Editing Milton Friedman, Publishing Ayn Rand, and Meeting Rose Lane: An Interview With Orval Watts

An interview with Orval Watts, former FEE economist, editor, and a distinguished fellow.

Vernon Orval Watts (1898-1993) was a leading free-market economist of the World War II era and the former Editorial Director of the Foundation for Economic Education

Watts graduated from the University of Manitoba in 1918 and went on to receive an M.A. and PhD from Harvard University (1923). In 1939, shortly after publication of his work Why Are We so Prosperous, Watts was tapped by FEE's Leonard Read, then executive director of the Los Angeles Chamber of Commerce, to be the chamber's economist, becoming the first full-time economist to be employed by a chapter of the Chamber of Commerce. Read would later make Watts the chief economist at FEE. 

In the mid 1970s, Watts was interviewed by Dall Wilson, a young features writer and photographer.* The interview, which was never published, took place in Watts's office at Campbell College in Buies Creek, North Carolina. In 2019, Wilson shared with FEE a transcript of the interview. (Note: Wilson's comments have been edited out unless necessary for clarity.) 

DALL WILSON: How did you meet economist Milton Friedman?

WATTS: I was editing a piece that Friedman had submitted to the Foundation For Economic Education where I was in charge of the editing and writing publications. His piece done with Stigler when they were both fresh out of graduate school was called "roofs" or "ceilings" and it was on rent control. It was very good except for a few dead rats or "give-aways." I got all of them changed or eliminated. Stigler at least was quite cooperative. All of them except one. This one ran something like this, "equality is a very desirable goal but there are better ways of achieving it than by rent control." I wanted to eliminate that passage.

Friedman refused, wouldn't budge an inch.

So I added an editor's footnote, signed my name to it so that he'd know and said that at least some economists regard equality of opportunity as a desirable goal and one of the ways of achieving it is to eliminate special privileges such as protective tariffs, subsidies and I mentioned some other things. When it came out in print he hit the roof because that wasn't what he meant at the time. He meant progressive income taxes. And I was pretty sure he did, taxes on profits, that sort of thing. He was pretty much full of, at least he had some of the New Deal bugs clinging to him, and I was a good deal freer of them than he was then. I met him again when he talked to students at the Freedom School in Colorado Springs.

Another person I published was Ayn Rand, she came to me with a small novel almost a poem, called Anthem that nobody would print.

Bob Lefevre was operating the Freedom School and he had me there as Dean in '63 and '64. He had men like Friedman come for a week to give lectures, oh about six hours a day. They worked hard for their thousand dollars apiece a week [laughs]. I brought this matter up somehow or other in conversation with Friedman, and he was sore as ever. "That was the lousiest trick, the dirtiest trick," he said, adding that he ought to sue me [laughs] for altering his manuscript. Well, I didn't alter his manuscript, I didn't alter a comma without their permission. This was an editor's footnote. As far as I know, the publisher's entitled to do such things.

I think he has changed enough so that now he would modify this statement and change it to "equality of opportunity" instead of what he put previously. I knew at the time he was thinking "equality of results" through progressive income taxes, that sort of thing. (Equality through the law instead of before the law.) Another person I published was Ayn Rand, she came to me with a small novel almost a poem, called Anthem that nobody would print, and we published it first to help her out.

DALL WILSON: How do you describe yourself as an economist? For example, do you call yourself an Austrian economist?

WATTS: I can review in my mind the thought of the Austrians and see at what point I find I disagree with them, and there are a number of men in the Austrian School. I don't use very much of their terminology nor of the analysis. I'd rather not put myself in a category of that sort. I don't think I had any particular disagreements with von Mises who I knew well. We had frequent conversations.

I was a socialist and I wanted to go to the most conservative institution I could find—Harvard—to try it out, to test my socialism.

I disagreed with something he seemed to say on the question of money, which [Murray] Rothbard and others took up. Namely that bank notes and bank deposits ought to be backed a hundred percent by gold. I think that's out of the question, not because it's impossible but because it would stop the proper use of credit. Or at least it would stop bank credit and just cause individuals to resort to other credit instruments, other than bank notes or bank deposits. On the deposits, the gold standard, credit is really more important than money. I distinguish between credit currency and money.

