Milton Friedman in Capitalism and Freedom
On Principles & Values:
Free men use gov't to serve people; not to serve country
President Kennedy said, "Ask not what your country can do for you--ask what you can do for your country." It is a striking sign of the temper of our ties that the controversy about this passage centered on its origin and not on its content.
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" implies that 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, "what you can do for your country" implies that government is the master or the deity, the citizen, the servant or the votary. To the free man, the country is the collection of individuals who compose it, not something over and above them
Source: Capitalism and Freedom, by Milton Friedman, p. 1-2
Nov 15, 1962
On Budget & Economy:
Government's role is only to determine the rules
A major source of objection to a free economy is precisely that it does this task so well. It gives people what they want, instead of what a particular group thinks they ought to want. 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. On the contrary, government is essential both as a forum for determining the "rules of the game" and as an umpire to interpret and enforce the
rules decided on. What the market does 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 characteristic feature of action through political channels is that it tends to require or enforce substantial conformity. The great advantage of the market, on the other hand, is that it permits wide diversity.
Source: Capitalism and Freedom, by Milton Friedman, p. 15
Nov 15, 1962
On Government Reform:
Economic power decentralizes; political power does not
Economic power can be widely dispersed. The growth of new centers of economic strength [isn't] at the expense of existing centers. Political power, on the other hand, is more difficult to decentralize. There can be numerous small independent governments.
But it is far more difficult to maintain numerous equipotent small centers of political power in a single large government than it is to have numerous centers of economic strength in a single large economy. There can be many millionaires in one large
economy. But can there be more than one really outstanding leader? If the central government gains power, it is likely to be at the expense of local governments. There seems to be something like a fixed total of political power to be distributed.
Consequently, if economic power is joined to political power, concentration seems almost inevitable. On the other hand, if economic power is kept in separate hands from political power, it can serve as a check and a counter to political power.
Source: Capitalism and Freedom, by Milton Friedman, p. 15-16
Nov 15, 1962
On Principles & Values:
Socialist economics are incompatible with democracy
The free man will ask neither what his country can do for him nor what he can do for his country. He 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 long can we keep the government we create from becoming a Frankenstein, that will destroy the very freedom we establish it to protect?
Source: Capitalism and Freedom, by Milton Friedman, p. 2-3
Nov 15, 1962
On Civil Rights:
Real freedom means freedom to promote Communism
One may believe, as I do, that communism would destroy all of our freedoms, one may be opposed to it as firmly and as strongly as possible, and yet, at the same time, also believe that in a free society it is intolerable for a man to be prevented from
making voluntary arrangements with others that are mutually attractive because he believes in or is trying to promote communism. His freedom includes his freedom to promote communism. Freedom also, of course, includes the freedom of others not to deal
with him under those circumstances.An example of the role of the market in preserving political freedom was revealed in our experience with McCarthysim. What protection did individuals, and in particular government employees, have against
irresponsible accusations and probing into matters that it went against their conscience to reveal? Their appeal to the 5th Amendment would have been a hollow mockery without an alternative to government employment.
Source: Capitalism and Freedom, by Milton Friedman, p. 20-21
Nov 15, 1962
On Technology:
Private monopoly easier to remove than regulation
In practice, monopoly arises from government support or from collusive agreements, [and should be dealt with via] anti-trust laws. However, monopoly may also arise because it is technically efficient to have a single producer.When technical conditions
make a monopoly the natural outcome of competitive market forces, there are only 3 alternatives that seem available: private monopoly, public monopoly, or public regulation. All 3 are bad so we must choose among evils.
I reluctantly conclude that, if
tolerable, private monopoly may be the least of the evils. If society were static so that the conditions which give rise to a technical monopoly were sure to remain, I would have little confidence in this solution. In a rapidly changing society,
the conditions making for technical monopoly frequently change and I suspect that both public regulation and public monopoly are likely to be less responsive to such changes in conditions, to be less readily capable of elimination, than private monopoly.
Source: Capitalism and Freedom, by Milton Friedman, p. 28
Nov 15, 1962
On Government Reform:
No need to maintain post offices as a public monopoly
There is no way to justify our present public monopoly of the post office. It may be argued that the carrying of mail is a technical monopoly and that a government monopoly is the least of evils. [That does not] justify the present law, which makes it
illegal for anybody else to carry mail. 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. The only way to find
out is to leave other people free to enter.The historical reason why we have a post office monopoly is because the Pony Express did such a good job of carrying the mail that, when the government introduced transcontinental service, it couldn't
compete effectively and lost money.
I conjecture that if entry into the mail-carrying business were open to all, there would be a large number of firms entering it and this archaic industry would become revolutionized in the short order.
