack of ability to introspect in herself and to, it was probably too painful to introspect and to think about that. So she just tried to rationalize her way through it and it came out in these very strange theories. Why do you think that Iron Rand is, maybe you can correct me, but as far as I can see, never mentioned in the list of great thinkers in history or even the great thinkers of the 20th century or even the great female thinkers of the 20th century. So you have somebody like Simone de Beauvoir, Hannah Rand. I almost never see her in the list. If you google those silly lists, top, whatever, top thinkers of the 20th century, she's not mentioned.

3:17:08Why is that? A lot of people just deeply dislike Rand, they deeply dislike her ideas, they don't think they're profound because they're disconnection from other ideas and other understandings of human society. I think, I think where you could look at them and say, these are, these ideas are very provocative and they're very deep because she's not taking anything for granted and she's flipping everything around and forcing you to really think to a lot of other readers to her critics, they just look absurd. Like how could you even make these contentions? And I think that because she, she's not without precedence and she's not without followers, but she doesn't knit herself into an intellectual community, the way that these other thinkers do very naturally, that can, you can see who they influence, you can see who they're in dialogue with.

3:18:02You know, I think my book was one of the first to really take Rand and say, she's a figure in American history, here's who she's connected to, here's who she's influenced. And I got a lot of pushback for that, you know, I think now people are more open to it, but I think the people who compile these lists really dislike her work and they think it's shallow because they find her fiction overdrawn, they find her work in the mythic register simple and she's also a grand systematic thinker in an age that's over systems, you know, she's almost just creating an inverse Marxism, right? Marx was writing in 1848, you know, it's not a thinker of the mid 20th century.

3:18:45So I think that's part of it, the lack of a legacy and the dislike of what she had to say and the feeling that she's too detached, her insights are not insights because they're too idealized rather than being rooted in a theory of human nature that people find plausible.

3:19:04You study and write about history of ideas in the United States over the past 100 years, 100 plus years. How do you think ideas evolve and gain power over the populace, over our government, over culture, just looking at evolution of ideas as they dance and challenge each other play in public discourse? What do you think is the mechanism by which they take hold and have influence? Yeah, I mean, there's a couple of different ways, I think it happens. I really am interested in the relationship between the thinker and then the reader and the interpreter of the ideas and then the conditions on the ground that make that idea resonate or not resonate.

3:19:58I think a lot, so as an intellectual historian, I'm studying ideas and I'm always putting them in their historical context. What is happening? It is making these things resonate that is making them, people seek them out. So for Rans case, she has this credibility because of her experience of communism. She's one of these defining moments of the time. And then I think the idea comes out in a sort of pure form and then other people rework it and reshape it as they read it. And I'm really interested in how people form communities around these ideas. So a bunch of people have started calling themselves objectives and getting together to read Rans work.

3:20:39That was spontaneous and ground up and wasn't supported by any money nobody planted. It just happened. Friedman's a different case in that he joins an established tradition of thought. It's been institutionalized in universities so people are signing up and paying money and getting credential to learn these ideas. So to my mind, these are two different ways but really emblematic ways of how ideas spread. So Rans, I think of this more bottom up like people encounter the idea in a book. They're kind of blown away by it or they imbibe it without even realizing they're imbibing it and then they're like, well, maybe I don't like Franklin Roosevelt so much or maybe I'll look second and not get another time at Barry Goldwater.

3:21:19Whereas Friedman, you get the idea more top down. I know I'm getting the idea. I know I'm being positioned within a sort of elite discourse of economics. So I think they kind of go top down and bottom up and then they hit the events. Friedman's ideas wouldn't have gone anywhere without that episode of stagflation that really made people think they proved out. And I think Rans' ideas really caught fire in Cold War America that's looking for a statement of like, what does it mean to be an individual? What does it mean to live in this mass society? Because it's also a time of great social conformity and where people are suddenly, you know, they're working for large corporations.

3:21:59They've been served in a large military. You know, the United States is stepping out onto the world stage. Everything is bigger. What does it mean to be an individual in that world? And that's where Rans' ideas catch fire. So I think a lot about that, about how they trickle through different levels of society and then how ideas collide with experience, I think is critical. What do you think about like when they actually take power in government? So I think about ideas like Marxism and how that evolves into the Bolshevik revolution and how that like takes hold in its implementations or you can think about Nazism and with Hitler where it goes from a small number of people to get real excited about a thing and then like somehow just becomes viral and takes hold in power and then that has its consequences.

