Lex Fridman Podcast - #457 – Jennifer Burns: Milton Friedman, Ayn Rand, Economics, Capitalism, Freedom

Episode Date: January 19, 2025

Jennifer Burns is a historian of ideas, focusing on the evolution of economic, political, and social ideas in the United States in the 20th century. She wrote two biographies, one on Milton Friedman, and the other on Ayn Rand. Thank you for listening ❤ Check out our sponsors: https://lexfridman.com/sponsors/ep457-sc See below for timestamps, and to give feedback, submit questions, contact Lex, etc. CONTACT LEX: Feedback - give feedback to Lex: https://lexfridman.com/survey AMA - submit questions, videos or call-in: https://lexfridman.com/ama Hiring - join our team: https://lexfridman.com/hiring Other - other ways to get in touch: https://lexfridman.com/contact EPISODE LINKS: Jennifer's X: https://x.com/profburns Jennifer's Website: https://www.jenniferburns.org Jennifer's Books: Milton Friedman biography: https://amzn.to/4hfy1HO Ayn Rand biography: https://amzn.to/4afr3A0 SPONSORS: To support this podcast, check out our sponsors & get discounts: Brain.fm: Music for focus. Go to https://brain.fm/lex GitHub: Developer platform and AI code editor. Go to https://gh.io/copilot LMNT: Zero-sugar electrolyte drink mix. Go to https://drinkLMNT.com/lex Shopify: Sell stuff online. Go to https://shopify.com/lex AG1: All-in-one daily nutrition drinks. Go to https://drinkag1.com/lex OUTLINE: (00:00) - Introduction (10:05) - Milton Friedman (24:58) - The Great Depression (39:15) - Schools of economic thought (50:22) - Keynesian economics (58:10) - Laissez-faire (1:06:00) - Friedrich Hayek (1:11:18) - Money and monetarism (1:26:03) - Stagflation (1:30:56) - Moral case for capitalism (1:34:53) - Freedom (1:39:51) - Ethics of competition (1:43:37) - Win-win solutions (1:45:26) - Corruption (1:47:51) - Government intervention (1:54:10) - Conservatism (2:00:33) - Donald Trump (2:03:09) - Inflation (2:07:38) - DOGE (2:12:58) - Javier Milei (2:18:03) - Richard Nixon (2:25:17) - Ronald Reagan (2:28:24) - Cryptocurrency (2:43:40) - Ayn Rand (2:51:18) - The Fountainhead (3:02:58) - Sex and power dynamics (3:19:04) - Evolution of ideas in history (3:26:32) - Postmodernism (3:37:33) - Advice to students (3:45:50) - Lex reflects on Volodymyr Zelenskyy interview PODCAST LINKS: - Podcast Website: https://lexfridman.com/podcast - Apple Podcasts: https://apple.co/2lwqZIr - Spotify: https://spoti.fi/2nEwCF8 - RSS: https://lexfridman.com/feed/podcast/ - Podcast Playlist: https://www.youtube.com/playlist?list=PLrAXtmErZgOdP_8GztsuKi9nrraNbKKp4 - Clips Channel: https://www.youtube.com/lexclips

The following is a conversation with Jennifer Burns, a historian of ideas, including the evolution of economic, political, and social ideas in the United States in the 20th century to today. She wrote two biographies, one on Milton Friedman and the other on Ayn Rand, both of which I highly recommend.

This was a super technical and super fascinating conversation. At the end, I make a few comments about my previous conversation with President Zelensky. For those of you who may be interested. And now a quick few second mention of each sponsor. Check them out in the description. It's the best way to support this podcast. We got brain.fm for focus, GitHub for programming and AI element for delicious electrolytes, Shopify for merch and AG1 for health. She's wisely my friends. Also if you want to get in touch with me, go to LexGreeman.com slash contact and now onto the full ad reads. As always, no ads in the middle.

I try to make this interesting, but if you must skip them, please still check out our sponsors if I can only speak English. I enjoy their stuff. Maybe you will too. Click the links. Buy this stuff. Glory shall be ours. This episode is brought to you by Brain.fm, a platform that offers music specifically

made for focus. I talk about listening to brown noise a lot. It's actually funny, but I don't believe Brain.fm has brown noise. But that's not what I use it for. I usually play brown noise because basically everything has brown noise, but that's not what I use it for. I usually play brown noise because basically everything has brown noise. YouTube has brown noise, Spotify has brown noise. I use that as one layer, and as the second layer,

I'll use music from Brain.fm. So there's all kinds of, almost like ethereal soundtracks maybe there's a bit of like a techno beat I like this stuff with the beat just very light where the beat does not have this kind of edge that distracts me but there's still a rhythm to it so I'll have that plus a bit of brown noise and that's like a really beautiful focus I believe these ads are for the episode Jennifer Burns Milton Friedman did you know that he wrote Capitalism and Freedom in just six months while teaching full-time also did you know that Bret and Ike wrote JavaScript and I think a week, maybe 10 days, passionate focus, ladies

and gentlemen, gets a lot of stuff done. And you should try to increase yours by trying brain.fm for free for 30 days by going to brain.fm slash Lex. That's brain.fm slash Lex for 30 days free. This episode is also brought to you by GitHub and GitHub Co-Pilot, the super amazing AI that helps you to program. If you don't know what GitHub Co-Pilot is, ladies and gentlemen, you are missing out. I'm going to be doing a lot of programming podcasts coming up and

I mean, I really just don't even program with without AI anymore It is true. It is fully an assistant at this point But not a kind of guide so I've not really have had success with anything a agentic Really the thing I'm interested, especially when I'm actually trying to get work done, I'm interested in maximizing my productivity. And for that, the difficult things that an agent is supposed to be able to do, I still do faster and better, those difficult decisions. I don't like the task of fixing decisions made by agents,

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To try out GitHub Copilot for free go to g h.io slash copilot That's g h.io slash copilot this episode is also brought to you by element my daily zero sugar and delicious electrolyte mix Did you know that I ran as daily diet was black coffee, french fries, and cigarettes? Well, she should have been consuming some element. I mean, listen, let's not be judgmental here. Churchill did quite a few impactful things in the world and his diet and liquids and substances he consumed were just atrocious and the guy was

out of shape and it was just a mess. But he lived a long life and a productive life and one of the most impactful and influential humans in history. So there you go. But you know, this is not like element makes you not impactful. It just is a little boost, but it's not gonna get your shit done for you. You still need to take big risks and take on the world and do epic shit, but might as well be a little healthier for it. Especially when you're doing like crazy physical

endurance event, your electrolytes need to be on point. Get a sample pack for free with any purchase try it at www.drinkelement.com. This episode is also brought to you by Shopify, a platform designed for anyone to sell anywhere with a great looking online store. I often talk about capitalism when I do the ad read for Shopify and no better episode than an episode that for many hours focuses on the work of Milton Friedman, who was the seminal figure of the Chicago School of Economics. And Ayn Rand, who is basically the most hardcore, insanely so defender of capitalism. Howard Work, his architectural principles that we

talk about with Jennifer Burns, I mean, is the embodiment of this spirit of, fuck you, I'll do whatever I want. I'll do it my way. That radical individualism that makes up America, that makes up the individual gears that make up the machinery of capitalism. That is the American way and that has some downsides, but mostly it's upsides. It's the reason we have so many amazing things and the quality of life is going up and the productivity of the GDP is going up, not just in the United States, but across the world thanks to the incredible innovation by US inventors, US companies. So anyway, Shopify is just one implementation of that.

First of all, of course, the engineers that create Shopify, but if you yourself want to sell stuff, you're creating something and you want to sell it, Shopify enables you to do that. Sign up for $1 per month trial period at Shopify.com slash Lex. That's all lowercase. Go to Shopify.com slash Lex to take your business to the next level today. This episode is also brought to you by AG1, an all in one daily drink to support better health and peak performance as I slide slowly down in my chair.

It is late, late at night, embarrassingly so. I have lost all energy and I'm slowly losing my mind. And there's a cup next to me that I'm swirling gradually. It is a cup of ice with some water and element in it, but it makes me feel like maybe it's a whiskey. And whiskey is probably something I need at this moment. But let us focus on the essentials. And definitely not whiskey, but something way healthier, which is AG1, I already had it twice today. Did crazy exercise, didn't sleep much the night before,

had to do a super long podcast, had to do a lot of reading. It was just an insane day, my friends. I'm so grateful to be alive. And yeah, there is the little joys of drinking a bit of AG1. Does it do much for me? I don't know.

It makes me feel like it does. It's like a really nice multivitamin. Brings joy to my life. I miss it when it's not there. Who knows? We're all gonna die in the end. Anyway, they'll give you a one-month supply of fish oil when you sign up with drinkag1.com slash Lex. This is the Lex Reader podcast. To support it, please check out our sponsors in the description. And now, dear friends, here's Jennifer Burns.

You have written two biographies, one on Milton Friedman and one on Ayn Rand. So if we can, we will focus on each one separately. But first, let's talk about the ideas that two of them held in common, the value of individual freedom, skepticism of collectivism, and the ethics of capitalism. Can you talk about the big picture ideas they converge on? Yeah, so Milton Friedman and Ayn Rand, in the biggest picture, they're both individualists and they're skeptical of collectivities and collectivism. So their unit of analysis is the individual,

what's good for the individual, what works for the individual, and their understanding of society of society flows from that. They also both use this focus on individualism to justify and to support capitalism as a social and economic system. We can put them in a similar category. We can call them individualists. We could call them libertarians of a sort. They're also really different in how they approach capitalism, how they approach thinking. Ayn Rand developed her own moral and philosophical system to justify individualism and to connect the individual to

capitalism and to support capitalism as a social and economic system. Friedman struggles a bit more with how to justify capitalism, and he'll ultimately come down to freedom as his core value, his god as he says. So freedom does connect back to the individual, but he's not justifying capitalism for his own sake, he's justifying it for its ability to underwrite freedom, in a social sense and also in the individual sense. At a high level, are there interesting differences between them?