Money is legal tender, the final complete means of payment for obligation, or any medium of exchange which is used as a final complete means of payment. I would give individuals freedom, businessmen and companies freedom, to make their contracts in the terms they wished. But when they're free to do so they usually make them in terms of a currency that is redeemable in gold.

Rothbard seems to think the bank shouldn't put out anything which isn't backed a hundred percent with gold. I say if it's redeemable in gold, that's just as good. You don't need to build a bridge big enough to handle all the traffic that's ever going to go over it—at once. You don't need currency, as distinct from money, that is going to be redeemed all at once, if you are careful and prudent in bank management, and are making loans for productive purposes to produce goods which can be sold for the cost of production. You're providing a service, an endorsement of credit which is just as important as printing—or the issue rather—of gold-back currency.

You may need reserves to back your credit instruments, you may need even to write in on the credit instruments that they are redeemable effective within thirty days. They don't need to be backed a hundred percent by gold. Furthermore, I disagree that the gold standard means that the government has anything to do about the money, except write into law the commonly accepted definition of the dollar, as a government keeps a standard of weights and measures. As a meter is so long, so they can say that a dollar is so many grains of gold, if that has been commonly accepted among businessmen. That's the way the gold standard originated. That's the way the definition of money was set, setting the price of gold. It is defining the meaning of the word "dollar," or "pound" or "franc." The function of government should be not to define it, but record it, it should be some recording agency.

One of the most important reasons for giving that human being freedom is so he can find out what he's capable of.

They should have sanctions, someone to enforce the sanctions, when they are using the printer making contracts in terms of this. If they are agreed upon, if the businessmen have agreed in their contracts that "dollar" means so many grains of silver or gold, as far as I know, there has to be an enforcement agency of some sort. Perhaps as an ideal far enough in the future would be a private enforcement agency, that's been done before, there's been quite a bit of private enforcement. Maybe the ideal is private government if you can imagine such a thing. If when you get reading history and the experiments contrived in social organization in this country and elsewhere, I don't mean the communistic countries, but I mean the way Ben Franklin raised money for, say, sweeping the streets or building a meeting house by private subscription. The way in which they collected taxes in most of the colonies, that is local taxes, and levied them before the constitution was adopted, the collection of taxes in colonial days by the local government was very much like the Community Chest drive. They had a town meeting in which they voted on how much they were going to spend and what for.

The electorate appointed somebody who was the tax collector, like John Adams's father, one of the most respected influential citizens, just as you choose a man to head the Community Chest. He decided what each should pay, and as far as I know, he had no police powers with him when he went around to collect. He had to say to this person, you ought to pay so much and I put you down for this, and to another person for another amount. Very much as you raise Community Chest funds or the way a fee is collected for a trade association. The members decide if they are going to charge on the volume of sales or a fixed fee, say one hundred dollars for somebody who has so many employees and two hundred dollars for somebody else and so on. A Chamber of Commerce collects its fees in a similar way. And that is the way which you could collect taxes if government functioning is reduced to the point I would put them.

DALL WILSON: You were born in Canada, and came to the US....

WATTS: I was born in Ontario. I came to the US with my father who was a Methodist preacher. He got married before he was ordained. That meant he couldn't be a preacher in Canada. As a matter of fact, he had gone into what was then regarded as a job, and it was doing very well, and he was afraid he was doing so well he was going to lose his soul. You know what the Bible says about a rich man, it's going to be hard for him to get to heaven.

We had no fresh vegetables, no fresh fruits. We lived on potatoes and skim milk a lot of the time. And bread, white bread.

And so he thought he better get into ministry before he lost his soul making money. He was a very good businessman. So he went down to North Dakota, where it was then a missionary field, where he could preach even though he had us along as a drag. Even if he didn't look on us that way. At any rate, in the first circuit he got, the church had a thousand-dollar mortgage on it. A thousand dollars, which was then quite a bit of money, was just exactly what he had in the bank account, or just about, so he went to raise the mortgage on the church.

