David R. Henderson  

Samuelson vs. Friedman

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Tyler Cowen quotes the following paragraph from an interview with Paul Samuelson:

Milton Friedman. Friedman had a solid MV = PQ doctrine from which he deviated very little all his life. By the way, he's about as smart a guy as you'll meet. He's as persuasive as you hope not to meet. And to be candid, I should tell you that I stayed on good terms with Milton for more than 60 years. But I didn't do it by telling him exactly everything I thought about him. He was a libertarian to the point of nuttiness. People thought he was joking, but he was against licensing surgeons and so forth. And when I went quarterly to the Federal Reserve meetings, and he was there, we agreed only twice in the course of the business cycle. (bold added)

Many of the commenters on Tyler's post nailed the problem with Samuelson's lines above. My favorite was Silas Barta, who wrote:

Hyuk hyuk hyuk, that's just so funny, to wanna certify surgeon capability some way other than imprisoning folks who won't join a government cartel! What a side-splitter!

Next he's going to say we shouldn't use slaves in the army! Oh, what a riot.

Let me elaborate on that. The young interviewer, Conor Clarke, owes a huge debt to Milton Friedman, who did more for him and for every healthy American male under age 54 than Samuelson ever did. I'm referring, of course, to Friedman's "nutty libertarian" crusade against the draft. The draft ended in 1973 and among the leaders who pushed to end it were Milton Friedman, Alan Greenspan, W. Allen Wallis, William Meckling, and Walter Oi, all of whom were or are strong believers in the free market. Meanwhile where was Samuelson? He was AWOL. He was represented by a Senator, Ted Kennedy, who was one of the staunchest proponents of the draft and, if Samuelson ever wrote against the draft or ever tried to talk Kennedy out of it, I can find no record of it. In 1980, when Senator Sam Nunn was trying to bring back the draft and I circulated an economists' statement against the draft, Samuelson refused to sign. Friedman, by contrast, not only served on President Nixon's Commission on the All-Volunteer Force but also lobbied Congressmen personally against the draft. For more on Friedman's role in ending the draft, see my "Milton Friedman: A Tribute."

Here's what I wrote in http://www.davidrhenderson.com/articles/0199_thankyou.html, a tribute to my old boss, William Meckling:

Between 1948 and 1973, here's what you knew if you were a healthy male born in the U.S.A.: the government could pluck you out of almost any activity you were pursuing, cut your hair, and send you anywhere in the world. If the United States was at war, you might have to kill people, and you might return home in a body bag.

Friedman helped change that. We could use more such nuts.

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CATEGORIES: Labor Market

COMMENTS (23 to date)
Greg Ransom writes:

Note well that Milton Friedman's first empirical work was on how the licensing of doctors allowed doctors to restrict supply and procure higher "rents" for themselves.

Greg Ransom writes:

Milton Friedman's empirical work on the monopoly rents allowed by doctor licensing was done with Simon Kuznets.

I.e. two of the most famous "empirical" guys in all of economics did this work.

I understand that Samuelson was a "theory" guy ....

Randy writes:

I will hate to see it, but I fully expect the Progressives to revive the draft in the next decade or so. As they progressivize the military and "educate" the idea of liberty out of the society, they will eventually find themselves with no other option. Liberty is worth fighting for, society is not.

El Presidente writes:

Between 1948 and 1973, here's what you knew if you were a healthy male born in the U.S.A.: the government could pluck you out of almost any activity you were pursuing, cut your hair, and send you anywhere in the world. If the United States was at war, you might have to kill people, and you might return home in a body bag.

That sounds like a good reason to be engaged in the democratic process. Now we can sit at home and watch it on CNN while the willing and the desperate fight in our place. My, how things have improved.

cak writes:

I heard this from a tenured faculty member the day after Friedman passed away, "Well at least we don't have to do things that way any more." There is a void that needs to be filled in a hurry.

caveat bettor writes:

I spoke to one a partner in a law firm, retained by notables such as Al Gore, who has two young sons. I said to him, "I know what will make you go Republican. When Charlie Rangel successfully brings back the draft." He said, upon a moment's reflection, "Yeah, you're right".

steve writes:

i am personally happy there is no draft, being the father of two sons (my time came and went without my number being called). that being said, the free-market all volunteer army idea is yet one more libertarian argument that doesn't think things through in the world in which we live. without a draft, politicians and others of the permanent government can make war without bearing its highest

Devin Snead writes:

Don't forget the quote that Naomi Klein took Friedman completely out of context in order to essentially start her ridiculous book was about the draft:

Only a crisis-actual or perceived-produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.
On a side note, one of my professors joked that there is a "place in hell just for Friedman" for helping to create withholding.

