Juliette Sellgren 

Science is the great antidote to the poison of enthusiasm and superstition. Hi, I'm Juliet Sellgren, and this is my podcast, the Great Antidote- named for Adam Smith, brought to you by Liberty Fund. To learn more, visit www Adam Smith works.org.

Welcome back. Today on February 2nd, 2024. I'm excited to welcome David Henderson back on the podcast to talk about a famous economist who has recently passed. That Economist is Robert Solo, the Nobel Laureate and the creator of the Solo Swan Growth Model, which we'll get into, which is a model that many principles of economics, especially macro students are probably familiar with. We're going to talk about that and more. There's a lot to a person's life. David Henderson is a research fellow at Stanford University's Hoover Institution, and he's the editor of the Concise Encyclopedia of Economics. He's also an emeritus professor of economics with the Naval Postgraduate Postgraduate School. Sorry, he's been on the podcast quite a few times, so go check those episodes out. I personally think they're really great. Welcome back to the podcast.

David Henderson 

Thanks, Juliette.

Juliette Sellgren 

So I've had you on a few times as I mentioned, and as you know and listeners know, but we're beginning to repeat the beginning question quite a few times, especially between the two of us. So to keep things interested, we're testing out some new more topical intro and outro questions for repeat guests, kind of keeping on the theme of each one that proceeded. So here's what I came up with for today, as I shared with you beforehand: Which economist has had the greatest influence on your life, career, or thinking and why?

David Henderson (2.00)

Clear cut. No problem in figuring out the answer to that. Harold Demsetz, who taught me at UCLA, but his effect was much greater than that because he's the one who got me into economics. I was a math major at the University of Winnipeg, and I was doing very well. In fact, I ended up winning the gold medal in math at graduation, but I discovered libertarianism, and when I started arguing with my socialist math professor, it quickly got into economics. And one time he said, look, you beat me. You beat me on this issue, but if you're so good, go over to the econ department. So I went into the econ department. It was a three-year degree in Canada. This was my third year. And by halfway through the year long course, one thing I knew was that there was no way I would ever become an economist.

The thing was so boring. We were using a text by Paul Samuelson, but then something happened in January, 1970, my last semester at the University of Winnipeg, our libertarian club spent our whole annual budget in getting Harold Demsetz from the University of Chicago. We couldn't afford Milton Friedman. And we picked him up at the airport and I calculated that I must have spent at least 10 hours, maybe closer to 15 with him, both before and after his speeches, this three speeches during the speech, obviously at meals, taking him to the airport. And we went to the airport. I mean, I was just hooked because here's what he talked about In one talk, he made what he called the pragmatic case for capitalism, and he laid out how you can use property rights to deal with pollution. I'd never thought of that. It had never been mentioned in my class.

Free markets undercut discrimination by making discrimination on racial grounds and other grounds that have nothing to do with the productivity, making that discrimination costly. That was essentially Becker, the Becker model. I didn't know that. But anyway, he laid that out and I went, oh my goodness, this guy is at a major school in the United States, university of Chicago, and he's saying these things that just makes so much sense. So when we took him to the airport and we were saying goodbye, he turned to me and said, you ought to come to Chicago and get a PhD in business or an econ. And with my typical Canadian humility, which wasn't put on, I said, I don't know if I'm good enough. And he goes, you're good enough. And what I learned later on was when someone wasn't, he said that too. So it wasn't an empty statement.

So he was at Chicago at the time. By the time I was ready to go to graduate school, there was this really bad thing that happened in between; my brother committed suicide and I wanted to just hang around Winnipeg with friends for a year. But by the time I was ready to go, he had gone to UCLA and I applied there and I forgot one of the big influences had on me, which relates to something you and I have talked about. I went down to Chicago in May, 1970 after graduating to just meet him and just learn about the school. When I was there, he took me to lunch with some of his colleagues, which was kind of neat. And he told me I should go over to the law school and get all the past issues of the Journal of Law and Economics and start reading them.

And I did. I bought them all. I brought them back in this old cardboardy suitcase. When it came out on the carousel, the Winnipeg Airport, it hit the bottom thing and broke open, and I had to tie it up with pink ribbon. But anyway, in the airport, what? In the airport? Yeah. Yeah. I kind of closed it. And then the customs guy said, what's in the suitcase? And I said, ah, you know what? It's just a mess. That's the wrong answer to give it to a customs guy. So he opened it and then the suitcase was really broken, and then he realized there was no just books. And so he gave me this pink ribbon to tie it all up together. So here I am going on a bus to my apartment with all this pink ribbon. Anyway, it was like two months later, my brother committed suicide.

And so I changed my plans of going to this other university to do a makeup year in economics to learn more advanced economics. And just spent that year from about eight to 12 every morning working my way through articles in the Journal of Law Economics. And so when I send you book my copies, which I've promised to do, you'll see lots of markups. And I learned so much economics that year, but that was really all due to Demsetz, first of all, telling me I could make it second of all, recommending these law review things. So that was just, it was this ger line economics that was just so important in my life.