After that we lived entirely on the Lord's Prayers—the Lord's [laughs] good bounty, on the bounty of the parishioners, forty dollars cash the first winter. The rest was in occasional gifts of skim milk. One man gave us an occasional bag of coal. We burnt buffalo chips a good bit of the time for fuel. And nearly froze to death in northern North Dakota. We were snowed in once and had to be dug out by a neighbor. I think there were about three or four houses in town. The house that we lived in wasn't plastered. I tell my students I lived in poverty as deep as any American living today. We had, well, we just didn't have enough to live on. There wasn't enough food. That was before the days of refrigerated cars or insulated cars. At any rate, the trains in the wintertime would frequently not come through for two weeks.

We had no fresh vegetables, no fresh fruits. We lived on potatoes and skim milk a lot of the time. And bread, white bread of course, which keeps better of course. And had a very inadequate diet. This is the reason I'm three inches shorter than average for my parents, uncles and the rest of the family and a lot lighter in weight. At any rate, he preached for ten years. Got an ulcer bad trying to save everybody every other Sunday. He was a very good preacher. But he felt too much responsibility, I guess, for doing the work of the Lord. But this ulcer put him out of the ministry, and he went back up to Canada. Then I went to college there and came back down here for graduate work and have been here ever since. I graduated fall of 1920 from University of Manitoba, and came to the USA in fall of 1921.

I distinguish between accountability and responsibility. Animals are accountable but humans are accountable and responsible.

I was a socialist and I wanted to go to the most conservative institution I could find—Harvard—to try it out, to test my socialism. I had attended socialist meetings in Canada during the War, and also had the influence of John Stuart Mill and the economists who were considered "free enterprise" by using modern terms. We called them "Liberals" then, but they actually had an inconsistent point of view. That is they had give-aways. They made concessions to government, as Adam Smith did with the courts case. They weren't really principled. Other than that, the man most influential in converting me from socialism, showing me the folly of it, was at the LA Chamber of Commerce. When I was an economist there I submitted a paper to be published.

He turned it down, because of the many things he wanted government to do, to rectify the supposed effects of private enterprise. So I did some more research. There is much more principled free-enterprise thought today even in colleges, than there was when I was going to college. Young men are apt to be more consistent than their teachers. If you apply some of these principles consistently you come out at extreme positions, such as that of communal-socialism whereas your teacher is only an interventionist.

You have Adam Smith and others who were saying things such as government should do whatever private enterprise doesn't do or is incapable of doing. That opens the door wide to anything that you consider private enterprise is not doing to your satisfaction. So you call and you say, this is what government should do. The next thing you know you've turned everything over to government. There wasn't the emphasis then, especially in Britain, that there is now, on government as an agency of force, of coercion. That was a new idea to me when I went to graduate school at Harvard, that government was an agency of coercion. I had the collectivistic, socialistic idea that government is the people or expressing the will of the people—or it ought to.

That this was the people speaking, or it could speak for the people. I was very much influenced by [Walter] Bagehot's essay on "government by discussion." That's the ideal for the British government. He looked on the British government as government by discussion. They did have a lot of free speech, and they did have a lot of discussion before the votes were taken. However, during the period when Britain was restoring freedom, it was not a democracy. The suffrage was very much limited. From Adam Smith's time until at least 1860 or '70 Britain was moving toward greater freedom, repealing of various restrictions such as the corn tax, settlement tax, settlement laws, and was becoming freer, but it was a period of reaction against the restrictionism of the earlier periods. Perhaps you could call it a continuation of something that represents the heart of the modern era.

The reaction is already evident in this country against the restrictionism of the last fifty years. I look for more. The restrictionism really began in this country with the Federal Reserve Act and, the passing of the income tax amendment just before World War I. We had a steady rise in the amount of interventionism since then. Now I think it's quite evident that there is the beginning of a swing away from that interventionism. In the campaign speeches of both parties now you'll find them denouncing big government, big spending and restrictions of various sorts. They feel there is a change in popular opinion. There is. And a number of states, about thirty-six, have repealed the fair-trade laws.