You already mentioned a few, maybe in terms of who they are personally, maybe in terms of how they approach the justification for capitalism, maybe other ways. Yeah, for sure. So beyond this idea that Milton Friedman takes a while to come to his justification of capitalism. Morzine-Rand kind of has it from the start. She really focuses on the core quality of rationalism and rationality. Rationality is the defining feature of human beings. And so she works from there,

whereas Friedman, Milton Friedman eventually converges on this idea of freedom. So that's one part of it. The other is their intellectual styles are really, really different. Their interpersonal styles are really different. So Friedman has big ideas, big principles that guide him, but he's also deeply empirical. He spends most of his career doing historical research, economic research, pulling data from how people actually make economic decisions and live in the world and using them to test and

refine his theories. Where Rand, to some degree, we could say she's empirical and that she lives through the Russian Revolution and takes a very big lesson from that. But her style of thinking is really first principles, an axiomatic approach, going from the basic idea of rationality and then playing it out in different spheres. Those are just very different intellectual approaches and then they lead in some ways to really different ways of thinking about how you get things done in the world. Ayn Rand is a purist. She wants to start with the pure belief. She doesn't want it to be diluted. One of her favorite sayings was, it's earlier than you think. In other words, we're still moving towards a place where we can really hold and express these ideals purely. Friedman, although he didn't use this

terminology, he was much more half-a-loaf guy. Like, I'll take what I can get and then I'll try to move to where I really want to be. But he is able to compromise, especially when he moves from being an economist into being more of a political thinker. And so, that's a really different intellectual style, and then it also plays out in their lives, in that Ayn Rand is incredibly schismatic. I mean, she wants her friends to believe what she believes and support what

she supports. And she's willing to break a relationship if it doesn't match. Milton Friedman, he also does tend to have friends who agree with him, yet he's always willing to debate his opponents and he's willing to do so with a smile on his face. You know, he's the kind of, he's the happy warrior and he actually will win a lot with a smile on his face, he's the kind of, he's the happy warrior. And he actually will win a lot of debates simply by his emotional affect and his cheerfulness and his confidence, where Rand will lose debates because she gets so angry in the face of disagreement.

So yeah, they have a lot of similarities and a lot of differences, and it's been really fascinating to kind of dive deep into both of them. I just re-listened to Ayn Rand's, I think, last lecture, or at least it's called that, and just the confrontational nature of how she answers questions or how she addresses critics and so on. There is a kind of charisma to that. So I think both of them are very effective at winning over sort of popular support, but

in very different styles. It seems like Ayn Rand is very cranky, but there's, I mean, it's the most charismatic cranky person I think I've ever listened to. Yeah. I mean, people talked about her, meeting her, and coming to believe in her ideas in a similar way as they did with Marxism in that suddenly everything made sense and that when they came to believe in objectivism, they felt they had this engine for understanding the entire world. Now after a while, for most people that then became confining, but yeah, that certainty

and Friedman had some of that as well. He clothed it differently. He clothed it in happiness, where Ran kind of clothed it, as you said, in crankiness or anger. I mean, there's also an arc to Ran. She gets kind of angrier and angrier and crankier and crankier over the course of her life.

What I enjoyed about my research is I was able to get into this early moment when she was different and a little more open. And then I kind of watched her clothes and her heart in over time. Would it be fair to say that Milton Friedman had a bit more intellectual humility, where he would be able to sort of evolve over time and be convinced by the reality of the world to change sort of the nuances of policy, the nuances of how he thought about economics or about the world?

Yeah, absolutely. Friedman believed in being able to say I was wrong. And there are some things he said he was wrong about. We'll delve more into monetarism and monetary policy, but he was able to talk about the ways his ideas hadn't mapped onto the world the way he thought they would. He does a

really interesting interview at the end of his life where he's beginning to voice some doubts about globalization, which was he was sort of a prophet of globalization, a cheerleader of globalization. He really thought it would lead to a better world in all respects. Towards the end of his life, it's about two years before he dies, there's a note of doubt about how globalization unfolded and what it would mean, particularly for the American worker. And so you can see him still thinking and that to me, I had sort of assumed he became crankier and crankier and more and more set in his ways. And of course there's a phase where he does become that way, especially since he's in the public eye and there's not room for nuance. But to find in the last years of his life

him being so reflective, that was absolutely not something Rand could do. I think there's a thread throughout this conversation where we should actually also say that you're kind of a historian of ideas. I am a historian of ideas, yes. And so we're talking about today in part about two people

who kind of fought for ideas, for an idea, like we mentioned freedom for capitalism, and they did it in very different ways. And it's so interesting to see sort of the impact they both had and how their elucidation explanation of those ideas like reverberated throughout society and how we together as a society figure out what works,

the degree to which they have influence on the public, the degree to which they have influence on individual administrations like the Reagan administration, Nixon and so on, and how it might return, like fade away and then come back in the modern times. And it's so interesting if you just see this whole world as a game of ideas where we were like pushing and pulling

and trying to figure stuff out. A bunch of people got real excited over 100 years ago about communism and then they tried stuff out, and then the implementation broke down, and we keep playing with ideas. So these are the two greats of playing with ideas. I think that's a thread that just runs through this. Yeah, and of kind of pushing back against that movement towards communism, social democracy. But one difference that I really should emphasize, Rand is a

writer of fiction. She's a philosopher, but she's also a writer of fiction. So she is working almost in the mythic register, much more in the psychological register. She's creating characters that people identify with and people relate to experiences they've had. And that's one of the reasons she hits so deep. And she's also offering people, I read all the fan letters to her, people would say things like, I read the fountain head,

and now I'm getting a divorce. Having just these incredible realizations. Milton Friedman didn't get such things. Milton Friedman didn't get such things. Or I'll meet someone and they'll say to me, Ayn Rand is the reason I went to medical school. A woman said this to me a few years back. It never even occurred to me that I could be a doctor until I read Ayn Rand and I said, I'm going to go to medical school. And so she has that really intense impact on people. So she thought of herself as rational. She thought of rationality as kind of what she was doing, but she was actually doing a kind of mythopoetic

psychological work as well. Whereas Friedman, on the one hand, was much more rational and there's a whole set of economic thinking and he provides a rational framework for understanding the world. And it's the framework of neoclassical economics. At the same time, he does pull on mythologies of the idea of America in the Gilded Age,

the frontier mythology, the individual immigrant, the settler mythology. He pulls on these, but he doesn't create them. And he's more kind of playing a tune he already has. Whereas I think Rand really does something a little bit deeper in her ability to reach into people's psyche and then take that emotional, psychological experience and fuse it to an intellectual world and a political world.

And that's really what makes her so powerful. And so I think she comes back in to relevancy in a different way than Friedman does, because I think in some way she's tapped into a kind of more universal human longing for independence and autonomy and kind of self-creation and self-discovery. Nevertheless, there are still pragmatic ideas that are still important today for Milton

Friedman, even just in the economics level. So let's dig in. Let me try. I took some notes. Let me try to summarize who Milton Friedman is and then you can correct me. Okay. So he is widely considered to be one of the greatest and most influential economists in history,

not just the 20th century, I think, ever. He was an advocate of economic freedom, like we said, and just individual freedom in general. He strongly advocated for free market capitalism and limited government intervention in the economy. Though you do give, I've listened to basically everything you have on the internet, you give some more depth and nuance on his views on this and in your books.

He led the famed Chicago School of Economics and he won the Nobel Prize in Economics in 1976. He greatly influenced economic policies during the Reagan administration and other administrations. He was an influential public intellectual, highly influential, not just among economists. He lived 1912 to 2006, so that means he lived and worked through some major world events where his ideas were really important. The Great Depression with the New Deal, World War II with post-war reconstruction, the rise and fall of the Bretton Woods monetary system, as we may talk about, the Cold War and all the conflicts involved in that, sort of the tensions around communism and so on. So

the fall of the Soviet Union and also he has some interesting relationships to of the Soviet Union and also he has some interesting relationships to China's economic transformation. Yeah. So it's the 1970s, the stagflation of the 1970s and I'm sure there's a lot more. So can you maybe continue this thread and give a big-picture overview of the ideas he is known for? Yeah sure and that's a great summary. You learn you learn fast.. Let me start with the economics and then I can kind of transition to how he used those economic ideas to become a real voice in the American conservative movement, the American political realm. I'll kind of highlight four ideas or contributions or episodes.

