Paper: Capitalism & Freedom

Milton Friedman is a genius. This I don’t doubt. I do think he got it pretty wrong in Capitalism & Freedom, though. This paper I wrote (the second in my “Political Analysis” class) explains why.

On reposting I’ve noticed a few points left out of my argument, so don’t take this as a definitive description of my current beliefs on the subject.

The Fallacy of Capitalism And Freedom

A Response to Milton Friedman

Since the beginning of the Cold War, communism has been anathema to the people of the United States. The free market is worshiped as the God all free nations must follow; despite the popularity of such programs as Social Security, a policy accused of being socialist is barely more likely to pass than one legalizing murder. In the beginning chapters of Capitalism And Freedom, Milton Friedman promotes the basis for this position. Unfortunately, while his individual arguments are well-founded, as a whole they are misapplied and neglect to engage other valid world views that oppose them on their very foundational assumptions. Throughout this essay I discuss the foundational reasons his arguments might be considered void, the inconsistencies within the arguments themselves, and why modern socialism is exempt from many of his arguments against it.

I. Errors in Foundation

Central to Friedman’s argument is the nebulously defined “freedom.” From Friedman’s writings, he seems to define freedom as the ability to do as one pleases until one interferes with another’s freedom. He at several points refers to freedoms to spend money as you see fit and seems to regard this as critical. While he holds a valid view of the world, he neglects the equally valid view that a person has the freedom to earn a living wage and that sometimes person A’s freedom to spend money as he likes interferes with person B’s freedom to earn a living wage. This fundamental conflict of ideas seems to never occur to Friedman, and so anybody who believes in B’s freedom to earn a living wage must necessarily view Friedman’s arguments with deep suspicion on immutable moral grounds. His lack of engagement on this subject is particularly confusing since this moral view of the world is the chief argument for a socialist or communist system, which Friedman works hard to dismantle.

In another sin of non-engagement, Friedman dismisses all government’s possibilities for good by noting that it has equal power to do harm. And while this is true, he neglects the essential feature that makes democracy work: the people. People, even if they aren’t kind enough to want to help others (and many are), at least have the desire to give themselves every advantage they can. And while governments may use their power in good and evil ways, any evil use of power within a democracy is a good way to get removed from power. Friedman simply ignores the potential benefits by noting the potential harms without categorizing the likeliness of either. Those who believe a population may more easily control a democratic government than control a multitude of corporations are left to their own devices in deciding if decreased governmental regulation is worth the added difficulty of making other powerful organizations (in this case, corporations) behave.

Friedman’s last major foundational error is the assumption that any good idea can flourish inside of capitalism because any good idea can be sold. He provides a counterargument to this himself while trying to debunk socialism. He says that in order to advocate a position one must have, at a minimum, the money to pay for it, the paper to print on, and the transportation to move on; he argues access to all these are impossible under socialism if you are advocating for something the government does not like. This is not a problem in capitalism (so the argument goes) because in capitalism people and corporations will do what is profitable, and even if they do not agree with you it may be profitable to support you. Certainly an organization will do what is most profitable for itself; the error in this argument is the assumption that taking your money is always the most profitable course; then the assumption that any good idea will be implemented if enough people hear it. The history of slavery in the United States would disagree: abolition was unprofitable in the extreme and could not have survived if it were to be sustained on purely capitalistic forces; nearly the entire country was economically dependent on slavery. It was abolished because many people convinced the government it should be abolished and the government decided it was in the interests of winning the Civil War. Governmental interests and power are often necessary to allow good ideas to come to pass.

II. Inconsistencies and Illogicalities

It is Friedman’s thesis throughout his book that economic freedom and a laissez-faire government are necessary to political freedom. He holds that every increase in governmental power is an immediate decrease in personal freedoms, because government is bad at allowing people to practice a variety of positions and forces conformity with each law it passes. Tariffs on imports and fair-trade laws restrict the freedom of individuals to spend their money as they like. This is all very true. And he also holds (implicitly) that consumers, if they so wish, are capable of providing the same protections to the local economy as tariffs and fair trade laws because “The consumer is protected from coercion by the seller because of the presence of other sellers with whom he can deal. The seller is protected from coercion by the consumer because of other consumers… The employee is protected from coercion by the employer because of other employers…”

But in a logical turnaround from proclaiming strong laissez-faire, Friedman does recognize a few cases in which government action may increase freedom. Because he feels that consumers must have freedom of choice, and monopolies deny that freedom, he feels that it is sometimes justifiable for the government to interfere to prevent monopolies. While the democratic socialist would certainly agree with this idea, it conflicts with other of Friedman’s arguments beyond protective tariffs: most directly, his opposition of fair trade laws that help to prevent the formation of monopolies, but also his opposition of the minimum wage.

