Milton Friedman
(July 31, 1912 – November 16, 2006)
Rose Friedman
(December, 1910 or 1911 – 18 August 2009)
Chapter summary selection:
Chapter 1: The Power of the Market
Chapter 2: The Tyranny of Controls
Chapter 3: The Anatomy of Crisis
Chapter 4: Cradle to Grave
Chapter 5: Created Equal
Chapter 6: What's Wrong With Our Schools
Chapter 7: Who Protects the Consumer
Chapter 8: Who Protects the Worker
Chapter 9: The Cure for Inflation
Chapter 10: The Tide Is Turning
Chapter 1: The Power of the Market
1) The first half of this chapter leads into the description of in some great detail of how supply and demand work in several ways and some of the more human aspects as to why it works the way it does.
First off voluntary cooperation is what Capitalism is based on, not commands from a central leader. Voluntary cooperation consists only when both parties are at a beneficial agreement, because no one would freely make a deal that they perceived to have a loss in. The reason why this idea must work in Capitalism is so that the economy can utilize the self sufficiency of individual motivation. A system that runs from a central command cannot be run with the same effectiveness that one that leaves the much of the decision making to the individual. For example; a single person that is ruling cannot keep track of all of the crops, the industry, the livestock and how they relate to the crops, and military. It simply is not effective enough. Although, this does not exclude any Capitalistic system from a few commands, it is necessary to have a government, but not to run our business.
2) It is easier to see how a voluntary based trading system would out work a command based one by looking at the production of a pencil. In the construction of one pencil there are so many things that we miss in everyday life. For starters someone has to cut and process the wood and someone has to move it, this all happens before the factory even starts working on the pencil. The same processes, in their kind, go into creating the rubber eraser, the copper eraser holder, and the graphite to write with. The individuals in each of the must get a deal in order to trade for the next process of the goods. The logger sells the log to a mill the mill processes it and pays a railway to move it over to the factory make the pencil, these are just a few of the stops that probably actually take place. This is all based on how much the pencil is worth, because the mill is more will to sell wood the factory if it is a higher price and the loggers the same to the mill, and the railway will give a better deal if more goods are moved around. This can't work in a command center based economy, because think about it, could one center really understand all the different aspects and give all the little orders to all the different sectors of the process that it takes to make a pencil?
3) Next Friedman talks about Prices and how they effect so many things. The three things he thinks prices do are 1) Transmit information, by showing how much demand or oversupply there is 2) Give incentive, to work at as low a cost as possible in order to have the highest marginal income 3) Control distribution, Who gets how much, or the distribution of income.
4) Prices speak to the well trained eye, for example if you noticed that gas prices were going up what would you think? Personally I would know that oil prices have probably gone up, I assume this is the same conclusion you would have, but Friedman goes a little deeper to explain that it could show something like when OPEC became the oil monopoly and tripled the price of oil, and therefore gas. In the same way, going back to the pencil like in the book, a forest fire could up the price of wood which in turn would up the price of producing the pencil. You can find that by reading the news you can gain quite a good understanding of why the prices of certain things are going where they go up or down. Try watching silver and gold and think about how they relate to the market place.
5) Incentives to get into things or change things are huge when talking about voluntary trade. The entrepreneur wants to purchase the raw materials at the lowest possible price to sell at the highest price his consumers are willing to pay. A personal example (of mine) of this is grenadilla wood used to make clarinets, it is one of the rarest woods in the world and therefore quite costly, well wouldn't the people that make these clarinets want a less expensive way to make these clarinets? YES!! that is why they invented a composite wood, it is somewhat a particle board made from old clarinets, you can get the same clarinet for half the cost. Also, when there is more demand for a product and people are willing to pay more for it there is the incentive to produce more, because they will make more. When this happens they higher more people by either raising the wages or the incentives to entice people to come to work for them.
 |
| Karl Marx |
7) The role of government, Friedman as a few interesting things to say, or rather to let Adam Smith say. Adam Smith is the author of Wealth of Nations one of the first economics books in this book he mentioned that the role of government should be 1) Protect the borders 2) Create and run the judicial system, and 3) Build infrastructure that privet industry would not. Friedman thinks there are a few things missing from this and I believe him to be correct, at least by today's standards this is a rather old book you know. As to the third role of government where do you draw the line, because the privet sector would probably build roads, they build railroads, they have and do build parks, libraries, and schools, but we don't seem to think that the privet sector is capable of these things in today's age.
