Capitalism and the Jews; M. Friedman

I. PARADOX EXPOSED Postwar Collectivism in the West I mmediately after the Second World War, the prospects for freedom looked bleak. The war had produced an unprecedented centralization of economic controls in every belligerent country. The "socialists of all parties, " to whom F. A. Hayek dedicated his brilliant polemic The Road to Serfdom, seemed well on their way to establishing central plan ning as the standard for peace as for war, pointing triumphantly to the full employment that had been produced by inflationary war fi nance as decisive evidence for the superiority of central planning over capitalist chaos. And, if that occurred, there seemed little hope of halting the slide toward full-fledged collec tivism. Fortunately, those fears have not been real ized over the intervening years. On the con trary, government inefficiency together with the clear conflict between central planning and individual freedom served to check the trend Milton Friedman, recipient of the 1976 Nobel Memorial Prize in Economic Science. is a Senior Research Fellow at the Hoover Institution. This article is reprinted with the permission of Encounter and The Fraser Institute.

towards collectivism. In Britain, in France, in the U.S., wartime controls were dismantled and market mechanisms were given greater play. In West Germany, the courageous action of Ludwig Erhard in ending controls in the summer of 1948 triggered the so-called German economic miracle. Even behind the Iron Cur tain, Yugoslavia broke with its Soviet masters, rejected detailed control of the economy, and treated us to the surprising vision of creeping capitalism in an avowedly communist society. Unfortunately, these checks to collectivism did not check the growth of government. Rather, they diverted that growth from central direction of the economy to central control of the distribution of the product, to the wholesale transfer of income from some members of the community to others. The Collectivist Trend in Ideas Much more important and much more rele vant to our society, the faVorable trends in the world of affairs were not paralleled in the world of ideas. For a time, there was an intellectual reaction against governmental intervention.

Some of us optimistically envisioned a resur gence of liberal values, the emergence of a new trend of opinion favorable to a free society. But any such resurgence was spotty and short-lived. Intellectual opinion in the West has again started moving in a collectivist direction. Many of the slogans are individualist-participatory democracy, down with the establishment, "do your own thing," "power to the people. " But the slogans are accompanied by attacks on pri386 THE FREEMAN. OCTOBER 1988 vate property and free enterprise-the only in stitutions capable of achieving the individual istic objectives. They are accompanied by a de mand for centralized political power-but with "good" people instead of "bad" people exer cising the power. West Germany is perhaps the most striking example of the paradoxical developments in the world of affairs and the world of ideas. Who could ask for a better comparison of two sets of institutions than East and West Germany have provided in the past two decades? Here are people of the same blood, the same civiliza tion, the same level of 'technical skill and knowledge, torn asunder by the accidents of warfare. The one adopts central direction; the other adopts a social market economy. Which has to build a wall to keep its citizens from leaving? On which side of the wall is there tyr anny and misery; on which side, freedom and affluence? Yet despite this dramatic demonstra tion, despite the Nazi experience-which alone might be expected to immunize a society for a century against collectivism-the intel lectual climate in Germany, I am told, is over whelmingly collectivist-in the schools, the universities, the mass media alike.

This paradox is a major challenge to those of us who believe in freedom. Why have we been so unsuccessful in persuading intellectuals everywhere of our views? Our opponents would give the obvious answer: because we are wrong and they are right. Until we can answer them and ourselves in some other way, we cannot reject their answer, we cannot be sure we are right. And until we find a satisfactory answer, we are not likely to succeed in changing the climate of opinion. The Jews as an Example of the· Paradox My aim here is not to give a ready answer for I have none. My aim is rather to examine a particular case of paradox - the attitude of Jews toward capitalism. Two propositions can be readily demonstrated: first, the Jews owe an enormous debt to free enterprise and competi tive capitalism; second, for at least the past century the Jews have been consistently op posed to capitalism and have done much on an ideological level to undermine it. How can these propositions be reconciled?

