(Capital 03/1998)

Milton Friedman, 85 years old is probably the most important economist in life. Teacher in the Chicago University from the 1948 to the 1983, Nobel prize - winner in 1976, Friedman is the founder of  the American neo laissez-faire school. Nowadays he works at the Hoover Institution of the Stanford University , in California.

Provocations. The European Union and the Euro ? They are false problems. Because the economy in Europe is used to resolve the struggle, for the politic predominance, between France and Germany.

Milton Friedman, founder of the neo laissez-faire , rejects Maastricht. And he says to the European people : “Let the market govern by itself. And refuse this Nazi-planned economy that is stopping development and employment”.

 What about Europe ? What about SME ? What about Euro ? They are false questions. They’re expedients to transfer to the economic plane matters which are otherwise considered political, and in a way which recall sinisterly the past.

“I must apologise for what I’m declaring : I see a government control that seems the direct descendent  of the Nazi’s concept of Reich. It is not usual for Berlin to rule USA. The Common Market has created Bruxelles as a ghost capital”. These are very hard words.

They are  worrying too because they are spoken by the founder of the neo laissez-faire school of thought. An old and smiling man who spends his time between the Hoover Institution of the Stanford University and a quiet house in Vermont.  Milton Friedman has never used half-measures , and once again he does not hesitate to express directly his radical opinion about monetary and economic policy. “Europe has  known the development under  authoritarian regimes. At the end of the last century it was being orientated toward a free market, but the First World War had stopped this attempt.

Chancellor Kohl and, before him, President Mitterrand of France stood for the Euro as a deterrent of future conflict: to the contrary it was the worst way to do the right thing, because a bad economic agreement cannot give political results.

Friedman is not only against Europe; but also against countries dominated by old – style statalism (Italy and France among the formers) or feedback statalism ( like the one promoted by Bill Clinton in his last speech about “The State of the Union”).

Friedman talks about the crisis in the Far East as a further disaster resulting from  interference in the economy by the governments of the “Asiatic Tigers”. He says :“I’m not asserting that the market is perfect, the perfection is not of this world. But in Korea, for example, the functioning of the market was compromised by the intervention of the State. Not to speak about the Japan, that has arrived at its fourth year of no-growth, of stagnation, and which must take care of its misfortunes as soon as  possible, as not to compromise its balance with Europe and the United States”.

Friedman has always been a uncomfortable witness and today, at 85 years old, he can boast of a professional outlook from the years of the  American depression.

He tested himself the laissez-faire idea about the “meritocracy”  with success, financing himself studies with grants and summer jobs;  working as a waiter in restaurants, or as an administrative clerk in a shop, until he had some enterprising opportunities  by which he obtained the success.

In 1932, having just graduated from the Rutgers University, he started his researches, transferring to Chicago, where he became the founder of the school that  produced the most economy Nobel prize-winner and  that disseminated Chicago students that became the heads of  larger international organisations and  governments all around the world.

“Personally, the most important thing that happened to me that year was the meeting with a bashful, shifting and lovely colleague, Rose Director” who became his wife six years later, once dissipated the doubts about the future waiting for them during those hard times.

 From then on Rose is also the irreplaceable partner of his brilliant career. The co-authors of  the two sacred texts of “ neo laissez-faire”: ‘Capitalism and Freedom’, and ‘Free to Choose’, have just finished  telling their  professional and human experience in ‘Two Lucky People - Memory of Milton and Rose D. Friedman’, that will be published in March by the University of Chicago Press. "It starts as a love story and it finishes as a social policy treaty", says  Friedman jokingly, when he was persuaded by Capital, to give one of his  rare interviews.

 Question. You assert that introducing the Euro would aggravate the political tensions among the countries members. That the U.S.A. are a good example of a situation favourable to a single currency and that Europe is instead a completely different situation.

 Answer. That’s right. But I’ve never said that Europe won’t arrive at the conditions which would make a common system feasible, that may sometimes be a good idea, some other times less good, but isn’t a bad  thing on principle. The U.S.A., for example, was built in order that each state would maintain its culture and its essential peculiarities, but still having the opportunity to cooperate with the others. The free market is a substitute for the free movement of people; trade a substitute for policy, exchange rates and interest rates a substitute for subsidies assigned from a sector of society to another. The historical background of the U.S.A. is clear: Great Britain is the country that has developed the idea of  an open market. While on the Continent this is an imported idea…

 Q. At which conditions will be the Euro  practicable?

 A. There are two diametrically opposite conceptions of common market. The first is known as laissez faire, and its objective is to make a big economic area in which the market forces can minimise the strength of national legislation : practically it is the same idea of Margaret Thatcher.

