Capitalism and Freedom

CAPITALISM AND FREEDOM

In the opening paragraphs of this "Manifesto for Laissezfaire"--for this is another in the fairly long list of similar publications that have been appearing in the last few years--the author introduces himself as a "modern heir of the nineteenth-century liberal" who "was a radical, both in the etymological sense of going to the root of the matter, and in the political sense of favoring major changes in social institutions." This alluring self-portrayal invites three questions. First, what is it to the root of which Professor Friedman is going? Second, where is it that he considers this root to be located? And third, what are the major changes in social institutions that he is in favor of? But before trying to summarize--as much as possible in his own words--the answers to these questions as they are set forth in the book under review, it will be useful to indicate briefly its point of departure, that is, the criteria by which the condition of society is judged.

Criteria.--Friedman views society as a collection of individuals each unequally endowed with personal capacities and with material wealth. Just as in a lottery people draw large, small, or no prizes at all, so in society there are individuals who inherit from their parents, say, a peculiar voice for which there is a great demand, or inherit (or otherwise acquire) large amounts (and proportions) of society's wealth. All of these unequally equipped individuals are interconnected by a system of voluntary cooperation: the competitive market. The resulting distribution of income is governed by the principle, "To each according to what he and the instruments he owns produces." The function of the state, in addition to organizing defense against foreign enemies, is to protect the freedom of the individual to do with himself as he pleases, to preserve law and order, to safeguard private property, to enforce private contracts, and to foster competitive markets. While Hayek harshly observed that "we must face the fact that the preservation of individual freedom is incompatible with a full satisfaction of our views of distributive justice," (1) Friedman more mellowly remarks that one cannot be both an egalitarian and a liberal. The individual's freedom, including his economic freedom, is an end in itself, is indeed the ultimate standard by which to judge social arrangements. The assurance of such freedom results in, and is predicated upon, the maintenance of a free-enterprise exchange economy, that is, competitive capitalism. It is a happy coincidence that such a free-enterprise exchange economy constitutes an ideal economic arrangement for a free society. Since no standards other than the individual's freedom as defined above are adduced for deciding the extent to which an economic arrangement may be deemed ideal, the proposition that competitive capitalism meets the requirements follows exdefinitione.

What is wrong.--The individual in our society, according to Friedman, is threatened by an increasing abridgment of freedom. The danger affects both the political and the economic realms, but the former only indirectly, by means of the threat to our free economic institutions. Taken by itself, the condition in the area of political freedom is not thought of as alarming. Men in our society can openly advocate and work for socialism. They can be supported in their endeavors by wealthy individuals who are so persuaded. The suppliers of paper are as willing to sell it to the Daily Worker as to the Wall Street Journal. To be sure, advocacy of dissenting opinion may be costly to him who engages in it. But this is as it should be. It is entirely appropriate that men should make sacrifices to advocate causes in which they deeply believe.

The situation may be not quite as satisfactory in the intermediate region between the political and economic zones, in that of civil rights. But even here there can be no complaint against competitive capitalism. After the Civil War, the southern states imposed many legal restrictions on Negroes. But one measure which was never taken on any scale was the erection of barriers to the ownership of either real or personal property. The maintenance of the general rules of private property and of capitalism have been a major source of opportunity for Negroes and have permitted them to make greater progress than they otherwise could have. The impersonal market protects men from being discriminated against in their economic activities for reasons that are irrelevant to their productivity--whether these reasons are associated with their views or their color. No one who buys bread knows whether the wheat from which it is made was grown by a Communist or a Republican, by a constitutionalist or a fascist, or, for that matter, by a Negro or a white. Therefore the groups in our society that have the most at stake in the preservation and strengthening of competitive capitalism are minority groups--Negroes, Jews, the foreign-born.

Where Friedman considers the state of affairs to be really serious is in the economic system itself. Here the government is a formidable menace and has already succeeded in curtailing many an important personal freedom. Examples abound. The citizen who is compelled by law to devote something like 10 percent of his income to the purchase of a particular kind of retirement contract, administered by the government, is deprived of a corresponding part of his personal freedom. The citizen who under the laws of various states is not free to follow the occupation of his own choosing unless he can get a license for it is likewise being deprived of an essential part of his freedom. So is the man who would like to exchange some of his goods with, say, a Swiss for a watch but is prevented from doing so by a quota. So is the Californian who was thrown into jail for selling Alka Seltzer at a price below that set by the manufacturer under the so-called fair-trade laws. So also is the farmer who cannot grow as much wheat as he wants to.

Government intervention in economic affairs is bad in and of itself. Either its results are disastrous because the government, almost without exception, follows the wrong policies; or they are nil because they are offset by the forces of the market. The worst and most calamitous policies have been those pertaining to money and fiscal affairs. Monetary policy has been persistently misdirected and ill-timed. There has never been a severe depression in any country or at any time that was not accompanied by a sharp decline in the stock of money, nor was there ever a sharp decline in the stock of money that was not accompanied by a severe depression. Even the Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the