Thoughts upon trying to fall asleep - famous economists in my life (in case it may be of interest).

My limited dealings with Milton Friedman (as a student at U of C and various chance meetings) did not endear him to me. I found him a rather unsympathetic personality. But, as a scholar, from his writing, I learned a great deal. I refer to his writing on policy and political economy. He was always clear and logical and tried to anticipate all possible counterarguments. He did not engage in hyperbole or gratuitous denigration. He was perhaps the most effective popularizer of the ideas of classical liberalism of the twentieth century. There was a lot he did behind the scenes that may emerge over time. He advised many governments, including those of Israel, India, Chile, China and the U.S. Who knows how many millions of people benefited from his advice in the journey from poverty to middle class.

I found his scholarly work frustrating in his concessions to the prevailing methodology. He was a strategic writer. He adopted the medium best suited to get the attention of those who disagreed with him most. As a result, for example, he adopted the Keynesian macro-model and much of his work on money comes to us through that. Its hard to know how much he actually approved of the models he used. But he was a master in dressing up appropriately. His Theory of the Consumption Function is more than that though. In that work he went to the center of the conventional wisdom in econometrics and exposed it for a fraud - there were fatal conceptual errors in the main variables. I believe it is hard to overstate the influence of this work on the economics profession and on Friedman's career. After this they absolutely had to take him seriously. He played the game better than they did.

Friedman was forever a "pragmatist" looking for the practical rule to live by. Perhaps the most valuable simple rule for policy that he offered was that the composition of government spending matters much less than the sheer size of government. To do something simple to advance the cause of freedom and prosperity downsize the government dramatically.

In terms of his relationship to the Austrians, I don't know much from my own personal experience. I speculate that the story about the first Mont Pelerin meeting in which Friedman, Stigler and other American 'liberals' found themselves together with Mises, Hayek and a bunch of old-world gentleman, was typical of cultural dynamics that characterized the relationships more generally (just speculation). Maybe Friedman saw in Mises a stuffy, dogmatic old foreigner without much practical relevance. He represented the past and could not speak to the future in an effective way. Mises probably saw Friedman and company as brash, superficial, compromisers who were part of the problem rather than the solution.

Concerning Hayek, who later spent considerable time at Chicago, Friedman clearly owed him a great debt and was much influenced by him in his political economic writings. Friedman acknowledges this debt but is sadly dismissive of Hayek's work as an economist. I wonder still whether Friedman was really so narrowly superficial in his understanding of scientific inquiry or if this was just a strategic decision. (He shared with Hayek a fundamental distrust of convoluted mathematical and/or statistical modelling devoid of economics). Either way - not good.

I met Hayek on very few occasions and got to ask him only one question. I was a budding U of C PhD and was young and an idiot. I asked him what he thought of Friedman's monetary rule. He seemed irritated. He gave the now-familiar answer about how such a rule would never be adhered to in a real crisis (something Friedman seems to have to believe himself in the end), but then he said that, in any case, Friedman had misunderstood the role of statistics in economics and social science. I did not have the faintest idea what he meant. Now I know. At the time Hayek was in the middle of his turn to the examination of complex phenomena and he would have seen Friedman's pedestrian data-crunching as rather pathetically naive. Perhaps he was also bothered by Friedman's appropriation of the ideas of Hayek's friend and colleague Karl Popper to characterize what he (Friedman) was doing - "hypothesis refutation."

Friedman's position toward Hayek pretty much mirrored that of the rest of the mainstream profession - condescending dismissal. And the rest is history.

Passover Food for Thought

Matzah: A symbol of both slavery and freedom? 

Of all the many religious holidays in the Jewish calendar Passover (Pesach) is perhaps the mostly widely and persistently celebrated worldwide. One may speculate on the reasons. Perhaps it is because of its  association with freedom. I don’t know. For my family it is a time of get-together to reflect on things and eat a lot of food, some of it good. So here are my reflections for this year – emanating from my rather esoteric interest in capital theory.

Matzah is a central symbol and prop of the celebration. I like it and end up eating too much of it. But what does it represent? It is “the bread of affliction” in two ways. First, it is what the Children of Israel ate in Egypt while they were slaves. Not for them the rich, plump, bread of their oppressors. They had to make do with the harsh flat bread we call matzah. Second, when finally Pharaoh agrees to let them go, to exit slavery for freedom, they must hurry before he changes his mind again. So they do not have time to bake normal bread, they must take the shorter route of baking matzah, which requires less time because it does not require yeast to rise.

In each of these ways “time” is important. It points to the universal, the essential, relationship between time and value in production. And what could be more basic, more essential, than the production of bread? The value of bread, like the value of anything, is a reflection of our preferences. In general we prefer bread to matzah. But it is more difficult to produce bread than matzah. It takes more “time.” And time is something that slaves do not have. They serve every minute at the behest of their masters. They do not have the luxury of the time to prepare the dough for bread and to set it aside to rise over time. To be enslaved is fundamentally not to be in control of one’s time.

But the lesson is broader and more subtle than this. For it is not time, in itself, that is valuable. It is what we do with it. The passage of time by itself produces no value. The symbol of dough rising is an apt one. The dough must be correctly prepared if the passage of time is to result in the output of delicious bread. It takes time for the dough to rise – pure time. And it takes time – labor-knowledge-time - to prepare the dough correctly. In fact, the passage of pure time is seldom the important part. Rather it is the value of the input-time, valuable because of its potential to produce what we value, that is the key.

Thus, modern complex economies are economies that fundamentally embody fortunes of valuable “production time” – vast and intricate networks of indirect production processes stretching back into antiquity and forward to eternity. We can see this graphically in the modern production of matzah. This happens now mostly in matzah factories. And, in a literal sense, the production of a piece of matzah is almost instantaneous. It happens very quickly as the matzah dough is laid on the matzah machine and baked in less than 18 minutes. But, if one considers the time taken to produce the matzah machines, to acquire the knowledge necessary to operate the machines, to build the buildings in which the factory resides, etc., etc., we see that it is a very long and involved process indeed, one that is only possible in a society of free people who have been able to create this intricate network over a long period of time.

Considered in this way, we may say (ironically and paradoxically) that the matzah we eat today is at once a symbol both of time-deprived slavery and of time-rich freedom! The fact that we can choose to eat matzah made in a complex sophisticated factory is a result (symbol?) of our freedom. We have the time and freedom to make it so that it is easy to bake it in a short time – we take time to make it less time-consuming. A nice paradox. 

Chag sameach Pesach. May the holiday serve to enhance our appreciation of what it means to be free and our resolve to defend freedom wherever we can.