It is difficult to change one's mind regarding long-held beliefs.

Milton Friedman was a genius in discussing social policy. He always seemed to have just the right words to communicate to and disarm the critics of his argument, or his proposals. An economy of expression and a master of clarity.

From reading him I came to believe in free markets. But I remember it was not a pleasant experience - not at first. When he opposed federal aid to victims of flooding located in flood planes, I just "knew" that he could not be right, but reading his logic, I could not figure out where he was wrong. And so it was with many similar issues. I felt anger and resentment at him. So damn sure of himself with his ice-cold logic.

I am no Milton Friedman, but I frequently encounter this reaction when I use the same logic against free-market critics. I am sure many of my like-minded friends do as well. Instead of rational counter arguments I encounter hostility - an impugning of my motives, a labeling of my position, a refusal to engage with the logic. Given how I felt back then I understand this reaction; it is understandable, but it is not excusable - not if it is stubbornly maintained. I came to change my mind, once I got past my ego, and became an admirer of Friedman. Perhaps I am asking too much when I am expecting others to do the same.

[I am not referring to those who have a coherent counterargument, based, necessarily on a different worldview. I am referring to those who have no logical counter argument, but just refuse to accept the implications of that.]

They're baaack.

It is hard for some of us to believe this, but the Neo-Ricardians (NCs) are still with us. In fact there seems to be something of a resurgence. They are still claiming that the phenomenon of reswitching renders the very concept of 'capital' as a factor of produciton meaningless and, that this, therefore, shatters the *entire* foundation of neoclassical economics. How frustrating it is! Not that these ridiculous ideas will not die, but that a whole new generation has now to be taught how wrong and dangerous they are.

The NCs are wrong in a number of ways. 1. they erect a metaphysics of a world in equilibrium and engage in comparative statics - never addressing the question of how actual economies actually work and move from one 'equilibrium' to another. 2. they confuse the price of capital services with the price of borrowing (any kind of service) and call it the rate of interest instead of the rental rate on capital. 3. they never address the fact that billions of people use capital accounting every day and seem to think that capital is a real thing. I could go on.

But perhaps the 'largest' of their errors is to claim that, while the factor of production capital is non-existent, labor is real - in fact what we think is capital is actually (HT Karl Marx) indirect labor. In fact, it is the other way round. It's all capital. All productive services - from human bodies or from machines or buildings or land - are valuable only because they are 'knowledgeable' - they 'know how' to do things that we value - they are 'embodied knowledge' (HT Howard Baetjer Jr.). The simplest and most plausible way to think of factors of production is to think of them as different types of capital - human and physical.

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.