One was his work with Anna Schwartz in revising our understanding of the Great Depression. And that's tightly related to the second, which is the School of Monitorism that he and Schwartz really become founders of. Then there is the prediction of stagflation and the explanation of that in the 1970s, which really is one of these career-making predictions. We can dig into that. Then in terms of technical economics, he's known for the permanent income hypothesis, which he develops with a group of female

collaborators that I can talk about. So those are kind of four technical pieces and being really brought together in what becomes the Chicago School of Economics. He's undoubtedly the head and the leader of the Chicago School of Economics. There's an earlier generation that he learns from. There's his generation. There's also a Chicago School of Law and Economics that's really profoundly influential. And then there'll be kind of Law and Economics that's really profoundly influential. And then there'll be kind of a third generation that he's somewhat distinct from, but that goes on to really shape economics. But let me go back to these kind of four pieces, and let me start with Great Depression. So Milton Friedman actually lives through the Great Depression. He's in college when it hits. He's in college, it's 1928 to 1932. He's aware of the Depression and he's deciding,

should I study mathematics or should I study economics? He's had some good economics teachers, but it's really the context. It's looking around at the slow dissolving of economic prosperity. So he decides to go to Chicago. He decides to study economics. What's really interesting is that the Great Depression is so unexpected, it's unpredicted, it's unprecedented, and economists are really struggling to know how to respond to it. And so he's going to arrive at the University of Chicago when the field is struggling to know what to do. So he's in this kind of really open space where the institutional economics of the 1920s

has failed to predict, which was focused on business cycles. This is the irony. Their big thing was charting and understanding business cycles. And then we have the biggest business cycle of all time and they haven't seen it coming and they don't have a good explanation for it. And what he will get at Chicago is the remnants of the monetary understanding

of the economy. And so his teachers, they don't know exactly what's going on, but they look first to the banking crisis. They look first to the, in 1933, it's, you know, bank runs, failures of, maybe it's up to a third of American banks. It's huge. Thousands of banks are failing per week. So they're focused on that. So that's the first kind of imprint he will have. The Great Depression has something to do with a banking system. The second imprint he will have is that all of his professors are profoundly concerned about the social crisis. They want relief programs. They want them now. They want

bank regulation and financial reform. They're very active. This is not laissez-faire by any stretch of the imagination. So Friedman has that imprinting. And then about, so that's he gets there in 32, 36, 37, the ideas of John Maynard Keynes from Britain, which has a different explanation. Keynes has a different explanation. The Great Depression will kind of make landfall in American economics and be very profoundly influential on most American economists, but Friedman already, it's too late for Friedman. He already has a different perspective. So, Keynesianism unfolds. I can say more about that, but it basically leads to more active federal

government participation in the economy. And what underlies a lot of that, its adaptation in America particularly, is the idea that capitalism has failed. Capitalism has revealed itself to have a profound flaw in that its cycles of boom and bust create social instability, chaos, it needs to be tamed, it needs to be regulated. And so that becomes the kind of baseline of politics in the United States, the understanding of the New Deal, the understanding of the Democratic Party, even to some extent, the understanding of the Republican Party. And Friedman never quite sure about that. He has a hunch that there's something else going on and he does not buy that capitalism has sort of ground to a halt or the other idea is that capitalism has gone through some

sort of phase transition. And it worked great maybe while we had a frontier. This is a very serious argument that people are making. United States used to have a frontier, a place where Europeans hadn't fully settled. Of course, they're pushing out the native tribes. That's another story. But that this frontier is the engine of economic growth and the frontier is now over, it's closed, and we're going to stagnate. There's a theory of secular stagnation. And so to deal with secular stagnation, we're just going to have to have a

more active state. So Friedman is suspicious of all these assumptions. And he has this idea that it's something to do with money. Money is somehow important. And so he joins together with Anna Schwartz, who is an economist. She doesn't at this time hold a PhD. She's working for the National Bureau of Economic Research. And they come together to do the study of money in the US economy. And it takes them 12 years to write the book. And they're releasing their ideas and they're arguing and Friedman is writing papers, giving talks saying money is really important. And nobody's really believing him. He's a crank. He's at Chicago. Chicago is a well-known university, but he's sort of considered a crank. And then in 63, he and Anna Schwartz published this book and it's, you know, 800 pages. It's

a reinterpretation of the history of the United States through money. Like the central character is money, whether it's specie, greenback, or the US currency. And they have a whole chapter on the Great Depression. And they, what they've literally done, Schwartz has done most of this. 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? 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. When they get to the Great Depression, they find the quantity of money available in the economy goes down by a third. 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. If your bank goes 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? And 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, you know, is global, it's interconnected, it'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 the people in charge 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. That it's a financial system meltdown,

it's a liquidity crisis, and that 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 who've been like, Friedman is a crank, I don't buy it, are like, Friedman and Schwartz are onto something. Milton Friedman on a Schwartz are onto something.

And so that really changes the game. And 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? In the financial crisis, the Federal Reserve is ready to loan. COVID, the Federal Reserve does 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 let the economy melt down. So, you know, 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 and 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 monetary 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 gonna even just rewind to that

Yeah, so he went to I guess college in Rutgers. That's right, and he was You've also mentioned the influence of the Great Depression. If you could even just rewind to that. Yeah. So he went to, I guess, college in Rutgers. That's right. And he was, you know, mathematical proclivities. 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, right?

So you describe this really well that, so he had this choice to be a mathematician or an economist, and 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 per 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, just one human. It's just from zooming in on a single human, making a decision about life. And it's hard to know when you're in it that the world is melting down from an economics perspective, and that 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 in that they don't stay in New York, you know, and they moved to Broadway, 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, and then his father dies when he's 16. His life becomes more precarious, but it's never as precarious as he makes it out to be. He's got three older sisters, they earn a good living. Incidentally, they all have better grades in high school than he does, but he's the one that goes to college. 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 at 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, a fellow Jewish immigrant boy on the make. He'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 Knight at Chicago and says, you have to go to Chicago. So he has these two mentors and Burns in particular suggests, oh, I could be an economist, that could be my career path. 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 again, he doesn't get an explanation that he buys for the Great Depression, so 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 the 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 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 onto something. So he falls into the set of students who are really enthralled with his other professor, Frank Knight. And Frank Knight is against math and economics. Frank Knight is like 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,

his early publications are in statistics, but 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 that says simple models are better. We need to work on empirical, work off empirical data, not construct elegant models, 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 happens.

It should predict stuff that happens. It should tie back to what's going on. I'm wondering which direction to go. So first, actually, if we could zoom out on the different schools of economics. Yeah. Just the basics. You mentioned neoclassical, we mentioned Kenzian economics,

we mentioned, what else did 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 Kenzian economics and Chicago School of Economics and neoclassical economics and Austrian economics, because there's some overlap and tension.

Okay, so schools of economics. Austrian economics because there's some overlap and tension. For sure. 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 economist, the founder of the discipline. Classical 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. What tends to really define classical economics when you're looking from a great distance is what's called the labor theory of value. Where does value come from in classical economics? It comes from the labor that a person puts into it. Maybe this in some way comes from Locke's notion of property that you mingle your labor with the natural world. We 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, right?

This 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, 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

and 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, how much is 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. So the idea being that if you looked at a market, a market would reach equilibrium when everybody has 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. And 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 his first really big fissure that we'll see again and again.

Are you historically minded? Do certain traits of economic life in here, adhere 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, but 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. Think of like an inclined plane and how fast does the ball roll from one to the other. It's a physical representation of the world. Eventually, economists will start to create mathematical representations of the world. But we're not quite there yet. We're in late 19th century and we have this fissure, we have this introduction of marginal analysis that marks the juncture from classical economics to economics. 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, 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. The ones who are more drawn to marginal analysis become known as neoclassical economists. They're 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, 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. So it's part of the progressive movement late 19th century into the 20th century, it 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 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, 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, has more intervention. Yes, yes, exactly right. So this is the situation in the 1920s,

but the other piece I should mention is that 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 kind of connects to the early, the dawn of academic freedom. This is before academic freedom, and they became, they were chastened, they 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 than it is today, and 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 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 sometime in late summer 1929, stocks are going ever higher and will continue to go ever higher forever. And so he loses his reputation after the stock market crash. 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. He calls himself an old-fashioned liberalism.

We're reaching the end of representative democratic government because representative democratic government cannot solve these social problems. 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. 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. So this larger movement will generate of which F. A. Hayek 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 the definitions of things. So we mentioned what neoclassical is

and the institutional economics is. What's Kenzian 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 Kenzian this very model heavy, more intervention of government. So the real battle is Kenzie versus everybody else.

That is what eventually comes to pass in the United States and in the kind of overall developed, in the 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 is founded, they start publishing, people start using more statistical and mathematical tools to think about economics, and they're given a boost sort of inadvertently by the rise of Keynesian economics.

So Keynes is trained in the neoclassical tradition. He's an absolutely fascinating figure. He's been there in the peace negotiations at Versailles. He basically calls World War II. He's like, hey, we're going to have another war here caused by Germany because this peace treaty has been done in such a vindictive way and people have made such bad decisions. He's there, he sees it happening. When the Great Depression unfolds, he basically comes up with a new theory for explaining what's going on. The previous neoclassical understanding is where things go up and things go down. When they go down, there's a natural mechanism to bring them 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, everybody'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 Keynes says, sure, that's one theory, but something different is happening right now. Part of why it's happening is because 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.

They might not want to invest. And 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? People might decide to sit on their money. They might not invest it. What happens then is you could get stuck in a bad equilibrium. In the neoclassical model, equilibrium kind of restarts and resets itself.