3:22:47When I think about this sort of historical path of communism and the kind of logics and dynamics of communism, I mean in many ways it has some echoes with Rand in that, you know, the ideology in its purest form is almost it's a rationalist ideology of some ways. It's an analysis of history and how things are supposed to be and I think you mentioned Hannah Arendt. I think she is one of the most kind of penetrating analyses of communism, which she really puts in the category of like it's a logical ideology, logic leads and exorably to its conclusions and then experience crops up and experiences different.

3:23:28And what is sort of cult of rationality do when it hits experience? Well, it tries to bend experience to its will. And that I think is really the story of communism writ large. So the question though is why, you know, why does it catch fire? Why does it draw people into political allegiance? I think in the case of communism it's this dream of a more ethical world, you know, dream of equality, dream of the power less rising up against the powerful. I mean, that's very that's drawn in so many and then you had the whole edition of Leninism, which gave a kind of international cast to that and helped people think about what are the relations between poorer and richer countries and what can we expect out of them and what might happen gave us sort of framework for thinking about that in a time when those the world was becoming more interconnected, those differences were becoming more obvious.

3:24:24You know, fascism to me is unleashing more something primal, something sort of dark and primal within people and it's more a permission structure to indulge in that that is normally not there. Those impulses are normally channeled or held down and it seems that when the fascist regimes come into power they give people permission to let those forces out. I think on communism, come back to that lecture that Anne -Ran gave. I think what rings true to me a little bit is that it fuels it as a kind of maybe not resentment but envy towards the people that have nots versus the haves and there is some degree to which Nazism has the same of envy towards some group resentment towards some group.

3:25:17So it's given the environment of hard times, hard economic times combined with the more primal just envy of not having and seeing somebody who has it and just constructing a narrative around that that can become a real viral idea. Yeah, it seems like communism is more animated by this idea of injustice. You know, the world is unjust. It should be different and fascism seems like the process of scapegoating, right? We've identified the source of the problem and it's this group and they need to be punished for what they've done to the rest of us. There is a primal thing going back to literature in 1984, two minutes of hate.

3:26:03We can get everybody real excited about hating a thing and there's something primal about us humans where once you're in that state of hate, anyone can direct that hate towards anything. Towards any group, towards any idea, towards anything because we could get caught up in the mass hysteria of the hatred. The dangerous thing. Yeah. You floated the idea, I forget where, of pivoting for your next book towards maybe writing about postmodernism, which is a set of ideas, it's almost the opposite of Vinerance philosophy. So can you maybe explain your curiosity about first all, spaces of ideas, but maybe postmodernism?

3:26:57Yeah. I mean, I think in the broadest sense, what I'm interested in, kind of two dimensions that guide me in doing intellectual history. One is what I talked about, like how does an idea go from a book, an elite space, out to more popular dimensions? Like how does that happen? What happens to the idea along the way? How is it distorted or changed? And the other is just search for meaning in a post -Christian era or a secular era. Like what are people coming up with? And I think to replace that void in their religious or spiritual lives, I think both Rand and Friedman offered these sort of alternatives, right?

3:27:34Objectivism, quasi -rationalist religion, people take economics as a theory of the world that almost, you can almost believe in it, right? It can almost take that place. And in both cases, how do those ideas travel? When I think about postmodernism, you know, it first struck me, you know, these, if you read the original postmodern thinkers, it's really tough going. I mean, I make my students do it and they suffer. I think they see it's worthwhile, but it's no fun to read Derri Dahl, you know? But somehow it's trickled down into how do we go from like Derri Dahl to Tumblr? And I sort of realized like, oh, this has happened with postmodernism.

