Commanding Heights 1: Battle for World Economy – Video Notes


                                             Disk One– The Battle of Ideas

1 – Prologue

2 – The Old Order Fails   4.01   

WWII; Cambridge, 1940; two most important economists; personal friends; intellectual rivals; battle of ideas that still shape our world; John Maynard Keynes; planning of economy; Hayek thought economic planning a threat; market economy goes to excess; govt. step in; Hayek – the market would take care of itself; first age of globalization; technologies; made world a smaller place; “we did not realize how fragile our civilization was”;  WWI (7.50) Hayek served in Austrian army; problems of political organizationl work for a better world; a cataclysm; something better;    Communism; Russian Revolution; sought to smash capitalism; unite against global economy; end econo0mic exploitation; Keynes (10.00); made a fortune in stock market, lost it all, made it back; how to organize war time economy; part of Versailles Peace delegation; reparations; squeeze money out of bankrupt Germany; resigns, angry and disgusted; economic consequences of the peace; vengeance I dare predict; war destroying the progress of our generation 

3 – Communism on the Heights  12.06

       Vienna, 1919; a cold and hungry city; revolution was in the air; socialists and communists winning the war for hearts and minds; Hayek enrolled at the University of Vienna; socialism seemed to bring a more just society; fairness and equity; coffee houses; von Meses, a passionate libertarian; the Austrian school – markets work – and governments don’t; predicted fall of Soviet economy’ no functioning price system; no traffic signals; does not work; chaos; free markets do it best – why fool with anything else? – Lenin abolished chaos of free markets; great Marxist experiment was in trouble; cold famine hunger; New Economic Policy; can own stuff; small business; economic revival; selling out principles of Marxism; said his critics were fools; control heavy industries what he called the  Commanding Heights of the economy; Lenin dead; believed history was on their side; next 30 years; one third of the world would live; 

Stalin introduced central planning; managed every aspect of the economy;   

4 – A Capitalist Collapse  (18.21)

     Vienna, 1923; economic consequences of the peace; simp0ly printed more money; 

      hyper-inflation; billions of marks for bread; Hayek needed 200 pay raises in 8 

      months;   33 trillion marks in 1923; glass of beer a billion marks; wiped out savings 

       of the middle class; one of the reasons for success of the Nazis; Hayek – the evils of 

       inflation; 1920s American boom time; stock market; a national past time; radio, the 

        internet of the 1920s; RCA; $600 a share; Black Thursday, bubble burst; 

       a complete and utter collapse; no ability to earn, re-pay, spend, consume 

       with it the banks; runs to withdraw; lost everything; half of all banks closed; govt.    

       made it worse; virtual standstill; breadlines, soup kitchens; 15 million unemployed; 

       Fascism cast it’s shadow; Keynes saw nightmare coming true; set out to save capitalism from itself; wrote a book about depression; right it’s wrongs; inventor of macro-economics; potential collapse of democratic government; democracy/liberty loosing ground; an answer to the Great Depression, or swamped by totalitarianism; 

5 – Global Depression   27.10 

FDR inauguration; voice of confidence; whirlwind program of reform; war with 

Great Depression; people back to work; public works; regulating capitalism against reckless of unfettered economy; feared they whole system had failed; industry … new rules and regulations; unstable airline industry; govt. set prices, routes; eliminated boom and bust cycles .. aim to do it to entire economy; Keynes published General Theory; govt. possible to “Manage” economies; full unemployment; govt. spend aginst the wind; purchasing power into unemployment cured without concentration camps; Harvard University, Galbraith;  

6 – Worldwide War  32.35

     World War II; became govt. policy; pumped money into economy; depression disappeared; Galbraith; demonstration of Keynesian ideas; Keynes – what worked in war could work in peace; London, 1944; Hayek: London school of Economics; a step in the wrong direction; wrote the Road to Serfdom; to much govt. control, power; make people slaves; first step towards a totalitarian state;  freedom was an absolute; let system work itself out; always rejected macroeconomics; rejected govt. participation in Gr. Dep; Keynes – more planning; Hayek on losing side; treated by academics as a malicious attempt ; Breton Woods; organize post-war economy; World Bank, International Monetary Fund created to prevent future Depressions; idealism and humanity were an “inspiration (37.xx);  