Juliette Sellgren (6.55)

Thank you for sharing. And also thank you for sending me your copies of Journal of Law and Economics. Now I know the whole history and it makes it so much more touching. I love my copies. Your copies, so thank you. And I'm really sorry to hear about your brother.

David Henderson 

Oh, thank you. Thank you.

Juliette Sellgren 

So I guess let's get into it then. Okay. Who is Robert Solow?

David Henderson 

Robert Solow?

Juliette Sellgren 

Very generic question.

David Henderson (7.20)

Yeah, he lived till age 99, which is Impressive in itself. He was an economist at MIT. I think of him as a good economist, just good, not great, I really do. But I think of him as a very good writer. He was one of the best writers in economics, in academic economics. His stuff just flowed; what he's known for. His work done early in his career in the fifties, around the mid-fifties, American economists and students call it the Solow Growth Model. They really are shortchanging an Australian guy named Trevor Swan, who came up with the same model at the same time. So Brits who are more sensitive to that called the Solow Swan model, but that's his claim to fame. And in it, he tried to account for the sources of economic growth. And by the way, largely failed. And I'll say why in a minute.

And the sources of economic growth. He had labor, he had capital, he had them in what's called a Cobb Douglas model, which gives you constant returns to scale, at least the way he specified it. And then he had a term for technology, and what he found was it increases in labor and capital accounted for roughly half of economic growth. And so by default, he said that technology accounted for the other half. But there was this economist at Stanford at the time named Moses Abramovitz who said essentially that, oh, and so it was called the solo residual, the part unaccounted for by labor and capital. And Abramovitz said he can't really say that's technology. So that's what his claim to fame is. But by the way, I'm really glad I had time to prep for this interview because in between, I read an unpublished 26 page, single spaced article by one of my favorite economists, Jeff Hummel, and it's titled, I've Got It here.

It is titled Neoclassical Growth Theory: an Austrian Perspective. And I wasn't a big fan of Austrian economics on this issue. I'm a little more of a fan now. And what he points out is solo is essentially made these really the assumptions that really don't make sense. And one of them is he treated capital as if capital is all the same. And it's clearly not. It's heterogeneous as hell. And so if it's all the same, you're going to get diminishing marginal returns to capital, as with any other factor that's homogeneous. But if it's not all the same, you can add a piece of capital into a production process and it actually expands the productivity more than by your assumption that it's all the same. And so Jeff, in his example, in his essay gives lots of examples of that. You have a hammer, you introduce nails, suddenly hammers are way more productive. Just to take one simple example. And so the problem was it really misled people for decades, and it's still misleading people. So I'm even less of a fan. I was not never a fan of the Solow growth model. And when I presented it, I presented some critiques by Bill Niskanen who had been my boss at the Council Economic Advisors under Reagan. And they're good critiques and they kind of fit with Jeff Hummel's critique, but I think Jeff Hummel's critique is even more fundamental.

Juliette Sellgren (11.24)

So let's kind of get into that a little bit. I don't know, is there a way to provide an example for, well, I guess the hammer and nail one is a good example of the critique, but for the Solow growth model, is there a way to kind of illustrate it with an example that easily comes to mind?

David Henderson 

Well, it's hard because his capital is capital over the whole economy. So you can't really give an example unless say everything's a tractor or everything's a spinning Jenny to take the example from the industrial revolution. So it's really hard to give an example. It's an economy wide thing in which he just assumes that all capital is the same.

Juliette Sellgren

And I guess that makes a lot of sense, and that makes the critique way more evident. If everything is a hammer, then you don't have, or if everything is a nail, then you never have a hammer, then you can't really do anything unless you do it by hand, I guess. Would you put it as it discounts the importance of the relationship between different types of capital in their productivity and returns?

David Henderson (12.45)

Yes. And by the way, also labor because he just has labor hours, and yet you can add a laborer who, I mean they're called laborers who say really manages people well. And that labor manager expands the productivity of say, 30 workers by 5% each. That's not diminishing margin returns to labor either. And so the big one is the capital, but even labor, there are problems with the way he does that. And so it was a start, but there wasn't much of a start, and I think it's kind of misled people for a few decades now.

Juliette Sellgren 

So let's get into how it's been misleading. In order to kind of do that, I kind of want to set the scene of what did economics look like at the time, specifically macroeconomics and looking at the development of countries and economic growth, and how much of an influence did this model have? Because in order to understand the importance of a critique of it, we kind of need to understand how influential it was and kind of what the implications ended up being.