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. And then he argues that, you know, this is a student of his, Richard Kahn, says, you know, as the government invests a dollar, it has like a multiplier effect. The 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 Friedman analysis. And for many economists of Friedman's generation, and he's a weird generation because 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. I think it's Paul Samuelson calls it like it was like a South Sea virus that attacked all of the younger economists, immediatelyumbed and no one under 50 ever got the disease, right? Because their thinking's already set. Keynes himself is very suspicious of math and economics. He and Friedman is fascinating. One of the first books by Jan Tingerman, a Dutch economist, to use math and economics, he used huge volumes. Volume one, Keynes pans it. Volume two, Friedman pans it. So they're in the same page, but what happens is as Keynesianism arrives in the United States, Franklin Roosevelt is not really a Keynesian. He's kind of

an accidental or experimental 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. 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 lot more authority. And so math becomes really twinned into Keynesian economics.

So 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? 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. And this was 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 can be very different. 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. And 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 said, oh yeah, it was really interesting. I was the only non-Keynesian

there. Yeah. So Keynesianism is more government intervention, fiscal policy, so 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 Milton 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 schools 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. And 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. Now interestingly, Hayek living through the Great Depression at first is laisse laissez faire. And he's like, sure, let it rip. And things get so bad that Hayek's like, okay, that's not gonna work.

Can we actually define laissez faire? So what do we mean? What's the free market? What's laissez faire? What's the extreme version here? So yeah, laissez faire means leave a bee in France. It's more often used as an insult than as an actual. Very few people are completely and totally laissez-faire. That would be like the pure laissez-faire would be the 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. That was, and this is all pre-progressive movement. A lot of things are that way, right? You, you know, imagine you're in 19th century America and you have a farm and you hire someone to help you on 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, right? 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. Or 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 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. Now almost nobody says that in the Great Depression because the situation is so bad and 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 will 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. What 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 answer 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 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. It'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, we 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 rotness 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, bad habits, where we'd intervene and to save 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, 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. And 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 that in the 1930s, the investment banks were split from the deposit banks and 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 relief 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, we're in a new dispensation and we need a new relationship. So 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? Can we talk about that a little bit?

Sure, so, F. A. Hayek is an Austrian economist who takes up a posting in London, and he's a mentee 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 unpalatable that is, he will develop a more softened version of Austrian economics that has room for a whole range of social services. What's significant about Hayek is that he is also watching what's happening in Austria, what's happening in Germany, and he's

really worried the same thing is going to happen to the Western democracies. He sees the root cause of this is socialism, the 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. So 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 Simons is in touch with him. They all see themselves as liberals. They call themselves old-fashioned, unreconstructed liberals. Even before he becomes famous, Hayek will be trying to 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. Now, 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 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 Mont Pelerin 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 and 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 laissez-faire 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. So 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 degree is left out in the cold, but Friedman at least has proved to 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 flee. They flee the Friedman onslaught. But then when Hayek arrives at the University of Chicago, he would like to be considered for a position in the economics department and Milton Friedman says, no way. You're not really an economist

because you're not empirical, because you just developed 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 Keynes 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 Keynesianism. And 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 monetarism.

So what is monetarism? The easy way to summarize it is this famous dictum of Milton Friedman's. Inflation is always and everywhere a monetary phenomenon. It's fascinating that he becomes an expert in inflation because the first research and the first major research product of monetarism is that theory of the Great Depression in a monetary history of the United States. And that is a theory of a deflation, all prices going down. And 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 price level is related to the amount of money circulating in an economy. 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. What freeman 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. And 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. Friedman is one of the few who's saying, no, money still matters. Money still counts. It's a

very counterintuitive argument to make. It's a very historical argument to make. 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, inflationary episodes there. 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. It's not historical, right? It's not contingent. It's a lot of economics. His Keynesian counterpoints are saying, no, that's not relevant any longer. Maybe once it was relevant, but it's not relevant today. Now, in some ways, they have a point because

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 it wants, 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. 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 is post 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 is not really relevant and important. And so to break through and to make the argument, that's why Friedman and Schwartz go to history. And 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 to fluctuations in 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, Freeman is hammering this idea of monetarism, and 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 Keynesian-Monitorist split, where if you start to give Friedman any credence, you're heading towards a monetarist position. Now at the same time, Friedman comes out very publicly in 1964 as a supporter of Barry Goldwater. And Keynesian economics has found a home in the Democratic party. It's probably the brightest moment in the sun is the administration of John F. Kennedy, who brings in a lot of Harvard and Yale professors to the Council of Economic Advisors. He proposes a series of spending programs that are really guided by the Keynesian philosophy. Iberi Goldwater is tremendously controversial, apart for his votes against civil rights,

which Friedman really supports, in part because he's a hardcore libertarian in an age when that's not in the political mainstream or not discussed in the political mainstream. He's just tremendously unpopular, particularly in all the educated precincts where Friedman lives. So Friedman is like an outcast and a pariah for his support of Goldwater. And so that actually really affects monetarism because people feel that this is now becoming a package deal. And so there's a great reluctance to embrace Friedman's ideas because it seems like you would then have to embrace his politics. Ah, 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 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, etc. And 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's 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 in a much

more consolidated media environment. And 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 monetarism? Yes. Okay. I didn't go into it.

So like what, okay, the money supply. Yes. Once again, so like what, okay, the money supply. So money is this thing that, you can think of it like a 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 pothead questions

I wanna ask you about the nature of money. I mean, there's so many pothead questions I wanna ask you about the nature of money. I mean, money is fascinating in that way. And 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. And 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. And you also have to really go back in time. You know, we don't have credit cards.

There is a stock market, but it's tiny in terms of the number of people who invest. There aren't mutual funds. You know, like when travelers' checks are introduced, 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 deposits and circulating medium. The other thing to recall, there's some fine distinctions between money in savings accounts and money in checkings accounts. And money in savings accounts can earn interest and is generally believed not to circulate

or money in checking accounts does not at that time bear interest and cannot legally bear interest. And so it's thought of as circulating. And then there's different institutional architectures of postal savings banks and credit unions. But Friedman is, one, taking the focus to these aggregate amounts of money and saying, these really have a lot to do with economic booms and busts. When we have an expansion in the amount of available money, we see an expansion in economic

activity. When we have a contraction in available money, we see an expansion in 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. But the central core idea of monetarism 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 monetarism 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. And 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 the 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. Now, we live in a world where we believe this and the Federal Reserve chair can't open their mouth without headlines being generated. But 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 like hardcore rural populace who have constituents who think the banks and money power are the problem, who are like throwbacks from the frontier days. So Friedman in the beginning has no constituency for this policy, he has no constituency for this analysis. And so just going back to summarize monetarism, it's using the quantity theory of money to analyze the macroeconomy. 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. I mean, 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. Yeah, so I mean, that's a fascinating story. And so what happens is Friedman has advanced all these ideas. He's roiled 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. So 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 accrued 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. And so then you would target that inflation rate. So Friedman 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 accelerationist 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 has gone up, things have cost more. They ask for the wages to go up. Then people eventually, the wages will go up too high and they will no longer be hireable or companies will decide, at these high wages, I can't hire as many workers, I'd better lay off. So 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, 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 gonna get a bunch of inflation and then we're gonna get a bunch of unemployment. And he estimates 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.

And- And he predicts the stagflation of the 1970s. Stagflation of the 1970s. How gangstras that for an economist to do that? Again, against the mainstream belief represented by the Phillips curve. Yeah, and 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 they're running their models, they start to say Friedman's right. They start to see in the 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 Freeman is vindicated in a very profound way in 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 their 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 was not seen before and 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.

Can 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 and 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 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 that capitalism is going to collapse and socialism or fascism is going to take over or communism. And 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. So 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? And 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 it's freedom, it's individual freedom. That's really the ethical

core and capitalism makes individual freedom possible because capitalism is dedicated to maximizing that. 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. Also, if you look historically, if a 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. How 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, 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 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. He 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. He'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 a dictator, Gustu Pinochet, who starts introducing economic freedom, but there's no political

freedom. Milton Friedman believes eventually these two things are going to go together and tells Pinochet, you've got economic freedom and eventually it's going to mean political freedom. Pinochet is like, okay, fine. I'm not really interested in that. I want to know what I should do about inflation. But then when Milton Friedman leaves Chile, he is attacked and vilified for having been a supporter. He's interpreted 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. Now let's fast forward to the end of his life and he's witnessing the emergence of what we call the Asian tiger. So capitalist economies that are doing very well, but they don't have political freedom. But then he observes, they don't have political freedom and that you can't vote in a free and fair election, but they also don't have a STATC, 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 he kind of defines this third sphere, civic freedom of debate, discussion, interpersonal relations, but you can't be political. So 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. Eventually, Pinochet is voted out and it's become a democratic capitalist and very prosperous country. And he thinks that's exactly what's happening in China. He sees Tiananmen and he doesn'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 and 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, that's a really powerful idea to say, okay, maybe there's not political freedom, but just hold onto the economic freedom, and 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. So, 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 Yeah, the metaphor that the economic life is a game and then maybe that extends the society as a whole like the entirety of it it's a competitive game and

and Milton Friedman, I think, adapted some of this, appreciated some of this. 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. You know, 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? And 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 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 friendly with. We all know it's there, it's clear, it's easy. And so that emphasis on rules I think really has a through line. It goes into high-ex 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 really profound, and it was always counterposed 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.

And 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 it arrives at might be different, right? So that speaks to the mechanism design,

the design of the rules. Yeah, and that was again, to go back to the mechanism design, the design of the rules. Yeah, and that was again to go back to the idea of separating new liberalism or neoliberalism from classical liberalism, was 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, how 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 as one of the basic rules of how capitalist economy should function. It becomes really important because they see the example of, say, countries, most notably in Latin America, where monetary rules weren't followed and different governments played politics with their currencies. And that created huge upheaval and huge social loss, economic loss, just economic disaster. So my friend, she's a poker player, philosopher of sorts, great human being. She has a podcast called Win WinWin 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 asterisk.

