on 18 April 2011
The book is of course a classic. I don't want to give a detailed academic review or critique, because I'm not qualified. I just want to explain its personal relevance to me.
I came to this after thinking about abstract questions after the financial crash in 2008. What are the theoretical justifications for the free market? What are the theoretical / pragmatic justifications for regulation? Should banks be regulated more? How can capitalism be evolved to reduce the risk of financial crises? How can capitalism deal with the risks of climate change if the costs of climate change are not priced into the market?
Friedman's philosophy is pretty right-wing.... Flat rate income tax of 20% (if I recall correctly). Privatise pretty much everything. But not *everything*. Some government spending is justified because of so-called neighborhood effects. E.g., subsidise poor families to send their kids to school. If not, society as a whole loses out. Some government regulation is justified. E.g., regulation to reduce environmental harm. If not, the market will allow environmental harm and society as a whole will lose out.
This book is pretty much the bible for a huge school of liberal economics that is prevalent in many parts of the world. It's important to read it, *especially* if you are not convinced by the free market. Sometimes I wanted the author to go further with his arguments. For example, he certainly didn't convince me about flat-rate taxation (his main argument appeared to be that tax avoidance is easier to avoid if there is a flat-rate). However, all in all, this is a classic that is worth reading for its rhetoric, breadth (it talks about so many areas of government policy), and importance.
Reading Milton Friedman for the first time can be an overwhelming experience. The wealth of ideas coupled with the wry delivery and almost John the Baptist like certitude with which he preaches his version of the economic gospel all make for a challenging, if not occasionally infuriating read.
The central pillars of Friedman's thinking are deceptively simple but the consequences should they ever be fully enacted by any government would be profound. Friedman feels that government is `guilty' until proved `innocent'. Government equals power over individuals, waste, inappropriate resource distribution and the indulgence of what economists call `rent seeking' special interest groups. Governments want to tax, regulate, control and disperse revenues and favours to suit their own particular agendas. Even when they are trying to act in the public interest, governments frequently make matters worse. Extra taxes lead to disincentive effects, extra spending leads to inflation and interventions like minimum wage legislation lead to increased unemployment. The list of potential and actual government failings are lovingly documented by the author. The relish with which he grinds out his dismal litany of state mismanagement and corruption is almost disconcerting, but it is entertaining.
So what are governments for? Well in time honoured Libertarian fashion, as little as possible.
Government should be about up -holding the rights of citizens and business to operate in accordance with their own best interests. So the protection of property rights, the proper fulfilment of contracts and basic civil liberties. Just about everything else can be resolved by the market. This is where Friedman gets serious. He takes on issues that softy `mixed- market' types think of as sacred and untouchable. Discrimination, inequality, education, protection of farm incomes, industrial competition and licensing of occupations, all come under the Friedman hammer. His argument is that government by `featherbedding' unions, producer groups or favourite causes at high costs and nearly always to the disadvantage of citizens and not infrequently the particular groups themselves do more harm than good. He backs up his position with some pretty convincing arguments and reference to data (sadly getting a little out¬¬-dated and relates only the USA) or particular case studies.
If you give markets the chance he argues, they will supply the answer. Discriminating employers for instance will be landed with higher costs and lower profits as they hire the more expensive labour that suits their particular tastes. One of the great advantages he posits is that like love, capitalism is blind. It only seeks the most efficient use of resources and the lowest costs. Your religion, gender, colour or cultural background is simply irrelevant in the market place, just as long as you are competitive. So what need for government if the market as an unintended consequence promotes higher incomes, employment and civil rights?
So where is the flaw in all this free market evangelism? Friedman is rather too keen to down play the virtue of good governance. At least governments are elected and at play lip service to the idea of improving the lot of citizens. Governments are accountable in a way that big business can never be if left to themselves. Monopoly capitalism may confer benefits but competition and choice are not necessarily at the top of the list, viz the 'Robber Barons of late Nineteenth century American industry and finance. Likewise businesses need regulating - why should citizens be left at the mercy of the unscrupulous or the incompetent? Not forgetting of course markets have innate instability built in- inflation, unemployment and issues of social provision cannot or will not always be addressed by the market. When the economy is growing, Friedman wants government to take its foot off the brake, but when there are problems such as the 1929 `Great Crash', he wants to blame government for the `high spirits' of the market. Come on Milton, you can't have it both ways!!
`Capitalism and Freedom' provides great insight into Libertarian economics. It entertains, engages (and enrages on occasion) but is very clear in its line of argument. As a book it is aging gracefully. The data is rather old and very selectively used but the ideas still have much relevance for us all today. Recommended.