3:28:13It's followed the same path, you know, that say from Milton Friedman's economic theory to free to choose on YouTube. We've had a similar path, you know, high French theory down to Tumblr. And you know, I, you know, sexually identifies an attack helicopter or whatever it could be. And so that was really interesting. And then I also thought, you know, well, at the same time, this is clearly a structure of meaning. And I actually think it's followed the same path of objectivism, which is turning into its opposite, like just still down and then turning into its opposite. So if objectivism was a group of people who considered themselves individualists who ended up deeply conforming to the dictates of a charismatic leader, you know, postmodernism started about disrupting binaries.

3:29:00That was, we're going to be fluid, we're going to go beyond the border, we're going to disrupt the binary. And it's devolved in its popular forms to the re -inscribing of many different binaries. Presser and oppressed, you know, has become this like paradigmatic set of glasses you put on to understand the world. So I think the dynamics are very, very similar. So I think it's something in the traffic of the idea from its pure form to its popular form. And then how gets, it gets politicized or mobilized in different ways. And behind it all, I think it's this human longing for meaning and the inadequacy of the traditional ways that need was met at this point in time.

3:29:39By the way, that going from pure form to popular form. I remember this might be before the internet, but when I was in college reading Derenan Foucault and like not knowing context at all, it was just interesting. All right, this is like I'm able to read pure encapsulations of an idea and just kind of like, oh, all right, well, that person believes that and you just kind of hold it. But then you realize if you actually take the pure form of that idea and then it creates a community around it, you realize like what that actually becomes. And you're like, oh, yeah, no, I don't. That's not, although I do consider myself sexually an attack off -opture, that's it.

3:30:21Identify is actually, yes, beautiful. Okay. Your process of researching for let's say the biographies of Milton Friedman, I'm random, seems like an insane amount of work. Yeah. You did incredible work there going to the original sources. Can you maybe speak to that? What is required to persevere? And to go to goals for so many years, to go so deep. So I mean, I go to the archive. That's where I feel like I'm, I feel like I'm communing with the dead in some ways. You know, I'm seeing what they what they saw in some ways and reading what they felt. And I, you know, I tell my, my doctoral students, it's got to be something that gets you out of bed in the morning because there comes a point in your doctoral career when nobody's, there's nowhere to go, there's nowhere to be.

3:31:19You got to be getting up because you're interested in what you want to study. And so with Rand, it was this real sense of discovery. Like, I am discovering, I want to know about this woman, I want to know where she fits. And the only way to find out is to do the research. You know, and so, yeah, I just, I like to go deep. It's, it's really interesting to me. And I should say in both of these cases, I've done it in an institutional structure. I don't know that I would do it independently. So the first was a graduate program in history. Was it UC Berkeley? And so I had coursework and then I had structures and I did have people to check in with and read, but I had a great deal of latitude.

3:31:55I'm very grateful for it. People are like, you wrote a dissertation on iron, ran a Berkeley. I'm like, yeah, hell, I did. You know, Berkeley's like, it's a great place in it. At the time I was there, there was absolutely room for free and Corey. Oh, can you just like linger on that? So when you said that you're doing that and doing the dissertation, I ran, was there the people get upset? No, I did have a, you know, a friendly critic who took it upon himself to throw at me everything he thought the outside world would throw at me. I think maybe five or 10 years earlier, it wouldn't have been possible.

3:32:30And but the most important thing I had to, the person I really had to convince this was worth doing was myself, because I knew it was an unconventional choice for the field and for dissertation. But once I convinced myself, I just said, well, we're going to do this and see. And because it was unconventional, it ended up standing out. And when it really was at time, there was a, I was started during second Bush administration, second George W. Bush, second term. People were interested in just conservatism in general and felt no matter where they stood on the political spectrum felt like objectively, we don't know enough about this.

3:33:07And this is a problem. And so they were open to learning more. So I really kind of caught that, caught that wave in scholarship and caught that wave in American culture where people wanted to know more. I wish you probably say that. I mean, I ran at the very least, as you've mentioned, a kind of gateway to conservatism. Yes, I called her the gateway drug. And that people start with Rand or taken by her, you know, in some ways she takes the worldview of Milton Friedman in terms of what capitalism can accomplish economically. And then she puts it in the mythopoetic register and she fictionalizes it.