Source: Capitalism and Freedom, by Milton Friedman, p. 29-30
Nov 15, 1962
On Environment:
City parks justifiably public; national parks can be private
Almost everyone at first sight regards the conduct of National Parks as obviously a valid function of government. In fact, however, neighborhood effects may justify a city park; they do not justify a national park, like Yellowstone National Park.
What is the fundamental difference between the two? For the city park, it is extremely difficult to identify the people who benefit from it and to charge them for the benefits which they receive.
The entrances to a national park like Yellowstone, on
the other hand, are few; most of the people who come stay for a considerable period of time and it is perfectly feasible to collect admission charges. This is indeed now done, though the charges do not cover the whole costs. If the public wants this
kind of an activity enough to pay for it, private enterprises will have every incentive to provide such parks. I cannot myself conjure up any neighborhood effects or important monopoly effects that would justify governmental activity in this area.
Source: Capitalism and Freedom, by Milton Friedman, p. 31
Nov 15, 1962
On Budget & Economy:
Government caused Great Depression, and recessions since
"Full employment" and "economic growth" have in the past few decades become primary excuses for widening the extent of the government intervention in economic affairs. A private, free-enterprise economy, it is said, is inherently unstable.
Left to itself, it will produce recurrent cycles of boom and bust.These arguments were particularly potent during and after the Great Depression of the 1930's. These arguments are thoroughly misleading. The fact is that the
Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy. A governmentally established agency--the Federal Reserve System--had been assigned
responsibility for monetary policy. In 1930 and 1931, it exercised this responsibility so ineptly as to convert what otherwise would have been a moderate contraction into a major catastrophe.
Source: Capitalism and Freedom, by Milton Friedman, p. 37-38
Nov 15, 1962
On Free Trade:
Tariffs & trade restrictions impede economic growth
Governmental measures constitute the major impediments to economic growth. Tariffs and other restrictions on international trade, high tax burdens and a complex and inequitable tax structure, regulatory commissions government price and wage fixing, and
a host of other measures give individuals an incentive to misuse and misdirect resources, and distort the investment of new savings. What we urgently need, for both economic stability and growth, is a reduction of government intervention, not an increase
Source: Capitalism and Freedom, by Milton Friedman, p. 38
Nov 15, 1962
On Principles & Values:
Concentrated power threatens individual freedom
A classical liberal is fundamentally fearful of concentrated power. His objective is to preserve the maximum degree of one man's freedom that is compatible with not interfering with other men's freedom. This objective requires that power be dispersed. He
is suspicious of assigning to government any functions that can be performed through the market, both because this substitutes coercion for voluntary co-operation, and because, by giving government an increased role, it threatens freedom in other areas.
Source: Capitalism and Freedom, by Milton Friedman, p. 39
Nov 15, 1962
On Budget & Economy:
Fed should grow money supply by 3%-5% and nothing else
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. I would specify that the Reserve System shall see to it that the total stock of money so defined rises
month by month, and indeed, so far as possible, day by day, at an annual rate of X%, where X is some number between 3 and 5. As matters now stand, while this rule would drastically curtail the discretionary power of the monetary authorities, it would
still leave an undesirable amount of discretion in the hands of the Federal Reserve with respect to how to achieve the specific rate of growth.
I should like to emphasize that I do not regard my particular proposal as a be-all and end-all of monetary
management, as a rule, which is somehow to be enshrined for all future time. It seems to me to be the rule that offers the greatest promise of achieving a reasonable degree of monetary stability in the light of our present knowledge.
Source: Capitalism and Freedom, by Milton Friedman, p. 54
Nov 15, 1962
On Free Trade:
Interfering with trade is the road to authoritarianism
Interferences with international trade appear innocuous; they can get the support of people who are otherwise apprehensive of interference by government into economic affairs; many a business man even regards them as part of the "American
Way of Life"; yet there are few interferences which are capable of spreading so far and ultimately being so destructive of free enterprise.
There is much experience to suggest that the most effective way to convert a market economy into an authoritarian economic society is to start by imposing direct controls on foreign exchange.
This one step leads inevitably to the rationing of imports, to control over domestic production that uses imported products or that produces substitutes for imports, and so on in a never-ending spiral.
Source: Capitalism and Freedom, by Milton Friedman, p. 57
Nov 15, 1962
On Free Trade:
Floating foreign exchange rate is necessary for free trade
One mechanism for free trade is an international gold standard, [but that] is neither feasible nor desirable. The other is a system of freely floating exchange rates determined in the market without governmental intervention. This is the proper free-
market counterpart to the monetary rule [of free supply]. If we do not adopt it, we shall inevitably fail to expand the area of free trade and shall sooner or later be introduced to impose widespread direct controls over trade.
