Free To Choose 1980 - Vol. 09 How to Cure Inflation - Full Video

Robert McKenzie introduces the topic of inflation, a pressing issue in the United States, by discussing its negative effects on society, such as rising unemployment and the erosion of savings. He presents economist Milton Friedman, who has analyzed the issue and proposes a solution. The script then transitions to a historical example of the gold rush in Bodie, California, illustrating the fleeting nature of wealth and the consequences of an economy built on a finite resource. Friedman uses this analogy to discuss the broader implications of inflation and the concept of money throughout history, highlighting the fallibility of various items used as currency and the inevitable economic downturns that follow when they lose value.

This paragraph delves into the history of various commodities used as money, such as rock salt, brass rings, and cowry shells, emphasizing the arbitrary nature of what can be considered valuable. It recounts the story of tobacco used as currency in the early American colonies and the resulting inflation when its production increased. The paragraph highlights Gresham's Law, which demonstrates the tendency for 'bad money' to drive out 'good money', and discusses the shift from commodity-backed currency to paper money, exemplified by the British government's response to inflation in the 1970s. The discussion also touches on the psychological aspects of inflation, where people initially enjoy the increased money supply but later face the harsh consequences of rising prices and unemployment.

The script explores the social and economic effects of inflation through the lens of the Crawford family, who struggle with the increasing cost of living and the impact of inflation on their purchasing power. It discusses the misconceptions about the causes of inflation, such as labor unions and imported goods, and clarifies that these are not the root causes. The paragraph also addresses the failed attempts by governments to control inflation through wage and price controls, citing President Nixon's decision not to implement such measures. The discussion highlights the importance of understanding the true nature of inflation and the need for effective solutions.

This section of the script examines the political responses to inflation, including British Prime Minister James Callahan's acknowledgment of the failure of Keynesian economics and the negative consequences of government spending. It also discusses the damaging effects of wage and price controls, as illustrated by the experiences of garbage collectors and hospital attendants in London. The script presents the historical example of post-WWII Germany, where strict controls led to an economic collapse, and the subsequent recovery initiated by Ludwig Erhard's introduction of a new currency and the abolition of most controls. The paragraph emphasizes the importance of economic freedom and the role of government in managing inflation.

The script focuses on the role of government and central banks in controlling inflation, with a particular emphasis on the power of the Federal Reserve to manage the money supply. It discusses the technical capacity of central banks to influence monetary policy and the political pressures they face from government spending and fiscal policies. The conversation highlights the challenges of maintaining monetary discipline and the need for political will to effectively combat inflation. The panelists, including former Federal Reserve Chairman William McChesney Martin Jr., acknowledge the importance of fiscal responsibility in conjunction with monetary policy to address inflation.

This paragraph presents an international perspective on inflation, featuring the experiences of Germany and Japan in managing their economies. It discusses the successful measures taken by Germany to establish a sound currency and transition to a free market economy, as well as the challenges faced by the United States in controlling inflation. The conversation among the panelists, including economist Milton Friedman and Otmar Emminger of the German Central Bank, explores the difficulties of maintaining monetary stability and the importance of political courage in implementing effective economic policies.

The script addresses the challenge of establishing credibility in economic policy, particularly in relation to controlling inflation. It discusses the experiences of Germany and the United States in attempting to manage inflation and the importance of public trust in government policies. The panelists, including economist Beryl Sprinkel, highlight the need for a consensus among trade unions, the population, and policymakers to acknowledge and support anti-inflation measures. The conversation underscores the idea that credibility and a commitment to a policy can help shorten the period of economic adjustment and reduce the associated pains.

This final paragraph of the script emphasizes the cyclical nature of inflation and the role of the public in demanding government action. It discusses the difficulty of maintaining low inflation once it has escalated and the importance of avoiding entering this cycle. The conversation among the panelists, including Congressman Clarence Brown and economist Milton Friedman, centers on the need for a change in public attitude towards inflation and the recognition of the tough choices that must be made to cure it. The discussion concludes with the acknowledgment that until there is a political will to reduce government spending and control the money supply, inflation will persist.