The longer I live and the longer I try to teach, the less confidence I have in my ability to teach anybody, or educate anybody, even myself.

So I arrived in Cambridge at Harvard as a socialist, doing graduate work in Economics. It took a year and a half to cure my socialism. In the middle of the semester during the first term of the second year, the examinations, I suddenly realized that socialism was completely impractical.

And I sat down and wrote my father a letter while I was preparing for the examination, I think in Public Finance. I said I'm no longer a socialist, socialism just doesn't work. Every time government takes hold of an industry, it reduces efficiency, increases costs, gives less service. And socialism is government control and ownership of industry. And I'm against it. Socialism just doesn't work anyplace...anywhere...anytime. Just a complete flop-over as the evidence accumulates. So in the study of economic history, public finance in England, France and Germany, the United States, I began to see that the evils that I had been attributing to private enterprise, when traced back, were generally due to government interference with private enterprise.

About ten years later the Keynseian wave swept through Harvard. It was rather interesting. I was there when Harvard changed from one of the most conservative institutions to one of the most liberal. And it changed in the 1920s and 1930s. It was beginning in 1925, along there. And, of course, the change was taking place worldwide. Socialism was on an upswing from the time of John Gray and in England of Karl Marx. Socialist thought was on the upswing and getting into the colleges before WWI. The 1920s socialist cells were forming. I really think the development of socialism in this country and socialist thought in the world at large came with the spread of tax-supported schools. Miscalled "public education."

Tax-supported schooling cultivates the idea that the "experts" know more than the average individual what's good for him. And that these experts ought to be in charge of government, in charge of the person's affairs, so to the limit of his inclination and time this "expert" ought to be in charge of the individual's affairs. And teachers think that they should take children from a home and force them to go to school, under them, and study what they think the child should study and what they and their crowd write. And to think that other people who may not have children at all should pay for this because it's good for "society" or for everybody. These people who are doing this, a lot of them, have to rationalize their efforts. They become socialistic in their thinking with regard to schooling.

If government officialism, if government force should be used to direct the thinking of children and young people for the so-called good of society, why stop there? If it can do that, efficiently, effectively, if it can make better individuals that way, why not extend government influence in other directions? Now actually government could run an automobile factory better and more efficiently than it can run a school.

FDR said, 'We've licked Mr. Depression. Now we will institute the New Deal.' He introduced his reforms in the summer of '33. Stopped the recovery right in its tracks.

People have got a very false idea about education because government took it over. One of several false ideas, of course, which are cultivated by politicians by their effort to rationalize government coercion, is that schooling or education is a comparatively simple matter. That you can write out a curriculum. That you can say what students should study, that you can pick by examinations such as civil service exams people who can do the teaching.

In other words, you can reduce it to blueprints an engineer would prepare to build a building of a certain sort. And actually, education in a true sense of the word, is one of the most complicated and difficult of all occupations. The longer I live and the longer I try to teach, the less confidence I have in my ability to teach anybody, or educate anybody, even myself. We're making considerable advances, I think, in knowledge of what humans are like, the nature of human beings, and what a good human being is compared to an inferior human being. We have, I think, somewhat clearer ideas. The socialist thinks of humans as, of course, animals or machines. They think that if you treat people like contented cows, if you give them the conditions that would make cows contented, that is, a proper environment, that would make good people the way you make good milk cows.

And then engineers think of them as machines like computers. Keep them well-oiled and the right temperature and call in a repairman every now and then [laughs]. Whatever you do to a computer to keep it running well, an expert, you can keep a human running smoothly like a machine. And they rule out the peculiar character of all life as well as human beings, that it is self-controlling. That every human being, in fact every living creature, is different from every human being or every living creature. That life is creative, that it is accountable, that is, living things can die, in that respect, they are different from machines. Machines break down, [which] is different from death.