I became vaguely aware of Milton Friedman in the 1980s, when he was often referred to as the favourite economic guru of Thatcher and Reagan, the founder of "monetarism" as a new school of economics. He was disliked by the left, and there were dark mutterings about his involvement with some of the less pleasant South American regimes of the period.
More recently I was referred to some excellent video clips of Milton Friedman on YouTube, and became interested in how his views fitted into economic thinking as a whole. I also became aware of economic libertarianism, expounded by such organisations as The Cato Institute (publishers of some of the sceptical volumes on man-made global warming theory, but with a much wider range of interests than that) and The Von Mises Institute, that seems to have quite an extreme view as to how limited the role of the state should be. Private justice, anyone?
Capital and Freedom was Friedman's seminal popular work, published in 1962 and based on a series of lectures that Friedman had delivered in the mid to late 1950s. Other popular works include Free to Choose, written jointly with his wife and published in 1980. He doubtless wrote scores of more technical papers in between. Friedman's economic hypothesis is that free market capitalism is the most effective mechanism for organising economic activity and growth, and that it thrives best when the government intervenes in it as little as possible. This economic hypothesis is allied to a strong personal conviction for individual liberty, that men should as far as possible be left to do as they choose so long as their actions to not have injurious effects on others - a philosophy stated emphatically by the founding fathers of the United States.
Milton Friedman argues his case clearly and effectively, and most of it is as apposite today as it was in 1955. Often it is only when he refers to numbers of dollars that one remembers that this book is nearly 50 years old - there always seems to be one or two noughts missing from the end of average salaries. There is quite a lot of historical detail - he devotes a chapter to the Great Depression, and his hypothesis that it was caused not by a failure of the market but by incompetent government intervention. Friedman believed that the market would have suffered less badly, and recovered more quickly, if the government had left well alone. As the Federal Reserve and the Bank of England intervene to deal with the current "credit crunch" banking crisis we have to hope that they will get it right - Friedman seemed to believe that by concentrating the power - and the responsibility - for managing the market even into highly intelligent and well-intentioned hands, you created the conditions for a major upset that the market, left to its own devices, would have avoided by the separate actions of thousands of individual participants acting in their own interests. We shall see!
The problem with Friedman's brand of economic liberalism (and he deliberately stuck to the word "liberal" in an attempt to win it back from left of centre state-interventionists - later he gave up and accepted the description "libertarian") - and with the Thatcherism and Reaganomics that it spawned - was that it can seem harsh and uncaring. Friedman argues passionately against the public provisions of housing, minimum wages, agricultural support, state provided old age pensions and much compulsory attempts to redistribute wealth. He does so on the basis that they interfere with individuals' freedom, concentrate power in government (which often operates inefficiently, and that most such schemes are ultimately counterproductive. He does also argue against the abuse of power by big corporations, through cartels and government lobbying, and expresses concern that the tax laws that allow corporations' retained profit to suffer a lower rate of taxation than income a disadvantages small companies against big ones, and that this, even in the early 1960s, had artificially supported the development of massive corporations. Friedman was, it seems, a small company man, a believer in enterprise on a human scale.
Friedman believed above all in Liberty. His belief in equality - egalitarianism - was more qualified. He believed in equality of rights under the law and of opportunity, but not that the state should attempt to achieve "equality of outcome" - i.e. equality of material wealth. That should be left to individuals to resolve through interaction with others and in accordance with their talents and inclinations. Equality of opportunity, of course, is easily said, and not an issue that Friedman resolves. For example, in arguing for a limited role for government in education, (though a much greater one that some present day libertarians might argue) opportunity for a high quality education would at the least be much easier for those born of rich parents than poor - one point at which I find myself unconvinced by him. In short, though, Friedman thought that men should be free to be unequal.
Whether or not you subscribe to Friedman's ideas, this book represented a major reassertion of the principles of classic, free market economics in the face of progressively more state-directed economies not just in the Eastern-bloc but in the US and Western Europe too. That school of thought had been dominated by John Maynard Keynes, and the latter's "General Theory" shall be my next project. This is an excellent, thought provoking and easily absorbed book.
on 13 July 2015
Milton Friedman is one of the most notable economists of the 20th century; his fresh vein of economic understanding inspired by the works of eminent economists such as Ludwig Von Mises or Frederick Bastiat, grapples with the problem the world faces today from a classically liberal, or libertarian, perspective. In ‘Capitalism and Freedom’, Friedman sets out his ideas for a vastly stripped back government and extremely low levels of income tax, or no income tax at all. Many current politicians try to emulate this idea of low tax and more freedom, notably Ron Paul, the GOP candidate in the 2008 US presidential election. These ideas have attracted much controversy over the years and he has been attacked by many Post-Keynesian economists for his faith in the market and criticised by some Austrian economists for his monetary policy.