3:33:42So once people have absorbed that, they want more, you know, they go on to learning more of the ideas behind that vision. Or they have become true believers, they've converted. And so then they head off to work for politician, to work for a thing tech, to work for a party. It's an absolute traffic. No, not everyone. There's plenty of people who read on Rand who don't take the politics. And it's a nice story. It's interesting. Just an episode in their life. But for others, it's really foundational. It really, really changes them. So those were the people I wanted to track very deliberately. I wasn't trying to do in the round everything about on Rand.

3:34:15I was like, on Rand and the American right, you know, goddess of the market on Rand and the American right is a title. So where did they? Where did they take her? Those who took her in this political direction? What difference did she make? If we return to like the actual your process. Yeah. So you're showing up and reading sources. And you're like, is it kind of like the process of discovery? You're just kind of like taking it all in and seeing what unifying ideas emerge or maybe special moments that illustrate an idea emerge? Yeah. I mean, I know with the biography of a person, I am already given a start and an end date and a rough narrative of what happens.

3:34:58So I have a kind of structure. And then with Rand, both with Rand and Friedman, I started by reading their major books before I really read anything about them because I wanted my own experience of the material to be fresh. And I had read some iron Rand, but not a lot. Similarly, I had read some Friedman, but not a lot. So I had first is like, let me read the major stuff get oriented. And then just dive into the archive and see what's there. Who are they talking to? What's going on? In Rand's case, I was interested in her in the United States, not her in Russia. I didn't have the language skills to do that.

3:35:35So I start her in the United States. And I start when she publishes her first book and she starts getting letters. And who is she writing to? Who's writing to her? And then I start to uncover this world of kind of nascent conservatism. And I'm kind of putting that together. And once I have enough, I say, well, that's a chapter and I cover that chapter. And then there's going to be, you know, the book has come out. And so now I need to start a different chapter. What's her life like after the book has been published? You know, and then I look for that. But I'm really, although I have this very high level structure, it's coming out of the archive, the material I'm finding.

3:36:09And if I'm not finding the material there, I won't cover it in great detail. Or if I've decided it's outside my, but I'm not going to go into great depth on it. And you try and understand the relationships is so fascinating. Like reconstruct. In a dark room, trying to reconstruct shine a light on relationships through reading letters. It's interesting. Yeah. Yeah. I mean, correspondence is really, really helpful. Drafts, correspondence. And, you know, someone, this famous, they have oral histories, other people write about them. So you're reading all these different things and kind of triangulating and trying to sort of put them together.

3:36:45And then think about how do I present this in a compelling story? And what do I need to explain? And then also for me, what was really helpful was, is that because I teach and I am explaining the kind of broad sweep of 20th century history. So, you know, I know that Rans involved in a labor action at Warner Brothers. But through my teaching, I realize, oh, yes, this is a moment of labor strikes across the country. And so then that really changes the origin story of Atlas Shrugged because she's looking at labor actions. And she originally thinking of the book as being called the strike. So she's really responding in real time and being inspired by what's happening, you know, in the mid 1940s in the United States.

3:37:29So then I can kind of take that and run with that and figure out where to go. So you're super passionate about teaching. You mentioned Bill DeFrieman had a very interesting way of teaching. So what's your, how do you think of teaching history, teaching history of ideas, teaching great young minds about the past? Yeah, I mean, it's great. It's really inspiring. The ways the old school kind of dominating way in which Friedman taught would not fly in today's university wouldn't be permitted. And also, the students wouldn't respond to it. So I try to share my enthusiasm. I think that's like almost the number one thing I bring is my enthusiasm.

3:38:11Like, look how neat and interesting these ideas are. I try to keep my own views out pretty much. I try to give the fairest possible rendition. I can of each thinker. If I find someone really disturbing, I might sidebarth end of the lecture and say, this kind of, you know, I find this unsettling and this, you know, tells me something about myself. But most of the time I'm bringing people into the, like, the biography of a great thinker, the context of them. And then we, in the lecture, will literally read the work together. And we'll talk about it and I'll ask the students, what are you finding here?

3:38:44What's jumping out at you? Kind of breaking down the language and really teaching them how to do deep reading. So I feel like that is my contribution right now. We're having trouble reading collectively. We're having trouble paying attention collectively and I'm trying to cultivate their skills to doing that and showing them how I do it and also modeling. Like, this is how I would read a text. This is what jumps out to me when I look at, you know, Thomas Kuhn or something like this. And just show them that I'd studying a history of ideas is really fun. I feel incredibly privileged to do it, you know.

