This page is for Varanya Chaubey's students.
A whole host of writers we have read so far in the course--Keynes and Polanyi most strikingly--have strongly argued that the market needs to be tamed or guide or muzzled or regulated or controlled if anything like a free, wealthy, and peaceful civilization is to exist. Milton Friedman says not: Milton Friedman says that the government is not the corrector of the defects and evils of the market and the guardian of freedom and prosperity, but is instead our enemy. The right policy, Friedman says, is to let the market rip. This is a powerful challenge to my conventional social-democratic reflexes.
Write a comment of at least 200 words on what you think the biggest flaw in his argument is. Contribute to the discussion that is ongoing--that is, react and respond to not just Friedman but, to the extent it is appropriate, the earlier posters and commenters on the webpage.
Do this by 5 PM on October 16.
Friedman has many valid points, particularly in his arguments towards the role of government and the need for economic/political freedom. Governmental controls often hinder the efficiency of the market and add to deadweight loss. By letting the market “rip” naturally, deadweight loss can be avoided, and time and monetary costs can be saved. However, this is also where Friedman’s argument errs, as treating the government as an “enemy” and leaving the market completely unregulated would lead to an outcome with many negative implications.
Leaving a market unregulated and in the hands of the private sector would be going back to a society fixed around personal gain and erosion of Smith’s “fellow feeling”. Contrary to Friedman’s premise that a private sector would effectively “[protect] freedom of speech, religion, and thought” (3), private companies would try to cut costs, such as in labor wages or ignoring public good issues such as air pollution or toxic waste. An example may be many industries in China, where lack of governmental regulation in the past has led to poor working conditions and low wages, bad air quality (think smog in Beijing), and many products that are bad quality or harmful to consumers. Additionally, letting the private sector run itself would likely detract from Friedman’s desire for economic freedom and free flow of information, as the marketing industry today teaches us that brand positioning does not necessarily reflect the quality of a good, and producers looking to maximize gain may not necessarily have the incentive to provide their customers with accurate information. Another example would be in history, when cigarette companies previously denied the harmful effects of nicotine as a carcinogen despite full knowledge of its evils.
Friedman, then, is ideal in his theory towards a free market and simplistic in his view of the government as an “enemy.” It is possible for the government to play a constructive role, not only in protecting consumers but also in influencing the mindset of consumers, and Friedman overlooks this fact.
Posted by: Yu Hsin Chou (Cindy) | October 14, 2007 at 06:01 PM
The arguments that Milton Friedman advances are all well constructed and his logic is coherent. He shows in great detail how the government policies (i.e. agricultural subsidies, public housing, public schools etc.) are not as efficient as they may be portrayed. He accuses the state on many occasions of being “paternalistic” and thus infringing on personal freedom and individual dignity and imposing a standard, which Friedman denounces as “mediocrity”.
For Friedman, individual freedom is a treasure to be defended by all means. This freedom seems to be made up of economic freedom, which in turn facilitates political freedom. “The kind of economic organization that provides economic freedom directly, namely, competitive capitalism, also promotes political freedom because it separates economic power from political power and in its way enables the one to offset the other”. Thus, his argument is the opposite of that of Polanyi’s, Friedman believes in order to secure economic freedom one needs to make sure politics are separated from economics.
Cindy already rightly pointed out how Friedman’s belief in the free market is too optimistic and how the market cannot arrive at the best social outcome by itself.
I think that the biggest flaw in his argument is his definition of freedom through economic freedom as well as his individualistic approach to freedom. He defines freedom as “freedom to”. Thus, all of his arguments center on the fact that if the government tells one what to do, or provides one with services, it takes away from that person’s right to decide for himself. However, this stance denies, as Polanyi said, the reality of society, thus it’s bound to overlook important issues.
He also assumes that people are generally economically oriented and rational, that they will know how to make decisions, especially economic decisions in regards to pensions for example.
Posted by: Vera Bersudskaya | October 15, 2007 at 02:25 PM
Milton Friedman’s Capitalism and Freedom discusses how we should protect individual freedom from the tyranny of government. His book goes into detail on the ideal economic system- capitalism- and the ideal government system- one that maintains law and order, solves disputes about legal interpretation, protects property rights, enforces contracts, prevents monopolies, promotes competition, overcomes externalities, protects certain members of society (namely women and children), and nothing else. In regards to the economic system of a society, he champions the idea that government power must be limited so that capitalism can “rip.” His main support for capitalism unhindered is his idea that competitive capitalism “separates economic power from political power and in this way enable the one to offset the other” and also that economic freedom “itself is a component of freedom” and “an indispensable means toward the achievement of political freedom.”