Friedman, in his observations of both the market and the world, sees a clear correlation between economic and political freedom and as freedom is his ultimate goal, he argues for capitalism and at the same time attacks socialism for its restriction of freedom; he refers to socialism as ‘force’ because of the (sometimes considerable) taxes that the government places on both individuals and corporations, whilst capitalism is freedom, hence the title of the book. He then elaborates on this, saying that socialism is the collective ownership of the means of production. Friedman then goes on to explain that if the means of production are controlled by the government then one is unable to protest or campaign against the statist left wing government as they can restrict your ability to do so by not allowing access to paper, ink, printing presses etc., as well as sanctions being able to be placed which restrict access to healthcare or education as a form of coercion. This analysis is still relevant today in that state-owned entities are a product of force and are woefully inefficient, such as the modern day National Health Service in Britain.
Friedman ranges widely elsewhere throughout this economic epic; from the role of government in a free society (which is to ‘be a referee, not an active player’). This deals with the myth that libertarians are anarchists, as Murray Rothbard was, and shows that there is still a role to play for government in a libertarian state. He goes on to argue that capitalism in its purest form cannot discriminate and as fellow libertarian Thomas Sowell puts it, ‘the only colour that matters is green’, referring to the green of money and the dollar in one such system. Also advocating voluntary exchange, Friedman successfully demonstrates that in a free market, every transaction is mutually beneficial, which should be an attractive concept to all.
Overall, some may see Friedman’s book as a damning and possibly reactionary attack on socialism and communism, however the ideas argued within the pages present an alternative worldview based on liberty and freedom. This book makes an exciting read for anyone with an interest in economics, politics or business.
on 14 June 2004
This is a new edition of Milton Friedman's classic 1962 capitalist manifesto. As such, it was ignored, spurned and hated for decades by the intellectual, post-Keynesian establishment. In the 60s, Friedman once found himself debating a liberal who attacked him by simply reciting Friedman's views of the proper role of government. This was working rather well with the audience of college students until he quoted Friedman's opposition to the military draft. Friedman suddenly found himself awash in the unexpected cheers of students. Perhaps it was a foreshadowing of his career. Friedman won the Nobel Prize in Economics in 1976, and his ideas gained some degree of mainstream acceptance in the Reagan years - although many of his thoughts remain controversial. To the extent that Friedman debunks myths about the Great Depression that are widely accepted as fact, perhaps he has a point about the semi-privatization of education. We strongly recommend this volume to those who seek a deeper understanding of government's role in a free-market economy.
on 22 May 2016
Whilst clearly a landmark text in the fields of economics, politics and social theory, the book does not stand up to scrutiny. Friedman's theories are mostly supported by no evidence whatsoever. I have never read a book by an academic author with so few sources. The content is not so original that it defies examples and studies available at the time and since; the book simply makes assertions with no intention of backing them up. The hope seems to have been that force of personality alone would convince the reader, and clearly for many that worked. However, any cursory check of the evidence should be enough to convince anyone that this is a simply ideological book proclaiming to have answers which simply do not hold water.
on 29 October 2011
Reading this book on recommendation of a uni friend has changed the way I look at the world. Friedman's relentless logic in the face of the ridiculousness of government intervention gave substance and articulation to, what I had perceived to be, the idiotic "the market will solve it" approach. My favourite chapter is by far the one of positive discrimination; I never thought it possible for a man to convince me that anti discriminatory laws are injust.
Whilst I was not quite a socialist before I read this book, I certainly believed in government intervention. I would recommend anyone of any political persuasion to read this before they ever scoff at the free market viewpoint again; you can never truly understand it until you read this very short and approachable book.
on 23 September 2014
Whether you're a conservative, socialist, or classical liberal/libertarian Milton Friedman isn't the place to start.