Next there is the third party costs, these are costs that accrue, not on purpose but more from accidents. Such as spilling grape juice on your friends blouse, you do seem to own that person, but yet they are your friend and it is such a small cost, but when it comes to things such as hitting someone in your car that is an entirely different matter. How can you measure a repayment to this person you hit? I guess you could pay for their hospital stay, but what if they lose a leg or an arm? The problem is there must be a line somewhere, but it is immoral to draw one. What is fair payback?
8) Friedman thinks that a fourth role of government should be added; the role in protecting people the do not have the ability to be responsible. Freedom only works if each person is responsible.
9) Role of limited government: Look at a place like Hong Kong, no one realizes that this island of the cost of China has flourished so greatly, do you know why, it is because the government as kept its nose out of everyone's business, taxes are kept low and regulations are to a minimum. They have one of the highest living standards in Asia (this all is debatable next to Singapore). The U. S. used to operate this way, when it first started. That is why so many people came here and we became the greatest nation on this earth. This freedom to create and trade made what many people know today as the "Robber Barrens," most people seem to think that they used all their power to destroy people that worked for them and purchased their products. But, (I) ask you this one question; if they did these terrible things to their workers, then why did more and more people come to work for them each year?
Chapter 2: The Tyranny of Controls
1) If we want to help the economy and the consumer then we will buy the cheapest product no matter who we buy it from. This is the best way to promote the well-being of the masses. Even with nearly every economist in paralleled with Adam Smiths idea toward free trade there are very few places that have free trade zones, Hong Kong being one of the only ones now.
2) Imports are, according to Adam Smith, better than exports. This is contradictory to what we are told. Exports are in a way what we pay for our imports as imports are what we enjoy.
3) The reason why it is alright to have free trade even if it means the end of certain industries in our county is that the end result would benefit the consumer and that is of greater benefit to a country then employing a few people that should be doing something else. Often we should let other countries do what they are good at and we do what we are good at then all benefit from the great productivity. Should we force ourselves to make TV's at a higher cost to the consumer when we could just buy them for cheaper from another country? YES we should.
4) Infant Industry ideas started by Alexander Hamilton.
5) Using a monopolistic position to gain off others with a tariff tax to raise the price.
6) Monopolies can seldom be established without government assistance is the form of a tariff or other device.
7) When Ludwig Erhard in 1948 put in the new West Germany deutsche mark he abolished almost all controls on wages and prices. The result was humming economics in west Germany.
8) Another example is how countries like Malaysia, Singapore, Korea, Taiwan, Hong Kong, and Japan all rely on private markets and in the 1970's have an average income of $700 to $5000 each year. This may not sound like much, but compared to India, Indonesia, and Communist China, who all rely on central planning have an average income of less than $250.
9) To further this example Friedman talks about how Japan allowed itself to enter into a free market and how it has prospered since, unlike India which did not take on a free trade market as Japan did.
10) The US has taken a turn toward government control and it will continue to do so unless it is turned back the other way.
11) Think of how you get into a business today such as law or accounting or building. You must get some kind of permit in order to operate under this country's laws. And to top all of this off we have one of the highest corporate income tax rates (46% in the book but that is 1979, now it is 35% plus and average 5% state tax).
12) Next to be taken away as it is slowly is our personal rights, such as our right to free speech.
Chap 3: The Anatomy of Crisis
 |
| John Maynord Keynes |
2) Friedman thinks that the reason for the great depression of 1929 was actually because the government no longer controlled the money, the Federal Reserve did (the Federal Reserve Bank is a private institution).
 | |
| Nelson W. Aldrich |
4) The trouble in 1908 happened because of a run on certain banks. This run caused that bank to all but fail, because it could not pay out all of its deposits. This is because of the way banks are designed with a fractional reserve system. This means that when you deposit your money in a bank they take about 90% of that money and use it for loans and other investments they only ever have about 10% of the banks total deposits on hand at any one time. So if all the people with a deposit at that bank withdrew that bank would go under. This is why the Federal Reserve was designed so that it could print it's own money in time of need.
 |
| Benjamin Strong |
6) Banks didn't fail until December 11, 1930 and the first to go was the Bank of United States. This was just the tip of the iceberg once this one went many more fell, as predicted by Joseph A. Broderick (New York State Superintendent of Banks).