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. So 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 vis-a-vis other people in society. So we're just incredibly social creatures.

We're incredibly attuned to our status, to rising and falling, to where we sit vis-a-vis 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 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 wanna invest, you're very cautious as a business person. The reality of corruption can be way different than the actual perception, but if narratives stay cold, it's a self-fulfilling prophecy that it has a big effect on the psychology of the 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, this simple analysis of the problem and proposal of a solution was enough to restore eventually the path to academic prosperity, right? That's Franklin Roosevelt, nothing to fear but fear itself. You know, this 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 will 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. And we don't know how it's going to turn out and it's turning out okay right now, but we've always had a commodity-based or backed currency of some form or another. And this is the first time.

And so who really knows? So far, so good. And he also is very first time. And 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 too, 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 therefore my theoretical designs really have to be tempered by what I've actually seen happen in history. So 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. The 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 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, it's not intervening in economic relations, and it does not, in his view, require a bureaucracy to administer. It does 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. Together 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. If you set the minimum wage too high, businesses instead of hiring that higher-priced labor would not hire or like we could think of today, right? They put in an electronic checkout or something like this where you don't actually need the labor. So he really believed the minimum wage had that perverse incentive. Now, 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 a really abstract analysis. But the minimum income is fascinating because it seems very leftist to us. But 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 we'll 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. And 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 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. And 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. There's a lot of discussion still about UBI's as something that should be done.

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 a policy that was really abstract and really just, you know, kind of, it was devoid of judgment. It 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 for the same kind of reason. Yeah, exactly. You could say, okay, but how does this not interfere with the market, right? If you provide people with the minimum income,

won't that change their incentives to work, et cetera? 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. But I'll let the, you know, the economist and the social scientist fight that one out and figure it 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. So how do you make big conclusions 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

and maybe small groups of individuals like the Chicago School of Economics to sort of shake up what we believe and how we run the world. 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 was like, yes, in America, conservatism is different.

It looks different. It feels different. Conservatism in America builds in a big component of what we could call libertarianism, pro-capitalism, anti-government ideas. 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. Let'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. Many people were there, but Friedman and the importance of his books, Free to Choose, Capitalism and Freedom, the television series he did, all of these were like core components of this American conservative synthesis as it evolved. And I really see that as having broken down. It is scattered into different pieces. We don't know where they're going to come back together again, but Friedman's push for open global markets, unfettered free trade, that's getting push back 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.

So 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. This can be applied in the modern day. It is something to teach us. And he pushed back against this trend towards mathematicization. So he kept writing books. You can still pick up a Friedman book and read it. There's lots of economics, articles, and output. It's unreadable unless you're in the field. And so I think in that way, he was trying to conserve methodologically and intellectually the traditions of the field.

The work that he and particularly Anna Schwartz did that literal counting of things and deep analysis of data from the field, that was completely unfashionable in his time. Now we've sort of gone back to it with big data and with computers, but he helped bring that forward and preserve that tradition. So I think of him kind of intellectually as a conservative,

if you think of the mode of his thought. And so, I mean, 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 sort of out in public, there was more of an open battle of ideas

where conservatism often had, you know, William F. Buckley, he had a more vibrant, deep debate over ideas where it seems less deep now. I mean, that is the thing that it's hard, especially like for, you know, for the students I teach today to be like, you know, there were arguments about ideas and conservatives won a bunch of them, you know. And that happened in the 70s, in the late 1960s to 1970s when they, one set of arguments was about economics. Like, okay, this idea of stimulating the economy by spending more, it has a downside. The downside is called inflation. And the downside is called too much regulation. And you've gone too far in kind of bottling up the actual sources of economic

growth and dynamism, and 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, and 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. You've created all these perverse incentives. And these ideas were fought out. They were empirical. They were controversial. And they were based on really deep research and really deep argumentation. And so it 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 after the, 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. Right. And the ideas follow versus lead with the ideas and the sort of the emotion of the masses respond.

Right, exactly. So if we think of the evolution of conservatism, it was a whole set of ideas that was crafted, refined. It was a whole set of ideas that was crafted, refined, the 1950s, 1960s, 1970s, sort of 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. You know, 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. So it's interesting to watch to see that difference. And I hazard 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, they wouldn't fight. He was also a proponent of the free movement of capital. He would absolutely oppose this idea that Nippon Steel 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, and he just had a different style, but I'm guessing 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 fiscally conservative in any way. And that was his concern, 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. And so he ended up believing like 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. about low interest rates. He died, I think it's 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. Everyone'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, you know, he had some of still the kind of macro insights that I think are important.

You wrote the Wall Street Journal essay titled How Inflation Ended Neoliberalism and Re-elected 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. This 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. For example, tax rates weren't inflation adjusted. 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, so you don't actually have more money and 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. And 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. 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. The net result of that turning away, I argued, is people forgot about inflation. They really forgot it could ever exist. You had a whole set of theories on the left, modern monetary theory, and basically said, we don't really need to worry about inflation. We can spend what we want. Lo and behold, inflation came back. My argument is that has now opened 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, that 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. 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.

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. It's only a 10, 15-year thing, but to them that seems like forever. 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. I just hope we don't forget about inflation entirely, but here's the thing, it is 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 Friedman would be a big fan of Doge. So if he 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, but 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 the Doge people don't take this up, but rather than an allocation to think the national parks are good, so I hope the Doge people don't take this up. But 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 wrote about this a lot about

The other thing I think he'd really be thinking about, he wrote about this a lot about occupational licensure and barriers to entry. 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. He talked about this in the case of the 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. For instance, you could look at nail technicians or hair cutting. There's often these licensing requirements or there's a sort of big kerfuffle. I think it's the DC passed a law that to run a childcare center, you have to have a college degree. Well, what does that do? I mean, that disenfranchises a whole bunch of would-be entrepreneurs who don't happen to run a childcare center, you have to have a college degree. Well, what does that do? I mean, that disenfranchises a whole bunch

of would-be entrepreneurs who 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 the 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 and so on. Yes. Which would actually naturally lead to cutting a lot of the bureaucracy of government. I 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 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 his

analysis of that was who that really benefited was the bureaucracy that processed that paper, you know, 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. So 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, you know, 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 a word, but just convert everything to where the speed of signal can be instantaneous. So there's no paperwork. It goes immediately. And then that means that the pricing signals and all these kinds of things are just immediately available to people. That seems to be the low-hanging fruit. Government, you know, IT systems could be vastly improved upon. 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? Yeah. 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 gonna be a lot of pain.

I don't know what the solution is. I think that's also part of why Friedman favored a minimum income. He talked about it being sort of countercyclical. 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. So what do you think Milton Friedman would say about what's going on in Argentina and what Javier Malé is trying to do in Argentina? Yeah, I think he would appreciate it. I mean, I think Malé 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 Millais is very good at explaining these abstract ideas and putting his policies in a framework of the bigger picture. That was really meaningful to Friedman. I don't know how politically persuasive it is overall. Millais is very intense. He doesn't have the same sort of gifts of salesmanship and sending 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's more chainsaw-less, warm blanket. 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 truth to this? You know, I think on the big picture, definitely. I 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,

this statement is too big and too broad, right? So if you're talking about freedom, If by freedom you mean not having to pay taxes if you're successful, you know, I think that can have all kinds of knock-on effects, right? The idea that people are able to prosper when they're educated. Where is education going to come from? How is that going to be paid for and supported? And 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. And 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. and 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 upheaval,

so much government intervention, so much inflation, so much political turmoil. He's probably thinking about it differently than Friedman 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.

So it's a really messy situation. So Javier 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 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 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, 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, right? If 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, people prosper when they're well-educated. That's when economies do better. Education is generally state-funded, and 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. But again, Millet 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 are some interesting stories about how Milton Friedman navigated the Reagan and maybe even the Nixon administrations and how he was able to gain influence? Well, 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 Bretton Woods currency system that was established in the wake of World War II. Now, Bretton Woods, what it did basically, it ended up inadvertently putting the US dollar at the center of the world economic system. But under Bretton Woods, countries of the industrialized West agreed to trade their currency in set ratios that government set. So a franc was worth so many dollars or a German mark was worth so many francs. 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 in that the converting into and out of dollars was really the mechanism of trade for many of these countries. So Friedman said, 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 you should 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 Bretton Woods had an instability and that instability began to emerge in the time of inflation. So you have more and more dollars being printed. Their worth less and less. If European nations keep trading their currency for dollars, they're gonna be importing inflation into their own economies. So 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 the United States starts running out of gold. They're aware this is happening through the 60s, Friedman sends him a memo and it says, this is going to be a real problem. He says something like, this is a running sore and you have to lance it right away.

You know, some very graphic metaphor. Otherwise it's going to explode. And Nixon just 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? 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. He also,

at that same meeting decides to institute price controls. He 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. A problematic name, a problematic policy. Freeman is livid 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. This idea was heresy within the Treasury Department.

Everyone's very committed to the idea of the gold standard, the convertibility possibility, the United States at the core of the financial system, kind of hem and haw. At this point, Friedman has a very close relationship with George Schultz. And George Schultz is a high level appointee who will eventually, over the course of the Nixon administration, 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've 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, like feeding his boss ideas, he doesn't quite know. And then in the oral history, Schultz talks about this quite a bit. So at any rate, Friedman exerts this behind-the-scenes influence, and what Schultz does is just kind of lets Bretton Woods fade away.

