Lex Fridman: belief

Transcript context

…Yes. So as you mentioned, Milton Friedman searched for a moral justification of capitalism. Frank Knight was a big influence on Milton Friedman and including on this topic of understanding the moral justification of capitalism. I think you spoke about Knight’s Case for capitalism was grounded in the idea that the ability to act in the face of uncertainty creates profit. And it should, because taking risks should be rewarded. So this idea that taking risks in the face of uncertainty should create profit, and that becomes a justification, the ethics of capitalism. Can you just speak to that? Yeah. So Knight is talking about where does profit come from? And to his mind, it comes from the entrepreneurial function and the risk-taking function. And so he kind of weaves that into why capitalism works best and why it’s the most effective allocation machine and why it assigns responsibility in a way he believes that a socialist system never could. Now, Knight though is not a booster of capitalism. It could be in part because he’s just a darkly pessimistic kind of depressive guy. And so he’s afraid capitalism is going to collapse and socialism or fascism is going to take over, or communism. And so he kind of descends into darkness there. Friedman as the more optimist believes with Hayek, that you can develop a different approach to capitalism that would preserve the price system, preserve allocation, but build in social supports, build in a social minimum, things like this. But there’s a moment in his career where he’s really struggling to figure out, how do I make this case for capitalism? And basically the whole conservative movement or people who we later call the conservative movement are struggling to make this case. And he starts thinking about what makes capitalism work is that if you put forth effort, you get a reward. So then you could say, well, people get what they deserve under capitalism. But then he kind of stops and he says, “that’s not really true, because we’re born with such different endowments and there’s a huge quotient of luck. So some people are just in the right position and some people aren’t. So if I say capitalism is moral because people get what they deserve, that’s not really true.” And he also kind of has an ethical reaction, which he ends up calling an aesthetic reaction. He’s kind of like, it just doesn’t feel right to say that. And so he struggles for a while with, what do I say? And then he basically says, “capitalism, it can’t be the core. Discipline of the market, can’t be the core to your ethics, it has to be something else.” So that’s when he will decide it’s freedom, it’s individual freedom. That’s really the ethical core. And capitalism makes individual freedom possible, because capitalism is dedicated to maximizing that. And so the defense of capitalism comes through freedom. And at his stage in history, he’s able to set aside nice worry about inequality and say, when I look at the data, and this is true for the macro data at mid-century, incomes are actually converging. And also if you look historically, if a country goes from say, a more feudal, agrarian society to a more market-based society, incomes will converge. Now and then they might start to diverge. But Friedman’s in the moment when he’s seeing the convergence.…

Stored transcript either side of the excerpt. The highlighted words are the published quote; the surrounding text is unedited source, never generated.