7) By 1932 bank failures had gotten so bad that the president of the Federal Reserve, George Harrison, asked president Hoover to declare a bank holiday on the last day of his presidency. But he refused and it was left to F. D. Roosevelt on the first day of his presidency to make the choice and he did. All of the banks closed two days later on March 6, 1933, and when they reopened in ten days later roughly 4000 banks were closed or liquidated. This was about half of what were lost prior sense 1931. We started with about 25,000 banks and after the bank holiday we only had about 12,000. And the amount of money in the system had dropped greatly, for every $3 deposited in 1929 only $2 remained.
8) Friedman closes this chapter by talking about how the Federal Reserve has changed it's policy to no longer allow the devaluation of currency like it did from 1929-1933. Instead they took up using inflation again and have maybe kept the US a little more stable. But Friedman still believes that the government is still the largest cause of Economic instability.
Chap 4: Cradle to Grave
1) The 30's marked a start of something new for the US, more government intervention (Socialism). F. D. Roosevelt started his New Deal by spending huge amounts of money and raising taxes to unheard of heights. Prior to the 30's government spending had never been over 3% of the national income, then it went up to over 20% and still higher at certain points in time.
2) Since the 30's this country has become more and more socialistic, having the government run more and more. There are many programs now run by the government such as social security, Medicaid, and Medicare. One example of how out of hand the government has gotten was the department of Health, Education, and Welfare (HEW) in 1953 which started with a $2 billion budget (5% of what the defense budget was), but by 1978 it's budget was $160 billion (one and a half times the defense budget at that time).
3) Social Security: the retirement program from the government. It was sold to us in the 30's as a pension program that we would pay into a trust and that our employer was required to match our payment into this same trust or savings account to later be drawn on again when we are ready to retire and collect what we have paid into our trust. But this is not how it actually works. When we pay in, and our employer as well, that money does not go to a trust or savings account, it is put into a nice check that is sent out to the current generation collecting social security (my grandparents). Boy did they sure fool us....
4) There are two kinds of people in this country according to Friedman (and I think he’s correct), those that receive relief and those that pay for it.
5) Health care has been developing into a government agency (we must remember that this book is a few years old). Friedman talks about how the government has demanded more service for less money from the hospitals in the US. There is just one problem with this, the way the hospitals reacted. In Britain, the example Friedman uses, after the socialized health care, what they call National Health Service, was actually servicing less people in 1976 than it did in 1948 when it first started, because the doctors and nurses were not doing their work as effectively.
6) There are two arguments for socialized health care in the US: most Americans can't pay for medical treatment and socialization will somehow reduce costs (I think these were the arguments for the health care that is currently in affect). Friedman goes on to mention that there has never been a government activity that has been more economical than a private enterprise in the same field (if you know of one, please tell me).
7) Friedman talks about the psychology of spending money through programs like social security. When spending money on yourself you think much more into getting good value for your dollar, but when you spend another person's money through social security, for example, you have much less respect for getting a good deal. For example: why would you hold back on the quality and price of your lunch if the someone else were paying for you to eat? (For example when my father takes me out to lunch do you think I order off the dollar menu? Heck no!!! Why would I do that?)
8) The way Friedman thinks we should get rid of social security is by slowly grandfathering it out, by cutting the young off but still allow the old to be on it. This would still need to be paid for by the young in order to get rid of this program. (I wish there was a better way of doing it too, but I think that Friedman is correct in this matter, he is kind of a smart guy!!)
9) Welfare is a different story. Friedman thinks a negative tax should be implemented up to a certain allowance level. The example he uses is in a four person family they are allowed $7,200 of expenses and there is a 50% negative tax up to this amount. If the family makes no money then they receive 50% of this allowance or $3,600 as a subsidy. If one of the members of that family gets a job and makes $1,000 then the family receives a $3,100 subsidy making a total income of $4,100. So the family receives 50% of the difference of their income and $7,200 (or whatever is decided upon) but once they reach an income of $7,200 they no longer receive a subsidy.
