Originally published: 1962
202 pages
Chapter 25

CAPITALISM AND FREEDOM


Milton Friedman
 
Milton Friedman was perhaps the most widely celebrated of the University of Chicago's eminent economists, one of the numerous Nobel Prize winners in the school's cadre of creative and penetrating economic thinkers. But Friedman was not just a theorist; he was an activist, a proselytizer.
     Capitalism and Freedom, a title that expresses an equation basic to free-market economics, is a slim volume, almost a companion to Henry Hazlitt's Economics in One Lesson (Chapter 24). But whereas Hazlitt explores the fundamental relationship between government tax and spending policy on the one hand and Adam Smith's marketplace on the other, Friedman correlates the effect of the same governmental policies on individualism, that is, personal and economic freedom. In the preface he notes that his intention is to expose some of the myths of government intervention-including the failure of avowed collectivist policies to bring us closer to utopia. His purpose is to help us as individuals understand what we can do to protect and promote our personal and economic liberty. Throughout the book his encouragement to activism is patent.
     Friedman observes that almost invariably it requires a crisis to energize human beings to act. His goal, therefore, is to provide tools to deal with economic crises so when something does happen to motivate us we will be able to address our problems more effectively. Based on an understanding of economics and human nature these tools could best be used, of course, to avoid approaching disaster in the first place,

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but Friedman recognizes that the human condition often gets in the way of such common sense.
     Ultimately, Friedman sought to set a foundation so that what appeared politically impossible-freedom from overweening government-would eventually become politically inescapable. For example, when the socialist ideas of the 1930s and 1940s ultimately failed to bear any of the fruit that was promised, the need to return to the free market became palpable. Friedman and his academic cohorts from around the world provided the philosophy and programs necessary and enunciated some "rules" to ensure that the freed economic system could function efficiently. They wanted the system to be understood and embraced on a personal, a national, and an international level so that collectivist impulses did not again become the answer to the vicissitudes of economic activity-whether in a micro- or macro arena.
     In order to effect their intentions, Friedman and his contemporaries gathered in Switzerland in 1947 and formed the Mont Pelerin Society. Once constituted, this organization and its individual members publicly called to account the fallacies then prevalent in economic thinking. They were successful, to the chagrin of their many critics, beyond almost all expectations, and to them the world owes a great debt-for they allowed rational economic thinking to re-emerge on the global stage.
     Friedman opens his book by dissecting the results obtained when liberal ideas are put into effect and the reality of everyday living vis--vis these ideas puts a face on the law of unintended
consequences. He finds that the implementation of the ubiquitous liberal notion of paternalism is almost always demeaning and destructive of self-confidence and self-sufficiency. Friedman asserts the obvious, namely, that we are individuals. Not only are we quite able to take care of ourselves, but we want to. We don't want to be told how or what to do, or be cared for by government in any measure if we can avoid it. The personal sense of shame felt by those who first find themselves in the welfare line is no less prevalent today than it was in the depths of the Depression. However, those inured to government paternalism and who have been told they are entitled to welfare are taught to lose that sense of personal dignity with which we are all endowed at birth. Thus is born, instead, the culture of dependency. This culture can be reversed-not only for the benefit of the taxpayers but for the individuals whose sense of life has been so grievously distorted. 

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Friedman understands the human impulse toward self-sufficiency; he comments that we would not normally allow or expect anyone else, much less everyone else (by means of government oversight and intrusion) to do for us that which we can better do for ourselves. He avers that those who call for a public effort in this vein do far more harm than good.
     Welfarism simply induces people to postpone deciding when to become responsible for themselves. Friedman's understanding of these matters reflects his view of government as an instrument of people engaged in political action-not as an entity apart from them. Government, which is a continuing personal responsibility for each of us, is our way of arriving at and implementing policy. Conversely, government does not exist either to afford faceless bureaucrats the opportunity to meddle in our affairs or to allow politicians to actualize dreams of how they can better our lives, or assume responsibility for us (and obtain re-election in the bargain by means of their often feckless promises).
     Central to Friedman's thinking is his largely successful effort to grapple with a simple question: how can we keep government bureaucracy and regulation from destroying the freedom on which America is based? Government can be a threat to freedom because of a combination of centralized power and the indulgent attitudes, efforts, and condescensions of misguided politicians and bureaucrats. Friedman offers two time-tested and effective suggestions to counteract these threats. First, we should limit the government's reach to those things that either should not or cannot be accomplished by the private sector. Second, we should design and implement government policies that directly assist individuals at the level closest to the citizen in order to avoid the inherent arrogance and inefficiencies of a distant centralized bureaucracy.
     Although the attraction of federal pronouncements is that they can be uniformly applied across the country, Friedman notes that the country (much less the individuals within it) is not uniform and consequently a national system can implode upon local application. During the last quarter of the twentieth century private sector initiatives and government programs specifically tailored to local constituencies and circumstances proved far more effective than any national policies necessarily designed to address needs in a lowest common denominator approach. Wisconsin's revolutionary approach to welfare-welfare to workfare-reduced welfare rolls and brought self-sufficiency and