3:39:18And the other thing is I think this is the time for students in college figuring out who they are. Their minds are developing and growing. They can really handle complicated hard ideas. They don't always have the context behind them. So I need to give them the hard ideas and then show them this is kind of the context of what's happening in the world. But really, I'm just, I'm showing them the landscape. I don't have time to go deep. We have a 10 week quarter, you know, I'm giving them a flyover and then I want them to know how to go deep and know where they want to go deep. Do the thing that Milton Friedman did, which is in parallel.

3:39:55Yes, do their own parallel curriculum exactly. Exactly. What advice would you give in terms of reading about ideas you agree with and reading ideas you disagree with? I mean, even though I think the passion is important for the teaching of the ideas, like, dispassion is more important for the reading and understanding of them. So a lot of people have said to me, like, I could never write about OnRan, like, she makes me so angry. And I've never become, I don't get angry reading her. Like, I'm like, oh, there you go again, you know, or like, well, that's going to cause trouble. And so I guess I'm approaching it with a sort of charity, but also with us, I don't have huge expectations.

3:40:37I'm not expecting to have the light shine on me. I'm not expecting to agree. I'm like, I can be very clinical about it. So that's worked for me. It might not work for others, but and then I just try to find the humor in it. You know, like, how, how funny is it? Like, these different aspects of them, you know, like, I when teaching my students about Oliver Wendell Holmes, like, his, his dad wrote a poem about him. He called him the astronaut about how he came from outer space. He seemed like he came from outer space. I'm like, this is his dad's view of his son. Like, that's how weird of a guy he was, you know?

3:41:11And so I try to like, find that keep alert for those funny kind of human touches that like, these are ultimately just people, you know, people with ideas that they spent enough time polishing up and developing that we still want to read about them a hundred years later. What about the dramatic formulation of that same question? Do you think there's some ideas that are good and some of their are evil? Do you think we can draw such lines or is it more complicated, like, the old soldier in it's in line between good and evil that runs to the heart of every person? I mean, I philosophically agree with Solzhenis and for sure, I do think some ideas pull on the good side and some ideas pull on the bad side, like, absolutely.

3:41:49And I think that's probably, that's probably why people dislike Rand so much as they feel like she's giving license to the bad side. And she's saying it's okay to be selfish and it's okay, you know, they feel like she's unloosing the dark forces. And, you know, in some cases that may be true, but I also, she's also unloosing some of the light forces in terms of reflecting on yourself and trying to trying to be true. But definitely there are ideas that are dangerous to play with and their ideas that I think give license to the darker sides of human nature. But I think you can see that in the historical record.

3:42:28So I think that it's possible to show that. And obviously there's some places, you know, like Germany, they're trying to, they think the ideas are so dangerous, they can't be allowed to circulate. And in some context, that may absolutely be true. And then, still, even that, we should take with the grain of salt, because perhaps censorship of an idea is more dangerous than the idea. So all of that, that's the beautiful thing about us, humans. With your, always attention, trying to figure out what ideas are the ones that are going to help humanity flourish. Part of that question. Do humans have ideas or do ideas have us?

3:43:08So where do ideas come from? You have Milton Friedman sitting there after a rug girl is trying to figure out what he can do about the great depression. Where do you ever think about this? I sometimes think that ideas or aliens are actually ideas. They're just kind of like travel through human brains and like captivate us. So we get all real excited. Like with the monolith in 2001 space Odyssey, a monolith lands and everybody gets excited and somehow this idea just gets everybody to be on the same page and it reverberates through the community and then that results in an implementation of some action that results in us figuring out that that idea was actually bad and we learn new ideas.

3:43:58But that feels like the idea is right in the show. Yeah, I mean, I think in a lot of cases, I think it's true. You know, there in Keynes, that's this famous quote, like, you know, most men are slaves of some defunct economist. You know, so that's funny. So I do think that we like, it's really hard to have an original thought. You know, we are social creatures. We encounter the same situations again and again. And so it's really hard. You're born into these traditions of thinking and being and knowing and most people are never going to question them and most people are never going to become aware of them.

