“Capitalism” has become a fighting word in the battle between East and West and for men’s minds everywhere; and, like all slogans, it means many things to many men. To some “capitalism” is a term of opprobrium, signifying the oppression of little men by ruthless monopolies; to others “capitalism” is a term of hope, signifying the freedom of men to shape their own economic destinies, the unleashing of human ingenuity and energy to raise the standard of living of the masses. To all, American capitalism is a symbol of economic strength and power, of unprecedented wealth and productivity, the strength which is the hope of our friends and the despair of our enemies.

So begins Milton Friedman in a June 28, 1953 discussion on NBC radio titled “What Is American Capitalism?” At the time, Friedman was a professor of economics at the University of Chicago. The other two participants were John Kenneth Galbraith, a professor of economics at Harvard University and David McCord Wright, a professor of economics at the University of Virginia Law School. It was either the late Gordon Tullock, in a conversation in 1971, or the late Ben Rogge, in a conversation in 1969, who told me that Wright was a rare bird: a conservative Keynesian. That is, he believed in countercyclical fiscal policy but not in a large government.

I’ve posted twice now (here and here) about these late 1940s and early 1950s NBC shows. What’s striking here, as already noted, is how civil the conversation is and how formal: each person calls each other by his last name.

Here are some highlights.

In response to Milton’s question, based on Galbraith’s just-released book, American Capitalism, about what is special about American capitalism, Galbraith answers:

I am afraid that you give me credit for sophistication which I did not have. I do not recall that I had anything particular in mind in adding the word “American” to the title, and I would not attempt to make too sophisticated a definition of capitalism. It would seem to me that the essential point is who makes the decisions in an economy. Under capitalism the decisions are made by the people who own or manage the basic productive resources, and that is in contrast with decisions which are conformed to in a larger plan made by the state under noncapitalist forms of enterprise.

In response to Milton’s question about now competitive American capitalism is, Wright answers:

In order to answer that, one first has to have some idea of what competition is or what monopoly is. A lot of people think that monopoly is simply big business and that competition is small business. This is quite wrong. Competition to me means the presence of several centers with alternative policies competing against one another. You can have big units, but if there are many other big units and if they are all deciding independently and being reconciled in the market, then that is not monopoly; and in the same way under the fair-trade laws you can get a lot of small units which are so bound down that there is no real competition among them at all. [Note that this discussion occurred before Lester Telser’s path-breaking work that gave economists a new insight into resale price maintenance, which is what Wright was referring to when he discussed “fair trade.”]

Then an interesting interaction between Friedman and Galbraith:

In the actual American economy it seems to me that there unquestionably are these areas of monopoly, these areas of competition. My own feeling is that most discussion tends grossly to overstate both the magnitude and the importance of the monopolistic elements, largely because monopolies where there is only one firm in the field are more visible, partly because monopoly is so concentrated in manufacturing.

[DRH note: This was a theme in much of Milton’s writing over decades.]


I am not terribly impressed by the importance of the question partly because I am less disturbed than many people about the problem of monopoly. The question, to be sensibly framed, has to be put in these terms: Is the American economy over at the concentrated, big-business pole; or do we find most of the production coming from agriculture, coal-mining, the industries where characteristically a large number of small producers produce a similar product? It seems to me perfectly evident that most of our production does come from large firms that are relatively few in number.


This seems to me not only not obvious but false. The large firms few in number are likely concentrated in manufacturing and transportation, and these together account for less than a third of our total output. Recent studies which have been made suggest that what would generally be regarded as monopolistic firms and industries account for perhaps less than a quarter, as little as a fifth, of our total output.

[DRH note: In transportation, of course, much of the monopoly in trucking and in airline travel was due to heavy government restrictions on entry. Milton surprisingly didn’t mention it. I wonder if he knew it. The main literature on monopoly in trucking didn’t start until a few years later.]

Later Friedman and Galbraith agree.


Yet, while recognizing this gradient [between monopoly on the one extreme and atomistic competition on the other extreme], it is important to emphasize that bigness is not by any means the same thing as monopoly. The Atlantic and Pacific chain of grocery stores is an exceedingly big enterprise, but it seems to me to have essentially no monopolistic elements worth speaking of. There are many much smaller enterprises which have a large amount of monopoly. This is particularly important, because one of the common feelings has been that monopoly has been growing in this country. I regard this myself as an erroneous conclusion drawn from the fact that firms have been getting bigger.


I completely agree with you, and the case of A&P is a very persuasive one. A & P only has about 8 per cent of the retail business and is in a business where entry is fundamentally very easy.

Great interaction between Galbraith and Wright. Wright has just expressed upset at labor union monopoly and Galbraith says it is no big deal. Galbraith pursues it.


I agree, of course, that the notion of monopoly is not peculiarly a business concept. On the other hand, I would not agree that the center of the monopoly problem here is in the labor field. I am curious as to why that excites you more than, say, in the area of industry.


It is harder to deal with a wolf in sheep’s clothing than it is to deal with a wolf. The essential drive toward the routine society comes from both the left and the right, but in the case of the union movement it is given all sorts of altruistic labels which make it much more difficult to pin down.

Finally, Galbraith and Friedman on how wages are determined.


The ancient position on the labor market, for example, was that competition between employers for labor would insure that everybody got a fair wage. That is the position that most economists believed and held in the nineteenth century and which, I gather, Friedman, that you hold.


I cheerfully agree with that characterization.