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September 18, 2007


Jay Bessette

Polanyi's "The Great Transformation" simply tells of the collapse of the 19th century civilization. The word collapse is designed to automatically put you in a frame of mind that the system that is in place now may have been much better in the past and he uses many examples to prove his point pre-transition times were more stable and that markets were an accessory to economic life not the rule.
Polanyi begins by detailing what he feels are the four causes to the collapse of the nineteenth century civilization, the fall of the gold standard, balance of power, self regulating market and ultimately the liberal state. He focuses mostly on the market and market forces to paint the picture for us.
Primarily the market as used in the mercantile system was a part of everyday life and Polanyi is clear about what the benefits are: first is fair trade that each person trading is getting a fair value for their commodity and that no one in particular is trying to make a huge profit from their trade. Contrast that to today's economy where the large corporations have taken over the market and the common man is no longer getting a fair deal for his trade or better said for his labor. Next Polanyi refers to full employment, the means of everyone to have a job one way or another. That there really are no options to not work because people are self sufficient and no one will take care of you. The social systems are not in place because they are not needed but as mercantilism is replaced by a freer market there become greater need for those systems to be in place to help the new characteristic of society which is unemployment. Feudalism as well is a victim to the new market driven world as technologies and social attitude reforms continue to grow feudalism no longer functions in the smooth way that it has always provided for the lords and those who labored the lands.
The new society has completely dependence on the market forces. No longer can one survive by their own means, essentially each laborer is a slave to the market and literally cannot survive with out it. This creates new ways of thinking that lead to fascism and socialism. People are united in a way to stand up against the proletariat and come together as one who does not need the market to survive but can survive as a whole. Fascism "offered an escape from an institutional deadlock which was essentially alike in a large number of countries". However fascism never really pulled everyone together the way it was supposed to. It was a movement that really got little ground. Fascism was more about its strong leaders than it was about an "enrollment or personal participation of large numbers. Socialism as well met it's fate as socialist leaders learned that even one country's economy is too much to control by one body and that indeed capitalism and market forces must be relied upon to feed, cloth, protect and employ the general public.

Kieran M. Duffy

I disagree with most of M.Freidman's arguments/evidence for "letting the market rip" as Prof. Delong notes.

First, when he says "The only person who can persuade yourself is yourself. You must turn the issues over in your mind at leisure, consider the many arguments, let them simmer, and after as long time turn your preferences into cinviction" (viii). I disgree with him because I feel his vision of society is a Eutopia that can not exist, because he is not factoring in human traits such as greed, evil, the desire for immense success and vice versa.

I further disagree as he says "...we can ensure that the private sector is a check on the powers of the government sector, and an effective protection of freedom of speech, religion, and thought" (3). The private sector is going to protect our livelyhood?? I do not think so. The private sector serves there own self interests, first above all, if world history is any guide.

I also disagree with his idea of "letting the market rip" when he says "If I do not like what my local community does, be it sewage disposal, or zoning or schools, I can move to another local community, and though few may take this step, the mere possibility acts as a check." So is he saying that the fact that overseas manufacturing ie China, Mexico, Brazil has taken hundreds of thousand of US jobs serves us right? If there is a natural disaster such a Hurricane Katrina here in Berkeley, should we should abandon the city and find a "better local community?"

I also disagree when he describes Social Security as "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 is being deprived a corresponding part of his personal freedom" (8). Social Security was set up to in some cases, save poeple from themselve so to speak in that managing to save money for retirement or an unpredictable emergency like the Great Depression is very difficult. Therefore I am pro-Social Scurity and do not feel like I am being robbed of my "economic freedom."

I most strongly disagree with his reasoning of letting the "marktet rip" instead of the government having control over controlling and adjusting taxes based on high and low levels of income, and replacing that system with a flat tax of 23 and one half %. I think its wrong as he states "Much of the actual inequality derives from imperfections of the market." and that "Many of these ahve been created by gavernment action or could be removed by governement action" (176). I disagree most with this because I feel the US offers more economic freedom than anywhere else. Why should someone who in some cases comes and creates an enterprise from the ground up, because of the economic freedoms enjoyed, creates an entity that generates in some cases today $10,000,000.00 a year in income should pay the same tax as an employee that gets paid $50,000.00 and contributes $100,000.00 per year to that $10,000,000.00??

The list goes on and on and on and on...

