Capitalism and Freedom - Critical summary review - Milton Friedman

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Capitalism and Freedom - critical summary review

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Society & Politics and Economics

This microbook is a summary/original review based on the book: Capitalism and Freedom

Available for: Read online, read in our mobile apps for iPhone/Android and send in PDF/EPUB/MOBI to Amazon Kindle.

ISBN: 0226264211

Publisher: University of Chicago Press

Critical summary review

“A long-delayed product of a series of lectures” given by Milton Friedman at a 1956 conference at Wabash College, “Capitalism and Freedom” was first published in 1962, at the height of the Cold War, and it quickly made the intellectual leader of the Chicago School of Economics a household name in the West.

Its major theme, in the words of the author, is “the role of competitive capitalism… as a system of economic freedom and a necessary condition for political freedom.” Its minor theme is “the role that the government should play in a society dedicated to freedom and relying primarily on the market to organize economic activity.”

So, get ready to learn why government-controlled national economies necessarily give rise to captive societies and how capitalist governments should manage the economy to ensure political freedom for the majority of people.

A portrait of the archetypal liberal

“And so, my fellow Americans, ask not what your country can do for you – ask what you can do for your country.” This is how John F. Kennedy chose to end his inaugural presidential address on January 20, 1961. Widely known and recited, this slogan is, even today, greeted with admiration and approval everywhere around the world. 

Yet, according to Friedman, it is nothing more but a rhetorical figure. “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,” he writes in the opening passage of “Capitalism and Freedom.”

Why? Because the first half is paternalistic: “what your country can do for you” implies that the “government is the patron, the citizen, the ward, a view that is at odds with the free man’s belief in his own responsibility for his own destiny.” The organismic second half – “what you can do for your country” – even if reversed, suggests a similar power dynamic, as it implies that the “government is the master or the deity, the citizen, the servant or the votary.” 

However, to the free man, the country should be neither, since it should never be something over and above what it is in actual terms: “a collection of individuals.” Though loyal to common traditions and proud of a common heritage, the free man should see his government as “a means, an instrumentality, neither a grantor of favors and gifts nor a master or god to be blindly worshipped and served.” 

In other words, he should never ask what his country can do for him nor what he himself can do for his country. Instead, he should ask “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 should accompany this question with another: “How can we keep the government we create from becoming a Frankenstein that will destroy the very freedom we establish it to protect?”

Protecting individual freedom: two principles and two reasons

It’s, indeed, a tricky, if not paradoxical, situation: people have no choice but to create governments to protect their liberties, but the greatest threat to one’s liberties and rights is the concentration of power in the hands of the government. In other words, though the government is a necessary instrument through which we can exercise our freedom, it is also what can endanger our freedom the most. 

So, how is one to solve this conundrum? How can we create governments that will protect rather than threaten our freedom? According to Friedman, two broad principles embodied in the U.S. Constitution have helped in the past and should be heeded in the future.

The first broad principle is this one: “the scope of government must be limited.” In other words, it should have only one objective: to protect our freedom against our fellow-citizens and all kinds of external enemies. More precisely, it should try “to preserve law and order, to enforce private contracts, and to foster competitive markets.” Everything other than this is fraught with danger: we must be aware of all the chaos that might ensue from deals that allow the government to accomplish things otherwise difficult or expensive to individuals or private enterprises to execute. Even if sometimes it's smart -- necessary, even -- to allow them.

Which is why the second broad principle is that government power must be dispersed. Or, in the words of Friedman, “if the government is to exercise power, better in the county than in the state, better in the state than in Washington.” If the government is centralized, there is no easy way to respond to its actions and nowhere to hide from them.

Of course, this is precisely why proponents of centralization advocate it so fiercely: after all, there are some programs that, in the interest of the public, seem as if they should not allow any individual a choice. However, there are two sides to this coin, since those that do good today may start doing bad tomorrow, and those who control the power during the current four years may lose the mandate in the blink of an eye. Finally, what one man thinks good, another regards as bad – and vice versa.

The protective reason for limiting and decentralizing governmental power is not the only one that should be considered. There is also another reason which Friedman names “constructive.” In his belief, none of the great advancements of civilization have come from centralized governments; instead, they were all “the product of individual genius, of strongly held minority views, of a social climate permitting variety and diversity.” 

The relation between economic freedom and political freedom

Politics and economics are often considered separate and largely unconnected spheres. It is because of this notion that parties can claim to be simultaneously democratic and socialist – the former is stated as their political and the latter as their economic ideal. However, according to Friedman, such a view is a delusion, since “there is an intimate connection between economics and politics” and since “only certain combinations of political and economic arrangements are possible.” In particular, a socialist society cannot also be democratic because it isn’t designed to ensure individual freedoms in the first place.

Say that you’re living in a socialist society. That means that the economy is governed by the state, which, in turn, means that your job has been provided to you by the political party in power. Now, say that you don’t agree with some of the party’s political programs. Would you want to jeopardize your future by saying that out loud? Of course not.