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personal dignity to tens of thousands and was copied on the federal level in the 1990s. This is a prime example of entrepreneurial and innovative government efforts that are possible when local entities are given the freedom to address local issues. National pronouncements attempting to resolve local realities produce uniform mediocrity at best-at great administrative cost.
     On the macroeconomic side of his efforts, Friedman and his partners in the Mont Pelerin Society easily determined where then current (1940s and 50s) government policies were headed. They understood equalitarianism as the intended result of socialism and its latter day cousin, the welfare state. Both are antithetical to freedom. Friedman offers that people are unequal in diverse ways and their differences go far toward sustaining the essence and beauty of humanity-not to mention all human progress. Liberals, who wish to impose an equalitarian outcome, and who ignore these realities, do so at our peril, for their notions go against the human spirit and human experience. The dignity of all work and each life is something that liberals often seem to simply ignore or deny. Their conclusion, based on their false assumptions, is to force conformity and results. They thereby give proof that their fundamental premises are destructive, not just wrong.
     Friedman posits that economic freedom does one simple thing, namely, it separates political power from economic power so that the two achieve a balance (similar to the balance between the executive, legislative and judicial branches of government). This is a sometimes uneasy equilibrium, but essential nevertheless. If the state (through the legislature and its attendant bureaucracies) subverts that balance and controls economic relations through political power, the state becomes a substitute for the people. In this manner the expression of individuality through free choice is curtailed. During the last half of the twentieth century it became apparent that legislatures and bureaucracies felt a need to express their power; the former to maintain their tenure in office (through the use of both carrot and stick), the latter to exercise the authority conferred by the former and thus to validate their possession of it. This exertion of power by political entities reduces the freedom of the citizen.
     An economic model based on voluntary and informed transactions is what Friedman calls a free, private-enterprise exchange economy, or competitive capitalism. Friedman notes:

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               Underlying most arguments against a free market is a lack of belief
               in freedom itself.

Recognizing that humans are imperfect, governments mistakenly (and often brazenly) conclude that economic decisions and actions must be made and taken on behalf of individuals. This suggests not only that ordinary people are flawed, an assertion with which few would argue, but also that they are incompetent (until one looks at what human beings have done). Further, it suggests that politicians and bureaucrats, who are themselves ordinary humans until they get elected or hired, are more perfect. They are those human beings wise enough to run the government; they are the anointed or the chosen. They and their goals are the subject of George Orwell's 1948 novel and screed against totalitarianism, 1984. Orwell effectively takes collectivism and totalitarianism to their logical conclusions and puts a conjectural but not unimaginable patina on Friedman's philosophical declamations.
     Friedman, like his colleagues at the University of Chicago, was not against government; his goal was merely to rationally limit government's power. With respect to the free market, it is clear that someone is needed to referee its activities since human beings (subject to the human condition) will sometimes treat one another unfairly or dishonestly; however, it must be remembered that the vast machinery of government, in trying to rectify such idiosyncratic circumstances, is dealing with an infinitesimally small number of incidents when one contemplates the billions and billions of honest, open and unregulated transactions that occur each day. The people, by means of government,
implement rules to moderate their interactions, but the governors often overreach while trying to rein in the few who are deceitful or dishonest. In so doing the scope of public authority must not become so enlarged that it affects or interferes with the 99.9% of life that is not its province. Of course, government also takes on tasks that are too big, or do need national unity to perform (such as defense, transportation services, and the monetary system) and are obvious areas where governmental oversight or coordination is quite useful. Friedman would be the last to deny the validity of these public efforts.
     How all governing roles play out as well as how the policies we need to govern ourselves are chosen, in Friedman's view, reflects "a consensus reached by imperfect and biased [people] through free discussion and