He doesn't make grand pronouncements. It just slowly, the world shifts to a regime of, if they, for a while it was like a regime of steady prices, and then they call it a steady regime of changing prices or whatever. 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 Schulz's ear

that said, no, catastrophe is imminent, we have to go back to Bretton Woods, he probably would have worked harder. The 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. Where all these rules and strictures and the falling of Bretton Woods really blows that all open. It's a precursor

to globalization. So, 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. And 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. Friedman does 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. Burns is basically doing everything wrong in monetary policy. I describe this in the book in some detail, these anguished letters back and forth. Basically, as I see it,

Berns doesn't have a solid theory of inflation. The more Friedman pushes him, it's almost like Berns is willfully ignoring Friedman and doing the opposite of what Friedman says. Berns is running a very loose monetary policy. Inflation is quite considerable over the 70s. 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%, hovering an 8% for basically the whole decade of the 70s, going up and down with extremely elevated rates. And so the Carter presidency largely follows foreign policies to be part of it, but the failure to tame inflation is 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. He's, he's retired now. You know, he's entering his kind of golden years, but 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. So the man who implements this policy, Paul Volcker, he's definitely influenced by Friedman. He's definitely influenced by 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 in 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 or so, doesn't work super well. But 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, that 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, as high as 25% in construction sectors. And 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, or 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.

And that's absolutely what happens. If we could take a small tangent, sort of a question I have to ask about since we mentioned Bretton 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, you know, 10, 100 years from now. There's a clip, I think it's in 1992, where people say, oh, Friedman predicted cryptocurrencies, because he's talking about how payments will eventually be electronic. So 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 crypto ideology 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. He addresses this very, very clearly

because Hayek's denationalization of money, it's a paper in the late 70s, Hayek argues for this kind of competing currency model or regime. He's responding to that. He's responding to people writing about free banking. 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, the 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, it only happens amid great, great crisis. So again, you see in countries where the state is not controlling the money well, right? That's when people are more turning to crypto. But he says because money is so fundamental, there are 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. Right? So 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 with talked about it a bunch, but it's still a fascinating time. The Great Depression, University of Chicago, there's these folks like Jacob Weiner, Frank Knight, Henry Simons, all of these influence the thinking of Milton Friedman. There's this Room 7 situation at 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? And maybe there might be interesting stories about that time. It would just be interesting to understand how somebody like Milton Friedman forms. The seed is planted and the flower blooms. Yeah. Yeah. So he gets to University of Chicago, he makes fast friends, and in his third and fourth year they become what I call them the Room 7 gang. So Room 7 is they find an old store room in the basement, they take it over, and that's where they have their jam sessions. And what made this world

come together was Frank Knight. There was a charismatic leader and there were a bunch of acolytes who clustered around him. That I think was a key piece of the ingredient. And then there was a sense that they were onto 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 a thinker, a shared admiration. And then what that led Friedman to do, you know, what I found syllabi, you know, 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, you know, John Stuart Mill on liberty, like 50 cents written in the margin. So 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 developing a shared sense of mission. The incredible 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. That was what really grew him, that really profound peer group. Now, the other piece I talk about a lot is Freeman

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 Anna Schwartz, 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. So for Friedman, intellectual work and intellectual production was always done in this very social context, in a context that

blended like 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 or are they arguing more like over beers kind of situation?

Yeah, more arguing over beers 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 and 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. One of them described it as a general equilibrium system,

where you had to know all the parts and then all of a sudden, it 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 Knight's. And what's fascinating is one of the first papers that Freeman 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 publishes a rebuttal of Frank Knight's ideas about risk and uncertainty.

Frank Knight 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. Friedman publishes this statistical paper and he says, I can put uncertainty on a graph. publishes a 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 in some ways turn his back on Knight's approach and Knight's pessimism even while it's like a foundation of his thinking. Fascinating. 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 that you mentioned. Which I, by the way, if we 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. So, 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 the number, reminding them that you're doing a hard thing. And then it's also reminding them that you're in 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. Yeah. Yeah. And that's really, I mean, that's so powerful. I think so much of the friction of human interaction can be boiled down to just not being able to admit that you're wrong efficiently and quickly and regularly and just often. And to be able to do that, that's really powerful. Yeah. I think it's a really neat aspect of their family life for sure. Sorry, that's a fun story.

But can we just generalize how he engaged in collaboration, how he developed his ideas, is there 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. And he spent the summers in New Hampshire or Vermont. Right near that border, they had two different houses. That to him was the deep thinking time. So when he's at Chicago, he's teaching, he's arguing. Some people love his teaching style, very much in charge, very much keeping students on their toes,

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 cope with it. And so I think it was kind of go time when he was teaching. In that case, 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. He would also regularly do these trips to New York to see Anna Schwartz, so his 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 Raway, stop in New York, see Schwartz, and then again on the way back to Chicago. So you'd 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 like cluster of economists. They all clustered within driving distance of the Dartmouth library so that they could get their hands on books. And so they would come over and then they would argue and talk into the night. So I think he did need 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 that made the whole thing work? Cause 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. And they also were at a time when it was really clear, like for broader society, these are the roles of a man, these are the roles of a woman. And they pretty much adopted those. Now, 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, although it feels very gendered, like, you know, he's the man out in the world and she's in private. It's interesting because her brother Aaron Director was the same way. He was a very private man, very shy, very introverted,

and he exerted this, like, 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 because Friedman was so out there, 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 it was a household that was just dominated by male voices in which she didn't have a lot of room. What 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 it's absolutely 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 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, Anna Schwartz, 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. Yeah, it's always sad and it always makes me wonder about the private secret conversations

between partners. Because they might not show up in the record, but they probably influence the person more than anything else. Those quiet little conversations. If we can switch our path to another great mind of the 20th century, Ayn Rand. We talked about some of the similarities here

about them being fighters for freedom and fighters for capitalism. What is Ayn Rand's philosophy? If you can give a big, tentative summary of objectivism. Yeah, so she called it objectivism. She used to do this thing like, I can stand on one foot and say it. So it goes something like epistemology, reason, ethics, selfishness, politics, capitalism. That was kind of how she summarized it. So what she did, there's a couple 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. And 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. And she says, it'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 revaluing values or a 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 as 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. This is what she's trying to do with objectivism. I mean, it is about as ambitious 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. So 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, Nathaniel Brandon, and he was the 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 wanna give that up. I mean, people should listen to her public talks.

The, her whole aura, 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 see the individualism radiate from her. Yeah, I mean, that was one of the things I found in researching and writing about her. Like she's an incredibly unusual human being.

You know, and so that was like her strength, right? Cause 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've said, because the interesting differences about Ayn Rand, her ideas related to Milton Friedman. Yeah, I mean, broadly we could put Milton Friedman and Ayn 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 and 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, Frank Knight, you haven't read On Ranch yet. You're a little too early. Because that's what she does. She takes the outcomes of capitalism and of market competition and says, these have ethical meaning. And this is where ethical meaning in here is. And it is ethical to try to succeed and to succeed in a capitalist society. Now 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. Here 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, 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 is one of the books that you like of hers the most,

but can we stay in the Mythic Register with The Fountainhead and Alice Rugged? What to you are some sort of memorable, inspiring moments, insightful moments from those books that may be scenes or ideas that you take away from them that are important for people to understand. Yeah, so the Fountainhead 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 to thine own self be true, right? And Rourke's designs are to avant garde. Nobody appreciates him and he just keeps doing what he wants to do and is just 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 barely 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. Rourke, what do you think of me? And Rourke says, I don't think of you. And that, Turand, was the ideal. You're not thinking of other people. You're an island unto yourself.

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 soul in a way. So that has been very captivating to so many, and The Fountainhead 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 higher self. And I think there's also the scene where Rorick, with the Dean of Architecture of the school, that's speaking to what you're saying, I think to me is inspiring. So this is the Dean of Architecture that expels Rorick,

and it brings him into a meeting thinking Rorick will plead for a second chance. And the dean says that Rorick'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, Rorke says yes. And then Dean asks, my dear fellow, who will let you? And Rorke replies, that's not the point. The point is who will stop me? Yes.

I mean, you know, Rand's coming from communist Russia, but it has a bit of the don't mess with Texas flavor. I might say that really resonates with this idea of anyone who's felt like they're fighting the powers that be. Yeah, it's interesting. I thought you might be going to the quote where he says something like, I inherit no tradition. I stand at the beginning of one. And I really think Rand's thinking about herself when she says that, that she inherits nothing. She stands at the start. But the Fountainhead comes out in the middle of World War II, and it's not expect Rand as an unknown writer. This is kind of a strange book. It's a classic story. It's turned down by 12 publishers before one takes a chance on it. And Rand really loved this story. The editor turned down by 12 publishers before one takes a chance on it. Rand really loved this

story. The editor who read it said, this book is great. His boss said, no. He said, if you don't take this book, I'm quitting. She idolized him for doing that. They print it and it becomes a best seller just through word of mouth. It's's not advertised, doesn't, it gets one good book review, but people tell each other how much they like this book. And it keeps printing and selling out printings, it's made into a movie. And 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. Meanwhile, they might be sleeping on an ocean liner because they've been drafted to fight

in this war. And they're reading The Fountainhead and they're feeling better about themselves. And so it's also really interesting. The Fountainhead is hugely popular in India, which is fascinating. And 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.