Ziwei Hu

Friedman attempts to debunk the social democratic theory of government intervention espoused by Keynes and Polanyi by arguing that the government, despite its best intentions, often does more harm than good. He observes that while the government is necessary to provide freedom, it is also simultaneously a threat to freedom. The government should ideally be decentralized and limited in order to maximize the freedom of the people. In contrast to the centralized government, Friedman argues that in the free market, “cooperation is thereby achieved without coercion” because both parties to the transaction benefit from exchange. He warned against a large, inefficient and wasteful government when market-based, private institutions could get the job done quicker and more effectively.

His argument is well-written, and persuasive to a degree, but Polanyi convinced me in “The Great Transformation” that the self-regulating market, left to its own devices, is extremely destructive. Thus, I think that the biggest flaw in Friedman’s argument is that he doesn’t give the government enough credit and overestimates the ability of the free market to perfectly allocate everything. I think that the paternalistic government intervention implemented by Lee Kwan Yew in Singapore provide a good example of how strong government intervention can stimulate economic growth. Singapore, while by no means a perfect country, achieved phenomenal rates of growth and reductions in poverty by implementing extensive social programs and education, land reform, maintaining political control, and encouraging high savings rate. Liberals, such as Friedman, might argue that Singapore’s growth came at too high of a cost in terms of loss of personal freedom, but I don’t think Singapore could have accomplished growth on this scale by implementing free market policies.

On the other hand of the spectrum, we see developing countries such as Argentina and Brazil: victims of the Structural Adjustment Policies of the IMF and the World Bank. These countries did attempt to implement free market policies, such as deregulation, privatization, fiscal austerity, and the reduction of trade barriers. These countries did not see the economic growth of Singapore, but instead, saw increases in poverty and economic stagnation. Liberals might argue that these countries weren’t ready to “let the free market rip”, but Friedman doesn’t place conditions on when and where the policies he advocates will succeed.

Eric Silverman

I think that it is important to point out that Freedman does not consider letting the “market rip” as synonymous with ending the role of the State. The entire thesis of this book is that most of the functional and progressive institutions have come from the functioning of the free market, and not through manipulation of the government as he has seen it. This means that a functioning (capitalist) state will only come about insofar as and inasmuch as it is conducive to the market economy. Economic and Political Freedom will come about mutually. The State will very much have a role in this new society.

As we have seen in Keynes and Polyani, this kind of thinking is dangerous because it has a tendency to create Laissze-Faire dogma that divorces the economy from every other aspect of society. This was also my first clinical reaction when I began reading this book. However, I was extremely impressed with the social consciousness advocated in the closing chapters. The idea of a negative income tax to create a minimal income I found to be extremely progressive. The biggest problem, which Friedman himself recognizes, is that in a system where others are mandated to tax themselves willingly to help a minority, "these others have a vote". He sees the only solution to this issue as relying on the "self-restraint and good will of the electorate".

It is easy to see how an individual may be able to transcend his personal interest in order to level the playing field for free market, and thus the greater good. Unfortunately, Friedman betrays almost all walks of society. He alienates the rich with his reverse income tax and the poor by dissolving "well intentioned" acts of government welfare. I would argue that it is near impossible to get an elected body to initially implement what is necessary for Friedman's system, especially if requires betraying the hearts and minds of the people who put them in office. That idea is completely contradictory to legitimate democracy, and moreover, it is doubtful that in a representative government they would remain in office long enough to effect much change. The discussion needs to turn to getting everyone on the same page so that democracy can survive while these reforms take place.