I was led to examine this paradox partly for obvious personal reasons. Some of us are ac customed to being members of an intellectual minority, to being accused by fellow intellec tuals of being reactionaries or apologists or just plain nuts. But those of us who are also Jewish are even more embattled, being regarded not only as intellectual deviants but also as traitors to a supposed cultural and national tradition. This personal interest was reinforced by the hope that study of this special case might offer a clue to the general paradox - typified by West Germany where Jews playa minor role. Unfortunately, that hope has not been fulfilled. I believe that I can explain to a very large ex tent the anti-capitalist tendency among Jews, but the most important elements of the explana tion are peculiar to the special case and cannot readily be generalized. I trust that others will be more successful.

II. THE BENEFIT JEWS HAVE DERIVED FROM CAPITALISM An Anecdote and Some History Let me start by briefly documenting the first proposition: that the Jews owe an enormous debt to capitalism. The feature of capitalism that has benefited the Jews has, of course, been competition. 1 Wherever there is a monopoly, whether it be private or governmental, there is room for the application of arbitrary criteria in the selection of the beneficiaries of the mo nopoly - whether these criteria be color of skin, religion, national origin or what not. Where there is free competition, only perfor mance counts. The market is color blind. No one who goes to the market to buy bread knows or cares whether the wheat was grown by a Jew, Catholic, Protestant, Muslim, or atheist; by whites or blacks. Any miller who wishes to express his personal prejudices by buying only from preferred groups is at a competitive disad vantage, since he is keeping himself from buying from the cheapest source. He can ex press his prejudice, but he will have to do so at CAPITALISM AND THE JEWS 387 A Jewish banker lends money to a nobleman. (1487) THE BETTMANN ARCHIVE his own expense, accepting a lower monetary income than he could otherwise earn.

A recent personal experience illuminates sharply the importance of competition. Some years ago, I attended an International Monetary Conference held in Montreal. The persons there consisted, on the one hand, of members of the Conference, who include the two top execu tives of the major commercial banks throughout the world; on the other, of persons like myself invited as speakers or participants in panel dis cussions. A conversation with an American banker present who recounted a tale of anti-Se mitism in American banking led me to estimate roughly the fraction of the two groups who were Jewish. Of the first group-the bankers proper-I estimated that about 1 per cent were Jewish. Of the much smaller second group, the invited participants in the program, roughly 25 per cent were Jewish. Why the difference? Because banking today is everywhere monopolistic in the sense that there is no free entry. Government permission or a franchise is required. On the other hand, intellectual activity of the kind that would recommend persons for the program is a highly competitive industry with almost completely free entry.

This example is particularly striking because banking is hardly a field, like, say, iron and steel, in which Jews have never played an im portant role. On the contrary, for centuries Jews were a major if not dominant element in banking and particularly in international banking. But when that was true, banking was an industry with rather free entry. Jews pros pered in it for that reason and also because they had a comparative advantage arising from the Church's views on usury, the dispersion of Jews throughout the world, and their usefulness to ruling monarchs precisely because of the iso lation of the Jews from the rest of the commu nity.2 This anecdote illuminates much history. Throughout the nearly two thousand years of the Diaspora, Jews were repeatedly discrimi nated against, restricted in the activities they could undertake, on occasion expelled en masse, as in 1492 from Spain, and often the object of the extreme hostility of the peoples 388 THE FREEMAN. OCTOBER 1988 among whom they lived. They were able none theless to exist because of the absence of a to talitarian state, so that there were always some market elements, some activities open to them to enter. In particular, the fragmented political structure and the numerous separate sovereign ties meant that international trade and finance in particular escaped close control, which is why Jews were so prominent in this area. It is no accident that Nazi Germany and Soviet Russia, the two most totalitarian societies in the past two thousand years (modem China perhaps excepted), also offer the most extreme ex amples of official and effective anti-Semitism.