David Henderson (14.00)

Right. So really, I think I want to go back very briefly to Adam Smith, because Adam Smith attributed economic growth to an increasing division of labor. He didn't mathematize it, he didn't have data, except he did have specific data on a pin factory. But beyond that, he didn't have much data. And so there was that whole verbal tradition. But what happened in economics in the forties due to the person? So I had a conversation with, so back in 1972, and Solow called Samuelson, his best friend, his colleague at MIT, due to Paul Samuelson more than anyone else, was the mathematization of economics. So right away, people are thinking, we got to have a model, we got to have some kind of mathematical model, which can be good or can be misleading in this case, misleading. But then I should mention also that this is coming out of the Keynesian revolution.

So the Keynesian Revolution introduced the whole concept of macroeconomics. Wouldn't even have that before. It was just economics. And in the Keynesian view, and this shows up in the early editions of Samuelson's textbook, the kind I studied from, you have business cycles. That's the big thing. Well, as I pointed out in a speech, I gave on economic growth a couple of months ago, even a standard kind of bad recession, other than the Great Depression, maybe GDP falls by 2% on a year, and that's bad. But if you can raise your economic growth rate by one percentage point per year in two years, oh, and you've been going along at 2%, so you go a 2% growth down to minus two, that's a delta of four. If you can raise your economic growth rate by one percentage point per year for just four years, you've made up for that recession.

And so really the business cycle theory should never have displaced growth theory, but it did. And so here's where I'll give Solow some credit in a way, because macro was focused on business cycles. Well, we still want do growth. So who does growth? As Hummel points out the Marxist and the quasi Marxist who take over development economics and use it to really sell disastrous policies to the third world in the fifties and sixties. And so in Africa and parts of Asia and so on. And so Solow, at least reintroduces growth. So that's better than nothing. But anyway, that's kind of the setting for it.

Juliette Sellgren (17.01)

Can you maybe talk a little bit more about the displacement of growth with the business cycle? What do we mean when we mean business cycle? And because we haven't talked too much on the podcast actually about macro, we've talked a lot about economic growth, but we haven't really talked about business cycles and what is the relationship? And so the implications of what you were just explaining.

David Henderson (17.27)

Well, so business cycles have to do, and of course there's a question, is it a real cycle that seems to also some kind of kind of pattern. But business cycles deal with booms and recessions. So an increase in economic growth, you get a boom, an actual reduction in GDP, that's called a recession. A big reduction is called a depression. And so that's what business cycle theory dealt with, and that's why the Keynesian revolution happened. Keynes's General Theory of Employment Interest and Money comes along in 1936. Well, the rest of the world is recovering from the Great Depression, but United States under Roosevelt is still kind of in it. And so people are saying, how do we get out of this depression? What causes the depression? And that's what made Keynesian economics so popular. And by the way, I think the person who more than any other person in the United States took us away from that, was Milton Friedman and his co-author, by the way, Anna J. Schwartz, who did the Monetary History of the United States over from 1867 to 1960, and it was published in 1963 in which they laid out the incredibly important role of monetary policy in contributing to the Great Depression.

And so that got us a little out of the Keynesian revolution, their work in 1963. I dunno if that you…

Juliette Sellgren 

Yeah, yeah, yeah. And on the macro, macro on the focusing on business cycles as a way to fix growth problems or slowing of growth, you would say that you attribute solo with the reason why we kind of switched back to focusing on economic growth instead of business cycles.

David Henderson 

Yes. Yeah. So whereas I credit Milton Friedman and Anna Schwartz for lots of things, they never contributed any important way. Well, no, they never contributed much to economic growth theory.

Juliette Sellgren (19.45)

Okay. Yeah, okay. This is a good layout to have. I'm mentally working through it a little bit. I mean, it's an entire intellectual era. There are so many different pieces moving and people thinking and publishing at any given time that it is even amazing to be able to sort it out like this because there was so much going on. But this is kind of a good framework to think from. So I guess then Solow is, so Solow becomes super important because of this kind of shift in focus, which means that he has the stage. So then when he says that essentially, what is it, technology explains?

David Henderson 

Almost half of growth.

Juliette Sellgren 

And nowadays we say it's more than that, even when we refer to solo, at least when we teach, at least we do at UVA from what I've seen. So what are the of that, and obviously you talked a little bit about how talking about capital as though it's one thing is wrong and even labor, but what is wrong about this technology? About the way that he kind of laid out this model?

David Henderson (21.04)

Well, what's wrong is he just says it must be technology. So his model is guaranteed to give you that answer once you constrain it to the extent he did, which is extreme Cobb Douglas production function, homogeneous labor, homogeneous capital constant returns to scale. If you account for 50% of growth roughly with increases in labor and capital, you're necessarily going to say that technology, the factor A in front of the equation accounts for the others. So just the term begging the question is misused all the time nowadays, but what it means is assuming the answer. And so he's assuming the answer in a sense.