Tomas Salcedo

I believe that the idea that the market should be the ultimate arbiter of society is wrong in principle. “Letting the market rip” is a framework for market forces to interact that would not necessarily create a society that is fair by the standard of the average citizen. I believe in a very simple truth, which is that a democratic society should be considered fair by the average citizen, anything less than that should be viewed as a symptom of a problem. Friedman’s arguments are wrong because the government is needed both to ensure that the market functions fairly (ie. That property rights are respected and people do not get taken advantage of) and for the provision of public services that society as a whole needs, but that individuals themselves would rather not pay for.
The unregulated market works in theory because it assumes that all people have the same level of education, the disposition to respect the law, and perfect information. The truth is however, that not all do have the same level of education, nor disposition towards legality, nor information. Hence, people often get taken advantage of. Being that the case that creates the need for the government to at the very least ensure that the market functions fairly, and that those who do not respect the basic rights of other citizens, even within the context of a market interaction are punished.
There are some commodities (for lack of a better term) to which everyone's access constitutes a moral imperative. While the most cliché example of this would be healthcare, a better might be something like fire fighters. If the service of a firefighter were left to an unregulated market, then those who had more resources would be the ones whose houses would be more protected. In the absence of the government providing this service, and hence interfering with the "fire protection" market, there would be a certain number of people whose income does not suffice to pay for fire protection. These people, in the event of a fire would see their livelihood destroyed, as well as themselves or loved ones dead or injured. That fact alone in my opinion constitutes a moral imperative for the government to make access to fire fighting and hence other such services unlimited, thereby doing away with the market all together in this instance. One can further drive this point by pointing out that it is in the society's interest as a whole that houses and businesses not burn down and that people not die. Regardless of whether I want to pay for fire fighters or not, I can't ignore the fact that it is absolutely in my own interest for them to exist, and hence, I should be forced to collectively contribute to this service. Taxes, hence, which pay for a plethora of public services that function outside of the market are necessary to have the unregulated access to these services that I as a citizen am inclined to use, but would not be inclined to pay for were this at my discretion. Keynes argued that government programs many times create positive externalities within an economy that lead to further economic growth, as is the case when the government invests in infrastructure that businesses then use to conduct themselves, generating more revenue and employment.
Friedman's idea of a flat tax in my opinion is flawed as well. Because a flat tax on income does not take into account how the utility of income changes in different economic situations. For example someone who makes a million dollars a year would be taxed 200 thousand dollars were a 20% flat tax instituted. He or she would still have 800 thousand dollars left which is more than enough to live luxuriously. At the very least one can be certain that this person’s access to the very basic life essentials is not in any way harmed. However, someone making 20 thousand dollars a year would be taxed 4 thousand dollars, which although it is the same portion of his or her income would mean this person is only left with 16 thousand dollars. The four thousand taken away means a lot more to that person than does 200 thousand to the other, hence, it should be the case that people pay a higher percentage of their income if they make more. Especially considering that life's essentials cost the same amount for both people and in the second case, this person’s access to them has been restricted to a much greater degree.
What Friedman ignores is that it is in nobody’s interest to have a society in which there is mass poverty and inequality, and the government should exist to uphold society’s interest, even if sometimes this contradicts the interest of the market.

Elisabeth Miller

In my opinion Milton Friedman’s book Capitalism and Freedom, has some valid points on the excessive role of the government in the market. However, it is an over reaction to the historical circumstances at the time. Friedman is able to play off of the example of the Soviet Union. They are the “external threat” that we face; “the evil men in the Kremlin who promise to bury us” (201). Since people at the time the book was initially published were scared of state centered communism, Friedman’s ideas would have found a willing audience. While I do agree with several points Friedman makes, including the idea of a negative income tax for the poor (as mentioned above), many of Friedman’s arguments are false. One example from the beginning of the book is how Friedman claims:”Political freedom…came along with the free market and development of capitalism” (9). Even after the free market was set up, political freedom was not assured for the majority of the people. Women didn’t even get a right to vote until the 20th century, and blacks were excluded from voting early on as well. This may be seen as a nit picky argument, sense it doesn’t have to do with his essential argument that the government should have only a very limited role in the economy, so I will include another. During the chapter on public housing, Friedman says that the poor should be given cash instead of housing, since building the housing takes homes away from more than it provides for. While the argument that eliminating old housing is harmful is true, as can be seen from Orwell’s example in the “Road to Wigan Pier”, cash is not the solution. Sometimes a person’s credit is the reason why they can’t get adequate housing, not that they don’t have money at the time. For the government to insure that anyone who can afford a house can get one, should be a great priority because the market can’t fix that. I agree with Friedman on the issues of non-government intervention with things like free speech and foreign trade, but the role of the government in dealing with some of the welfare issues, which Friedman dismisses as unnecessary, are necessary, even if they are currently misdirected.

Julia Lohmann

Friedman’s argument, while well-written and at times persuasive, in the end left me unconvinced that a true laissez-faire economy would be the solution to all our problems. For me, the main problem with Friedman’s book was his weak way of arguing his points; you can only follow his logic if you accept his implicit assumptions. While many of his arguments could have benefited from more hard data, his worst mistake in my opinion was his naïvete about human nature. When he is arguing that political freedom can only come about with true economic freedom, he assumes that the best society would be one in which everyone is free to make their own decisions. He assumes that people are rational, that everyone is equally capable of knowing what is best for him or herself. As Tomas pointed out, there will always be inequality in the education level of individuals, and you cannot expect everyone to realize their own best interests, much less not to take advantage of one another. Friedman’s view is utopian in what he expects of the average citizen, and I feel that he largely ignores true human nature because it is inconvenient to the point he is trying to make. The other thing that really bothered me as I read this book was that he was very vague about the terms he was constantly using. He never explicitly defines what he means by ‘freedom,’ which made me suspicious that once again he could not actually back up his point. As Elisabeth mentioned, a large portion of the population did not have true political freedom even after the introduction of laissez-faire economics (women, minorities). All in all, when you get past the rhetoric of freedom and how good all his arguments seem at first glance, he is lacking a lot of solid proof to back up what he says.