But even if you do gain the courage to publicly criticize your government – accepting the risk of losing your job and never finding another – there’s a good chance that you won’t be able to. The television channels, the radio, the newspapers, they will all be controlled by the government as well. In other words, you’ll be asking for permission to speak against the only one able to give you that permission. Now, why should it? 

Case in point: between 1933 and 1941, despite being a leading citizen of his country, a member of Parliament and a former cabinet minister, Winston Churchill was not permitted to talk over the British radio because his views were deemed “controversial” by the government and because BBC was a government monopoly.

So, how can we expect to live as free citizens if the government controls not only the national broadcasting corporation but absolutely everything else? It is naive to believe that political freedom is distinct from economic independence – to be able to say or do something you like, you first need to be existentially secure. And in a socialist or communist society, your existence depends entirely on the goodwill of the government. That’s why the term “democratic socialism” is an oxymoron, and “democratic capitalism” – practically a tautology.

Free markets and political discrimination

Now, many people say that free-market capitalism is just too savage and that it discriminates against the underprivileged and the poor. However – and strikingly enough – it might be the only system that has even given them a chance to unshackle their chains. It doesn’t take much more than a panoramic view of modern history for one to realize that there is a direct correlation between the reduction of discrimination against people of particular religious, racial, or social background and the advent of capitalism. 

For example, the first step toward the freeing of the serfs in the Middle Ages was the substitution of contract arrangements for status arrangements. Even more tellingly, the main reason why Jews endured to this day despite being officially persecuted by almost all European countries throughout history was because of “the existence of a market sector in which they could operate.”

Just as well, Puritans and Quakers were able to migrate to America because the comparatively free markets of Britain allowed them to accumulate the funds to do so despite numerous other disabilities imposed on them in other aspects of their life. So, no matter what the government does, if one is allowed to be economically free, they can always find ways to endure – even if endurance sometimes means relocation. In socialist countries, even that is forbidden.

And yet, despite this and all the available historical evidence, minority groups are usually “the most vocal and most numerous advocates of fundamental alterations in a capitalist society.” They have failed to realize, over and over again, that their problem is not the free market, but the government. The free market “separates economic efficiency from irrelevant characteristics,” such as skin color, religious denomination, or ethnic heritage. In a genuinely free market, whoever buys bread neither knows nor cares if whoever grew wheat was a white man or a black man, a Christian or a Jew.  Furthermore, “a businessman who favors one group over another will be at a market disadvantage to a businessman who does not, and one who is blind to differences among his suppliers will have more choice from whom to buy and hence lower costs.”

The role of government in a free society

All in all, the invisible hand of the market doesn’t only regulate the prices, but somehow it regulates discrimination and personal liberties as well. If that is the case, however, then is the government even necessary? Of course it is, says Friedman: the consistent liberal is not an anarchist. On the contrary, the consistent liberal is aware that the government  has a few important functions to perform:

  • Maintaining law and order.
  • Defining property rights and serving as a means through which we can modify them.
  • Adjudicating disputes about the interpretation of the rules of the economic game.
  • Enforcing contracts.
  • Promoting competition.
  • Providing a monetary framework.
  • Engaging in activities aimed at countering technical monopolies and overcoming neighborhood effects.
  • Supplementing the private family and the private charities in protecting the irresponsible, whether madmen or children.

However, everything beyond this seems not only excessive but counterproductive: even when it comes to well-intended policies such as minimum wage, public housing, or social security, the government, as a rule, does more harm than good in the long run. Friedman insists the government should refrain from a host of activities that cannot be validly justified under the basic rules of free-market-capitalism.

These include parity price support programs for agriculture, tariffs and import quotas, governmental control on output, rent controls, minimum wages, detailed regulation of industries such as radio and TV, social security and retirement programs, state licensure of professionals, public housing, military conscription in peacetime, national parks, the legal prohibition on the carrying of mail for profit, and publicly owned and operated toll roads. Very few ends justify the means in democratic societies, and we should be careful when choosing them. “Concentrated power is not rendered harmless by the good intentions of those who create it,” concludes Friedman.

Final Notes

Although "Capitalism and Freedom" sold almost half a million copies before being republished with a new preface in 1982, serious publications largely ignored Friedman’s most celebrated book until reality proved its main premise right – political freedom is preconditioned on economic freedom and socialist societies are unfree by design.

Highlighting the shift of opinion for the 40th-anniversary edition of “Capitalism and Freedom” in 2002, Friedman could write that his economic philosophy had become part of conventional wisdom and that “it is now taken for granted that central planning is indeed ‘The Road to Serfdom,’ as Friedrich A. Hayek titled his brilliant 1944 polemic.”

However, even though “giving markets a greater role and government a smaller one” is widely deemed a recipe for national success nowadays, many of Friedman’s ideas in this direction haven’t been implemented by any country. Hopefully, they will at least be considered in the future.

12min Tip

Cherish your freedom. And be skeptical of every politician who says that they know what’s best for you. 

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Who wrote the book?

Rose and Milton Friedman were a couple with many shared interests – being “Tyranny of the Status Quo and their memoirs “Milton and Rose D. Friedman, Two Lucky People” two other collaborations. They both studied at the Universit... (Read more)

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