Friedman is generally considered a gold standard in free market thought, but this opinion is naive and superficial. When Paul Krugman (keynesian) debated Ron Paul he was able to use Milton Friedman's monetary theory to give the impression that people who objected to the "Obama stimulus" and wanted sound money and balanced budgets were crazy right wingers. Krugman is characteristically dishonest, but he was only somewhat misleading when he said "Milton Friedman would be on the far left on the current monetary debate". In that interview Krugman also refered to Friedmans "looser public writings" and i think this is what he probably had in mind. If you want a good idea of Friedman's liberatarian political philosophy this is a good short book. But people should read it along with a lecture by Joseph Salerno called CHICAGO SHOOL: LIBERTARIAN OR JACOBIN.
Chicago economics in general is a product of the collectivist ethics of the 20th century. On method, epistemology, and monetary theory Chicago economics is seriously defficient because it embraced the philosophies of irationalism, positivism, and sometimes historicism.
Anyone really interested in the true core of classical liberal thought should start with the Austrian school. If you're feeling ambitious Mises' Human Action, Socialism, or Theory and History are a good place to start.
I've given this three stars because Friedman has done an invaluable service popularising libertarianism. But he can get people on the wrong track. (See his son debate Robert Murphy on youtube).
The link between economic and political freedoms has been supported for a long time, and Milton Friedman's "Capitalism and Freedom" is one of the more important texts in that intellectual tradition. The central thesis of this book is that the private ownership and enterprise, rather than the government controlled services, is the true guarantor of personal freedoms. Friedman acknowledges that there are indeed certain activities that a government has a legitimate role in (like the arbitration and the enforcement of the laws), but those tend to be exceptional and require a special set of circumstances in order to be justified. In the second chapter he gives a non-exhaustive list of fourteen activities that the government has asserted an exclusive role in for which there is no good justification. It is interesting to note that as we approach the fourteenth anniversary of the publication of this book, only a couple of those are still not in effect (there is no universal draft during a peacetime and the Post Office does not have an exclusive right to distribute mail any more).
The chapter on monetary policy is very interesting. Friedman considers monetary policy to be one of those activities over which a government can exercise a legitimate monopoly. This has however been disputed in recent years by more libertarian thinkers - even when it comes to printing and distributing money, there is no good a-priory reason why a private entity wouldn't be able to accomplish this as well. In fact, I would probably have more trust in money issued by some well established corporations or banks than that issued by 90%+ of governments around the world. In this chapter Friedman also goes at length expounding on pros and cons of the gold standard, which nowadays is not all that in vogue at all.
The chapter on discrimination is also one of the more interesting ones. Friedman outlines what would now be considered a consistently libertarian position: although he personally finds all sorts of discrimination based on race, gender, or religion particularly abhorrent, he doesn't think that it is the role of government to impose any sorts of measures that would amount to enforced "inclusiveness." He has a problem with the very notion of "discrimination." In many instances one man's discrimination is another man's right to exercise a taste preference. Whatever it is, Friedman thinks that the best and most effective way of dealing with discrimination is again through allowing the existence of free market. In a perfectly free market discrimination against individuals or groups will have immediate and very deleterious consequences for any purveyor of goods or services. Here again the case is made that capitalism is the best guarantor of personal freedom. This is not just an abstract argument - time and again the experience has shown that whenever a group was allowed to freely compete in the marketplace, the discrimination and the prejudice against that group has diminished.
Another topic that gets into Friedman's crosshairs is that of overregulation of all sorts of trades and professions. The supposed aim of most of these regulations, licensing and certifications is the protection of the public. However, it is a plain empirical fact that almost all of those regulations are imposed on the request of the regulated industries, rather after an outcry from the public. What these regulations in fact do is create barriers to entry and shielding of the industry insiders form the competition. Friedman argues that this is yet another form of limitation of freedom that is imposed through the prevention of the existence of a free market. He argues that this is seldom justified, and that market would create a much more efficient way of weeding out the incompetent products and services, even in the case of medical industry. One can't help think that of the present debates over the medical insurance in the US, and wonder how much of it could be solved by simple deregulation of the whole industry.
As it may be clear from the examples above, Milton Friedman is a very insightful thinker with ideas that were many decades ahead of his time. His works deserve to be continuously read by all who wish to implement a fully functioning free market economy. That is the surest guarantee of the personal freedom that we can ever hope to achieve.
on 14 January 2016
A small masterpiece, written in simple enjoyable style, that will suit anyone with no background in economics at all, and clear some (but not all) commonly held fashionable leftist ideas.
I also highly recommend "Capitalism, the Unknown Ideal, by Ayn Rand", which is a similarly fascinating and easy to read book, that looked at capitalism from a slightly different perspective, with a wonderful philosophical insight.