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The essays will be 750-1000 words in
length, meant to identify a student’s ability to make a persuasive historical argument using
assigned readings, and to connect themes across historical eras. The essays will incorporate
material from course readings.
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From The Collected Works of Milton Friedman, compiled and edited by Robert Leeson and Charles G. Palm.
“Economic Myths and Public Opinion”
by Milton Friedman
The Alternative: An American Spectator 9, no. 4, January 1976, pp. 5-9
© The American Spectator
This morning I’m going to deliver a sermon. My theme comes from Josh Billings, the famous
American humorist of the nineteenth century, who said, “The trouble with people ain’t
ignorance, it’s what they know that ain’t so.” I propose to discuss five myths about American
society which are very widely accepted, which have a great deal of influence on public attitudes
and public opinions, and yet which in my opinion are wholly false.
The Myth of the 19th Century Robber Baron
The first myth might be called the robber baron myth. In your courses in history—ordinary
political history, to a lesser extent even in courses on economic history—you will have learned
that the nineteenth century in the United States was an era of rugged, unrestrained individualism
in which heartless monopoly capitalists exploited the poor unmercifully, ground the helpless
under their heels, and profited at the expense of the rest of the community. The rich got richer
and the poor got poorer; Wall Street was set against the working man. You will have learned
from the standard history book that the farmers in the Middle West were being ground between
the millstones of falling prices for the products they sold and higher prices for the products they
purchased. You will have learned that that was the reason for interest in the greenback political
movement, the reason for the development of the populist sentiment in the Middle West and the
South, the reason for that magnificent speech by William Jennings Bryan in 1896, when he asked
whether mankind shall be crucified on a cross of gold.
That’s the myth, and there is hardly any myth more deeply imbedded in people’s attitudes. The
myth was spread by the reformers, the muckrakers of the early twentieth century, by the
intellectuals who contributed to the drastic change that has occurred in our attitude toward the
market on the one hand and government on the other, which has in turn produced such a drastic
change in the character of our society in the past forty or fifty years.
There is only one element of that myth that is correct. It was an era of rugged, unrestrained
individualism. It was an era with the closest approximation to pure economic laissez-faire in
American history. It was an era in which, except for the Civil War, spending by the federal
government never exceeded about 3 percent of the national income, a sum which is derisory by
today’s standards when federal government spending is approaching 30 percent of the national
income. It was an era in which there was, for most of it, no ICC, no FCC, no SEC, and you pick
out any other three letters of the alphabet and it wasn’t there either.
It was a period when about the only interference with what people could do, aside from the taxes
that were being imposed to finance a small armed force, courts, legislatures, and the like,
consisted of a protective tariff on imports. Laissez-faire economists objected then as now to such
tariffs, but the level of the tariff was mild compared to the duties that were imposed later.
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From The Collected Works of Milton Friedman, compiled and edited by Robert Leeson and Charles G. Palm.
This situation did not develop, interestingly enough, out of any philosophical belief in laissezfaire. It developed much more simply. In the 1830s, state governments throughout the country
proceeded to engage in what we would call socialist enterprises. They built canals, they set up
commercial banks and extensive banking systems, they financed railroads, they put up industries.
It was a great era of government enterprise. But in the recession, or panic, of 1837, many of these
government enterprises went broke. They turned out to be inefficient in the same sense in which
all government enterprises have been inefficient from that day to this. By contrast with the
situation today, however, they were allowed to fail. It was this experience that set the United
States on the road to laissez-faire.
While the nineteenth century was a period of rugged individualism, almost every other feature of
the myth is false. Far from being a period in which the poor were being ground under the heels of
the rich and exploited unmercifully, there is probably no other period in history, in this or any
other country, in which the ordinary man had as large an increase in his standard of living as in
the period between the Civil War and the First World War, when unrestrained individualism was
most rugged. The evidence of this is to be found in the statistics that economists have
constructed of what was happening to national income, but it is documented in a much more
dramatic way by the numbers of people who came to the United States during that period. That
was a time when we had completely unrestricted immigration, when anybody could come to
these shores and the motto on the Statue of Liberty had some real meaning. This was a country
of hope and of promise for immigrants and their children, and as many as a million immigrants a
year came in 1906 and ’07 and ’08. By 1914, roughly a third of the population was foreign-born
or the immediate descendants of foreign-born.