Earning money is one of the most valuable educational experiences any youngster can have. I look on the child labor laws and minimum wage laws as a crime against young people.

You can keep the human machine going as they did this poor girl who is in a coma for months or years, a living death. That was discovered years ago. A scientist kept some chicken liver tissue alive for months or months till he got tired of the experiment and said, I could do this indefinitely. Well, you can do that with the human flesh. But that's not a human being, that's the mechanics, the chemistry, the physics of a human being. But it's not the nature of the human being. And, I said, we're getting to know more about human beings. One of the things we're getting to know isn't anything very definite except that a human being is a mystery. And one of the most important reasons for giving that human being freedom is so he can find out what he's capable of, where it can go, where it will go when it has freedom. And holding it responsible and accountable.

I distinguish between accountability and responsibility. Animals are accountable, but humans are accountable and responsible. When an animal makes a mistake, the mouse may come out into the moonlight and get pounced upon by an owl. It's held accountable for its mistake. But humans are not only accountable, they are responsible because they can calculate the long run results and qualify their behavior accordingly. They can control themselves in the light of the long run affairs, long-run consequences. They can change their conduct at will, in the light of their knowledge which makes them, as I say, responsible for their acts. And only as individuals realize they are responsible, that they can change, accept responsibility and discharge their responsibility, do they become truly human.

And that means freedom. Having responsibility, accepting it, recognizing it, discharging it, that's freedom. That's a conduct called freedom. A human being that's worthy to live in freedom. I think that it's a great mistake to admit that government has to have anything to do with education. We should be voting down every tax increase or bond or any expenditure for the government. And in the legislature, I'd vote against any appropriation for any sort of schooling anywhere including the vouchers. Better than Friedman's idea, of course, would be remitting the taxes to parents of any child who didn't go to the public school. Still better would be to remit the taxes of any parents who didn't have children.

That means remitting taxes for everybody who didn't want to support a school. And that'd mean the end of the tax-supported school system. If people can be trusted to feed their children, of course, that's a doubtful-if now. I mean, it's controversial now as it was not fifty years ago. If parents can be trusted to feed and clothe their children, why can't they be trusted to educate them? And in fact, education is a more difficult and mysterious thing than operating a car factory. This thing should be brought back to the home to a much greater extent. Even school men are beginning to see that and admit it. The parents have to be brought into the educational process if they are going to stop the deterioration, the degeneracy of our school systems. I read about Montessori a little bit many years ago when I was taking courses in the history of education. People I know working in them are quite enthusiastic. I don't think there's any one method of education that's going to be the ideal.

We don't know what the best methods are, in fact, the best method varies with each individual. My father taught me to read before I was five. They used to think it was because I was extra-smart. Now they find people are not extra smart if they learn to read before they're five. I mean that teaching reading before five is possible for almost any child. And he's smarter the rest of his life as a result. In fact, many or most children learn to read about three. And their brains will develop rapidly and further because of that.

Father in his teaching, he used to teach Grade 1. He was a supervising principal, he used to take Grade 1 to show the rest of the faculty what they should be doing in the matter of reading or arithmetic either for that matter. He had his Grade 1 children reading as well as other teachers were doing in Grade 4. And he would take his Grade 1 children up to Grade 4 to show them how they should be reading. He didn't have any failures or drop-outs.

Nothing can do more for your character and personality than working for other people for money in a free-enterprise profit-loss system.

He seemed to be able to teach everybody all the way up through grade 8. He took different grades to show different teachers how they should be taught. He was the finest teacher I ever knew, I went to school with him some, at least attended some of his classes. And my brother and sister did. He tried to teach me to read at an early age by the phonetic method. Then, after that, I was educating myself a great deal. I started school when I was eight. He said he didn't think children should go to school so early.

And of course, I went through the first four grades in a year and a half. Then I escaped another grade a year or two later. It was really a blessing to get through school early, avoiding for me all the problems that older people have when their education or schooling is delayed too long. And when I was out on my own, when I graduated, in fact, I was earning everything except room and board from Freshman on. Then I put myself through graduate school. And of course, it was a valuable part of my schooling. I had to make good grades, of course, to stay in school. My father would have supported me even through high school if I hadn't been seeming to get fairly good grades.