The biggest flaw I find with Friedman is his reasoning for why unhindered capitalism is “an indispensable means toward the achievement of political freedom.” His reasoning for this claim is as follows: He believes that an integral part of political freedom is being able to propagate your political views if you wish. In a socialist state this is not possible because even the “top brass” who make more money are not able to keep their jobs if they champion a system other than socialism. In a socialist state where the political system intertwines with the economic system, one is unable to have true political freedom, according to Friedman. On the other hand, he believes that in a capitalist system if you are able to raise the funds to propagate your political views, then no one is going to stop you. Due to the separation of the economic system from the political system, a person has perfect economic freedom to raise money as he/she pleases and then perfect political freedom to do whatever he/she wants with that money.
While in theory this seems sound, I feel that Friedman fails to mention so many other factors that could influence if one is able to propagate one’s political views. Certainly, with economic freedom a person could earn money, but that does not mean that a person could do whatever he/she wanted with that money or not lose one’s job on account of their political action. Take McCarthyism for example. People had jobs and were earning money in a capitalistic system, but if they had the “wrong” political views they were held under suspicion, lost their job, and in some cases jailed. Society was swept up with McCarthyism, and even with economic freedom, political freedom was not ensured. Another example: take a political campaign for a Texas senator. A senator is able to get his funding from anywhere he wants in the capitalist system, so let us say that his majority financial sponsor is a Texas-based oil company. Say that he technically did not sign any agreements with this company, just took their money and made some verbal promises about helping the oil company’s business. Now, while in office, if he does something not within this company’s interest, say vote on legislation to increase funding for alternative fuels, then the senator is going to pay the consequences for not keeping his politics in line with what the company wants. Either he will not get funding for his second term, he will not be awarded a job after office…the possibilities are endless, but that company is going to make sure that he pays. Economic freedom to take money where it is available does not ensure political freedom.
The economy is linked to politics, and the one will affect the other. Friedman sort of says this, but says that the one will offset the other. Offset is not the same as affect. One affecting the other does not always result in a positive influence or a desirable balance, which is what offset means. Also, economics and politics are not the only forces at play in a society. There are always social pressures and other factors which could affect political freedom.
Posted by: Kinzie Kramer | October 15, 2007 at 02:53 PM
Friedman’s argument is sound in many aspects, such as his realization that there cannot be absolute freedom and that there needs to be government action in some areas in society to the extent that it does not disturb with individual freedom. The main role of the government in his argument is “determining the ‘rules of the game’ and as a umpire to interpret and enforce the rules decided on (15).” He argues that capitalism is needed and government only interrupts with market flow, disabling individual economic freedom and thus also political freedom.
He argues that capitalism allows the market to finance “ventures by small amounts from many people without first persuading them (18).” Friedman’s view of capitalism is perhaps too optimistic here. Individuals may have different interests and may not have the same goals to cooperate and help a venture achieve its optimal state. He also notices this difference in individuals. They will not so “voluntarily” contribute to others in the name of economic freedom.
As Kinzie already pointed out, his view about economic freedom/capitalism in relation to political freedom is largely mistaken. He argues that “economic freedom is also an indispensable means toward the achievement of political freedom” in addition to being a “component of freedom” as an end in itself (8). Economic freedom does not necessarily lead to achievement of political freedom; it can perhaps skew political freedom does not necessarily lead to “checks and balances” as he optimistically argued. Economic freedom without any regulation by government may lead to abuse of already existing power by some individuals that will ultimately lead to an even more unequal distribution of economic and political power.
Posted by: Hye Jin Lee | October 15, 2007 at 07:09 PM
One of the most significant points to me in refuting Friedman's main thesis against government control is Friedman's determined argument for increased opportunity for the middle classes. By opportunity, I refer to the political and economic opportunities a citizen has in personally pursuing both political and economic endeavors. A couple of my classmates have remonstrated Friedman's central argument that government regulation inherently robs the citizen of his inherent right to pursue capitalist endeavors to meet his level of subsistence. I too take argument with this thesis. The government, though Friedman frequently exposes the ineffectiveness of the capitalist bureaucracy, inherently has larger control over a citizen's life than any private sector institution could ever maintain. I believe that this is for good reason; that we the people DO need a general direction to aim toward as a societal effort--that we do need an institution, as the government, to rally for or against.
Just as Friedman reiterates again and again that a truly free market economy could benefit the people within the realm of personal freedom--as Vera has described, "freedom too"--this system could never work. Unless every single person truly adopted this idealized market as his own, corporate and private system abuse would likely reign. Even Friedman mentions the poignant fact that this has been demonstrated in every epoch of the history of capitalism. Cindy provides a perfect example in the manufacture of goods in China, where multinational corporations find loopholes around domestic laws that work (within legal limits) to provide protection for both the workers and the consumers. A market system that allows for this activity with no regulation/intervention does not protect the will of the people at all. Conversely, it gives blind-eye consent for this activity to benefit the few with political and economic means.