If we come to more recent time, Jews have flourished most in those countries in which competitive capitalism had the greatest scope: Holland in the sixteenth and seventeenth cen turies, and Britain and the U.S. in the nine teenth and twentieth centuries, Germany in the late nineteenth and early twentieth century-a case that is particularly pertinent when that pe riod is compared with the Hitler period.3 Freedom of Entry and Jewish Representation Moreover, within those countries, Jews have flourished most in the sectors that have the freest entry and are in that sense most competi tive. Compare the experience of the Jews in banking, that I have referred to, with their ex perience in retail trade, which has been almost a prototype of the textbook image of perfect competition and free entry. Or compare their minor role in large industry with their promi nence in the professions such as law, medicine, accountancy and the like.4 Though there are barriers to entry in the professions, too, once past the initial barriers, there is a large measure of free competition for custom. Even the differ ences within the professions illustrate my theme. In the U.S., for which I know the de tails, there was for a long time a major differ ence between medicine and law in the extent to which state licensure was an effective bar to entry. For reasons that are not relevant here, there was significant restriction of entry in medicine, relatively little in law. And Jews were proportionately much more numerous in law than in medicine.

The movie industry in the U.S. was a new industry and for that reason open to all. Jews became a major factor and this carried over to radio and television when they came on the scene. But now that government control and regulation has become more and more impor tant, I am under the impression that the Jewish role in radio and T.V. is declining. Capitalism and Israel A rather different example of the benefits Jews have derived from competitive capitalism is provided by Israel, and this in a dual sense. First, Israel would hardly have been viable without the massive contributions that it re ceived from world Jewry, primarily from the U.S., secondarily from Britain and other Western capitalist countries. Suppose these countries had been socialist. The hypothetical socialist countries might conceivably have con tributed, but if so they would have done so for very different reasons and with very different conditions attached. Compare Soviet aid to Egypt or official U.S. aid to Israel with private contributions. In a capitalist system, any group, however small a minority, can use its own re sources as it wishes, without seeking or getting the permission of the majority.

Second, within Israel, despite all the talk of central control, the reality is that rapid develop ment has been primarily the product of private initiative. After my first extended visit to Israel two decades ago, I concluded that two tradi tions were at work in Israel: an ancient one, going back nearly two thousand years, of finding ways around governmental restrictions; a modem one, going back a century, of belief in "democratic socialism" and "central plan ning. " Fortunately for Israel, the first tradition has proved far more potent than the second. To summarize: Except for the sporadic pro tection of individual monarchs to whom they were useful, Jews have seldom benefited from governmental intervention on their behalf. They have flourished when and only when there has been a widespread acceptance by the public at large of the general doctrine of non intervention, so that a large measure of compet itive capitalism and of tolerance for all groups has prevailed. They have flourished then despite continued widespread anti-Semitic preju dice because the general belief in non-interven tion was more powerful than the specific urge to discriminate against the Jews.

III. THE ANTI-CAPITALIST MENTALITY OF THE JEWS Despite this record, for the past century, the Jews have been a stronghold of anti-capitalist sentiment. From Karl Marx through Leon Trotsky to Herbert Marcuse, a siz~ble fraction of the revolutionary anti-capitalist literature has been authored by Jews. Communist parties in all countries, including the party that achieved revolution in Russia but also present-day Com munist parties in Western countries, and espe cially in the U.S.,5 have been run and manned to a disproportionate extent by Jews-though I hasten to add that only a tiny fraction of Jews have ever been members of the Communist party. Jews have been equally active in the less-revolutionary socialist movements in all countries, as intellectuals generating socialist literature, as active participants in leadership, and as members. Coming still closer to the center, in Britain the Jewish vote and participation is predomi nantly in the Labor party, in the U.S., in the left wing of the Democratic party. The party programs of the so-called right-wing parties in Israel would be regarded as "liberal," in the modem sense, almost everywhere else. These phenomena are so well known that they require little elaboration or documentation.6 IV. WHY THE ANTI CAPITALIST MENTALITY?