Chap 5: Created Equal
 |
| Thomas Jefferson |
2) Now there is the discussion about equality of opportunity, how do different people have equal opportunity? Friedman explains that it is best described as "a career open to the talents." this would allow for each person to have equal opportunity in the realm of their own abilities. (Besides, if we were all the same we would all choose the same profession and that wouldn't work at all)
3) Equality of outcome is what Friedman describes as all groups getting the same thing in the end. Isn't it only "fair" that each person should get the same thing or a fair allotment? But the real question isn't what is "fair," but "who" thinks it's fair. Friedman points out that how can one person decide what is fair for another. The example Friedman uses is William Graham Sumner's example of B and C deciding what D shall do for A.
4) Friedman thinks that the only way in which an egalitarian society can work is one that is willing, where all the people choose to redistribute. But if this community is created unwilling then it will fail, as there is clearly not a distinct line of "fairness" if it is forced, but the reason the people must be forced is because they do not believe it to be fair.
5) The real reason for egalitarianism not working is because it goes against the instincts of humans. In the words of Adam Smith, "The uniform, constant, and uninterrupted effort of every man to better his condition." under this idea when the law begins to break moral and logical ideas of people they will begin to break the law to achieve their goal of bettering their condition. In many cases people stoop to become common thieves and criminals, Friedman thinks that the increase in crime in Britain is from trying to make everything equal and "fair".
6) Many people argue that the problem in a Capitalistic society is the division of wealth. The problem with this argument is that the Capitalist countries have the lowest division of wealth, especially in comparison to communist countries like China and Russia. Another example of how communism divides the income unfairly is the feudal age, it is a perfect example of how badly non-Capitalistic nations divide the wealth.
7) Friedman ends this chapter by explaining that when a society puts equality above freedom they will end up with neither freedom nor equality.
Chapter 6: What's Wrong With Our Schools
(In all fairness to the Friedmans I must say you should read this chapter for yourself, it was very difficult to summarize, because I didn't know what to leave out.)
1) Schools were started in this country as a way for people to better themselves and it was one of the reasons that many people came to the states. In the beginning of the US schools were part of the church then became privatized as non-Christians wanted them, attendance was still voluntary at this point. It wasn't until 1918 that school attendance was required by the federal government (first it started in Massachusetts in 1852).
2) Our school system was one of the greatest in the world and has been until around the 80's (when this book was written, now it is debatable if we still have the best school system) and it is even worse currently. Walter Lippmann said that this was what he called, "the sickness of an over-governed society."
3) Parents can no longer have any say in what their children learn in school either privet or public school. And the same is slowly happening at the college level as well, just not to the same degree yet. College in 1928 had less then half the students going to government institutions, but by 1978 more than half of all expenditures on higher education were form the government both privet and public.
4) Horace Mann started the idea and push for governmental funded schools in 1837 in Massachusetts. This idea was not pushed by the parents, it was put into motion by the teachers and administration so that they would have a steady job and always get paid (you have to love teacher unions).
- First government schools established in 1870
- Elementary education was not compulsory until 1880
- Fees weren't abolished until 1891
5) The staff of the public school system has grown much greater than that of the student population (and thus the cost has gone up greatly). And as the school system has grown it has become a lower quality of program, as seen from the drop in grades. The government has taken more control of what is taught rather than allowing parents to have a role in this. Parent still have a little say when they take their children to a private school though, but this is mainly the upper class people, as they are the one who can afford to pay twice for the schooling of their children. And in these school where the parents still have control over part of their child's education the education is better quality.
6) Parents tend to take a bigger role in their child's education if they are paying the bill themselves. This is why Friedman thinks that we should implement the voucher system. This would give the parent the ability to choose the school their children attend and not have to pay twice for school through taxes and then school fees at a private school. Doing this would create competition between schools, because the bad schools would lose all their students to the good schools and would therefore have to compete and have a better quality of education to get those students back or fail.
7) Arguments against the voucher plan consist of:
A) Separation of church and state; how could the vouchers provided by the government pay for children to go to a religious school?
How is this different then using the GI bill to go to a religious university? The GI bill is not argued about when it comes to this.
B) Financial cost; 10% of students go to privet schools of some kind, but their tax funding goes to their local public school. So if the voucher plan is implemented the money would no longer go to fund the local public school and they would have less per student than before how do you equate for this change in funds?
Lower the voucher amount by 10% and allow the schools to become not only more competitive in quality, but in price as well.
C) Possibility of fraud; what is preventing people from using the vouchers on something other than education?