Juliette Sellgren (21.53)

So maybe this is a silly question. This really might be a silly question, but I was just thinking about this the other day, and I seem somewhat unclear. So we've had some job candidates come and present papers in the econ department here, and there was this one micro theorist kind of behavioral public choice guy, and his paper was super cool. But I was sitting there and I was like, wow, you're just a theorist. So you come up with this theory. But a lot of the economists sitting at the table and listening were kind of, I don't want to say upset, but they had reservations because there was no data, there was no proof. So is that kind of how development of economic theory works, especially before we had lots and lots of data as we do more nowadays where the theorists didn't necessarily need to use data to back up their theories? Or is this kind of a misunderstanding on my part of what it means to develop a theory? Because I would think you should put data in your function or in your model to make sure it works. But how, yeah, what is the relationship between the assumptions you make the data or lack thereof, and then the theory that follows?

David Henderson (23.11)

Well, it varies. Of course, with the economist, my criticism of Solow is he didn't even attempt to justify why capital is homogeneous and it isn't. So he would've had trouble doing that. But it's true that Adam Smith didn't have much data to work with. But I'll give you two instances. I already mentioned one, the pin factory where he goes into a pin factory and observes it very carefully and looks at the productivity, and then he speculates admittedly about what one person could have done on his own. So that's speculation. But his data on the pin factory are real. And the other is one of my favorite sections of the Wealth of Nations where he talks about how the colonies, the 13 colonies are a loss for Britain. We should get out of there, let them handle their own defense, and we're going to gain. And so he has a very numerate kind of, he lays it out the numbers about why it's a loss, and this is with the kind of data he could get in the 1770s. So it varies. You'll have, there's divisional labor there, such division of labor now within the economics profession is you'll have straight theorists, you'll have straight empirical people, you'll have people who are both. So it's a very involved situation.

Juliette Sellgren 

So this is kind of why the assumptions behind whatever theory you come up with are so important, because in a way, it determines what outcome you're going to get in the solo swan model.

David Henderson 

It often does. Yes. Yes. Yeah. Right.

Juliette Sellgren (24.55)

And so how did Solow's growth model change how economists understood the sources of economic growth and the role of technology? Obviously he said it accounted for half, but how did that change all of the research that was happening after? I mean, we still teach this model in principles courses, maybe not everywhere, but probably in a lot of places.

David Henderson (25.16)

Well, people found it pretty unsatisfactory because of the things I mentioned, but they never relaxed the assumption of homogeneous capital, which is interesting. They said, oh, then you had Paul Romer who won a Nobel Prize for his work where he changed it in certain ways, and he had to draw price taking as an assumption in order to get where he went with his model. And so everyone was working from Solow and saying, how can we change it to make it better? Instead of saying, you know what? Forget about it. Let's just go in a different direction.

Juliette Sellgren 

And did we just take Solow's model as the given for what growth in the economy looks like because he was the one who shifted our focus back to economic growth in the first place.

David Henderson 

Maybe.

Juliette Sellgren 

Why do you think?

David Henderson 

I'd have to talk to a few dozen economists who are in the area and ask them why they do what they do? And I don't know. 

Juliette Sellgren 

So we’re just going to take it as a…

David Henderson (26.33)

There's a lot of inertia in economics. And remember, inertia doesn't mean you stand still. Inertia means you go the way you're going unless you're offset by some other force. So there's this inertia leading them to do these kinds of things. So I think that's a piece of it. Another possibility, I just raise it only as a possibility is when you go the technology route, then you start thinking maybe we should have government subsidized technology. Or if you go the human capital route, which is another thing people have added onto the model, maybe we should have government subsidized higher education, which of course is going to be very appealing to people who are making their living in higher education. Now, that's almost an ad hoy, so I don't want to totally make it, but it's worth thinking about as a possible, not as a motivation, but as something that makes them more comfortable with that way of going.

Juliette Sellgren 

I see. But for now, we're kind of, for the most part, taking it as a given. This is just, it took off and everyone was kind of subscribing to it, even if it didn't explain everything,

David Henderson (27.50)

Could I go a different direction? So one of the things I want to talk about is now that I've said he's a great writer, I think he's a good thinker, how I think he kind of got a little stuck, and he would've admitted that he didn't do much in roughly the last 30 years of his life. Well, that means from age 69 on maybe the last 40 years of his life, he didn't do much, but he was very negative on certain directions people wanted to go. And so to prepare for this, I found the book, which was my first book review I did for Fortune Magazine. It was called Conversations with Economists, and it was by a guy named, it sounds like Arjo, but I think it's pronounced ao, A RJO. And one of them was an interview with Solow. And here's he's talking about Robert Lucas who won the Nobel Prize in the mid-nineties and some of his work, and he was very critical of Lucas.

So he says, if I were a colleague of Lucas's and we saw each other every day, I suspect that we would pretty much soon find ourselves in fundamental disagreement about the underlying mechanism of what happens in the world. I don't know, maybe we could agree on some experiments or empirical investigations. And by the way, I got to preface this. I'm going to tell you Klamer’snext question, but I've got to preface it with something that was really well known about Solo, which was that he would often joke about things and it seemed well, okay. And then Klamer says, I suspect some annoyance on their part with the jokes that you tend to make in these conversations. And he goes, I know I tend to react to many situations by making jokes. It comes naturally. Sometimes I think it's a flaw in my character and I ought to fight it.