Mattyoung writes:

I'd rather talk about the MV=PQ equation, especially Kling's take on that.

John Thacker writes:
that being said, the free-market all volunteer army idea is yet one more libertarian argument that doesn't think things through in the world in which we live. without a draft, politicians and others of the permanent government can make war without bearing its highest

But on the other hand, it makes it considerably more expensive* for politicians to fight a war, as they have to raise salaries to get more soldiers. It also makes the military more likely to focus on reducing casualties.

*- In the government bean-counting way, not in the true economic sense. After all, an economist would say that if you would have to pay someone $50k to be a soldier in a volunteer army, then drafting him still hurts the economy by $50k, you just hide the cost just as regulation hides costs compared to taxes or spending.

Alex writes:


I think you're opinion is exactly backwards. Because the military has to rely on volunteers it puts restrictions on what the government can do. Without a draft, the government doesn't have 40 million trained men waiting around for a war, it has to attract people in a competitive market.

You're right in the sense that without a draft you don't have students protesting in the streets to end the recent wars because they are in no fear of being "called up." However the government does have to worry about how to fill the ranks. That in and of itself is a huge restriction.

Josh writes:

"Between 1948 and 1973, here's what you knew if you were a healthy male born in the U.S.A.: the government could pluck you out of almost any activity you were pursuing, cut your hair, and send you anywhere in the world. If the United States was at war, you might have to kill people, and you might return home in a body bag."

I don't necessarily agree/disagree with the all volunteer army, but if we're going to praise its benefits, let's at least briefly mention its costs.

Charley Hooper writes:

Some military leaders don’t view their troops as humans who are valuable in their own right. They view their troops as raw materials for their grand plans. In other words, they view them as means, not ends.

As David Henderson said in his Joy of Freedom book:

“When Napoleon Bonaparte, the founder of the modern system of conscription (draft), was told that a planned operation would cost too many men, he replied, ‘That is nothing. The women produce more of them than I can use.’”

Napoleon, and his government, didn't have to pay anything close to the true cost of a soldier.

Dr. T writes:

Friedman was brilliant and sane.

Having been through the medical licensure processes in four states, I can attest at how worthless they are. Eliminating medical licensure would not decrease quality of care. It probably would improve quality. Without the crutch of state licensure, hospitals would need to assess the quality of physicians who apply for staff privileges (instead of just looking at paperwork and estimating how many admissions the doctor will bring). Group practices would need to scrutinize a doctor's quality, as well as his financial viability, prior to bringing him into the group.

I live in Tennessee, a state that licenses semi-skilled professions such as plumbing. The quality of work is no better than in states with unlicensed plumbers. Milton Friedman was not wrong when he opined that the government should stay out of the market.

Bill writes:

I am not totally convinced. Yes, certifications generally are a barrier to entry, drive up cost, and may not be particulary effective and efficient. Even so, how can one say that doing away with them and leaving the certification of surgeons to the market is a superior alternative?

Why are the incentives for existing surgeons who wish to restrict entry judged to to be better than the incentives for anyone who wants to be a surgeon to make money, or the incentives of the individuals who make up an entity whose purpose is to monitor professional certifications? Did Friedman spend time on considerations like this and acknowledge that there was really no way of knowing if the market would do a better job, or did he always conclude that the market would do a better job all the time no matter what?

How did he reconcile the wide-spread racial and ethnic discrimination in housing markets? If he didn't acknowledge these problems, and fell back to the argument that, "well, on balance, the market is better than government doing anything," then maybe he could be fairly accused of being a bit of an ideological nut.

Randy writes:

Just a thought, but why not direct the negligence lawsuits to the certifier? That is, if the state certifies a doctor, they must also accept responsibility for the results.