Only allow approved schools to use the vouchers (This would give the government enough control). This would not prevent all fraud, but would keep it to a manageable level.
D) Racial integration; wouldn't this cause people to segregate as they now can choose to do so by selecting a different school?
Actually when people are not forced to integrate they are more likely to do so willingly.
E) economic class issue; allowing schools to charge extra on top of the original voucher fee, such than the voucher is say $1,500 and the school charges $2,000 the parents would have to pay the extra $500 to send their kids there. Some people think that this would cause the rich people to take their children to schools that are better or just a segregation of rich and poor.
But how could it be any worse than it is now where only the rich can afford to send their children to these privet schools as they are the only ones that can afford to. The separation in price would be far lower than the system we have now allowing for a much lower class of people to attend these schools than before (how is this bad?).
 |
| Kenneth B. Clark |
9) In the higher education realm there is the debate to fund to colleges. Many believe that the government must fund many students to go to school to make an equal opportunity and benefit society with their new skills. But the problem is that all the extra students that this decrease in the cost of school, from subsidies from the government, attracts are just that, extra students (Supply and Demand). They are people that felt the cost of college in comparison to what they got out of it is not worth it unless someone else pays at least part of their way.
10) There are several ways that the government could give loans to students. First they could have a loans system set up just to loan the money and then collect interest once the student gets a job (we have a little of this now). Another way would be to make the student pay back the principle to the loan, but have the interest paid by their income tax.
Chap 7: Who Protects the Consumer
1) "It is not from the benevolence elf the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow citizens."
- Adam Smith, The Wealth of Nations, vol. I, p. 16
2) Many people believe that this "self-love" that Adam Smith talks about will cause sellers to take advantage of their customers. For this reason people look to the government for protection as the consumer. This has led to great rises in government activity and different movements, such as the hippies and anti-nuclear movements. There are many more, but they all have one thing in common; they are against growth and development, in the name of saving the consumer. Edward Teller, the great nuclear physicist said, "It took us eighteen months to build the first nuclear power generator; it now takes twelve years; that's progress."
 |
| Ralph Nader |
4) The Food and Drug Act (FDA) of 1906 was put into to place to help prevent disease and illness. It began regulating and inspecting meat being exported at the request of European countries. Then they got into regulating drugs in 1938 through the Food, Drug, and Cosmetics Act. Which required all drugs to pass the FDA's approval before they could be sold. So the FDA started to not allow more and more drugs to take the market, as they would have to take responsibility if anything went wrong and did not want to risk anything. By the 80's it cost over fifty times what it did in the 50's to create and sell a drug (this accounts for inflation) it also takes four times as long (eight years rather than 25 months). Sam Peltzman and Dr. William Wardell believe that these restrictions on drugs that were designed to be helpful but are not allowed to be sold is hurting the consumers, but the consumers don't even know because they don't know the drugs that could have helped were never allowed to be sold (and the consumer has no idea the drug was even thought of).
5) The Consumer Product Safety Commission (CPSC) activated on May 14, 1973 and regulated consumer goods of all kinds (except tobacco, cars, drugs, food, aircraft, and boats) to make sure they are safe for the consumer. An example of how good the CPSC is there is how they caused the Tris incident. The Flammable Fabrics Act of 1953 became reinforced through the CPSC and they had all children sleepwear impregnated with Tris (a flame-retardant chemical). It then turned out after 99% of children sleepwear had been impregnated with Tris that the chemical was a potent carcinogen. (At least the children wouldn’t catch on fire...)
6) The green movement that has been happening has a good point; that we should not pollute the earth. But is it really worth it not to pollute at all like they suggest? You could do this with cars by outlawing cars, but what about the carbon dioxide that we as humans breathe out? Is it worth it to prevent pollution so much that we should all stop breathing?
7) The Department of Energy (DOE) was implemented in 1977 and used to make maximum and minimum prices for different energy related products such as oil for example. In the 70's there was a gas shortage caused by the Department of Energy making a maximum price on gas even when OPEC raised the price of oil fourfold. Gas stations aren't going to buy gas if they cannot make a profit, they would have to pay more for the gas than they could sell it for, not good for business. Friedman believes that the government should not be regulating any of the prices as a maximum or minimum but allow the consumer to decide at what price the market should be balanced. Supply and demand.