But there's another side too. Suppose someone sits down where you are sitting now and announces this to me that he is Napoleon Bonaparte. The last thing I want to do with him is to get involved in a technical discussion of cavalry tactics that the Battle of Oates, if I do that, I'm getting tacitly drawn into the game that he is. Napoleon. Now, Bob Lucas and Tom Sargent, like nothing better than to get drawn into technical discussions because then you have tacitly gone along with their fundamental assumptions. Your attention is attracted away from the basic weakness of the whole story. Since I find that fundamental framework ludicrous, I respond by treating it as ludicrous. That is by laughing at it so as not to fall into the trap of taking it seriously and passing on to the matters of technique. Now, I could not find this source, but I think I remember reading at the time, his best friend, Paul Samuelson, criticized him for that. Come on, Bob, you ought to open yourself a little bit more to this and actually have a discussion. So I think that's… 

Juliette Sellgren (31.12)

Or at least not do that in public. What? That's ridiculous. I was sitting here first having a little trippy mind moment of thinking about how people are listening to us talk as I'm sitting here on one end of America, and you're on the other end and you're reading and we're on air. And that was messing with my mind. And at the same time, I just could not believe that a professional would say that about his peers in public.

David Henderson 

And by the way, it gets into, and now that's the worst, right? And I want to get to the other worst with his comments on Friedman. If we hopefully have time.

Juliette Sellgren 

Oh, we will make time. Okay.

David Henderson (31.55)

But I do want to mention one thing. When he came to the University of Western Ontario, after I studied a year of the Journal of Law and Economics, I went to the University of Western Ontario to do advanced undergrad and one grad course to be really ready to come to United States and do economics. And so here's one thing I learned by the way that really might apply to you, Juliette, and some of your listeners who are especially young people, he came to the University of Western Ontario, and it was announced in one of my classes. He was there, of course, I'd heard of him. And they said, any student who wants to, he's put aside these couple hours to talk to students. And he was there, I think to sometimes a department, economics department will have outside big names to come and evaluate. I think that was what he was there for. But still, he'd set aside time to talk to students. Here's what I learned. Guess how many students went to see him?

Juliette Sellgren 

I want to guess either like an absurdly large number or a very small number.

David Henderson (32.55)

One. Me. Okay? Oh, wow. And as a result, I had 45 minutes with him, and we talked about everything. I really liked him, and I asked him, I already was getting, he was pretty negative on Friedman, but I wanted to just not ask him personally about what, but just what's your objection to Friedman's way of looking at the macro economy? And in fact, I actually remember his answer, which I've never written up anywhere. This was February ‘72. And he said, look what he said back in 66, the Fed, I still remember his line, his exact words, Friedman said, the Fed can stand in its head, and there's going to be a recession in 67. And there wasn't, well score one for Solow. There wasn't recession in 67. There was a boom in 67. So Friedman's model was not at all a perfect model. But anyway, that was one of the best points he made. But I, oh, shoot. I was going to mention something about, oh, yeah, so that's when I learned about his kind of close relationship with Samuelson. He said, good things about Samuelson. Well, already I'd seen how nasty Samuelson could be. And so I said, I was very blunt. I was 21 at the time. And I said, why is Samuelson so nasty? And he said, best friend. And he got kind of defensive. But anyway, I shouldn't have asked that.

Juliette Sellgren 

Maybe not, but how are you supposed to know?

David Henderson (34.33)

Yeah, right. Oh, and by the way, I forgot to complete the moral of the story that one person went to see him. And that's what I noticed. Bryan Caplan, my co blogger has talked about, and there's someone whose work you admire, read the work, go talk to the person about it. The biggest occupational hazard in academia is isolation. And you'll have great, great among the top five people in a particular field, in a field that matters, and no one's going to visit them. By the way, I learned this in another way. I know I'm getting a far afield, I really do want to get to Solow on Friedman. But when I left academia, because I was so bored with it at the University of Rochester in 79, and went to the Cato Institute in San Francisco, a number of my colleagues, and they weren't being nasty, they were really looking out for me.

They cared about me. They said, David, you're making a big mistake. You're never going to be allowed back into academia again, et cetera, et cetera. And what I thought they were saying is, no academics would talk to me. Well, in November, 1979, those Iranians took over the US Embassy. And a friend of mine, Roy Childs, was researching that. He was the editor of Libertarian Review, and he was writing this big article, and he'd read about high inflation under the Shah. And so he said, where would I get data on the rate of growth of the money supply, thinking Milton Friedman, and this is way before the web, and I would've had to go over to Berkeley to get the data. I didn't have time. And I thought, well, who the data? Arnold Harberger this really well-known economist at the University of Chicago who I'd met at a cocktail party.

