Pursuit of Truthiness

my gut tells me I know economics

Milton Friedman’s Capitalism and Freedom

with 2 comments

This has been, I think, the most popular book written about economics in the 20th century. Having read many thicker and more obscure tomes on the subject, I figured it was time to give Friedman a try.

As the title might suggest, the book is full of both economics and political philosophy. Its overriding message is that our government has grown too large and taken over many functions it should stay out of in a free and prosperous society.

Given his government-reducing mission, it may come as a surprise to modern readers that Friedman continually refers to himself and his ideas as “liberal”. He says, “as it developed in the late eighteenth and early nineteenth centuries, the intellectual movement that went under the name of liberalism emphasized freedom as the ultimate goal and the individual as the ultimate entity in society. It supported laissez-faire at home as a means of reducing the role of the state in economic affairs and thereby enlarging the role of the individual; it supported free trade abroad as a means of linking the nations of the world together peacefully and democratically.” Today, I think, these principles would resonate most with people who call themselves libertarian.

Capitalism and Freedom was first published in 1962. While it contains many timeless statements about economics and political philosophy, it was intended to be a book of its time. Friedman looks at the United States of 1962 and explains what its problems are and how they might be fixed. Some of these “fixes” have been implemented; it is somewhat surreal to read someone proposing a new way of doing things, only to realize, ‘wait- that is how we do things!’. We give many scholarships for higher education directly to students, we allow people to buy and sell non-decorative gold, we don’t require “loyalty oaths” of potential employees, we allow banks to pay interest on demand deposits, we have floating exchange rates; we do many things that in 1962 were only ideas biding their time in the minds of people like Friedman.

Most of the ideas presented in Capitalism and Freedom, however, are just as relevant and just as radical today. Many government agencies which he advocated axing are still alive and kicking; the Post Office and its monopoly, the Federal Communications Commission and its powers of censorship, mandatory Social Security, massive agricultural price supports. Controversy still surrounds many of these and similar programs; others have become even more entrenched, like the proverbial “third rail” of American politics, Social Security.

Friedman devotes a chapter to education, beginning what would become a lifelong advocacy for a voucher system, and considering how best to bring about desegregation (in 1962 Chicago!).

He devotes a chapter to occupation licencing, comparing it to the medieval guild system. He argues against the form of licensure “for which the strongest case can be made”, that of doctors. He calls the American Medical Association “the strongest trade union in the United States”, having succeeded wildly in the traditional union goals of keeping wages high by keeping the barriers to entry high (ie with a long, difficult and expensive training process at schools which only they can approve). Correspondingly, there are not enough doctors and medical care is too expensive (sound familiar?). His argument that doctors should not be required to have medical licences to practice is surprisingly convincing; like with Social Security, it has been around long enough and makes enough sense at first glance that almost everyone supports it, but almost no one has been confronted with the best argument (or any argument) against it.

Having advocated so many ways to reduce the size and scope of government, Friedman finishes the book with a surprising argument for a form of welfare- the negative income tax, also known as a basic income guarantee. Below a certain income level, people would receive money instead of paying it out; those who earned no income at all would receive the most from the negative income tax. It would be phased in slowly over the brackets so people at every level of income could still earn more by working more. Though this might sound like a “lefty” proposition, Friedman advocates it because it could in fact reduce the size and scope of government interference in the economy, by replacing other anti-poverty programs which are much more intrusive (ag supports, minimum wage) and much less efficient (all of them).

All in all, it is a very slim, straightforward book that packs in a lot of ideas, many of them quite novel. It has been, and hopefully will to be, very influential.


Written by James Bailey

July 23, 2008 at 9:44 pm

2 Responses

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  1. I like the way Friedman use the word “liberal.” Like Friedrich Hayek, Friedman uses the term in its original sense. Hayek also suggested the term “Old Whig” to describe his philosophy, but I like “liberal” better.

    This is a good review, btw. Especially now-a-days when folks tend to demonize Friedman. There are even faculty protests at the University of Chicago in which professors are trying to stop an institution from being named in Friedman’s honor.


    July 23, 2008 at 11:32 pm

  2. […] and Freedom: Fortieth Anniversary Edition“>Capitalism and Freedom (which I reviewed here), since both are books from the early 1960′s that have been popular and influential and yet […]

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