A quick note regarding Friedman's reference to the educational system under a system that allows for freedom of pursuit. Socio-economic inequality will only increase if the national educational curriculum is unstandardized and unaccountable to some communal (American/governmental) institution as it would be under the U.S. Department of Education. Friedman's thesis against government regulation, among many other domains, only hurts the individual. His ideology of an anti-regulation government is exactly this, an ideology. I believe it would be impossible to implement this "policy," especially in today's social environment that is more aware than ever of the growing injustices within our capitalist economy.
Posted by: Zack Simon | October 15, 2007 at 07:40 PM
I would like to expand on Zack and Cindy’s argument against Friedman’s assertion that the free market—coupled with a very limited mediating government—could sufficiently provide appropriate freedoms for a society. Hell, even under the guidance of laws that are made specifically to provide and sustain such freedoms, companies around the world (such as those in China that Cindy speaks of and those in the US that Friedman speaks of) have continually worked around those laws, flexing their freedom to confine those who they exploit.
Friedman is asking for a lot of governmental concessions in areas such as trade agreements, occupational licensing, and taxes, but I believe that those regulations do more good than bad. Some of them, such as the subsidization of US agriculture, need tweaking or perhaps abolishment, but caution must be taken so that the removal or adjustment of one small piece does not result in the whole institution crumbling down (think Jenga!). I agree with many of the points that Friedman makes about the government’s shortcomings—or overbearing—in the economy, but to ask the government, which is composed of people who WE elect to represent OUR interests, to take a back seat in the market economy is asking a whole lot. Perhaps a nice spot for the government to take in the market vehicle would be the passenger seat next to the people, where it would not drive but still provide direction and correct the driver if the people were to make a wrong turn.
Posted by: Shane Barclay | October 15, 2007 at 10:21 PM
The biggest flaw I find in Friedman’s argument, as others have mentioned, is the belief that functional and impersonal capitalistic relationships- coupled with competition will keep the market (and society) in check and take the place of regulatory bodies.
But despite this, I think Friedman hits on an interesting point when describing how regulations and governmental protections designed to benefit certain workers or industries, change in their nature over time to evolve into entrenched infringements to the consumer freedoms of individuals. He mentions the ICC as an example as it started as a way to “protect the public from exploitation by the railroads” (pg.29), and has become an agency that only secured the rights of the railroads to be protected from competition. He cites the same phenomenon in the case of unions, in which they “enforce monopoly in the sale of a product” (pg.125). In this case an organization protected by the government that was designed to protect workers becomes a case where unions (unfairly) work to control prices.
While I think this is a sharp point, that entrenched governmental organizations and unions can become corrupt, mismanaged and manipulative; I differ from his view that therefore government interference needs to be undone. His point that the state can be coercive is valid as the state can, and has, both enforced hate and equality. But the market is the same, and it’s affects often harder to undo because there are “no rules” more prominent than profit. For example, presently in El Salvador there are fierce battles over the privatization of water. In some small communities there have been governmental efforts (which are aligned with free trade regulations under C.A.F.T.A) to decentralize the water systems so that the small town mayor is given full responsibility. The foreign private water corporations benefit from this predicament because many of the small towns cannot financially handle this burden. The government, in cahoots with the water corporations, seize this opportunity to take over the water systems. This means that people, who can barely afford basic survival, are now paying more for water. Many communities are organizing against this. This example proves to me why the market does not necessarily make people free from coercion. Friedman would agree in theoretical principal that certain resources, perhaps water, should be controlled by the government but his utopian ideologies in practice manifest in very real situations like this.
Posted by: Jennifer Miller | October 15, 2007 at 10:35 PM
Friedman argues, contrary to Polanyi, that the government is not there to protect the people, but instead should be considered the enemy. While he believes that they have a place in other areas of society, he argues that allowing them to have control in the economy is a threat to freedom. Therefore he states that capitalism is the best economic system as it separates the government’s political power from the economy, and this in a way allows them to become checks for each other. He criticizes socialism because the inseparable connection between the political and economic spheres jeopardizes freedom.
Many others have pointed out that Friedman’s main flaw lies in his definitions of freedom and his belief that economic freedom leads to political freedom. Friedman argues that capitalism allows individuals to express political beliefs by obtaining financial backing. However, as Kinzie points out, he fails to recognize other factors that could potentially affect an individual’s political freedom.
While this omission does weaken Friedman’s strong argument, I feel his other deep flaw is his faith in human rationale. Friedman argues that most individuals are rational and responsible, specifically in economic affairs. This faith seems somewhat naïve, as even the most educated financial professional are often unable to navigate the markets. Therefore, when Friedman assumes that individuals would be able to successfully fuel the economy, he is making a judgment that lacks any tangible evidence. Even today, most individuals are barely able to manage their own finances, let alone survive the economic rollercoaster that is the result of a purely laissez-faire economy.
