Capitalism and Freedom

by Milton Friedman

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.

How can we benefit from the promise of government while avoiding the threat to freedom? Two broad principles embodied in our Constitution give an answer that has preserved our freedom

so far,

First, the scope of government must be limited. Its major function must be to protect

our freedom both from the enemies outside our gates and from our fellow-citizens: to preserve law and order, to enforce private contracts, to foster competitive markets.

The second broad principle is that government power must be dispersed.

Government can never duplicate the variety and diversity of individual action.

Its major theme is the role of competitive capitalism—the organization of the bulk of economic activity through private enterprise operating in a free market—as a system of economic freedom and a necessary condition for political freedom.

role that government should play in a society dedicated to freedom and relying primarily on the market to organize economic activity.

society which is socialist cannot also be democratic, in the sense of guaranteeing individual freedom.

the typical state of mankind is tyranny, servitude, and misery.

Political freedom in this instance clearly came along with the free market and the development of capitalist institutions.

Their emphasis was on economic freedom as a means toward political freedom.

Literally millions of people are involved in providing one another with their daily bread, let alone with their yearly automobiles. The challenge to the believer in liberty is to reconcile this widespread interdependence with individual freedom.

Fundamentally, there are only two ways of co-ordinating the economic activities of millions. One

is central direction involving the use of coercion—the technique of the army and of the modern totalitarian state. The other is voluntary co-operation of ind...

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

The existence of a free market does not of course eliminate the need for government.

What the market does is to reduce greatly the range of issues that must be decided through political means, and thereby to minimize the extent to which government need participate directly in the game.

The use of political channels, while inevitable, tends to strain the social cohesion essential for a stable society. The strain is least if agreement for joint action need be reached only on a limited range of issues on which people in any event have common views.

If it goes so far as to touch an issue on which men feel deeply yet differently, it may well disrupt the society.

The wider the range of activities covered by the market, the fewer are the issues on which explicitly political decisions are required and hence on which it is necessary to achieve agreement. In

Freer the market, the less polittical questions exist to be answered. Expansion of fed governement into contenious areas

turn, the fewer the issues on which agreement is necessary, the greater is the likelihood of getting agreement while maintaining a free society.

These then are the basic roles of government in a free society: to provide a means whereby we can modify the rules, to mediate differences among us on the meaning of the rules, and to enforce compliance with the rules on the part of those few who would otherwise not play the game.

However attractive anarchy may be

as a philosophy, it is not feasible in a world of imperfect men.

There is probably no other area of economic activity with respect to which government action has been so uniformly accepted.

We may also want to do through government some things that might conceivably be done through the market but that technical or similar conditions render it difficult to do in that way.

These all reduce to cases in which strictly voluntary exchange is either exceedingly costly or practically impossible.

There are two general classes of such cases: monopoly and similar market imperfections,...

When technical conditions make a monopoly the natural outcome of competitive market forces, there are only three alternatives that seem available: private monopoly, public monopoly, or public regulation. All three are bad so we must choose among evils.

If the delivery of mail is a technical monopoly, no one will be able to succeed in competition with the government. If it is not, there is no reason why the government should be engaged in it.

Freedom is a tenable objective only for responsible individuals.

We do not believe in freedom for madmen or children.

The fundamental defect of a commodity standard, from the point of view of the society as a whole, is that it requires the use of real resources to add to the stock of money.

The Great Depression in the United States, far from being a sign of the inherent instability of the private enterprise system, is a testament to how much harm can be done by mistakes on the part of a few men when they wield vast power over the monetary system of a country.

To paraphrase Clemenceau, money is much too serious a matter to be left to the Central Bankers.

Another reason, and one that is more directly relevant to monetary policy, is that if the bundle is viewed as a whole, it becomes clear that the policy followed has cumulative

effects that tend neither to be recognized nor taken into account when each case is voted on separately.

My choice at the moment would be a legislated rule instructing the monetary authority to achieve a specified rate of growth in the stock of money.

define the stock of money as including currency outside commercial banks plus all deposits of commercial banks.

The proper subject of concern is education. The activities of government are mostly limited to schooling.

stable and democratic society is impossible without a minimum degree of literacy and knowledge on the part of most citizens and without widespread acceptance of some common set of values.

As we have seen, both the imposition of a minimum required level of schooling and the financing of this schooling by the state can be justified by the “neighborhood effects” of schooling. A third step, namely the actual administration of educational institutions by the government, the “nationalization,” as it were, of the bulk of the “education industry” is much more difficult to justify on these, or, so far as I can see, any other, grounds.

This difference suggests the existence of underinvestment in human capital.8

discrimination against groups of particular color or religion is least in those areas where there is the greatest freedom of competition.

They have tended to attribute to capitalism the residual restrictions they experience rather than to recognize that the free market has been the major factor enabling these restrictions to be as small as they are.

But in a society based on free discussion, the appropriate recourse is for me to seek to persuade them that their tastes are bad and that they should change their views and their behavior, not to use coercive power to enforce my tastes and my attitudes on others.

The use of government to establish, support and enforce cartel and monopoly arrangements among private producers has grown much more rapidly than direct government monopoly and is currently far more important.

There is unfortunately no good solution for technical monopoly. There is only a choice among three evils: private unregulated monopoly, private monopoly regulated by the state, and government operation.