7 – Planning the Peace  39.45

     Britain, 1945; general election; governed by a coalition of conservatives and socialists; Churchill expected easy victory; Clement Atlee, Labor  Party– planning won the – planning would win the peace; system of “fair shares” continue after the war; Churchill, influenced by Hayek, opposed controls; people voted for new socialist govt.  we don’t trust him to win the peace; build a New Jerusalem; owners compelled to sell businesses;  AMIXED economy ; state and privately owned businesses; the WELFARE STATE; from womb to tomb; fear nothing; gamblers only interested in profit; Russia a military and industrial giant; imposed on half of Europe; “scientific socialism” on the rise (45.45); capitalism on the retreat; world divide; the COLD WAR had begun   

8 – Pilgrim Mountain   46.21

     Switzerland, 1947; Hayek saw socialism and planned economy as threats to freedom; organized conference; survivors who understood market economy; Milton Friedman – freedom was in danger; we had to develop intellectual current; met in bar; democracy impossible without free economy; van Meses – one great lesson to learn from the socialists; the courage to be idealist; a vision worked through thick and thin; a long battle before world changed it’s mind; one gleam of light

9 – Germany’s Bold Move   50.07

       economy disintegrated; Soviets occupied east, waited for western half to fall into it’s lap; Ludwig Earhardt; staunch anti-Nazi; allied economic rules making a bad situation worse; Friedman: wage and price controls never control inflation; American cigarettes new currency; startling announcement: decided to give up all price controls (against allied leaders wishes) – What are you doing?- a big mistake?; overnight the black market disappeared, hording stopped; products not seen for 10 years re-appeared; that began the German economic miracle; combined free markets with a social welfare state; no one wanted to model themselves on 

10 – India’s Way  54.14

      Delhi, 1947; celebrated it’s freedom; Gandhi’s economic ideal; simple, self-sufficient villages; Nehru wanted to industrialize, combine British Parliamentary system with Soviet-style central planning; Mecca of all economists; advising Indian govt.; steel coal, capital goods in public sector; faith in technology and science; mass poverty; central planning a form of science; how to plan an economy; expressed entire Indian economy in a single mathematical formula “perfect mathematical model; new model for developing nations; all over Africa, South America; the way out of poverty, way to modernize; seemong successes of Soviets and China

11 – Chicago Against the Tide   58.13

      Hayek – only one university willing to hire him; Chicago; out of the mainstream; geographically isolated; intellectual influence would grow; Nobel Prizes; stimulating atmosphere; Friedman’s class; ideas and argument; no manners; call that guy right now; spirit of work shop system; lunches famous for intensity of intellectual argument; everyone loves to argue with Milton (Friedman); spokes,am for “Chicago School” – limited govt., free markets as way to control economy; a devil figure to Keynes-ians; individualism, unconcerned with “fairness”; “forces” of the markets, like wind and tides, if you ignore them, it’s at your peril; in Washington, Keynes still king of the hill; his influence can’t be underestimated; if you have bad outcomes, it’s only because govt. is not doing enough; not a force of nature, but a sophisticated machine to be “fine-tuned”; JFK honorary Yale degree; the battle was over; practical management of a modern economy; Keynesian; we had won the heart and mind of the President; Keynesian economics delivering the goods; Europe, Japan, America all enjoyed rising standard of living, undreamed of before the war; the 30 dream years 

12 – The Specter of Stagflation  1:05.50

     Hayek moved back to Austria; depressed; ideas not fashionable; he was alone; ideas shunned by the academic world; stagnation and inflation rising at the same time; STAGFLATION;  after 30 years of growth, the American economy was in trouble; a malaise; NIXON tried to spend his way out of trouble; he said he was a Keynes-ian; he decided he hadn’t gone far enough; Ben Stein; Dick Cheney a yound aide at the time; feeze on food prices?; supposedly conservative, wage and price controls; in favor of doing something; new economic policy for the U.S.; quoted Krushchev; he was willing to sacrifice for political benefits; voters liked it; the economy went out of whack; producers could not cover costs; CREATING SHORTAGES; prices kept on rising; 