3:44:32So again, that's some of the work of what I do as an intellectual historian is like, let's become aware. Let's realize that you're carrying a map that's orienting you to the world in a certain way, right? And so I think you have to work really, really hard to have an original idea. And even then it's not a completely original idea. It's a reworking and a reassembling of ideas others have had. So I definitely think it's possible to create autonomy in the realm of ideas and to be an autonomous consumer of ideas. But I think on balance, most people are not. And that's fine. They want to have experiences.

3:45:09They want to do other things with their life, you know. Well, Jennifer, thank you so much for this journey through ideas today. And thank you so much for your incredible work. It was really fun and fascinating to talk with you today. Thank you. Thank you for listening to this conversation with Jennifer Burns. And now let me try to reflect on and articulate some things I've been thinking about. If you'd like to submit questions or topics that I can comment on in this way here at the end of episodes, go to lexframen .com slash AMA or contact me for whatever other reason at lexframen .com slash contact.

3:45:49Please allow me to say a few words about my interview with the president of Ukraine, Vladimir Zelensky. Now that a few days have passed, and I've had the chance to think about the conversation itself, the response, future upcoming conversations, and what it all means for the war in Ukraine, for global geopolitics, and for us humans in general. I've gotten a lot of heartfelt positive words from all sides, including at least so far, literally everybody who knows me personally inside Ukraine, which includes a lot of soldiers and many high profile figures, some who are supportive of the president, and some who are critical of him.

3:46:30Literally, all private communication has been positive and supportive. This is usually not the case with me. Friends usually will write to me to criticize and to disagree. That's the whole point of friendship. To argue and have fun doing it. There was not of that here, at least so far. So thank you for your support and kind words. It means the world. The most common message was, please keep pushing for peace. I will. But online on the interwebs, I saw a lot of attacks, sometimes some swarms of online accounts, which of course makes me suspicious about the origin of those attacks. One of my friends in Ukraine, who by the way thinks the attacks are all propped out by Ukrainian bot farms, said there's no need to say anything extra.

3:47:24Let the interview stand in its own. Just keep focused on the mission of pushing for peace. Basically, he's a Ukrainian version of my other friend, Joe Rogan, who to this day says, don't read the comments. This is generally good advice and I try to follow it. But I'm also a human being. I wear my heart in this interview. This war for me is deeply personal. And the level of vitriol, misrepresentation, and lies about the conversation and about me personally was particularly intense and disingenuous. So I thought I would use this opportunity to say a few words, just speak a bit more about how I approached this conversation with President Zelensky and conversations in general.

3:48:10This interview is something I poured my heart and soul into, preparing a lot. I've described parts of the preparation process I follow in the outro to the Zelensky conversation. But in general, let me say that I've read a lot, listened to a lot, and had a lot of private conversations with people on the ground. I have many flaws, but being unprepared for this conversation is not one of them. Two low effort attacks got to me a bit, if I'm being honest, though I am learning to take it all in stride. First attack is that I'm unprepared, uninformed, or naive. I don't give a damn about the trolls, but I want people who listen to me, who support me, who care about my words to know that this is not the case, and never will be the case for future conversations, especially ones of this importance.

3:49:05I work extremely hard to prepare. Second low effort attack got to me a bit, is that I'm a show for Zelensky or a show for Putin. Both accusations were hurled, readily, and freely by the online mob of all persuasions, by the left and the right in the United States, and Europe, by the pro and the anti -Zelensky people in Ukraine, or of Ukrainian origins, and by the pro and anti -Putin people in Russia, or of Russian origins. As I've said over and over, this is not the case, and will never be the case. I'm a show for no one. More than that, I just simply refuse to be caught in any one single echo chamber.

3:49:50It's an ongoing battle, of course, because social media algorithms and the various stigmatic groups and tribes out there want to pull you in to their warmer brace of belonging, and humans want to belong. But the cost of the path I have chosen is that I will never belong to anyone group. In the end, like many of us must, I walk alone. And I try to do my best to do what is right, to my independent heart and mind, not what is popular with anyone group. My goals for this conversation were twofold. First, give a large platform to President Zelensky to explain his perspective on the war, and to do so in a way that brings out the best in who he is as a leader and human being.

