Take it to the Limits: Milton Friedman on Libertarianism
Milton Friedman, Hoover Institution, February 10, 1999

GHOST OF CAPITALISM PAST

ROBINSON Again and again you will hear that we've tried, the Western world has already tried laissez-faire, let her rip economics and it ended up with the London that Charles Dickens portrayed "dirty, filthy, child-labor" just a terrible mess. What do you do..how did that come to be?

FRIEDMAN It was a terrible mess but what cleaned it up?

ROBINSON Disraeli and his social...the child labor laws...

FRIEDMAN No, no what cleaned it up was the progress of private enterprise because you had a... the reason it was so messy was because you had to burn coal and the kind of coal that was available in Britain was very smokey and messy. And once you were able to use oil, natural gas, better furnaces, all of those things is what it made it possible to clean London up.

Now so far as child labor is concerned..what happens is, what happens in the picture that's drawn of Britain in the 19th century is that there's no image of what went before. Of why is it that all these people from the farming, from the rural areas came to the city. Did they come to the city because they thought it would be worse? Or because they thought it would be better? And was it worse or was it better? In the early days, you know there are very few things that are 100% black or 100% white, there are various shades of grey. And what we aim for is the least shade of grey that's possible.

I'm not going to say that all was rosy in Britain at the time, it wasn't. But look around the world today. Where is it least rosy? - In those countries where things that are run by the government not in those countries where private enterprises are. And the same thing was true in Britain, the conditions in the rural areas, on the farms, were far worse than conditions in the city, but they were not visible, they were hidden, nobody saw them. [ROBINSON Dickens didn't stroll around the countryside..] Right..

ROBINSON So what you're saying then is that this mental image that drives even to this day so much of the environmental debate is simply, it may be true as far it goes, but you'd advise greater historical understanding.

FRIEDMAN But not only historical, present. Where are the most polluted areas in the world? [ROBINSON Today.] Today. In Russia! [ROBINSON Russia? Right.] Why? Because everything in Russia was controlled by the government. There were no, and I keep emphasizing, nobody's going to take care of somebody else's property as well as they'll take care of his own.

ROBINSON But who should take care of the resources that we all share, such as the air we breath?

BREATHING LESSONS

ROBINSON I want to push you one more time on the environment- air. Here in California it turns out there are 30 million people who like to breath. And we have, particularly in the L.A. basin, smog beginning in the 1970's that the environmental movement begins to...

FRIEDMAN Oh no, the smog went back 200 years. There are stories of the Indians describing that as a smoggy area.

ROBINSON So part of what's going on is it's natural.

FRIEDMAN But no doubt, the thing about that is there is an argument for government requiring those who impose costs on third parties to pay for them. And the point is with respect to smog, the efficient way to do it is to use the market.

ROBINSON How do you create property rights in the air, say?

FRIEDMAN When you do it now, by selling the right to emit a certain amount of pollutants into the air. You now have a market in effluent rights.

ROBINSON For large manufacturing concerns...

FRIEDMAN For manufacturing concerns, which is where most of it comes from. And you do the same by charging essentially making it requirement that automobiles have to have [ROBINSON The catalytic convertors] Catalytic convertors and that's effectively making individuals be responsible for costs they impose others.

Remember what I said is- the key feature of a libertarian view is that you should be free to do what you want provided you don't prevent other people from doing the same thing. And so the only case for government is when it is not feasible for market arrangements to make individuals pay, to compensate others for any harm they impose on them. If you and I enter into an agreement to buy or sell something, well that's our business. You may lose, I may lose, or more likely we're both going to win. We're not going to enter into it unless both of us think it's better for us.

But there are cases like the power plant that emits smoke that dirties my shirt in which the company is imposing a cost on me for which I'm not being compensated. Those are the only cases, but you have to qualify that by noting that when government enters in, it also is emitting smoke, it's also imposing cost on third parties because it's always a very imperfect arrangement and moreover it always has to collect taxes and the process of collecting taxes is, as I always say, there's a smokestack on the back of every government program.

ROBINSON A smoke stack on the back of every government program - by that you mean, a distortion in the marketplace...

FRIEDMAN Right, imposing a cost on third parties for which the third parties are not compensated.

ROBINSON And so the key characteristic in which you find a circumstance where it's legitimate for the government to intervene would typically be where property rights are vague or diffuse, is that correct?

FRIEDMAN And where it's almost impossible to make them precise. That is a problem in the case of the power plant is that there is no way in which you can say you have to get the agreement of each of the persons whose shirt your going to dirty and pay him for the privilege of dirtying their shirt before you can do it.

ROBINSON So on the environment, the greens actually do have a point, that is one area where there is a strong case...

FRIEDMAN But in most cases in practice, when you look at it, and there are some people up at PERC as you know who have Terry Anderson, who I'm sure has been on your program, who have demonstrated that there are many many cases in which market arrangements are far more effective than command and control arrangements.