Source: Capitalism and Freedom, by Milton Friedman, p. 67
Nov 15, 1962
On Budget & Economy:
Repeal recession spending once expansion begins
More recently, the emphasis has been on government expenditures as a balance wheel. When private expenditures decline for any reason, it is said, governmental expenditures should rise to keep total expenditures stable.Unfortunately, the balance wheel
is unbalanced. Each recession, legislators hasten to enact federal spending programs of one kind or another. Many of the programs do not in fact come into effect until after the recession has passed. The haste with which spending programs are approved is
not matched by an equal haste to repeal them or to eliminate others when the recession is passed and expansion is under way. On the contrary, it is then argued that a "healthy "expansion must not be "jeopardized" by cuts in governmental expenditures.
The chief harm done by the balance-wheel theory is therefore that it has continuously fostered an expansion in the range of governmental activities at the federal level and prevented a reduction in the burden of federal taxes.
Source: Capitalism and Freedom, by Milton Friedman, p. 75-76
Nov 15, 1962
On Tax Reform:
Lower taxes in recessions and raise taxes in booms
[In a recession], a decline in national income automatically reduces the tax revenue of the federal government shifts the budget in the direction of a deficit, and conversely during a boom. If it is desired to do more, taxes can be lowered during
recessions and raised during expansion. Of course, politics might well enforce an asymmetry here too, making the declines politically more palatable than the rises.Suppose each recession had seen a cut in taxes & suppose the political unpopularity of
raising taxes in the succeeding expansion had led to resistance to newly proposed governmental expenditure programs and to curtailment of existing ones. We might now be in a position where federal expenditures would be absorbing a good deal less of a
national income.
Political considerations aside, we simply do not know enough to be able to use deliberate changes in taxation or expenditures as a sensitive stabilizing mechanism. In the process of trying to do so, we almost surely make matters worse.
Source: Capitalism and Freedom, by Milton Friedman, p. 77-78
Nov 15, 1962
On Social Security:
Compulsory retirement programs infringe personal freedom
The citizen of the US who is compelled by law to devote something like 10% of his income to the purchase of a particular kind of retirement contract, administered by the government, is being deprived of a corresponding part of his personal freedom.
How strongly this deprivation may be felt and its closeness to the derivation of religious freedom, which all would regard as "civil" or "political" rather than "economic", were dramatized by an episode involving a group of farmers of the Amish sect.
On grounds of principle, this group regarded compulsory federal old age programs as an infringement of their personal individual freedom and refused to pay taxes or accept benefits. As a result, some of their livestock were sold by auction in order to
satisfy claims for social security levies. True, the number of citizens who regard compulsory old age insurance as a deprivation of freedom may be few, but the believer in freedom has never counted noses.
Source: Capitalism and Freedom, by Milton Friedman, p. 8-9
Nov 15, 1962
On Education:
First proposed school vouchers to denationalize education
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. The actual administration of educational institutions, or "nationalization" by the
government, is much more difficult to justify.Governments could require a minimum level of schooling financed by giving parents vouchers redeemable for a specified maximum sum per child per year if spent on "approved" educational services.
Parents would then be free to spend this sum and any additional sum they themselves provided on purchasing educational services from an "approved" institution of their own choice. The educational services could be rendered by private enterprises operated
for profit, or by non-profit institutions. The role of government would be limited to insuring that the schools met certain minimum standards, such as the inclusion of a minimum common content in their programs, much as it now inspects restaurants.
Source: Capitalism and Freedom, by Milton Friedman, p. 89
Nov 15, 1962
On Education:
Subsidize parental choice of public or parochial school
Denationalizing schooling would widen the range of choice available to parents. If, as at present, parents can send their children to public schools without special payment, very few can or will send them to other schools unless they too are subsidized.
Parochial schools are at a disadvantage in not getting any of the public funds devoted to schooling, but they have the compensating advantage of being run by institutions that are willing to subsidize them and can raise funds to do so.
There are few other sources of subsidies for private schools. If present public expenditures on schooling were made available to parents regardless of where they send their children, a wide variety of schools would spring up to meet the demand.
Parents could express their views about schools directly by withdrawing their children from 1 school and sending them to another, to a much greater extent than is now possible.
Source: Capitalism and Freedom, by Milton Friedman, p. 91
Nov 15, 1962
On Education:
Vouchers give greater educational opportunity to the poor
[Some argue] that private schools would tend to exacerbate class distinctions. [But] ask yourself in what respect the inhabitant of a low income neighborhood is most disadvantaged. If he attaches enough importance to, say, a new automobile, he can, by
dint of saving, accumulate enough money to buy the same car as a resident of a high-income suburb. And this goes equally for clothes, or furniture, or books, or what not.But let a poor family in a slum have a gifted child and let it set such high
value on his or her schooling that it is willing to scrimp and save for the purpose. Unless it can get special treatment, or scholarship assistance, at one of the very few private schools, the family is in a very difficult position. The "good" public
schools are in the high income neighborhoods. The family might be willing to spend something in addition to what it pays in taxes to get better schooling for its child. But it can hardly afford simultaneously to move to the expensive neighborhood.
