Milton Friedman on Spending other people's money
Private speculators are far from omniscient. This time, they happened to be right and so made handsome profits. Next time, they may be wrong and suffer grievous losses. But in either case, they speculate at their own risk with their own money. Official speculators, too, are far from omniscient. This time, they were wrong; next time, they may be right. But there is an important reason why they are more likely to be wrong than right. They speculate not with their own money but with the taxpayers’ money. As a result, there is little pressure on them to control their natural impulse to resist change.
Context. From an April 1973 column written after the international monetary crisis of early 1973, in which the dollar was devalued on February 12, 1973 and the major currencies soon moved to floating exchange rates. “This time” is that early-1973 crisis.
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Milton Friedman, “Speculation and Speculation” (A column of April 23, 1973, reprinted in the Congressional Record, Senate, February 7, 1978, p. 2590, introduced by Senator William Proxmire among “articles by Professors Friedman, Okun, and Schmidt” under the heading “Letting the Dollar Float” (pp. 2590 to 2591). The reprint names no publication and gives no date; the date is his own, from “Back to the Gaming Table” (1978), which says “I wrote in this space (April 23, 1973)” and quotes this column’s passage on the swap agreements word for word, 1973), Congressional Record, February 7, 1978, pp. 2590 to 2591. https://miltonfriedman.org/quotes/official-speculators-taxpayers-money-resist-change-1973
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He also said
The basic justification for a free enterprise system is that the possibility of profit will lead private individuals seeking their own interests to promote the social interest by producing only those products for which people are willing to pay and producing them at lowest cost. But a profit system can work only if it is also a profit and loss system, only if projects that do not pay are not carried out, and when enterprises make a mistake about a project, they must bear the consequences. If government bails enterprises out, either in advance on the expectation of a loss, or after the event when a loss has been realized, the fundamental justification of a free enterprise system is destroyed.
Context. From a statement he sent to Senator William Proxmire’s Joint Economic Committee in December 1972 for its hearings on the supersonic transport (SST). The Senate had voted in March 1971 to halt federal funding of an American SST, and the hearings considered whether to revive it. He is explaining why he opposes subsidizing the SST.
Statement on the SSTLetter, 1972, Letter to Senator William Proxmire, chairman of the Joint Economic Committee, dated December 11, 1972, submitting a statement for the record of the committee’s hearings on the supersonic transport; printed in full in the Congressional Record, Senate, January 11, 1973, p. 796, inserted by Senator Proxmire., Congressional Record, January 11, 1973, p. 796Checked against the sourceRead the originalIt is immediately clear that if we were to take up each case separately, a majority would almost surely vote to deny free speech in most cases and perhaps even in every case. ( … ) Exactly the same considerations apply in the monetary area. If each case is considered on its merits, the wrong decision is likely to be made in a large fraction of cases because the decisionmakers are examining only a limited area and are not taking into account the cumulative consequences of the policy as a whole.
Context. From his essay on how a free society should control money, which weighs a commodity standard, an independent central bank, and legislated rules. He enclosed it with his 1968 statement to the House subcommittee, which reprinted it.
Should There Be an Independent Monetary Authority?Journal article, 1962, In Search of a Monetary Constitution, ed. Leland B. Yeager (Harvard University Press, 1962) (the reprint’s heading gives no page range for the original and it remains unverified); reprinted in the Compendium on Monetary Policy Guidelines and Federal Reserve Structure, Subcommittee on Domestic Finance, House Committee on Banking and Currency, December 1968, pp. 205 to 214., p. 213 of the 1968 House reprintChecked against the sourceRead the originalThe cumulated exchange losses of the central banks of Britain, Germany and Japan over this period have never, so far as I know, been totaled, but there is little doubt that they are a multiple of U.S. losses. And is that surprising? What else would you expect from gambling with other people’s money?
Context. From a 1978 column written after the Federal Reserve and the Treasury announced in early January 1978 that they would intervene in the foreign-exchange markets to support the falling dollar. “This period” is 1971 to 1977, for which the column has just tabulated the Federal Reserve’s own losses on currency intervention.
Back to the Gaming TableColumn, 1978, A column of early 1978, reprinted in the Congressional Record, Senate, February 7, 1978, p. 2590, introduced by Senator William Proxmire among “articles by Professors Friedman, Okun, and Schmidt” under the heading “Letting the Dollar Float”. The reprint names no publication and gives no issue date; the column refers to writing “in this space” in 1973, which marks it as one of his regular columns, Congressional Record, February 7, 1978, p. 2590Checked against the sourceRead the original
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