The other one is to build a collectively planned State, controlled and managed from Bruxelles ;  a centralised economic system.

These two conditions are the basis of creating a United  States of Europe, the  structure of which must either be based on a shared control or free trade.

The creation of a single currency will be possible if European economies reduce costs ; if the salaries are made more flexible ,and if  people can move simply from a country to another. At the moment , I think that these conditions don’t exist in Europe, but my opinion will not  be valid forever.

 Q.  What is your opinion about the greatest danger due to the introduction of the Euro?

 A.  The so called chock extra – market things, are events that have influence only on some economies and that in a flexible regime could be easily compensated by fluctuations in the exchange rates. The problem of the sole currency  is very different , for example, from the one  of the exchange rate protections, which are not a positive solution. The free exchange however is  a very good thing, almost independently from the circumstances.

 Q. About the flexibility of price and wages, Franco Modigliani says that this is not  the main matter, but that unemployment may be caused by few investments...

 A.  Once again, it is the “run for the Euro” that causes unemployment. Great Britain, that seems to be out from the value system, has not got this problem. Italy and France suffers from the need of meeting Maastricht’s parameters and from the impositions of the Bundesbank. Work-crisis is the result of this useless and desperate effort. If we lived in a free market condition we would have anyway unemployment, but not of the today’s size! This however would  depend upon the strictness of the relationship with trade unions and laws that make employment and firing difficult and expensive. Italy has developed quickly, thanks to its “submerged economy”, that has risen in the last few years. It is, actually, the breaking of European laws.

 Q. Do you think that the shadow economy will increase with the birth of the monetary union ?

 A. I think, it would be better to have a good institutional economy instead of  a shadow economy , but we need to wonder which alternatives we have : if a system of laws and rules make difficult to use efficiently the resources, companies and  people will be brought to the evasion. The only way out will be the introduction of incentives, but these will be charged on the effort to get the parameters needed for the monetary union. This is the reason by which with the Euro , probably the propagation of the shadow economy will get to increase.

The picture is that of an Europe made up of different countries, subjected at different conditions, which wants deliberately  to eliminate, from its own economic system, an important element of flexibility : the fluctuation in the rate of exchanges.

 Q. Let’s speak about Maastricht parameters : do you really think they are able to define the real conditions of an economy?

 A. No, they’re completely irrelevant. Let’s see, for example, the relation between debt and PIL: a nation can be prospering even if this value exceeds the 60% stated by the treaty. In the United States, after the Second World War the federal debt was  105% of income and, gradually, in the seventies it  leaded  35%. Now it is approximately 50 or 60%. But it is difficult to establish any relation between these values and the solidity of a State. At the same time, despite of  the widespread convictions, the deficit isn’t an important factor to define the wealth of a society, it is simply another form of taxation, a taxation that it can be described as occulted.

 Q. So, which is a significant parameter ?

 A. The quote of income , in percent terms, of the grimy home product that is spend by the government , and how much and how rules and controls established by the administration interfere with the liberty of operate of the forces of the market. But, strangely, the agreements of Maastricht tell nothing about this.

 Q. You have just said that a common value works if it exists flexibility in the prices and in the salaries, and this nether appears in the Agreement. Do you think  this condition can be obtained?

 A. We must not expect that Bruxelles is able to exercise a right control, as it always introduce strictness . Every Nation will have to do everything by itself.

 Q. It is always more fashionable to declare themselves  liberalist, and today we have the paradox that also parties ex communist induced the market for the privatisation of  the banks and of the firms of the state, or  to arise joint-venture between public and private. Do you think they are  convinced or, maybe,  that this is  only a way  to confuse everything ?

 A. The speeches are one thing, another are events. Today  we heard only about  the supporter of the market, in Italy as, in USA, where  the economy is the most socialist of the last 30 years . Clinton says that the age of the ”Big government” it’s finished but, in his recent speech  about the Union State, he  proposed  30-40 news laws and government operation in the economy. The reality must be distinguished from the simply words. I think that this is good for Italy too.    

 A last  question about Two Lucky-People, the Friedmans history of 59 years of live and work together. “We liked to remember the familiar life ; the period after the war when I had the luck to direct the National Bureau of Economic Research and, at the same time to teach economy theory at the University of Chicago; the unlucky support of the presidential election of Barry Goldwater in the sixties  or the experience of administer with Nixon and Reagan. The our three travels to China....” There is an episode  in which you  thought to do a mistake? “ Of course but I prefer not to answer. You will decide when you will read the book.