Source: Capitalism and Freedom, by Milton Friedman, p. 91-92
Nov 15, 1962
On Education:
Merit pay for teachers
With respect to teachers' salaries, the major problem is not that they are too low on the average, but that they are too uniform and rigid. Poor teachers are grossly overpaid and good teachers grossly underpaid. Salary schedules tend to be uniform and
determined far more by seniority, degrees received, and teaching certificates acquired than by merit.If one were to seek deliberately to devise a system of recruiting and paying teachers calculated to repel the imaginative and daring, and to attract
the mediocre and uninspiring, he could hardly do better than imitate the system of requiring teaching certificates and enforcing standard salary structures that has developed in the largest city and state-wide systems. It is perhaps surprising that the
level of ability in elementary and secondary school teaching is as high as it is under these circumstances. The alternative system would resolve these problems and permit competition to be effective in rewarding merit and attracting ability to teaching.
Source: Capitalism and Freedom, by Milton Friedman, p. 95-96
Nov 15, 1962
On Education:
Subsidize college by GI Bill method, not state institutions
Any subsidy should be granted to individuals to be spent at institutions of their own choosing provided only that the schooling is of a kind that is desired to subsidize.
Any government schools that are retained should charge fees covering educational costs and so compete on an equal level with non-government-supported schools.
The adoption of such arrangements would make for more effective competition among various types of schools and for a more efficient utilization of their resources.
It would eliminate the pressure for direct government assistance to private colleges and universities and thus preserve their full independence and diversity at the same time as it enabled them to grow relative to state institutions.
Source: Capitalism and Freedom, by Milton Friedman, p. 99-100
Nov 15, 1962
On Civil Rights:
Persuade against racism, but don't use coercion
I believe strongly that the color of a man's skin or the religion of his parents is, by itself, no reason to treat him differently; that a man should be judged by what he is and what he does and not be these external characteristics.
I deplore what seem to me the prejudice and narrowness of outlook of those whose tastes differ from mine in this respect and I think the less of them for it.
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.
Source: Capitalism and Freedom, by Milton Friedman, p.111
Nov 15, 1962
On Jobs:
Fair employment practices interfere with individual freedom
Fair employment practice commissions that have the task of preventing "discrimination" in employment by reason of race, color, or religion have been established in a number of states.
Such legislation clearly involves interference with the freedom of individuals to enter into voluntary contracts with one another. It subjects any such contract to approval or disapproval by the state.
Thus it is directly an interference with freedom of the kind that we would object to in most other contexts.
Moreover, as is true with most other interferences with freedom, the individuals subjected to the law may well not be those whose actions even the proponents of the law wish to control.
Source: Capitalism and Freedom, by Milton Friedman, p.111-115
Nov 15, 1962
On Jobs:
Free choice in employment should be treated like free speech
The counterparts to fair employment is "fair speech" rather than free speech. In this respect the position of the American Civil Liberties Union seems utterly contradictory. It favors both free speech and fair employment laws. One way to state the
justification for free speech is that we do not believe that it is desirable that momentary majorities decide what at any moment shall be regarded as appropriate speech. Precisely the same considerations apply to employment. Is it any more desirable that
momentary majorities decide what characteristics are relevant to employment? The ACLU will fight to the death to protect the right of a racist to preach racial segregation. But it will favor putting him in jail if he acts on his principles
by refusing to hire a Negro for a particular job.The appropriate recourse of those of us who believe that a particular criterion such as color is irrelevant is to persuade our fellow to be of like mind, not to use the coercive power of the state.
Source: Capitalism and Freedom, by Milton Friedman, p.114-115
Nov 15, 1962
On Tax Reform:
Progressive taxation intended to insure against risk
Individuals choose occupation, investments, and the like partly in accordance with their taste for uncertainty. The girl who tries to become a movie actress rather than a civil servant is deliberately choosing to enter a lottery.Insurance is a way of
expressing a taste for certainty. Indeed, this is one way to interpret governmental measures to redistribute income through progressive taxes and the like. It can be argued that the market cannot produce the range of lotteries desired by the members of
the community, and that progressive taxation is, as it were, a government enterprise to do so. I have no doubt that this view contains an element of truth. At the same time, it can hardly justify present taxations, if only because the taxes are imposed
AFTER it is already largely known who have drawn the prizes and who the blanks in the lottery of life, and the taxes are voted mostly by those who think they have drawn the blanks.
Source: Capitalism and Freedom, by Milton Friedman, p.163
Nov 15, 1962
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