8) Whenever the government intervenes it seems that things get worse. Take the 1920's and prohibition; did this stop people from drinking? NO, if anything it made people want to drink more and in many cases made good people disobeyed the law in order to get a drink. The real problem is that after the government implements something like this what's to stop them from not allowing other things that are potentially dangerous, such as bicycles and serf-boards? If the government knows something about an item let it tell us so that we can either be safer or not use that item, but leave us free to choose on our own.
Chap 8: Who Protects the Worker
1) Unions tend to be what people believe protects the worker in the work force. They claim the Labor Unions have given their members higher wages and if all employees would just make a union they would all be able to get higher wages. But the problem is that the amount of money used to pay employees is restricted to a particular percent of the national income. The percent of national income used to pay wages is 80%, 10% of the remaining 20% is used for rent, and the income of the business is left to last 10% before taxes which bring it down to about 6%. So with only 6% to take from to raise wages with how are labor Unions going to increase the wages for everyone if they join the Labor Unions?
2) Labor Unions raise wages for their members, but this is only about 10-15% of the population of employees. The way their wages go up is from the people at the bottom of the totem poll to get a wage cut, as it is much easier to takes from someone else rather than take away from the sole purpose of the business; which is to make a profit. 80% is much easier to take from rather than 6%.
3) Taking the 80% of income to pay wages what the Unions devised was that if they shrunk the number of people employed they could raise their wages (at least they understand a little about supply and demand). This is what started Minimum Wage laws. Say someone is only worth $4 an hour, what if the minimum wage is more than that, say $6 an hour. If this were the case, that person who is only worth $4 is not going to get hired. Is it better for the person to be unemployed rather than be paid a lower wage?
 |
| John L. Lewis |
5) Government thought they could help all the employees, not just the Labor Unions, by putting in restrictions on hours, commission, establish the federal Office of Safety and Health Administration (OSHA it is now Occupational Safety and Health Administration, but Friedman says "Office"), child labor laws, and many others. While the government does secure many jobs with many of these laws, the strange thing is that almost all the jobs being protected tend to be with the government. Government jobs are so secure that, according to the Wall Street Journal, less than 1% of employees lost their jobs in 1976, and out of 1,000,000 employees only 600 didn't get their merit raise.
6) Friedman thinks that the best way for the employees to be ensured of their job is for there to be loads of competition in the business arena, giving the employees many choices for employment and thus more bargaining power, if a person applies at two places, one place will have to make a better offer in order get that person to work for them.
7) When a Labor Union gets a raise for it's members by reducing the number of people working it takes away from the wages of others. When the government gives it's employees a raise it is at the tax payers expense. But when competition is allowed and businesses grow and give their employees a higher wages it is because they are making more in the company. In essence the whole pie is getting bigger rather than taking from other slices.
Chap 9: The Cure for Inflation
1) What makes money worth anything? With our current monetary system the value of each dollar comes from people simply thinking it has value. Each person accepts dollars because he is confident that others will. Money can be anything, for example in 1619 the colonies used tobacco for a currency. This made inflation easy as you simply needed to grow tobacco and it would inflate due to the increase in supply. Now inflation is controlled by the government, according to Friedman. (But actually it is the Federal Reserve that prints the money, they are not part of the government).
2) When the supply of money increases at a faster rate then the growth of the economy there will be a rise in prices, because the money is not worth as much. Friedman uses charts that show how the Consumer Price Index goes up with a slight delay from the rate the money supply increases.
3) There are three reasons as to why the US government has wanted this additional supply of money, inflation. a) The government has increased it's spending. b) The governments full employment policy. c) A mistaken policy pursued by the Federal Reserve System.
4)The government does not print the money, it is printed by the Federal Reserve System. The government asks the Fed to buy their treasury bonds, then the Fed prints up some money and buys the bonds. (it is somewhat like a loan to the government with money that didn't exist before).
5) The policy that the Fed has pursued (mentioned in paragraph #3) is controlling the Interest Rates rather than using it's ability to control monetary supply (through the FOMC).
6) Many people think that when the government can spend more money without taxing it is a good thing, by inflating that is. But what they don't think of is when there is more money to buy things then people will raise their prices to match the change in money supply. So if the government uses this as a way to increase their spending then however much they inflate is basically the same amount in taxation of the people that hold the currency inflated. If they inflate by 1% then it is as if they have taxed the currency holders 1% of their currency being held. (so if you have $10,000 in cash it will lose 1% of its value because of a 1% inflation).