Did people come to this country to be ground under the heels of merciless capitalists? Did they
come to make their own conditions worse? There is no more dramatic way in which people can
vote than with their feet. The fact that East Germany had to build a wall to keep people from
going to West Germany is striking evidence of which country had the better conditions of life. In
the same way, the fact that year after year hundreds of thousands of people left the countries of
Europe to come to this country was persuasive evidence that they were coming to improve their
lot, not to worsen it. Far more effective evidence, I believe, than any statistics on per capita real
income, which show that real income went up decade after decade at a rate of about 2, 2.5, 3
percent per year. They came with empty hands. They came from the most deprived groups in the
old world, from Czechoslovakia, from Germany, from Italy. It was the poor and the miserable
who flocked here, and they found a home and the opportunity to improve their lot. And they
found it, not despite rugged individualism but because of rugged individualism. It was rugged
individualism that induced the developments in industry, in trade, that offered opportunities for
people.
Of course, our condition is far better than theirs. In an absolute sense, their level of living was
low. But we must compare their level of living, not to ours but to the level they left in Europe.
We stand on their shoulders. We are able to live as well as we do because of their achievements,
because of what happened during that period of the nineteenth century. I must say, it seems to
me disgraceful for so many people to denigrate the experience of their parents, when that
experience has made it possible for them to live in a free society at their present high level.
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From The Collected Works of Milton Friedman, compiled and edited by Robert Leeson and Charles G. Palm.
So much for economic development. What about the charge that the agricultural community was
being ground down, that it was being exploited by the Wall Street bankers? That we needed to
have a Greenback movement and a populist movement and a William Jennings Bryan?
Again, the contrary evidence is very simple and very clear. In the first place, if agriculture was
being especially exploited, you would expect the number of people on farms to go down, but the
number rose by leaps and bounds during the period. If agriculture was in a bad state and being
exploited, you would expect the price of farmland to go down, but the price went up rapidly. The
prices of farm products did go down. But they went down because the great fertile areas of the
Middle West were being opened up and brought into production. Output was growing rapidly,
the cost of producing crops was going down thanks to great technological innovation in the form
of reapers and other agricultural machinery, and the cost of transportation was falling. The result
was a great outpouring of production which produced a decline in the prices of farm products at
the same time that it produced a very rapid rise in the incomes of farmers and induced many
people to enter farming.
On a different aspect of this experience, was it a period of heartless monopoly capitalism? Quite
the contrary, it was the period of the greatest private eleemosynary activity in the history of the
United States. The period of unrestrained, rugged individualism was a period when the modern
type of nonprofit community hospital was first established and developed. It was the period of
the Carnegie Libraries and their spread through the philanthropy of Andrew Carnegie. It was the
period when so many colleges were founded throughout the country. It was the period of the
founding of the Society for Prevention of Cruelty to Animals, and the spread of foreign missions.
There was no income tax, no deductibility of contributions, so what people spent on charity came
out of their pocket and not, as now, largely out of taxes they would otherwise pay. And yet, in
every aspect of private charitable activity, it was a boom period.
So the generally accepted historical picture of the nineteenth century is an extraordinary myth.
Years ago I wrote a book with a collaborator on the monetary history of the United States, and in
the course of writing it I read many of the general histories of the nineteenth century. As an
economist, I was appalled by the level of ignorance of economic matters that was displayed in
those history books, by the extent to which the historians were willing to take the cries and the
claims of reformers and political agitators for reality.
Everybody, of course, always wants to improve his lot. Everybody would like to see the price of
the things he sells go up, and the price of things he buys go down. But since what one man sells
another man buys, that’s hardly a feasible situation. We find the same inconsistency when people
talk about inflation. What people mean by inflation is not the rise in their own wages but the rise
in the prices other people are charging them. And that was the case in the nineteenth century.
The people who were in the Greenback and the Populist movements were saying, “We want to
do still better,” but the historians have tended to take their exaggerated complaints for reality.
That’s Myth Number One, a myth which has done enormous harm, in my opinion, by leading
people not to recognize the true sources of the strength of this country and the true origins of our
greatness.
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800 Words
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historical argument
Historical Eras
identify a students ability to make a persuasive historical argument
American History Since 1865
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