13 – A Mixed Economy Flounders   1:12.12

       London, 1973; Bitain’s economy, deadly combination of unemployment and inflation; in theory, believed in markets; in practice, used wage and price controls; meeting to determine how much plumbers, taxis, hairdressers could charge; coal mining strike and oil crisis; voted conservatives out; the disease of strikes; Heath Joseph: I thought I was a conservative; in favor of shortcuts to utopia; impatient for good things to come;took intellect offensive, making case for capitalism; 

14 – Deregulation Takes Off  1:20.46

           Chicago, 1974; U.S. sorst downturn since great Depression; Yom Kippur War, Oil Embargo; prices of everything kept rising; Chicago School: rigid govt. raised prices; could competition break inflation?; AIRLINE industry; same regulations since Depression; Senate investigation

15 – Thatcher Takes the Helm   1:28.14

         Britain, 1979; winter of discontent; filthy communist unions; ambulances, grave diggers; seeming terminal economic decline; Thatcher elected; Hayek – best gift for his 80thbirthday; Hayek and her exchanged letters; this had to end; squeezed govt. spending; cut subsidies; many saw her as uncaring; not time for Keynesian economists; said she would cause Depression; not being kind or caring; the battle lines were drawn; 

16 – Reagan Rides In   1:32.10

       Things at a low point in the U.S.; malaise; Teheran hostages; inflation at record heights; Carter’s efforts to sepnd way out of trouble not working; Carter high point of stagflation; Paul Volcker appointed Federal Reserve chairman; steeped in ideas of Austrian School of Economics; inflation worst of all economic evils; Keynesians- a little inflation good; Volcker: became like an anti-biotic, useless fom overuse; constricted money supply; Carter against this in election year; Reagan knew Hayek and Friedman personally; with Reagan as their spokeman; plan your own life, spend your own money; the President using govt. to solve the problems created by too much govt;

Obviously, who wants a recession;  REAGAN: “If not now when, if not us Who?; .unemployment 10%; how tough it would be; all high interest rates (20% or more); creditors forced sales; it took three years, but by 1982, the dragon of inflation had been slain; a very different environment than the 1950s and 1960s; a new economic courcse; undo economic wreckage; REAGANOMICS 1)SOUND MONEY; 2)DEREGUALATION; 3)MODEST TAX RATES;  4)LIMITED GOVT. SPENDING; Reagan vilified; biggest tax cuts in history; huge deficits; economy began to grow steadily; Friedman- unleashed forces of the free economy; since 1983, it’s only been working it’s way up 

17 – War in the South Atlantic   (1:40.21)

        Falklands Conflict

18 – The Heights Go up for Sale   (1:42.10)

       state run industrials the enemy; nationalization had bee the cure for economic problems; Thatcher: inefficient; end dependence on govt. subsidies; high prices; could not make a profit; coal mines last bastion of socialist mind-set; Thatcher’s confrontation’ pouring tax payers money; hughely expensive to get out; 75% losing money; cost $3 billion a year to keep them going; Union leader: no mine closed until the coal runs out; loss of 70,000 jobs; epic clash; socialist vs. capitalist; free market against state ownership: power – who ruled Britain; violent clashed with police; an enemy out to destroy us, a set of values Thatcher can’t understand; socialism and Christianity; held out for more than a year; strike collapses; failed; today less than 3000 work in the mines; you can see the wasteland; no prospects, future, despairing, can’t find employment, the dignity; the market forces gone mad;  assumed markets were not in public interest; markets are in the public interest; privatization; selling shares to the public; sold off into the public; who controls: govt. or markets?; 

19 – The Battle Decided?   1:50.12

imitated world wide; tide had swung; Hayek saw Fascism come and go; power of his ideas, captured by Reagan and Thatcher; the market that harnesses people’s initiate; not to suppress, use market forces … in  “progressive” ways; back to where we were at the start of the century;  within 10 years govts. Would swing back from the Commanding Heights; response in time of war?      END 1:53.45  

                                Disk Two  –  The Agony of Reform

                                Disk Three – The New Rules of the Game