Posted by: Amitha Harichandran | October 15, 2007 at 10:44 PM
As many before me have criticized, I think Friedman’s take on freedom is one of his argument’s biggest flaws. His entire liberal economic philosophy is predicated upon freedom as the ideal all societies should strive for. However, what’s the point of being free when you’re starving or sick and can’t afford to see a doctor? Taken to an extreme, Friedman’s concept of freedom as he argues in the rest of the book could be taken as freedom to starve and freedom for the rich to get richer. Friedman, I hope, believes that these kinds of issues will resolve themselves in a free, perfectly rational world, but I cannot help but see that as a purely unrealistic belief. And if Friedman instead considers those kinds of issues irrelevant, as he seems to do when he speaks of welfare and equality with such disdain in the first chapter, as if they are direct opponents to freedom, then I find his entire argument to be flawed. Why should freedom be the ultimate goal, especially at the cost of welfare and equality and most especially when human beings are not economically rational to the point of being free from prejudice? So this may be a bit too radical, but perhaps maximizing freedom shouldn’t be the priority here, in which case Friedman’s entire argument for economic freedom to guarantee political freedom does not make sense.
Also although I do not consider the following point to be his argument’s biggest flaw, one thing Friedman wrote stuck out to me: “capitalism leads to less inequality than alternative systems of organization and...the development of capitalism has greatly lessened the extent of inequality” (p. 169). As a historical argument, I find this claim to be more the product of wishful liberal thinking than anything else. Capitalism has fostered the mass accumulation of wealth in a few hands, the institution of the Atlantic slave trade, long periods of working class oppression, etc. One could instead make the case the capitalism has lessened the extent of inequality felt, offering a (mythic) story of upward mobility to appease the have-nots. Furthermore, moving beyond national boundaries to the global dimension, capitalism today has seen a great deal of divergence between the world’s poorest countries and the world’s richest countries. And I don’t think anybody believes that the free market can lift the world’s Burkina Fasos and Ethiopias out of poverty (indeed, look at the Asian Tigers in the last half of the twentieth century and their modes of development).
Posted by: Serena Yang | October 15, 2007 at 10:48 PM
While Milton Friedman was certainly a brilliant innovator, it is hard to jump on his anti-government bandwagon with regard to certain societal woes.
His advocacy of minimalist governmental policy strikes me as particularly troublesome in environmental issues. His is concerned with the difficulties associated with accurately measuring the extent of the “neighborhood effects,” exacting the penalties assessed for the damage, and properly redistributing this money in a way suitable to the public interest. It seems a bit preposterous, though, to conclude that because there are problems innate to regulation should result in doing away with regulation; the terrible consequences of unregulated environmental actions are not given their adequate weight, which more than counterbalances these comparatively small issues. It is clear that the environment is a major problem in the world today, as we are inundated daily by news reports about air quality concerns for the 2008 Olympics in Beijing or Al Gore’s Nobel Prize for his work in global warming. Moreover, the Bush administration has been justly criticized for relaxing earlier air pollution restrictions. It does not seem like there is any other solution than just the opposite of what Friedman generally prescribes; we must increase government regulation in this area, and run the risk that “every act of the government limits the area of individual freedom directly and threatens the preservation of freedom indirectly.”
In the same vein, I would also argue against Friedman’s idea to discontinue support for national parks. While the consumer preference may not right now value national parks highly enough to support them with directly collected admission fees, there may come a day (and will, if US environmental policy remains unchanged) when, having wrecked destruction on the natural beauty in our backyards, we will realize the immeasurable worth of these irreplaceable treasures. Until such a time, government subsidy is necessary to keep these parks alive.
The role the government plays in this regard, a paternalistic guardian of a commodity for which economic incentive is currently lacking but will not be in the future, is an integral part of the societal fabric which does not factor into Friedman’s analysis. For the sake of example, let us return to the environment. The government today gives research grants to scientists developing more efficient emission-free, electric car, and alternative fuel technologies. Friedman would argue that this is unnecessary. The car companies, realizing that the increasingly environment-conscious public will desire hybrid vehicles and the like, should eventually determine that the cost of funding research is presently less than the profit they will make by selling the cars, and therefore start to fund the research. The catch is that in the meantime, we are pouring out exhaust and consuming huge quantities of oil waiting for this environmental epiphany to hit us as a common people and for the cost-benefit analyses of these car companies to scream profit. This could be an unfortunately long meantime, and the consequences on the environment drastic. Like with the national parks, the government acts in the here and now in the best interest of the future, whereas Friedman’s rational economical man does not find it in his interest.
Posted by: Anthony Yates | October 15, 2007 at 11:29 PM