And it gives them that feeling of freedom and possibility that they're hoping for. Yeah, I mean, it really is a book. Atlas Shrugged can be a bit of that too, but it's more of the philosophy, objectivism, and the details and the nuance of that seeps into Atlas Shrugged can be a bit of that too, but it's more of the philosophy, objectivism, and the details and the nuance that seeps into Atlas Shrugged. The Fountainhead 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. And Rand knew that she was doing that and she knew what she was doing. This wasn't an accident and people say, oh, she's a bad writer. Oh, her characters are so heavy handed.

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. People say, people say, oh, Rand is for, you know, adolescence, 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 wanna be. So 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 the alchemist, and they're adults and they're brilliant people,

the alchemist changed their life. And the same can be said about the fountainhead. I, and I sometimes get criticized for using words that are too simple. I think simple words can have power. And the cliché thing sometimes needs to be said. And sometimes, if effectively, needs to be said in an over-the-top way in the mythic register. Because that's the thing that resonates with us.

Because we are like heroes of our own story, and we need to hear that message sometimes to take the bold step, to take the risk, to take the leap. Yeah, and I mean, the other thing, she knew she was doing kind of propaganda in a way. She was like, I'm doing pro-capitalist propaganda. She has a degree from the University of Leningrad. She's 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. And 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 people,

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 deriving 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 and they don't want to see anyone go that far. And they're outraged that someone went that far,

did the thing that Frank Knight said no one would do. Yeah, it's just, it's very unsettling. Would you say that's her main blind spot, the main flaw of objectivism is just how black and white it paints the world? Or if not, what would you say are the flaws of objectivism? 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 not empirical in a way. Rand herself would say that she's not writing about things how they are, but how they should be. That idealism 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 over 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 and she's already famous but she's writing Atlas Shrugged and so she's sharing drafts of Atlas Shrugged as she goes along. And one of the members of the Collective to bring all of this together is Alan Greenspan, later be head of the Federal Reserve. 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 until I met Ayn Rand. She really opened my mind. He's part of this tight-knit group. But over time, in this tight-knit group. In this tight-knit group, they think of themselves, we are all individualists. We're dedicated to individualism and capitalism. We're different than everybody else. Over time, they all come to share Ayn Rand's views and opinions on everything from music to art to clothes. She gets a dining room table, and a bunch of them get the same dining room table. And it becomes incredibly conformist because they've all believed they're acting rationally,

and they believe that to act rationally is to agree with Ayn 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 that man. Yeah. I 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 Wright, that shakes up the world with her ideas. And of course it would form a cult. And of course that cult would be full of contradictions and hypocrisies.

Yeah, I mean, it's amazing. So Murray Rothbard, who's a famous anarchist, falls into the Ayn 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 sort of pseudo cult of his own. And two of his cult members switch over to Ayn Rand, and then one of them to show, to gesture their breaking of their relationship, mails him a dollar bill that's been torn in half. I mean, this is high theatrics, right? Okay, so sticking on the drama and the theatrics,

who was Nathaniel Brandon? Oh, yes. Can you take me through the arc of Ayn Rand's relationship with Nathaniel Brandon to their dramatic falling out in 1968? Yes, so after The Fountainhead, The Fountainhead is auctioned to be, is sold to be a film.

So Ayn Rand moves to Hollywood where she's gonna help in the writing of the film. She wants a lot of creative control and she's also still working in screenwriting and things like this. She gets a letter from a Canadian student who's written to her several times. He writes again and he says, I'm at UCLA. She's like, young man, you're so full of error. Why don't you come visit me and I'll straighten you out. 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 objectivist worldview. Ran begins counseling him and his girlfriend about their relationship. 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, Ayn Rand is just bereft. 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 Brandons, 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 Ayn Rand and Nathaniel Brandon who's some 20 years her junior. And they discuss them and they realize that rationality has led them to the conclusion that they should be lovers. Right. Right. They've 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. So the spouses who bought into rationality, We'd like a few hours alone each week, and we don't wanna be deceptive, so we want you to know and approve of this. So the spouses who 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, drinking coffee all night, talking, talking. They all know that Nathaniel Brandon is Objectivist 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. People absolutely hate this book. And Rand is not Howard Roark. 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 an affair with another

young woman. And at this point, he has started the Nathaniel Brandon Institute to teach objectivism. 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 your genius.

They 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. That small cult around Ayn Rand expands to this whole social network. It's very much a piece with this burgeoning conservative movement. Objectivists are involved in criticizing the draft. There's kind of a libertarian, objectivist world going on. All of this is happening. In the meantime, Nathaniel Brandon has found a new partner.

And he does, but he doesn't tell Ayn Rand this because he knows she'll be upset. And so it goes on for years. And Ayn Rand knows something is going on but she can't quite figure it out. And it finally, Barbara Brandon says to Nathaniel Brandon, you know, you have to tell her. This has just 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 objectives schism. Objectivism breaks in two because some people say, how could Ayn Rand do anything wrong? And other people say, what is this letter all about? And what did Nathaniel Brandon do? And I'm not just gonna take her word for it, I 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. And so 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,

objectivism flows into the student libertarian movement. Some objectivists become conservatives. It just kind of spreads out more generally and you don't have to drink the Kool-Aid. You don't have to take the official course. Nathaniel Brandon goes on to be part of the self-esteem movement, Human Potential Movement, California.

And Ayn Rand lives another 10 years or so, but she doesn't do major work after that. So since we're talking about some of the, although rationalized, some strange sexual partnerships that they're engagement in, I have to ask about the fountainhead and the quote unquote rape scene in the fountainhead. Was she intending to add that there to be controversial? How are

we supposed to read into it? Is it a glimpse into Ayn Rand's sexuality? And maybe broadly we can say, what was her view on this, on sexuality, on sex, on power dynamics in 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, which is also related to your highest values.

So for her, that explained her attraction to Nathaniel Brandon and Nathaniel Brandon's attraction to her was a function of their highest values. And 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, so who is Ayn Rand? She's born Elisa 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. She'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 into raging argument, right? And 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. So again, this is not at all how Ayn Rand lives her life. This is like this, I would say 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, 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 like paradigmatic for the romance genre. In other words, these pulpy romance novels. The hero rapes the heroine 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 very standard. But that is a huge part of his appeal at the time. There's this feminist who hates Susan Brownmiller and she wants to write an angry denunciation of the rape scene. So she goes to get the fountainhead 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 doesn't 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 almost positive she also knew that. Like if I put in this kind of taboo breaking sex scene,

that's also gonna 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. I think it also reminds me of another guy related, Fugio Nitsche, who had very strong opinions on women

and wrote about what women's roles in society should be and 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 sort of always maybe chuckle or take with a grain of salt the analysis of power dynamics and relationship from these figures

which failed in many regards in their own private life. You mentioned feminists. Would you consider Ayn Rand a feminist? I mean, she's almost an anti-feminist because she then goes on and someone writes her a letter about like, should there be a female president or something? This is like the beginning of feminism. And she says, no, no woman 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 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 has 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 spirit she embodies, right? In what she represents. I 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 feminism has some sort of collective aspect to it or at least some identification, one needs to identify with a broader category of women and feel their acting in behalf of that, she's definitely not doing that. And 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

homoerotic themes in her writing. And 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 Rand 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 charitable and I just think of the enormous pressures. I want to be charitable. I just think of the enormous pressures 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. And this 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 Ayn 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 Arendt, 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. Why is that? You know, a lot of people just deeply dislike Rand. They deeply dislike her ideas.

They don't think they're profound because their disconnection from other ideas and other understandings of human society. I think where you could look at them and say, 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. How could you even make these contentions? And I think that because 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. You can see who they influence, you can see who they're in

dialogue with. 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. She's almost creating an inverse Marxism. Marx was writing in 1848. He's not a thinker of the mid 20th century. So 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. You study and write about history of ideas in the United States over the past 100 years, 100 plus years. Well, 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 and 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. So as an intellectual historian, I'm studying ideas and I'm always putting them

in their historical context. Like what is happening that is making these things resonate, that is making them, people seek them out. So for Rand's case, she has this credibility because of her experience of communism, which is 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 started calling themselves objectivists and getting together to read Rand's work. That was spontaneous and ground up and wasn't supported by any money. Nobody planned it. It just happened. Friedman's a different case in that he joins an established tradition of thought that'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 Rand, I think of as 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 at another time at Barry Goldwater. And then, whereas 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.

And so I think they kind of go top down and bottom up and then they hit the events, right? Friedman's ideas wouldn't have gone anywhere without that episode of stagflation that really made people think they proved out. And I think Rand's 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. They've been served in a large military, you know, they're, 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 Rand's 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 takes hold in its implementations.

Or you can think about Nazism and with Hitler where it goes from a small number of people that get real excited about a thing and then somehow just becomes viral and takes hold in power and then that has its consequences. When I think about the 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 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. You mentioned Hannah Arendt. I think she has one of the most penetrating analyses of communism, which she really puts in the category of it's a logical ideology. Logic leads inexorably to its conclusions and then experience crops up and experience is different. And what does a 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 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,

dream of equality, dream of the powerless rising up against the powerful. 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 a framework for thinking about that in a time when the world was becoming more interconnected and those differences were becoming more obvious. You know, becoming more interconnected and those differences were becoming more obvious. 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 Going back to that lecture that I ran gave I Think what rings true to me a little bit is that it would fuels it as a kind of maybe not resentment, but envy towards the people that have, the have nots versus the haves. And there's some degree to which Nazism has the same of envy towards some group, resentment towards some group.