I called up Arnold, he answers his phone. I asked him the question. He goes, one minute, scoots across his office, gets the data from the International Monetary Fund and reads me the numbers over, and it's just working perfectly for what my friend Roy wants to write. And it was like this gong went off in my head, oh my God, he's willing, one of the best economists in the world is willing to be my research assistant. And it's like, that's just such an important thing for people to get. Now, I did see one person, and I won't name him, who said to a bunch of students I was giving advice to, he said, yeah, even if you hadn't read their work, bullshit them. Tell them you'll really like their work. And I go, no, no, no, no, no. Don't ever do that. A, it's dishonest as hell.

And B, it's dishonest as hell. I mean, come on. So anyway, yeah, I want to get to Solow on Friedman. So when Solow died, Tyler Cowen, he has these every day. He has these links once a day, and one of them was on Solow on Friedman. But when you click on it, it was David Henderson on Solow on Friedman. It was to my piece that I'd written on this on EconLog. And this is where my view of him kind of fell, because it was, I thought beyond nasty. Dan Klein with his Econ Journal Watch had had a bunch of us try to answer the question, will there be another Milton Friedman? And if so, why? If not, why not? And virtually all of us answered. There won't be, there won't be that combination of someone who's that good as a scholar and that good as a public intellectual. Well, Solow said, not only won't there be, but there shouldn't be.

And he said that Milton was an ideologue. And let me read this. There was, of course, this is Solow: There was of course, the person, Milton was an ideologue, a true believer, not given to skepticism or self-doubt. There are many of those. But he was an ideologue equipped with a very sharp and quick mind. And what is not the same thing. He was a superb debater and a happy warrior, relentless, plausible, tactical, convincing, good with an audience, always smiling. When he argued, he would often say, Bob, I don't understand you. What he meant was, how can you be so stupid? But he would not say that I knew Milton really well. He wasn't just saying, I don't understand you. I agree with Solow at that. He was never saying solo was stupid. I mean, he didn't believe that. And I commented, I agree that Milton was an Ideologue solo, and I might have different views about the meaning of the word.

And ideologue is, of course, a person who has an ideology and what is an ideology? Hugh Webster's dictionary, a systematic body of concepts, especially about human life or culture and on and on, things like that. And I said, by that definition, I'm an ideologue and so likely a solo. So that's not the real issue. The real issue is an X-ray, a true believer. That term was invented by Eric Hoffer in a book by the same title, which I recommend, by the way, read it. And I think that if you know much about Milton Friedman, you'll know he was not that.

And I said, what about not given to skepticism or self-doubt? And I said, score one for Solow, for the short run. Milton Friedman, one of my first publications in economics, was taking on something he wrote in a Newsweek column. I wrote him a short letter about why I thought he was wrong. He said he was right. I ended up writing it up and spending months working on the model, and I got it published in a book, not a journal. So I said, in the short run, Milton didn't have any doubts. That makes him pretty similar to, I don't know, almost everyone. I do recall, though, that when I sent him a draft to the paper, he didn't disagree. And then I want to just focus on what I thought was the really shocking part of his article. He says,

Juliette Sellgren

Oh, there's more shocking things?

David Henderson (40.40)

Oh yeah. The second part of my response to the question is that I am glad there is no Milton Friedman anywhere in the political economy spectrum today. I think that Milton Friedmans are bad for economics and bad for society. Fruitless debates with talented extremists waste a lot of everyone's time that could have been spent more constructively either in research or in arguing about policy issues in a more pragmatic way, blah, blah, blah, blah. So I said, my comment was, do you notice what's missing? Solow doesn't tell us what the fruitless debates were. The main debates I can think of between Friedman and many of the rest of the profession were about three things. The relative potency of fiscal and monetary policy, whether the Phillips Curve trade-off between inflation and unemployment, presented policymakers with a stable menu of choices, and whether inflation is in Friedman's terms, everywhere and always a monetary phenomenon. So let's look at those three issues. Solow thought, fiscal policy was more potent. And his classic 1960 article with Samuelson argued that the Phillips Curve gave policymakers a menu. Friedman thought monetary policy was more potent, and argued that the long run Phillips curve was vertical. Freeman argued that the changes in the growth rate of the money supply were the main cause of changes, inflation. Guess who won on all three? So really, how fruitless were those debates?

Yeah. And then what I did right at the end of my article, he had told me, I mentioned that he had told me Samuelson was his best friend. So I said, so here's what his best friend was quoted. Oh, I got to tell you, when I started reading Friedman in 1968, I went to the University of Manitoba Library, which had a better library than University of Winnipeg, and went through this something called the Reader's Guide to the Periodical Literature and read everything that had been written about Friedman in the past 15 years. And Xeroxing was 25 cents a page. I did some xeroxing, but a whole lot of writing too. Here's what Friedman said in a Time article in the 1960s quote, to keep the fish that they carried on long journeys, lively and fresh. Sea captains used to introduce an eel into the barrel in the economics profession.

