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50 Economics Classics: Capitalism & Freedom

50 Economics Classics: Capitalism & Freedom

Capitalism & Freedom

Milton Friedman

Capitalism and Freedom opens controversially. Milton Friedman asserts that John F Kennedy’s ‘Ask not what your country can do for you – ask what you can do for your country,’ was not worthy of the role of an individual in a free society.

Government, he writes, should neither be the patron of an individual, nor should that person consider themselves a servant of the government. In a real democracy, the nation exists only for the will of the people.

Capitalism and Freedom is a reiteration of what Scottish economist Adam Smith said almost two centuries before: that, left to their own devices and free of excessive government control, people prosper and create civilized communities.

Yet in the 20th century, in the face of various socialist experiments and growing state intervention in Western countries, Friedman’s reminder became an urgent one.

Historically, political freedom has followed the emergence of free markets and capitalist institutions. This is because, Friedman notes, a healthy private economy naturally provides a check on the power of the state.

Where monopolies and trading restrictions are rife, so is special treatment of one social, racial or religious group over another.

Friedman’s message: government often seeks to protect citizens from all sorts of things, failing to see that the ‘invisible hand’ operating in free and open markets somehow manages to offer much greater protection of personal liberty.

That free markets do this was the exact opposite of what intellectuals had been saying through most of the 20th century.

Both full employment and economic growth have been put forward as reasons why governments should have more control over the economy. The Great Depression, people invariably say, is surely evidence of the inherent instability of markets left to their own devices.

In fact, Friedman says, the Depression was caused by government mismanagement.

He and Anna Schwartz argued at length that the US government’s Federal Reserve System, through clumsy use of the levers of the monetary system – specifically, not increasing the money supply in the wake of bank collapses – turned what would have been a contraction lasting a year or two into a catastrophe.

There is never any shortage of ‘good reasons’ why government should get involved in curing market or social ills. Sometimes, the good intentions are matched with impressive achievements. Friedman applauds, for example, the creation of a US national freeway system, the building of major dams and some public health measures.

However, most of the advances in the American people’s standard of living, he contends, have arisen from their ingenuity, and have nothing to do with government. Prosperity has come despite all the laws and ‘projects’, not because of them.

Generally, excessive regulations ‘force people to act against their immediate interests in order to promote a supposedly general interest.’

Friedman argues that the scale of inequality is always lower in capitalist countries. Many will disagree with this, pointing to the vast gaps between say, a corporate executive earning $10,000 (£7,163) a day and a retail assistant earning $20,000 a year.

Yet even low-paid people in a capitalist economy, he points out, are better off than the privileged classes were a century ago. Even if an individual does not seem to do well out of capitalism, he or she still benefits in many ways.

In contrast, with stratified social systems and socialism, the ‘goodies’ always seem to go only to those at the top.

The heart of liberal philosophy, Friedman writes, is people having equal rights and equality of opportunity. It does not mean there should be equality of wealth. If all people grow richer in a capitalist system, this is a welcome by-product of freedom, but it is not its purpose.

The purpose of a free, capitalist system is the freedom of the individual.

Final comments

Capitalism and Freedom may shift your beliefs about economic morality. You may have assumed that the government which intervenes to ‘help’ people the most is morally superior, but Friedman showed us how free economic and political systems ensure the dignity of the individual in a myriad of often unforeseen ways.

Countries fashioned, according to the views of Adam Smith and Friedman, should in theory be monsters of selfish consumerism. But as Friedman pointed out, people wish to be free not just so they can get rich, but so they can live according to deeply held values.

Prosperity is not just about making money, but about the freedom to live the way you want.

Copyright © Tom Butler-Bowdon, 2017. The above is an abridged extract from 50 Economics Classics by Tom Butler-Bowdon, published by Nicholas Brealey Publishing.

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