So 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. 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, where you 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. Yeah, towards any group, towards any idea, towards anything, because we could get caught up in the mass hysteria of the hatred, the dangerous thing.

You floated the idea, I forget where, of pivoting for your next book towards maybe writing about postmodernism, which is a set of ideas almost the opposite of Ayn Rand's philosophy. So can you maybe explain your curiosity about, first of all, spaces of ideas, but maybe postmodernism? Yeah, 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? Objectivism, 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,

it first struck me, 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 Derrida. But somehow it's trickled down into, how do we go from Derrida to Tumblr?

And I sort of realized like, oh, this has happened with postmodernism. It's followed the same path, that say from Milton Friedman's economic theory to free to choose on YouTube. We've had a similar path of high French theory down to Tumblr and I sexually identify as an attack helicopter or whatever it may be. And so that was really interesting. And then I also thought,

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 distilled 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, postmodernism started about disrupting binaries. 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. Oppressor and oppressed has become this 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 it gets politicized or mobilized in different ways. And behind it all, I think, is this human longing for meaning and the inadequacy of the traditional ways that need was met at this point in time. By 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 Derrida and Foucault, and not knowing context at all, this is interesting. All right, this is, 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 copter, that's it, identify as sexually, yes, beautiful. Okay, your process of researching for a job attack after that's it identifies actually yes beautiful okay your process of researching for let's say the biographies of Milton Friedman and Heim Rand seems like an insane amount of work yeah you did incredible work there going to the original sources can you you maybe speak to that, what is required to persevere?

And to go for so many years, to go so deep to the sources? So, I mean, I go to the archive. That's where I feel like I'm communing with the dead in some ways. I'm seeing what they saw in some ways, reading what they felt. I tell 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 where

there's nowhere to go, there's nowhere to be. You got to be getting up because you're interested in what you want to study. With Rand, it was this real sense of discovery. 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 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 at 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. I'm very grateful for people are like, you wrote a dissertation on Ayn Rand

at Berkeley. I'm like, yeah, hell I did. You know, Berkeley's like, it's a great place. And at the time I was there, there was absolute room for free inquiry. Oh, can you just like linger on that? So when you said that you're doing that and doing a dissertation on Ayn Rand, was there, did 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 ten years earlier, it wouldn't have been possible. 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 a 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 it really was the time there was a 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 and this is a problem. And so they were open to learning more. So I really kind of caught that wave in scholarship and caught that wave in American cultural people wanted to know more. I wish you'd probably say that, I mean, Ayn Rand is at the very least, as you've mentioned, a kind of gateway to conservatism.

Yes, I called her the gateway drug in that people start with Rand, they're taken by her. In some ways she takes the worldview of Milton Friedman in terms of what capitalism can accomplish economically and then she puts it in this mythopoetic register and she fictionalizes it. 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 a politician, to work for a think tank, to work for a party. It's absolute traffic. Now, not everyone. There's plenty of people who read on-rand who don't take the politics in. 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 Ayn Rand. I was like Ayn Rand and the American right, goddess of the market, Ayn Rand and the American right is the title. So 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, you're 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.

So 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 on 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. So 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. I'm gonna cover that chapter. And then there's gonna 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. And 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 ambit, I'm not gonna go into great depth on it. And you're trying to understand the relationships. It's 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 and 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 is that because I teach and I am explaining the kind of broad sweep of 20th century history. So I know that Rand's involved

in a labor action at Warner Brothers, but through my teaching, I realized, oh yes, this is a moment of labor strikes across the country. 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. She's really responding in real time and being inspired by what's happening, you know, in the mid-1940s in the United States. So 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 Milton Friedman who had a very interesting way of teaching. So what's your, how do you think of teaching? Teaching history, teaching history of ideas, teaching bright 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 almost the number one thing I bring is my enthusiasm. 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 sidebar at the end of the lecture and say, I find this unsettling and this tells me something about myself. But most of the time, I'm bringing people into the biography of a great thinker, the context of them, and then in the lecture, we'll literally read the work together and we'll talk about it and we'll ask the students, what are you finding here? What'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 Thomas Kuhn or something like this. And just show them that studying a history of ideas is really fun. I feel incredibly privileged to do it. And 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, giving them a flyover, and then I want them to know time to go deep. We have a 10-week quarter, you know, 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.

Yes, 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 Ayn Rand, 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, 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 a... I don't have huge expectations. I'm not expecting to have the light shine on me. I'm not expecting to agree. I can be very clinical about it. So that's what'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 funny is it? Like these different aspects of them, you know, like when teaching my students about Oliver Wendell Holmes, like his dad wrote a poem about him. He called him the astronaut about how he came from outer space. He seemed 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? And 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 them are evil? Do you think we can draw such lines or is it more complicated like the old Solzhenitsyn line between good and evil that runs to the heart of every person? I mean, I philosophically agree with Solzhenitsyn for sure.

I do think some ideas pull on the good side and some ideas pull on the bad side, like absolutely. And I think that's probably why people dislike Rand so much is 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 in some cases that may be true, but she's also unloosing some of the light forces in terms of reflecting on yourself and trying to be true. But definitely there are ideas that are dangerous to play with.

And there are ideas that I think give license to the darker sides of human nature. But I think you can see that in the historical record. So I think that it's possible to show that. And obviously there's some places, you know, like Germany, they think the ideas are so dangerous they can't be allowed to circulate. And in some contexts that may absolutely be true.

And then still even that we should take with a grain of salt because perhaps censorship of an idea is more dangerous than an idea. So all of that, that's the beautiful thing about us humans. We're always at tension trying to figure out what ideas are the ones that are going to help humanity flourish. Pothead question.

Yeah. Do humans have ideas or do ideas have us? So where do ideas come from? You have Milton Friedman sitting there after Rutgers trying to figure out what he can do about the Great Depression. What, like where, do you ever think about this? Like I sometimes think that ideas are,

aliens are actually ideas. They're just kind of like travel through human brains and like captivate us and 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.

But it feels like the idea is right in the show. Yeah, I mean, I think in a lot of cases, I think it's true. Keynes has this famous quote, most men are slaves of some defunct economist. That's funny. So I do think that it's really hard to have an original thought. 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. So again, that's some of the work of what I do as an intellectual historian. It's 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. 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. They want to do other things with their life. 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 lexfreeman.com slash AMA or contact me for whatever other reason at lexfreeman.com slash AMA, or contact me for whatever other reason at LexFreeman.com slash contact. Please allow me to say a few words about my interview with the President of Ukraine, Volodymyr 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. Literally 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 none 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 from 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 up by Ukrainian bot farms, said there's no need to say anything extra. Let the interview stand on 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 on my sleeve and 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 approach this conversation with President Zelensky and conversations in general. This 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. It never will be the case for future conversations, especially ones of this importance. I work extremely hard to prepare. Second low-effort attack that got to me a bit is that I'm a shill for Zelensky or a shill 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 shill for no one. More than that, I just simply refuse to be caught in any one single echo chamber. It's an ongoing battle, of course, because social media algorithms and the various dogmatic groups and tribes out there want to pull you in to their warm embrace of belonging, and humans want to belong.

But the cost of the path I have chosen is that I will never belong to any one 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 any one 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. Second 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 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 and forced into a state of anger and hate, peace is a dirty word. To them, nothing less than justice must be accepted. I 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 material since February 24th, 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. There 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, Andrei Bogdan was interviewed twice by Dmitry Gordon and gave a deep inside look of the administration of President Zelensky, including that very 2019 meeting. was interviewed twice by Dmitry Gordon and gave a deep inside look of the administration of President Zelensky,

including that very 2019 meeting. The two interviews are seven and a half hours, by the way, and from my interviewer perspective, are a masterclass of interviewing. Andrey Bogdan 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 Vladimir 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 Bogdan gave a very different perspective on that 2019 meeting than did President Zelensky to me in our conversation. The 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 I 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. It is certainly true that Ukraine is best positioned to negotiate from a place of strength. After the invasion of February 24th, 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 Kherson 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 U.S. financial support for this war will continue to dwindle. So the leverage and the timing for peace negotiation is now. There 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 may do so again. I interviewed Vladimir Zelensky and may do so again. And interviewed Volodymyr Zelensky and may do so again.

And it seems likely that I will interview Vladimir Putin in Russia, in the Kremlin. I understand the risks and I 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. So this is in fact me trying to be brief. So again, my two goals were to bring out the best in President Zelensky 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 guests matter a lot. My job is to try to cut through the bullshit walls we put up as human beings and reveal directly or indirectly who the person truly is and how they think. With Zelensky, 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 a 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. Sometimes 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. Add to 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. So in this case, the approach I followed for this conversation is constant nudges and questions about peace, often using almost childlike 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 the simplicity, the purity, the boldness of such questions to 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. And 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. 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 Sir Heplohi to Stephen Cotkin. But this conversation is with a world leader, speaking about another world leader during a historic opportunity for peace. Crude words of disrespect while powerful

may harm negotiations. Peacemaking in this situation requires compromise in order to avoid further death and suffering. And I believe it requires treating the other leader with a 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 peacemaking. This is not about politics. It 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. And 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 hardball is over with hate, leadership now requires sitting at the negotiation table and compromising. This 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 to stop beating.

A global war that would cripple humanity. This 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.