Milton Friedman is that eel. Now that says, it ain't a fruitless debate. So anyway, I just want to tell one kind of nice personal story about Solow. So I talked to him in 1972, I think he was on the board of Stanford or something, and I was going to a Stanford event that's like an hour and 40 minutes from here. So I was staying overnight in the hotel. They were paying for it, and it was a really nice hotel. And I was leaving in the morning, and I see Solow and I go up and I said, professor Solow, I'm David Henderson. I started to say, he says, I know.

So somehow, for good or bad, I'd made an impression about 40 some years earlier. Oh, wow. Anyway, so that was kind of neat. But no, look, I like people. I really do. When I meet with people, if I met with Hitler, I wouldn't like 'em. Okay. But I, if I met with Donald Trump, who I think is a really unlikable person, there's a chance I'd like him at least. But anyway, we're not talking in the same league. I mean, Solow was a good person in many ways, so I liked him. But I do think he had these big blind spots. Big blind spots.

Juliette Sellgren 

Yeah. I mean, you believe in people, and he kind of seems, not to correct me if I'm wrong, but I'm pretty sure Milton Friedman never said anything particularly mean about him.

David Henderson (44.58)

Not mean. But I'll tell you what I did learn. I just finished sending off my review of Jennifer Burns book, Milton Friedman: The Last Conservative. It was a long review. And by the way, the title, I dunno if they'll use my title and Regulation magazine, but the title I gave, it was a great book, lousy title. But Friedman wanted to build a group of faculty who he, not that would agree with him on anything, but just on everything, but just he could work with and have good discussions with. And there was something at Chicago called the Cows Commission that was well funded by the Rockefeller Foundation, and was having these economists who weren't in Milton Friedman's, they weren't doing what Milton Friedman believed in, but Solow believed in what they were doing. And so Jennifer talks about this one meeting where Friedman was really rough on them in a seminar like Bare Knuckles, rough, again, not attacking their character. He never did that, but attacking what they were doing. And she says, this one economist says, blah, blah, blah, and said, essentially, he was saying what they were doing was worthless. When I write a book or read a book to review it, I read every footnote. So I went, Hmm, who said that? It was Solow. So I think there were these old scores to settle. That's my gut feel, that it might be part of it. That was happening in the forties, in the late forties. So they were around each other a lot.

Juliette Sellgren 

And I mean, that narrative is kind of verified by the way that he commented to you about how he had scored.

David Henderson 

Oh, can I tell one other thing?

Juliette Sellgren 

Yes, of course.

David Henderson (46.54)

I also remembered because I was hooked in economics at that point. So I went to see everything. So Solow also gave a talk, and at the talk he laid out his, I still remember he laid out his urban model and why, and it's kind of obvious when you think about it, why house prices? If you've got a very vibrant city center, why house prices are higher closer to the center? It wasn't complicated. I mean, the math might've been complicated, but the story wasn't, and I had just read and was a big fan of, although I'm less of a fan now, a book by Jane Jacobs called The Death and Life of Great American Cities. And I'd gone to his talk hoping there'd be some flavor of that, and there was just nothing. And so I stuck up my hand. He calls me, he now knows who I am, and he says, yes.

I go, is there any kind of flavor of Jane Jacobs in what you're thinking? Or is there anything that she adds to it that might add to this and might add to the understanding of these issues? And as I said, he tended to joke. So he said, well, oh, I didn't tell you Jane Jacobs had, well, are these Italians in this part of the city? And they kind of stick together, and that's why there's not much crime, all that kind of thing. And so he says, well, there's nothing ethnic in my model. And I laughed. The audience laughed if they understood JJ, because maybe two of them did. But anyway, but that was it. I mean, I don't remember what else he said, but basically the answer was, no, there's not. And so anyway, his models, he was a very good writer. He wrote one of the best critiques of that awful book by Piketty, Capital in the 21st Century. I sometimes quote it when I give my inequality talk. He comes down to a different position than I do, but he just laid it out really nicely. So anyway, he's a great writer. So he can introduce those kinds of considerations in his popular writing, but he didn't ever introduce those kinds of things, whether it be Jane Jacobs or Heterogeneity of Capital in his scholarly work.

Juliette Sellgren 

So to conclude, you've told a lot of stories, given a lot of evidence to, which I think is kind of awesome, and kind of the first time on the podcast, anyone has read to me, I think, I hope that I'm sure of

David Henderson 

You don't want…

Juliette Sellgren 

I know you were directly reading to me, but if someone's reading from a script, I hope it's more organic than that. For the most part, no one has ever quoted things to me, so I hope it's not scripted. 

David Henderson 

Well, I had it in front of me. I didn't do it by a minute.

Juliette Sellgren 

Can you kind of give us academics, economists, thinkers, people engaging with their community can learn from Solow, either do as he did, or not do as he did. In certain ways, some of it is already pretty clear, I think.