Then in college, I knew he expected good grades, so I worked. But I was also engaged in school activities of various sorts and working in department stores Saturdays and holidays and that sort of thing, getting experience in business. Earning money is one of the most valuable educational experiences any youngster can have. I look on the child labor laws and minimum wage laws as a crime against young people. Robbing them of something much more important than most of what they get in school. You see, education has two sides. One is the giving of information and skills. The other is developing a set of values and a philosophy of life, which is necessary for character and personality.

For the development of character and personality, get out of the classroom and into life as early as possible. Nothing can do more for your character and personality than working for other people for money in a free-enterprise profit-loss system, because the employer is going to insist that you be faithful and regular and show all the fundamentals of good character. The customer's going to insist that you develop some personality, and your employer will too [laughs]. The qualities that attract other people, that make them want to work with you, well, that's two-thirds of the most important aspect of schooling, of education.

Those are most poorly taught in most classrooms, if they're taught at all. The teacher too often doesn't even give a good example of either personality or character and doesn't give the philosophy of life necessary for personality or character. The socialists believe, as Karl Marx did, that the teachings of Moses, let's say, were a trick by the elders or the establishment as we call it now, the employers the capitalist class to exploit the general run of people.

That's the belief of the socialists. And they're also taken in by the communists' teaching that you should never repress any impulse or instinct, or at least don't repress it very long. Maybe you try to be prudent and not get caught, for thievery or rape and so on, let it all hang out. Many teachers have that idea. That psychology has permeated the salt of much of our educational system.

DALL WILSON: Rose Lane wrote in the 1930s that nobody believed in Freudianism anymore.

WATTS: I wouldn't say nobody believes it anymore. I'm surprised she said that. I never heard her say anything like that. And I knew her very well. I'd like to know in what connection she said it. Maybe she meant that "reputable" psychologists no longer believe it. That would be a fair statement I think.

Many of the leading psychologists have repudiated the heart of Freud. See, of course, Freud right in himself fluctuated between various extremes. He wandered all over the place in his teachings. What's attributed to Freud maybe something he said ....

DALL WILSON: You received your PhD in 1932 about five years before Keynes General Theory spread like wildfire.

WATTS: I was being used at Clark University, where I taught before I got my doctorate, and at Antioch College as what the Socialists would think of as the devil's advocate. That is, the colleges had already been infiltrated. At Clark, I was brought in to replace a sociologist and historian who were Socialists. I was brought in to give the other point of view, because the board and the president were free-enterprise, by the head of the economic department in which sociology was a course rather than a field.

The head of the department was a disciple of what would be called a liberal economist. It wasn't long before he found out he didn't agree with my free-enterprise views. Even though my view at that time was a lot less free-enterprise than they are today. As a matter of fact, I was teaching at that time very much the sort of thing that Roosevelt introduced. I never supported anything Roosevelt introduced or that the New Deal stood for, after the first three months. During the first three months, by the way, he did cut government spending.

So Roosevelt said, "We've licked Mr. Depression. Now we will institute the New Deal to see that he never comes back." He introduced his reforms—so-called—in the summer of '33. Stopped the recovery right in its tracks. And initiated a new depression which lasted on through 1934. See the value of the dollar. Really the recovery didn't get going again until the spring of 1935 when the Supreme Court threw out the NRS. Then there was a sharp recovery in '36. In '37, he changed the Supreme Court and did things to make a new depression and increased unemployment which only the war cured. Well, before Roosevelt came in, almost all economists were advocating what he put into the New Deal.

And I was among them. At that time, I thought that the Federal Reserve Board (FRB) should control the money supply to eliminate depressions. I didn't agree with what the FRB was doing in the 1920s because I thought they were inflating the economy. I was then speculating in the stock market and I outguessed it until the winter of 1930-31. But then the depression went on another year farther. My gains turned into losses in that period but I made it up later.

