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Milton Friedman, “Back to the 18th century,”
The Australian, February 8, 1977, p. 6, as a letter to the editor.

SIR — An Australian friend has sent me a clipping of Senator James McClelland’s column in The Australian of Monday, January 24, 1977, as well as your editorial of the same date, in which you attempt to reconcile his views and mine.

I appreciate the nice things that you say about me, as well as the sentiments that lead you to attempt to reconcile such apparently divergent positions. I am sorry to say, however, that in the process you have attributed to me views that I do not hold. The plain fact is that Senator McClelland and I do hold divergent views and that we cannot both be right.

As for retracing “our steps to the 19th century,” I am always amused that those who present this argument are, like Senator McClelland, doing their level best to carry us back to the 17th or 18th century. Adam Smith’s book, The Wealth of Nations, was an attack on the mercantilism of his time — which is precisely the policy that Senator McClelland, and like-minded well-meaning reformers, recommend for our time. In any event, the real issue is not whether to go forward or backward in time, but rather: what is the right policy to follow?

On this issue, I believe that your editorial is mistaken in supposing that there is something about “20th century technological society” that requires the Government to subsidise persons riding railways at the expense of those who do not, or that requires a greater degree of government involvement than prevailed in the 19th century.

No doubt, technological changes do alter in detail the activities that it is appropriate for government to undertake; but, by undermining local monopolies, improvements in transportation and communication have, on the whole, weakened the justification for government intervention rather than strengthening it.

To return to the case of railroads, the development of alternative means of transport has eliminated whatever case there might once have been for government operation of railroads on the grounds of avoiding a private monopoly. Today, if the private market cannot support a profitable private railroad system, it is hard to see any justification whatsoever for maintaining a governmentally subsidised one.

In my opinion, the extraordinary increase in the scale of government in the 20th century owes little or nothing to technological change or necessity. Rather, it derives from a change in ideology, a shift of philosophy from stress on individual responsibility to a belief in social responsibility — a doctrine that unquestionably has elements of validity, but when carried to the extreme that now prevails in many countries, has done great social harm.

In noting that the tipping point, at which large government tends to destroy personal and political freedom, is different for different countries, I did not mean to identify those tipping points with the desirable or necessary level of government spending. The stronger political institutions and traditions of freedom that prevail in Britain, as compared to Chile, enable Britain to maintain a much higher level of government spending without lapsing into collectivism than Chile.

However, that does not imply that higher spending is either desirable or productive of good. On the contrary, I believe that most government spending in Britain, in the U.S., and in Australia does harm, rather than good. However, we are wealthy nations, and can stand a good deal of harm.

In particular, Senator McClelland is badly informed about the U.S. when he asserts that “the great expansion of governmental expenditure (in the U.S.) is largely accounted for by the huge increase in defence expenditure.” Defence spending in the U.S. has declined in the past decade, as a fraction of both the Government Budget and the national income. Currently, it accounts for about one-sixth of total government spending at all levels.

The expenditures of the Department of Health, Education and Welfare are one-and-a-half times as large as the great growth in government expenditures for defence. The spending in the U.S. has been in so-called transfer expenditures, i.e., taking from some to give to others — and, despite the protestations, largely from the poor and the rich to support a new class of bureaucrats and to benefit the middle classes. Indeed, one of the greatest costs we may be paying for the unbridled growth of transfer expenditures is that it has produced excessive pressures to weaken our defences.

We are in danger of following the British example of sacrificing military power and worldwide political influence to feed the insatiable demands of the welfare State. And who this time will be there to fill the vacuum?

Let me stress, in closing, that the difference between Senator McClelland and myself is not in respect of our objectives. Both of us, I’m sure, wish to see maximum scope for individuals to use their own resources in light of their own values, so long as they do not interfere with the ability of other individuals to do the same. The difference between us is with respect to means, not ends.

MILTON FRIEDMAN
Dept. of Economics
University of Chicago

(in order of appearance on Economics.org.au)
  1. 1975 Monday Conference transcript featuring Milton Friedman
  2. Milton Friedman on the argument that capitalism takes us back to the 18th century
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