David Henderson (50.07)

Yeah, I think you're not going to learn much from his major intellectual work, and that sounds harsh, but that's what I think. I think you can learn a lot by studying him as a writer. As I said, he was one of the most beautiful writers in economics in the last, I think he's a better, Milton Freeman was a good writer, but by the way, a lot of that was his wife Rose and her edits. So even look at his stuff edited by Rose, I don't think it's as good as Solow’s.

Juliette Sellgren 

Huh, good to know. And then I guess, do you have anything to say about the fact that a lot of schools and a lot of instruction and economics, especially macro, still leans heavily on Solow, even if to critique him in the end and kind of move past that?

David Henderson 

Yeah, they're stuck. I mean, to put it bluntly, they're stuck because I don't think they understand the importance and how misleading it is. I'm going to go back there again, the assumption of heterogeneity, of capital, of homogeneity of capital.

Juliette Sellgren (51.19)

What do you think needs to happen or should happen or could happen, or maybe even is in the process of happening that I'm not sure about in economics and the education of economics to change that? Are there any models that are more accessible? Because part of me thinks it's maybe because of its simplicity that it's still taught, right? The stuckness comes from how easy it is. There are two variables.

David Henderson 

One thing, Juliette, is maybe it's wrong to think you have to have a model.

Juliette Sellgren 

This is a good point.

David Henderson (51.50)

So when Adam Smith said, the division of labor is limited by the extent of the market, and the more extensive the division of labor, the more growth you're going to have. Is that a model? I don't know. He didn't have the numbers. He didn't have equations. So I think we limit ourselves. Now, if someone could look at all those things and come up with a realistic model, that's great, but don't insist on a model. Just insist on good economic reasoning, which is not the same.

I will add one thing in prepping for this. I read my, as I mentioned, my friend Jeff, almost 26 page unpublished article on economic growth and what's wrong with the Solow Swan model and so on, and all the things that came after that, tried to try to improve it. And I'm going to write him, since he's not publishing anywhere, it doesn't seem to be working on it and ask him, I think I can think of major improvements, which I noted as I was reading through it, and ask him if I can co-author it with him and get it published somewhere, and it won't be a first rate journal. They don't do those things anymore. But so for example, I'll give you an example. I'd say certainly one of the 10 best articles in the 20th century in economics, some people say it's the best, is Friedrich Hayek’s, The Use of Knowledge in Society published in 1945. You've read it, right?

David Henderson

I make a point of reading it every year. When I was teaching, I did. Now, I read it every couple of years, and so I've probably read it 20 to 30 times and it wouldn't be published. It was published in the American Economic Review, the flagship journal of the American Economics Association. There's no way they would look at that now, and that's bad. And so they're right there. That tells you something of the bias of the journals and so on. So now you might, it's conceivable you could get something like that published in the Journal of Economic Perspectives, where the managing editor is Tim Taylor, and he insists on good writing. And it can all be verbal. It doesn't have to have numbers and models. It can. So anyway, there may be ways of getting certain good things published, but by the way, there's no submission process. They come to you and ask you to do something. So anyway, that limits it.

Juliette Sellgren 

Yeah. I have a final question for you. And again, this one is different from the usual final question, but it's again, on the theme of economists and your not economic, well, I guess economic, but intellectual thought and growth. Is there an economist that you've been fond of that has fallen out of your favor? Or is there one that you underestimated didn't like so much that has become more favorable to you and why?

David Henderson 

Oh, I misunderstood it. When you sent me that question, I thought it meant fallen out of other people's favor.

Juliette Sellgren 

Oh, you can answer that as well.

David Henderson (55.02)

Let me do that. Not as well, because I don't have an answer to either of your first ones. I mean, have, if I think really hard about it, but I don't right now, but the economist who taught me the most at UCLA was not Harold Demsetz. He was in the top three or four. But Armen Alchian and Armen Alchian has fallen out of other people's favor, I think, and I think there are two reasons. I spoke at his memorial service, and what I said was that he was such a humble person. He didn't market himself. So Jim Buchanan had the sense to go to Sweden a bunch of times and talk to people, and he got a Nobel Prize. Armen wouldn't have ever thought to do that. And so he was just so humble. He didn't kind of talk up his own work. And as a result, I think it's being lost at a higher rate than otherwise. One thing I've done with a colleague who came out of UCLA was written a book that Fraser published on the UCLA School of Economics, in which Harold Demsetz and Armen Alchian are the two main players. And there are a few others like Jack Hirsch and Sam Peltzman. But anyway, that's what we did to try to keep that alive.

Juliette Sellgren 

Once again, I'd like to thank my guests for their time and insight. I'd also like to thank you for listening to the Great Antidote Podcast. It means a lot. The Great Antidote is sound engineered by Rich Goyette. If you have any questions, any guests or topic recommendations, please feel free to reach out to me at Great antidote@libertyfund.org. Thank you.