7) The solvent for inflation is simple, just stop. But it is much harder then that as inflation has many benefits. The example Friedman uses is if you had a loan for $10,000 at 7% interest rate and inflation just so happened to be 7%, you would be getting that money for nothing. The inflation would equate out the interest rate as the $10,700 you would pay after inflation is only worth the original $10,000. So it basically pays for the interest when there is inflation causing many people that have loans to actually want inflation.
8) Inflation causes a false sense of demand for products. If something is purchased with the new money then that business will respond as though the market for that product has increased. But then the market will die back down, revealing the demand to be temporary. It usually takes 6-9 months for the reaction to what really happened to take effect.
9) There are two ways that Friedman thinks will help ease the transition into a society that does not have inflation above the rate of growth. 1) For the government to announce that they are going to stop inflating the currency so that the people can prepare for it. 2) Allowing people to prepare for it through escalating type policies in wages, loans, and other business transactions. For a long time this was only done in wage raises, recently (in the 70's) banks have created the Adjustable Rate Mortgage for this vary purpose, Friedman seems to think that if these two ideas are used together they will not have poor effects such as the Adjustable Rate Mortgage has cause recently (the 2008 crash).
10) Friedman wants to point out five truths about inflation that he's has found:
1) Inflation is a monetary phenomenon arising from a more rapid increase in quantity of money than in output (though, of course, the reasons for the increase in money may be various)
2) In today's world government determines, or can determine, the quantity of money.
3) There is only one cure for inflation: a slower rate of increase in the quantity of money.
4) It takes time - measured in years, not months - for inflation to develop; it takes time for inflation to be cured.
5) Unpleasant side effects of the cure are unavoidable.
Chap 10: The Tide Is Turning
1) Prior to the 20th century (really prior to Keynesian economics) almost all countries tried to keep the idea of a free market and rule for the people. Examples of this are in Japan and Indian during the 19th century. But as because the school system began to produce a more socialistic view the graduates started to influence others until we got more socialism then we really wanted. Both of these countries and the US started changing in the 20th century by moving away from individual responsibility and reliance on the market to a society with "social responsibility" and reliance on the government. The US did this by changing the meaning of the constitution. Also the Socialist party in the US has nearly passed all of their economic plank from it's 1928 presidential platform.
2) Regulation and taxing has become so bad in some countries that the people are often ignoring the law (this is explained better by Chris Edward and Daniel Mitchell from the Cato Institute in their book Global Tax Revolution) (Tax Video by Mitchell). In the US Pat Brennan and her husband started a postal service in Rochester, NY (1978). They soon were in court, because this is against the law. In England people do all kinds of things to avoid taxes, starting with buying thing for personal use through the company. In Sweden many of the people have simply moved back to the barter system to avoid taxes.
3) Friedman goes on in this chapter to talk about how we have lost our power to the government and how it is divided throughout the different people in DC and how they are influenced by the many groups that have things to lose or gain. One way Friedman describes this loss of our individual power is by saying, "When you sit across the desk from a representative of the Internal Revenue Service who is auditing your tax return, which one of you is the master and which the servant?"
4) Friedman supports an amendment put forth by the National Tax Limitation Committee (NTLC). It would restrict how much the federal government to increase spending and taxation, putting some well needed limitations on the government.
5) Friedman thinks that we should lessen congress control over international trade restrictions, like cutting trade tariffs. Congress should not have any control over prices or wages. Congress should not have the ability to restrict occupations of people (such as Pat Brennan entering into the postal business as mentioned earlier). And not allowing the congress to tax corporations and such other items as it can now from the 16th amendment. Place some safeguards to restrict inflation.
6) We are losing our ability to choose, we must always fight to be free to choose!!
Chapter 1: The Power of the Market
Chapter 2: The Tyranny of Controls
Chapter 3: The Anatomy of Crisis
Chapter 4: Cradle to Grave
Chapter 5: Created Equal
Chapter 6: What's Wrong With Our Schools
Chapter 7: Who Protects the Consumer
Chapter 8: Who Protects the Worker
Chapter 9: The Cure for Inflation
Chapter 10: The Tide Is Turning
