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The University of Chicago - Rose & Milton Friedman: A Celebration
June 18, 1998, San Francisco, California
excerpt by George P. Shultz

What a great pleasure it is to be here and to be part of this ceremony and event. Rose and Milton, you are great people, and I have benefited so much from my association with you.

As I’ve traveled around the world and met with various leaders like Gorbachev, Nakasone, and so on, I’ve often been asked, “Who do you think has had the most impact on the world?" The answer is very clear to me: Milton Friedman. And the reason is very simple: it’s Milton’s ideas, his readiness to argue for those ideas and to support those ideas with evidence that, when they are put to use, they work. Hugo, you were talking about the University of Chicago’s tradition of disagreeing and it made me think of the statement that you hear economists make once in a while to the effect that, "Everyone loves to argue with Milton, particularly when he isn’t there.” Milton is formidable in debate, but the real point is that he has set so much of the agenda.

Rose and Milton, I’m reading your book, page by page, and it’s wonderful. I noticed in one of the passages you mention that your collaboration has been focused on public policy issues as distinct from some other things that Milton has worked on. So I want to talk about public policy issues and the way that your ideas have influenced my thinking and my life.

I came to the University of Chicago from the Department of Economics at MIT, and I found myself in a totally different intellectual environment. The Department of Economics at Chicago had—and I suspect still has—a mystique about it, a way of propelling you into a discussion of ideas, and getting you to argue, to listen, and to learn. At the University of Chicago, everybody is a student and we all learned from each other. And I learned a lot from the people there in that special environment. I was lucky to have George Stigler across the hall from my office and I could hear him all the time. But it was Milton’s pervasive influence that got into my thinking even as a labor economist and an industrial relations specialist.

As you may recall, there were lots of strikes during the 1960s. As a labor economist I worried about the strikes and the pattern of intervention that was so prevalent during the Kennedy and Johnson administrations. I was getting more and more under Milton’s spell and found myself thinking, “When the government intervenes, it changes the game.” Of course, there was always a justification for the intervention. Most often it was because the government believed that the marketplace couldn’t possibly handle the problems resulting from the strikes, so the government had to intervene. I started writing articles and giving talks in which I went on record stating that intervention was usually not a good idea.

Then, suddenly, I was Secretary of Labor. There was a strike in progress. The East Coast longshoremen had struck. It starred the previous October. President Johnson had declared the strike a national emergency. That was challenged, but the Supreme Court agreed with him. The Taft-Hartley injunction ran for something like eighty or ninety days. But the strike started up again just as I came into office. The statutory procedures available had run out, and anyway I was on record as being against intervention. The reporters were asking, “Okay, Mr. Secretary of Labor, what are you going to do now?”

Buoyed by my Chicago learning experience, I gathered up my courage and went to President Nixon and said, “Mr. President, your predecessor was wrong, and the Supreme Court was wrong. This will not constitute a national emergency. Markets are more clever than people think. There will be disruptions, but markets will find ways of getting around what these people are monopolizing, and pretty soon that will cause them to settle the dispute. If we can manage that, we’ll get management and labor to take responsibility once again for what they’re doing.” Well, he bought that argument, and it worked! So I knew that Milton had taught me a valuable lesson: The marketplace works.

Next, I was appointed Director of the Budget. And much to my surprise, I soon found myself in an argument with Arthur Burns about a financial matter. The Penn Central was about to go bankrupt, and Arthur—and it seemed everyone else—wanted to intervene by bailing them out. I starting arguing “Oh, Arthur, it's not going to he as hard on financial markets as you think. It will set a bad precedent if we intervene,” and all that kind of stuff; you know, all the kind of stuff we talk about at the University of Chicago. (Me, argue with Arthur Burns? He was Milton’s teacher!)

Well, I’ll never know how President Nixon would have come out on the matter because at that moment a wonderful guy, Bryce Harlow, walked in. Bryce was the Congressional Relations political advisor, and he said, “Mr. President, in their wisdom, the Penn Central has just hired your old law firm to represent them. And under the circumstances, you can’t touch this with a ten-foot pole.” So the Penn Central went bankrupt and guess what? No dominoes fell. The market absorbed it. The market was able to distinguish between a lousy job and a good job. And it worked.

We had a similar situation not long ago in Orange County in California. Orange County was on the verge of going bankrupt and people said the whole system of municipal finance would go down if Orange County were allowed to fail. Well, guess what? Orange County declared bankruptcy and it actually served to strengthen the system of municipal finance. It caused people to think more carefully, to be more responsible because they realized they would be held accountable.

Milton’s ideas, his way of thinking about things, really made a big impression on me—because they work. So much of it is about freedom, about having confidence that freedom will work, that the market will work, that if you give people the chance to follow their interests in a reasonably competitive, decent environment, that will work. Sometimes it’s hard to convince people who say, “You’re rolling the dice if you don’t intervene.” But I say, “You’re rolling the dice if you do intervene, because you’re going to create something very different.” And right now we have a pattern of intervention in the Asian markets and some others that’s changing the game in a very adverse way. So once again, with Milton’s encouragement, we’re fighting the same old battle, but in new locations.

I noticed a picture of the founding of the Mont Pelerin Society as I arrived this evening, and I also noticed that a lot of people are wearing Adam Smith ties and Invisible Hand Society ties. The founding of that society was a very important event, but the fight for freedom is never-ending; it’s a problem that never gets solved. And it’s happening on an international scale right now because people keep saying, “The market won’t work. The government has to do something.”

Rose and Milton, you’ve taught us to respect the market and to have confidence in freedom. And as my case studies illustrate, whenever we do, we see how justified those views. You’ve also taught us the truth of the saying that “the price of freedom is eternal vigilance,” and that we have to keep fighting for it all the time. And in my view, you “two lucky people” are the premier fighters. Thank you for writing this wonderful book and for all your other books that have been—and continue to be—so very, very influential. Personally, I feel so much in your debt for all the sense you’ve pounded into my head, and for all your friendship and love. I love you too. Thank you.