Colin K writes:

an all-volunteer military will b definition attract people who want to fight. likewise, the more elite the unit (from the 82nd airborne to F-22 pilots), the higher the socioeconomic status the members tend to be.

Daniel Kuehn writes:

OK Henderson... you've admirably brought up a good idea from Friedman. And you seem to have pointed out that Samuelson didn't really speak to that issue.

But this doesn't really speak to the issue of whether or not Friedman's feelings on licensing doctors were nutty (I happen to agree with Samuelson on that one, despite the fact that I agree with Friedman on the draft).

Silas Barta essentially dodges a tough question by substituting in something there's broader agreement on - and you take Samuelson and Clarke to task for an issue that never even came up in the interview!!!!

Friedman took the toughest case in arguing surgeons. Here in Michigan, over 30 occupations are regulated.(See below.) That raises the question to those who advocate regulation:
-> Which professions are so important that only the government can certify their practitioners?

Directing the negligence lawsuit to the certifier (asked by Randy above) might apply in the cases of truly private agencies. For instance, the American Numismatic Association has several educational programs, including a "masters" title. So, if an ANA-certified numismatist committed an error, you might try including the organization in your claim. However, the State is protected by Sovereign Immunity. I have a graduate seminar this semester in Wrongful Convictions (Crim 681: Miscarriages of Justice, at Eastern Michigan University) and prosecutors cannot be sued for refusing to obey the laws of discovery, falsifying evidence, lying under oath, or other misconduct.

Regulated here in Michigan 29 specific licenses. Others such as Land Bank, Blind, Deaf, and Fire Safety not included here):
Accountancy, Appraisers (Real Estate), Architects Auctioneers, Barbers, Builders (Residential), Carnivals & Amusement Rides, Cemeteries, Collection Agencies, Community Planners, Cosmetology, Engineers (Professional), Foresters, Funeral Directors, (Mortuary Science), Hearing Aid Dealers, Immigration Clerical Assistants, Interior Designers, Land Sales (Michigan), Landscape Architects, Ocularists, Personnel Agencies, Polygraph Examiners (Lie-Detector Testing), Prepaid Funeral and Cemetery Contract Providers, Private Security Guards, Professional Investigators, Real Estate Brokers & Salespersons, Security Alarm Contractors, Ski Areas, Surveyors (Professional), Unarmed Combat Commission , Vehicle Protection Product Warrantors, Testing & Education Services (The Testing and Education Services Unit serves as the governing body covering testing and education needs for 29 licenses administered by the Bureau of Commercial Services).

David R. Henderson writes:

Dear Daniel,
BTW, I would prefer that you call me "David" than "Henderson." Where is it written that I have to stick to what came up in the interview? Samuelson accused Friedman of being a nutty libertarian. Friedman opposed conscription on libertarian grounds. Samuelson was AWOL, not in the interview because, as you correctly point out, the issue come up in the interview. Rather, Samuelson was AWOL on the issue at the time.
Now to certification vs. licensure. Read the section of Friedman's Capitalism and Freedom on that issue.

Eric H writes:

It gives me the willies that an economist as respected as Samuelson would be so dismissive of Friedman, especially on the licensure issue. In Capitalism and Freedom Friedman is very specific about the costs and benefits of licensure, registration and certification policies. He was receptive to registration programs because he thought they could help reduce fraud and give consumers easier access to legal redress.

I think Samuelson is just letting his class bias show; Friedman mentions the similarities between the cultures of professional licensure and the caste system, and Samuelson doesn't strike me as someone willing to disrupt the professional caste of doctors and lawyers who depend on licensure to keep demand for their services high.

Douglass Holmes writes:

Friedman was right about the draft. He had other "nutty" ideas like legalizing drugs. Perhaps I'm just attracted to nutty ideas. So, let's try some of these nutty ideas. Let one or two states legalize marijuana and see how disastrous it is. Be sure to compare it to the current disasters going on in Mexico and parts of the USA as we continue to fight a war on drugs that basically only focuses on fighting the suppliers.

David Friedman writes:

I'm curious as to whether Samuelson also considers Adam Smith a nutty libertarian. He too was opposed to medical licensing.

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