Krista Ellis

Friedman’s basic argument is that to avoid the threat to freedom, which is what a Liberal is most concerned about, one must limit the scope of government and its power must be dispersed. This said, it is the role of competitive capitalism to be “a system of economic freedom and a necessary condition for political freedom,” thus justifying the study of Political Economy. This basic argument I agree with, that economic freedom and political freedom go hand-in-hand. However, I disagree that the ‘scope’ of government must be severely limited in order to achieve freedom. It must be said though, that I do not consider myself a true Liberal in the sense that I would be willing to sacrifice some freedom for the common good. One main point of concern to Friedman is his argument that, “neighborhood effects cut both ways. They can be a reason for limiting the activities of government as well as expanding them.” With the current concern of environmental protection, both on the national and global level, it seems necessary for government intervention to coordinate environment programs, limit polluters, and provide incentives for reducing pollution. Friedman would argue that groups like Greenpeace are private, and that the necessary changes and technology would be implement, albeit much more slowly. However, I believe the free-rider effect (or even just lack of interest) would continue to threaten the environment if the market was allowed to “let the market rip.” The same can be said for successful welfare states in Europe, socialized medicine in Canada, and other examples of providing the greatest good for the greatest amount of people, despite some loss to economic freedom. While I would like Friedman’s vision of the government as an umpire to be feasible, I do not believe in the power of the market or the benevolence of mankind to achieve the greatest common good. Ultimately, the book should serve as a warning against excessive government intervention but not as a justification for ‘letting the market rip.’

Tessa Berman

Friedman’s basic argument that economic and political freedom are inextricably linked is simultaneously compelling and problematic. As noted earlier, his allusions to political un-freedoms in the Soviet Union were well-crafted to elicit an anti-socialist response from Americans living in the Cold War era. Additionally, Friedman uses terminology which has traditionally been employed in political rhetoric to emphasize his underlying faith in free-market economic functioning (and to imply that the economy unleashed can better provide the services generally entrusted to the government). Case in point, Friedman states: “Underlying most arguments against the free market is a lack of belief in freedom itself.” This sort of appeal to foundational American beliefs strengthens the appeal of Friedman’s argument, though doesn’t necessarily further it.
Much of his faith in the free market is contingent on “bi-laterally voluntary and informed” transactions, which is to say that Friedman premises his argument on the resolution of a fundamental stumbling block of the modern economy. In fact, market transactions can only extremely rarely and in idealized circumstances be reduced to such an optimistic economic framework. In fact, many of the political institutions Friedman argues against have sprung from the need to establish just such a ‘free’ flow of information and protection from coercion. For instance, Friedman’s argument against licensing for professionals is contrary to traditional economic arguments about the flow of market information. Licenses are market signals which establish the credibility of economic actors and thereby support the functioning of the free market. While licenses are provided by a government body, they are theoretically a reflection of some sort of educational process and not the whims of state politicians. All in all, Friedman uses his command of language to make up for the practicality his argument lacks. Much of modern government functioning is reflective of a Polanyian double-movement in which the rules of the state have been developed to both protect and minimize the fallout of free market functioning. As Eric pointed out earlier, there are obvious impediments which would have to be overcome (and may in fact be inherent problems of the market society) before the ‘unleashing of the free market’ could live up to Friedman’s ideal.

ghillie little

Freidman wrote Capitalism and Freedom from the perspective of the United States. It was published at a time when the Great Depression was still lurking in the midst and the Cold War had just begun and when both parties supported the increase in government expenditures. Freidman opposed this idea and advocated minimizing the role of the government in a free market that would result in political freedom. He stressed the advantages of the marketplace and the disadvantages of government intervention, but he assumed that people know the right and wrong decisions to make pertaining to the economic and political choices. Freidman flaws are that he wrongly assumes individuals possess the adequate amount of knowledge to make their own decisions, but this is not realistic. I agree with Kieran and Julia’s comments on Friedman’s idealistic views of society. Freidman’s argument was intriguing and some of his ideas have been embraced; yet they lack the understanding of human nature and human inequality. Not everyone is born with the same advantages as others; education, race, gender, and so forth hold an individual back from making certain economic decisions and the intervention of the government is necessary. In general Freidman’s “let the market rip” idea is too unstable and would only tear apart the market, I do not believe that every individual in society is capable of making decisions for the benefit of society, it is unrealistic.

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