3:50:39Second goal was to push for peace, and to give him every opportunity possible to signal that he's ready to make peace, and to provide his vision for what that might look like. And just to be clear, by peace, I mean long -lasting peace that minimizes suffering of people in the region, and maximizes the flourishing of humanity in the coming decades. The war in Ukraine has led to over one million casualties, and growing every single day. For some people, torn apart by loss, tormented, enforced into a state of anger and hate, peace is a dirty word. To them, nothing less than justice must be accepted.

3:51:26I hear this pain. I've seen the bodies and the suffering. It's true peace will not bring back your loved ones, but it will prevent further slaughter of more people, each of whom are someone else's loved ones. So again, the second goal of this conversation was to push for this kind of peace. So how did I approach it? Every conversation is its own puzzle, so let me try to explain my approach for this one. As I've said, I read and listened to a lot of materials since February 24, 2022. There would be many weeks over the past three years where I would spend every day over eight hours a day of focused reading and research.

3:52:15There were several rabbit holes that I consistently returned to and researched, but the most important line of inquiry was always peace talks, not just in this war, but in other wars in modern history. For this specific war, as part of the background prep, I would take notes on every single perspective I could find on every single major diplomatic meeting and negotiation that happened in Ukraine, Russia, relations since 1991. There is a lot of material to go through, and there are a lot of perspectives, even on the very 2019 meeting that President Zelensky spoke about in this podcast. Just as a small but important example, Andre Bokdan was interviewed twice by Dmitry Gordon and gave a deep inside look of the administration of President Zelensky, including that very 2019 meeting.

3:53:10The two interviews are seven and a half hours, by the way, and from my interviewer perspective are a masterclass of interviewing. Andre Bokdan worked directly with President Zelensky as the head of the office of the President of Ukraine. He was there for the 2019 face -to -face meeting between Volodymyr Zelensky and Vladimir Putin at the Paris summit, along with French President Emmanuel Macron and German Chancellor Angela Merkel. This was part of the Normandy format peace talks. In those two interviews, Andre Bokdan gave a very different perspective on that 2019 meeting than did President Zelensky, to me, in our conversation.

3:53:54The perspective being that the failure to negotiate a ceasefire and peace was not a simple one -sided story. I don't think this is the right time for me to dive into that data point and be critical. I'm not interested in being critical for the sake of criticism. I am interested, once again, in productive conversations, critical or otherwise, that push towards peace. The kind that described earlier. This is merely an example of a data point I was collecting in my brain. There are many, many others. But all of it taken together made it clear to me, and I still believe this, that it is indeed very difficult, but possible, to negotiate long lasting peace with Vladimir Putin.

3:54:43It is certainly true that Ukraine is best positioned to negotiate from a place of strength. After the invasion of February 24, 2022, I believe there were three chances where peace was most achievable. First chance was March and April of 2022, with a successful defense of the North. Second chance was the fall of 2022, with the successful counteroffensive in Harsan and Kharkiv. The third chance is now. As he has stated multiple times, publicly, Donald Trump is very interested in making peace. It is likely that the US financial support for this war will continue to dwindle. So, the leverage and the timing for peace negotiation is now.

3:55:30There is unlikely to be another chance like this for a long time. Just to zoom out on the conversation piece of this, I interviewed Donald Trump and made do so again. I interviewed Volotomir Zolansky and made do so again. And it seems likely that I will interview Vladimir Putin in Russia, in the Kremlin. I understand the risks and accept them. The risks for me are not important. I'm not important. I merely want to do my small part in pushing for peace in a moment in history when there's a real chance for that peace to actually be achieved. I may be speaking too long, I'm sorry, but I can probably speak for many more hours.

3:56:14So, this is in fact me trying to be brief. So, again, my two goals were to bring out the best in the president Zolansky as a leader and a human being and to give him every opportunity possible to signal that he is ready to make peace and to lay out his vision for what that peace might look like. Like I said, step one through ten is prepare well. I did, but step 11 is the actual conversation. There, the specific psychological and personality quirks and qualities of the guest matter a lot. My job is to try to cut through the bullshit walls we put up with human beings and reveal directly or indirectly what the person truly is and how they think.

