Five Second ... Capitalism and Freedom

One of the parts that has stayed with me the most since I read Milton Friedman's Capitalism and Freedom (1962) this last year was his first argument from the introduction. I caught myself rehearsing it just this week, in fact, without remembering who made it until I reread it today:

In a much quoted passage in his inaugural address, President Kennedy said, "Ask not what your country can do for you - ask what you can do for your country." ... Neither half of the statement expresses a relation between the citizen and his government that is worthy of the ideals of free men in a free society. The paternalistic "what your country can do for you" ... is at odds with the free man's belief in his own responsibility for his own destiny. The organismic, "what you can do for your countrry" implies that government is the master or the deity... . To the free man, the country is the collection of individuals who compose it, not something over and above them. He is proud of a common heritage and loyal to common traditions. But he regards government as a means, an instrumentality, neither a grantor of favors and gifts, nor a master or god to be blindly worshipped and served. ...

The free man will ask ... rather "What can I and my compatriots do through government" to help us discharge our individual responsibilities, to achieve our several goals and purposes, and above all, to protect our freedom? And he will accompany this question with another: How can we keep that government we create from becoming a Frankenstein that will destroy the freedom we establish it to protect? Freedom is a rare and delicate plant. Our minds tell us and history confirms, that the great threat to freedom is the concentration of power.

The two questions form the crux of the book's discussion.
He discusses the importance of government in providing the "rules of the game" to enable citizens to settle as many problems amicably and to their mutual benefit as possible. He includes a number of public goods and the problems of private public good provision in his definition of what citizens can accomplish together through government that would be difficult to do individually and separately. He lists at the end some of the US government's successes: highways, dams, and satellites; "The school system ... widened the opportunities available to American youth and contributed to the extension of freedom" despite its shortcoming; "The Sherman antitrust laws ... by their very existence fostered competition"; public health measures; law and order. Though he concludes that the balance is "dismal".

On the basis of his definitions and basic principles of good governance, he provides a list of things that people can and ought to do through their governments, which he admits is "far from comprehensive" though it goes over a page. I noted on the side that what this means is that justifying other actions merely requires additional principles of good governance

He warns that when governments act to overcome externalities, they are likely to create new ones. Which externalities are worse "can only be judged by the facts of the individual case." The notion of externalities is therefore neither absolute proof that government must intervene, nor the problems government may well cause absolute proof that it must not.

Friedman on freedom: "Freedom has nothing to say about what an individual does with his freedom... . Political freedom means the absence of coercion of a man by his fellow man." Note that this coercion might as well be from a government as from a corporation, a private citizen, or a family member. "The ideal is unanimity among responsible individuals achieved on the basis of free and full discussion. ... From this standpoint, the role of the market ... is that it permits unanimity without conformity."


A comment on which he does not elaborate enough: "It is important to preserve freedom only for people who are willing to practice self-denial, for otherwise freedom degenerates into license and irresponsibility." And what is the alternative?

An extrapolated opinion: As we recently debated whether Congress should limit the independence of the Fed from politics, he would much rather make the money supply independent of the fallible hands of a handful of people by making the monetary system much more rule-oriented. How about Sumner's proposal of 5% NGDP growth?

His discussion of the education is quite nuanced. He comes out in favor of a form of public education based on externalities, but balks at the "nationalization" of education. He points out that the veterans' bill following WWII was a voucher system for education and it worked quite well. He notes that greater neighborhood segregation (which has only increased) reduces the actual equalizing of opportunities and promotion of a common identity that were good features in 19th century schools, so that instead we are preventing the intelligent, skilled, and the hard-working from escaping poverty by not allowing them an avenue to a better education. "Our problem now is not to enforce conformity; it is rather that we are threatened with an excess of conformity." Making teacher salaries and schools more competitive he said would not have been desirable a century ago, but is becoming increasingly desirable.

He wonders why anti-trust laws are never applied against union monopolies. He lauds the "impersonal character" of markets, though I would disagree with some of its desirability or reality.

Friedman on inequality: "It is widely argued that it is essential to distinguish between inequality in personal endowments and in property... . This distinction is untenable. Is there any greater ethical justification for the high returns to the individual who inherits from his parents a peculiar voice for which there is a great demand than for the high returns to the individual who inherits property?" He asks why we should differentiate between parents who give their children training, help them set up a business, or just pass on the money. Note that this argument does not imply that all inheritance taxes ought to be zero, only that the tax should be in some sense equal.

Friedman on the income tax: income taxes are "much less taxes on being wealthy than on becoming wealthy." They prevent upward mobility rather than producing equality, in fact encouraging the wealthy to invest in stable forms of wealth to entrench inequality and "protect existing holders of wealth from the competition of newcomers."

A brilliant point regarding Marxist values: "Marx argued that labor was exploited. Why? Because labor produced the whole of the product but only got part of it. ... Even if the statements of fact implicit in this assertion were accepted, the value judgment follows only if one accepts the capitalist ethic. Labor is "exploited" only if labor is entitled to what it produces."

Friedman on poverty alleviation through government: The free man "may approve state action toward ameliorating poverty as a more effective way in which the great bulk of the community can achieve a common objective. He will do so with regret, however, at having to substitute compulsory for voluntary action." Taking the further step from enabling "some [to] achieve an objective they want to achieve" to one of social "justice" creates an ethical conundrum. "At this point, equality comes sharply into conflict with freedom; one must choose. One cannot be both an egalitarian, in this sense, and a liberal" in the classical sense.