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trial and error." With freedom, the biases and self-interests can be balanced out, the mistakes corrected. This is the reverse of what liberals attempt to force on the public, a programmed economy supported and regulated by intellectuals who are largely inexperienced in real-world economics but who think that government should play a greater role in economic (i.e., private) affairs. In the view of the liberal there is little room for discussion-and much need for obedience.
     To Friedman, trying to affect our economic relationships through government intervention is to "make matters worse by introducing a largely random disturbance that is simply added to other disturbances." It must be observed that this additional random disturbance often has no economic basis, thus its effect on the free market has no rational foundation-it simply skews economic relationships and causes myriad unintended consequences. Finally, if the government's theoretical good intentions cannot be effected by means of political carrots, they can only be implemented with regulatory sticks. In the latter case the distortions that ensue are obvious. The economy is too large and too complex to respond rationally to repeated, rapid, minute course changes through government's intervention either by fiat or even pursuant to supposedly well-intentioned tax or spending policies. Thus, when government intervenes in the market the law of unintended consequences takes baneful effect. Unfortunately, each unintended consequence creates another of its kind, all to the detriment of free actions being allowed to have their intended results. The outcome is a descending spiral of interventions with the eventual goal of each successive government step being to correct the negative effects of its previous action.
     Friedman recognizes the delicate balance that must be maintained between freedom and power. Political power, no less than any other kind, corrupts those who hold it. Therefore, politicians must be limited in what authority is delegated to them. Ultimate power must be reserved for the people, in whom it resides by virtue of their choices expressed through voting. If governmental power is exercised according to democratic principles and kept under control by a system of checks and balances and frequent elections the relationship between the government and the governed remains healthy. If governmental power, expressed by elected representatives, is used for social engineering then government tells people how they should live their lives. Interventionist ideas such as income redistribution-one of the fundamental tenets of collectivism and state welfarism-are often claimed by means of political power to be necessary to achieve "justice." But

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Friedman holds that this justice (in the equalitarian sense that everyone should have the same life) is in direct conflict with individual freedom. For Friedman true justice resides in the individual, not the collective. That life is uneven precisely because we are all individuals is self-evident. Human beings do not voluntarily choose the same life; why would we want to be forced to?
     To Friedman, none of this is to suggest that a social safety net is either unwise or unjust. But to use an equalitarian and/or collectivist economic system to achieve a measure of protection for the less well-off while denying freedom to those who do not need or desire such protection, is at best naive and at worst intellectually bankrupt and socially pernicious. Protecting those who cannot protect themselves is not only worthy, it is a fundamental human response. But Friedman (and many others who give the concept more than a moment's thought) understands that people will freely care for one another in the absence of the state's directed and controlled beneficence. And they will be driven away from that care as the state intrudes and claims dominion over the less well-off. Friedman's point is that protecting the freedom of those who are self-sufficient is as laudable and honorable as protecting the lives of those who are not.
     In Capitalism and Freedom, Friedman addresses a range of topics, including the education monopoly (a life-long focus of Friedman's efforts), employment discrimination, labor contracts, price and rent controls, the gold standard, licensing, and income redistribution. Although some discussions may now seem dated, the philosophy and comprehension behind them is decidedly not. Friedman's stimulating presentation of his main economic concerns-the tyranny of the status quo brought about largely by redistributionist tax policies and the poverty of imagination in liberal political circles-still encourage the reader to ponder not just the issues in the book, but how to participate in the "big picture" as individuals. Friedman's methods and conclusions regarding the functions and responsibilities of government remain as valid as we move into the twenty-first century as when he voiced them almost half a century ago.

About the Author
Milton Friedman was a senior research fellow at the Hoover Institution at Stanford University until his death in 2006, and a professor emeritus at the University of Chicago (from which he retired from

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active teaching at the in 1977). He won the Nobel Prize for economics in 1976 for his part in the study and extension of monetarist theory. Friedman was born in New York City in 1912 and relatively early in life he came to view economic and social freedom-understood in terms of the free market and secure rights to private property-as intertwined inextricably with broader personal freedoms. His career followed the evolution of this field of study.
     He began his professional life in economics after obtaining a BA from Rutgers University, an MA from the University of Chicago, and a Ph.D. from Columbia University. He was one of the founders of the Mont Pelerin Society, the group that re-focused on classical economics in the vein of Adam Smith and helped debunk collectivist ideas at the conclusion of World War II.
     Perhaps most notable regarding Friedman's efforts was his life-long intense interest in education and educational policy. Friedman viewed the educational monopoly enjoyed by public educators and their teacher union cohorts to be one of the great "crimes" of the American experience. That he devoted so much effort to this nearly half-century passion requires that anyone who considers his life and accomplishments in the field of economics must also investigate why education was an equal enterprise in his journey (see <www.friedmanfoundation.org>). This is more than a worthwhile tangential effort for anyone interested in where education has been, or is going-and everyone should be.

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University of Chicago Press
University of Chicago
Chicago, IL 60637
www.uchicago.edu

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