3:56:57With Zolansky, he is a deeply empathic and emotional human being who personally feels the suffering of the people of Ukraine in this war. This is a strength and perhaps also weakness, but it is an important part of the reason why I said many times that he is a truly historic figure. Very few leaders in recent history would be able to pull off what he did to stay in Kiev, to unite the country, to convince the West to join the war effort to the degree they did. He is also a showman to borrow the title of the biography I recommended. A man with many layers of humor and wit, but also ego and temper.

3:57:42Sometimes fully self -aware and sometimes losing himself in the emotional rollercoaster of a painful memory or a turn of phrase that he can use as a springboard for a angry soliloquy. After this, the fact that we didn't agree to anything, what we will talk about or how long we will talk about it. The interview could have easily been five minutes or three hours. So I had to quickly gain his trust enough to open up and stay for long -form conversation, but push him enough to reveal the complexities of his thought process and his situation. This is where humor and camaraderie was essential and I would return to it often, though it was very difficult given the stakes, the heaviness, the seriousness of the topic of the war.

3:58:32So in this case, the approach I followed for this conversation is constant nudges and questions about peace, often using almost child -like statements or questions. I generally like these kinds of questions. On the surface, they may seem naive, but they're not. They are often profound in their simplicity, like a lot of questions that children ask. Remember, it was a child who pointed out that the emperor was not wearing any clothes. I like this simplicity, the purity, the boldness of such questions that cut through the bullshit to the truth. And that truth is that hundreds of thousands of people died in this war and are dying every day.

3:59:14And all the other problems, from corruption, to suspended elections, to censorship, cannot be solved until peace is made. I give the president every single chance to signal willingness to negotiate, knowing that both Trump and Putin will listen to this conversation. I don't think he took it and instead chose to speak very crude words towards Vladimir Putin. This is fully understandable, but not directly productive to negotiation. To clarify, I have hosted many conversations that were intensely critical of Vladimir Putin, from Sarki Plohi to Stephen Kotkin. But this conversation is with a world leader, speaking about another world leader during a historic opportunity for peace.

4:00:03crude words of disrespect while powerful may harm negotiations. Peace -making in this situation requires compromise in order to avoid further death and suffering. And I believe it requires treating the other leader with his seriousness you expect him to treat you with. This is what I was pushing for. All that while also putting my ego aside and letting the president shine, which is necessary to accomplish both goals one and two that I mentioned previously. This is also why I wanted the president to speak about Elon and Trump to extend the olive branch for further avenues of peace -making. This is not about politics.

4:00:45It is, once again, simply about peace. Now, all of this, my words, my attempts were taken out of context and used to attack me by some online mobs. As an example, President Zelensky said in a mocking tone that he thinks that Vladimir Putin is simply irritated by people who are alive in Ukraine. And I answered, quote, if you believe this, it will be very difficult to negotiate. If you think that the president of a country is completely crazy, it is really hard to come to an agreement with him. You have to look at him as a serious person who loves his country and loves the people in this country.

4:01:27And he conducts, yes, destructive military actions. The president interrupted me at this point and said, who are you talking about now? Who loves this country? And I said, Putin, do you think he doesn't love this country? And the president answered no. Again, this is not a podcast conversation with a historian or activist. And I somehow out of nowhere just for fun wax poetic about Putin's or Zelensky's or Trump's love of nation. It is a conversation with a world leader discussing the opportunity to negotiate peace when a large number of people are dying every single day. Even if the heart balls over with hate, leadership now requires sitting at the negotiation table and compromising.

4:02:20This may be painful, but it is necessary. There are a few other places in the conversation where some online mobs took my words out of context and used them to call me naive and to call for more war saying peace is impossible with a man who they claim is the second coming of Hitler. My friends, if you make such attacks on this conversation, it is in fact you who are naive and ignorant of the facts of history and geopolitics. Peace must be made now in order for death and suffering to stop. In order for Ukraine to have a chance to flourish and in order for the drums of a global war to stop beating, a global war that would cripple humanity.

4:03:10This was my goal once again to push for peace and I will continue this effort to the best of my ability. Thank you. I love you all.