Friedman’s claim that the employee is inherently protected from the employer because other employers exist holds true only when there are more jobs than employees. Yet this condition has never been met in the modern day, and the most obvious replacement protection (similar to allowing the government to break monopolies) would seem to be the minimum wage. It prevents wage exploitation and provides a small part of the benefits that would be available if employers had to compete for employees. Friedman illogically supports only the monopoly-breaking, despite its seeming position as analogue to the minimum wage in his statement about mutual protections from exploitation.

Yet even accepting that the power to break up monopolies and the power to set a minimum wage are not somehow analogues, Friedman must deal with the pesky fact that he has now admitted there is a line at which the government does a better job of insuring freedom than the free market. Having admitted that the line exists, it seems in many respects that his argument, largely based on the absolute idea that any government power is an unbearable infringement of freedom, begins to crumble. Why is the government allowed to break up monopolies once they form, but not to pass antitrust laws to prevent their formation?

III. Socialism & The Free Market

Milton Friedman’s last great flaw is perhaps one of time rather than knowledge or logic: the concept of socialism today is considerably different than when he wrote Capitalism And Freedom. But because he ignores any distinctions between socialism and communism―and lumps a welfare state (today’s socialism) in the same category—it seems necessary to discuss the expired and mis- applications of principle.

Milton Friedman’s strongest argument against socialism is that it reduces political freedom by punishing those who speak out against the government. While admitting that the government might deny itself this abuse, he finds it likely that anybody speaking out would find themselves jobless and without an income. He correctly believes the free market supplies a remedy by providing jobs that the government cannot remove. He is incorrect on the chance of losing a job for a few reasons. In order for this practice to occur, a society once capable of implementing democratic socialism would have to deteriorate to the point that its citizens could tolerate people being fired from their job for holding differing views. This seems unlikely. Second, any socialist government that strips somebody of their job simply adds a non-worker to the supply of people needing resources. This is counterproductive and against the state interests. Lastly, in democratic socialist states today there is a free market system available that provides the same “job security” as do capitalist democracies.

Friedman’s second great argument against socialism is that it makes the spread of new or controversial ideas impossible. Because classical socialism eliminates the wealth gaps present in capitalist societies today, there are no vastly wealthy individuals to act as patrons in support of a cause; nor are there investors who can be convinced to give support for an eventual payback later. But in modern socialism, this is of course not an issue. Countries like Germany and France have their share of billionaires and the socialist nature of the state means only that the wealth gap is smaller than in a pure capitalist system. Since the rise of the Internet, even classical socialism does not suffer so dramatically from this problem of information flow. The Internet has made mass communications easy, cheap, and very difficult to censor; there are political campaigns waged exclusively or largely online (witness MoveOn.Org and Howard Dean’s 2004 Presidential run). Both the problem of wealth and physical material have been nearly neutralized by the advent of cyberspace.

Friedman also argues that no socialist system has or will ever succeed. While the merits of classical socialism or communism are debatable, modern democratic socialism has some very shining examples. Both Norway and Sweden have been strong democratic socialists for years, and while their tax rates are high, so is their standard of living. Norway’s per capita GDP is higher than that of the United States; both states are experiencing growth comparable to that of the United States, and their unemployment rates are at similar levels. Democratic socialism may not work well in all countries, but there is no question left that it can and does work in the proper setting.

Friedman’s last argument (and the only one applicable to socialism today) is that socialist programs like Social Security are an unforgivable affront to freedom. But his argument is weak. Social Security grants the government very little power because it gets no say in how the money is spent; Social Security is simply a program that passes money from one person to another. He argues against forced participation in a government retirement program, but in today’s world a retirement program of some kind is a necessity. Providing a uniform policy that everybody is guaranteed participation in spreads a great deal of freedom to the elderly poor; Friedman provides no counter to arguments of this sort.

IV. Conclusion

There can be no doubt that the free market has its place in insuring freedoms today. But neither can there be doubt that it also denies freedoms and there are some topics to which the government is better suited to respond. Milton Friedman has drawn his line remarkably close to unadulterated laissez-faire capitalism, but it is possible to reject his arguments on moral grounds as cruel and unfeeling; on logical grounds as self-conflicted, and on relevancy grounds as they ignore today’s democratic socialism. His approach has shown itself to be unnecessary—perhaps even counterproductive—in guaranteeing freedoms in today’s world.