David Frum on Pioneering Conservatism

I love this list of books: between Friedman and Schwartz at the beginning and de Soto at the end, it pretty much demolishes every liberal shibboleth for a generation or two. Let’s start with Milton Friedman. Why A Monetary History of the United States and not one of his more popular books?

The idea behind my list is that these are five conservative books that changed the way we think about fundamental problems – and changed them so powerfully that there was no going back. The highly intrusive regulatory redistributionist state that was built in the 1930s was founded on an analysis of what went wrong in the horrific trauma of 1929 to 1941 in the United States. There was an accepted understanding of why it was that the economy went into this searing experience for a generation of Americans and what it was that got the US out again. That legitimated a quarter century of public policy afterwards. Friedman and Schwartz did many things in this book but the most powerful lesson for its readers is they debunked all the previous explanations of what had caused the Great Depression and showed that it was the product of a failure of monetary policy. So when the US had severe economic problems in the 1970s, it opened the way for Friedman to win that argument about how to stop the great inflation – just as he had argued that better monetary policy could have stopped the Great Depression.

How does monetary policy tie back into the conservative political movement?

Capitalist economies go through cycles, good times and bad. Democratic capitalist societies will not take the same amount of pain from those cycles that pre-democratic capitalist societies did, so we are going to have to do something about these cycles. If the cycles are caused by government taxing and spending, then the answer is that in order to avert cycles, or mitigate them, the government is going to have to have a direct active response in the economy. What Friedman showed is that government can have an impact on these cycles in a much less intrusive way, through the regulation of banking and credit. By the way, this is not a call for classic laissez-faire, for doing nothing, because one of the lessons of the Friedman book is that the federal government did exactly the right thing in 2008 when it intervened to save the banking system. All these people today who say, ‘Well, the conservative thing to do would be to let the banks go under,’ will have to argue with Milton Friedman, because that is what turned the ordinary recession of 1929-1930, which was nasty but ordinary, into the extreme crisis of 1931, 32 and 33.

Government is a part of the solution but it shouldn’t be a knee-jerk Keynesianism.

The book is an answer to Keynes, but Friedman doesn’t refute Keynes’s book, he absorbs Keynes. That’s what great minds do with their predecessors – just as Keynes did not refute Alfred Marshall’s ideas, he absorbed them.

One other lesson from Friedman is that it’s a good idea for governments to run a deficit. The people who in 1929 said the answer to the Depression was to balance the budget, Friedman thinks are just as wrong as Keynes does. According to Friedman, the reason you want the government to run a deficit is not because you want government adding to demand, but because the deficit creates money. The government is able to finance the gap between what it takes in and what it spends by creating various forms of money – whether it is cash or whether it’s bonds. It’s that addition to the money supply that stimulates the economy and not the government’s purchases as such. As often happens with policy arguments, people can converge on the same answer for radically different reasons.

It’s hard to imagine Reagan without this book. People remember Reagan as a supply-side, low-tax guy but that period was actually more about inflation than any other single issue.

One way to think about what Reagan’s great contribution was in 81 and 82 is that he stood unflinchingly by the Federal Reserve as it imposed some very painful measures to squeeze inflation, not only in the US economy but in the world economy. A lot of other people would have flinched from that and his tax cuts helped to soothe the pain of the monetary policy. But it was the monetary policy that stopped inflation.

On to James Q Wilson’s Thinking about Crime from 1975. This was a very controversial book at that time because people still thought crime was a side effect of poverty. Why is Wilson on your list?

In 1974 if you asked Americans what their number one concern was, it wasn’t energy, though that was a time of gas lines. It was not unemployment, though there was a terrible recession. It was not inflation, though inflation was accelerating. It wasn’t the war in Vietnam; it wasn’t Watergate. The number one concern was crime.

Really?

Yes. Up until 1973 the way the government kept crime statistics was by the FBI calling local police departments and asking, ‘How many crimes have you had recently?’ Some police departments would report as best they could, but others didn’t do a good job. Others knew that their mayor wouldn’t want big numbers reported, and as the crime wave grew throughout the 1960s, crime statistics became less accurate. So in 1973-74 the Department of Justice introduced a new measure, a statistical survey of households to find out if you or a member of your household had been the victim of a serious crime in the past year.