I got in touch with Rose Wilder Lane. I sent her some of my writing thinking she would congratulate me. She sent me back twenty pages of criticism!

I didn't agree with what the FRB was doing, but I thought that was because of the leadership. Just as so many people now think the trouble with the country is the leadership, rather than with the institutions and the thinking of millions of people. And I thought that we just needed a different FRB, that they should be less politically-minded in their policies, something of this sort. But I was in favor of progressive income taxes and inheritance taxation, anti-trust laws, tax- supported schooling. I was in favor of a great deal of or most of the New Deal. When I saw it going in, before the legislation was approved or signed into law, I began estimating effects.

Then I saw the folly of it all.

And I never supported any of them except the Reciprocity Act, which was reducing tariffs. Any way to get the tariffs down, because I was always opposed to protective tariffs. But for the rest of the New Deal.... And yet during this period when I was aborting the FRS no less, I was considered very anti-social. That is, I was still vastly more on the libertarian side than the vast majority of economists. I was very much to the right of the majority of economists, and yet I had these ideas about the FRS right up until probably about 1939. And I was a little bit taken in by Keynes. At first. About 1938 or '39 my thinking underwent another radical change.

DALL WILSON: You knew Rose Wilder Lane, who wrote Discovery of Freedom.

WATTS: Fortunately I got in touch with Rose Wilder Lane. First through correspondence, then by visiting her, another radical change in my thinking took place. I sent her some of my writing to criticize, thinking, of course, she would congratulate me. She sent me back twenty pages of criticism! And made me realize I had a long way to go. My thinking was changing before I met her because I could see the effects of government management on this, that and the other thing. I wrote the book Why We Are So Prosperous, before Rose Lane had any influence on me, before I knew her.

I got those ideas out of my own study of banking over many, many years. I could [see] there was a shortage of equity capital at that time. They said we had excess savings because interest rates were low on loan capital. But interest rates, dividend rates of return on equity capital were quite high. There was a shortage of equity capital. You have to have both. You have to have equity capital to provide a market for loan capital. That is, who's going to guarantee a person gets six percent interest unless there is some equity capital there. The depression had wiped out so much equity capital and frightened off investors. There was a great shortage of equity capital.

And then the progressive income taxes and increase of taxes on profits during that period reduced the supply of equity capital. Those who might have provided it wanted to get into bonds instead of stocks. This unbalance and shortage of equity capital caused the slowing down of the Wall Street money and the apparent shortage of consumer purchasing. It was really a shortage of employer investment and the shortage of investment was from taxes and losses they had suffered and lack of confidence including confidence in the money.

DALL WILSON: Did you have contact with HL Mencken?

WATTS: Contact, no. I read what he was writing with considerable pleasure and not too much disagreement. I was still too much contaminated by the public school psychology that I was willing to see the masses lampooned and ridiculed. That's an attitude very common among intellectuals. Socialists, of course, despise the common man. They are going to provide the leadership for the Communist Party. They are the Communist Party, which consists of the intellectuals. They are going to lead the common man into utopia for his own good. And against his will. Liquidating the proletariat and any who remain stupid enough not to follow along submissively like lambs.

People like Ted Kennedy, to misuse the terminology, the so-called "liberals" of today, think that people can't or won't save for emergencies, that they can't or won't pay for their medical bills, that doctors can't or won't give charitable service to people who can't afford to pay. Yes, they have a contempt for the general run of mankind and for the potentialities of man. The minimum wage law for example. They know, they must know from the evidence if they are capable of knowing anything. Of course, I don't mean they lack intelligence, but when you have a closed mind or when you are determined not to see something, you may be unable to see it.

They must be unable to see the evidence that the minimum wage law is hurting the young people and the unskilled and the low-wage people by denying them the opportunity to get a job or to learn what is necessary to get better pay. It is doing a great injustice to the young people and to the less-skilled workers. The evidence is there, is plain, is presented by the best authorities, including various government studies. And they can't or won't see it. I don't know which, God knows which.

*Special thanks to Dall Wilson for sharing the transcript of this interview. 

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