Friedman: Capitalism and Freedom

I finally got around to reading Milton Friedman’s classic Capitalism and Freedom. After spending time this summer reading Adam Swift’s Political Philosophy: A Beginner’s Guide, which IIRC recommends Friedman’s discussion of equality, I find Friedman to be unimpressive as a work of political philosophy, but this is partly for two reasons that are not his fault.

First, part of why I found the book unimpressive is that the ideas are so familiar to me. When I first heard the Beatles I thought they sounded just like everyone else; it took me a while to figure out that this was partly because so many others had copied them. Similarly, Friedman’s ideas have been recycled so much — not just in economics departments but in political discourse, mainly from the right — that they hardly seem revolutionary anymore.

Relatedly, what he is doing is applying basic economic analysis to questions of political philosophy. Until recently this was the only kind of political philosophy I had ever really engaged in: explaining the efficiency losses associated with government intervention, identifying market failures that justify government intervention, etc. The core ideas about the proper role of government in this book are applications of standard economic theory, with a healthy portion of enthusiasm about freedom thrown in.

Although Friedman is of course a strident free markets guy and the prefatory material introduces the book as a political tract, I was surprised by how modest Friedman is about the extent to which his philosophy can provide answers to tough political questions. He states this clearly on page 32:

Our principles offer no hard and fast line how far it is appropriate to use government to accomplish jointly what it is difficult or impossible to us to accomplish separately through strictly voluntary exchange. In any particular case of proposed intervention, we must make up a balance sheet, listing separately the advantages and disadvantages. Our principles tell us what items to put on one side and what items on the other and they give us some basis for attaching importance to the different items.

Thus in discussing natural monopolies, he admits we are “choosing among evils” (public monopoly, public regulation, or private monopoly) and provides some thoughts on which might be less evil (hint: often it’s private monopoly); in discussing paternalism, he recognizes that the state must restrict freedom to provide for children and the insane, but that after that “there is no formula to tell us where to stop.” This is I think an accurate view of what a commitment to “freedom,” combined with the tools of welfare analysis from microeconomics, yields in terms of policy proposals: not much. That’s not to say that this book stops short of providing lots of policy proposals. In fact, Capitalism and Freedom is much more interesting as a set of provocative policy proposals than a statement of political philosophy. But the key point is that to arrive at these policy proposals you need more than Friedman’s stated commitment to freedom plus standard ideas from microeconomics about the tradeoffs involved in government intervention in markets. Mostly, you need a lot of beliefs about the nature of the social world, e.g. the degree to which high marginal tax rates encourage tax avoidance and evasion. On a superficial reading one can fail to recognize the importance of these beliefs on empirical matters and read this as a coherent work of philosophy in which the policy prescriptions follow from a commitment to freedom and some basic ideas about how markets work. In fact, the interesting ideas in the book (like the claims about how markets tend to disadvantage those who discriminate) are commitments to contestable causal claims just as much as they are embodiments of a high value placed on freedom, or more so.

Another way to put this is that policy proposals from left, right, and center (in liberal democracies like the US, UK, France) could be justified on the basis of principles in the first two chapters of Capitalism and Freedom. The same of course can be said for other influential groundings of political philosophy, such as the Rawlsian thought experiment about the original position. Clarifying normative values and even proposing ways for prioritizing among them seems to fail to get us very far toward policy recommendations, because in all important cases there is a large set of empirical facts that stand between principles and policy outcomes.

A few notes on things I found interesting:

  • Friedman argues that political freedom requires a market economy because dissent requires resources; in a “socialist” economy (by which he means one in which private property does not exist, or at least where the state controls the means of production), how could one finance a program of political dissent? Where would Marx find his Engels?
  • Like Buchanan and Tullock in The Calculus of Consent (published in the same year — 1962), Friedman has some nice insights into how voluntary economic exchange and government intervention relate. One reason to prefer market activity is that you get “unanimity without conformity,” in the sense that everyone agrees to the outcomes (excluding market failures of course) and you still get a variety of outcomes. Again putting market exchanges in political terms, Friedman portrays market exchange as analogous to proportional representation, in the sense that everyone gets what she votes for, without having to submit to the will of the majority.
  • The chapter on education is a strident case for revising the way in which government supports education. With respect to higher education I find him particularly convincing. The analogy that was relevant when he was writing was the GI Bill, a key feature of which was that the government supported veterans’ education wherever they chose to get it (within an approved list of schools); by contrast, at the university level the individual states support education (particularly of their own residents) only at the public universities in that state. I agree that this does not make a lot of sense, and would favor reform in this area if I didn’t think it would lead to a large reduction in support for education overall. It also made me wonder how much the move toward government loans and grants for education was in response to arguments like these, and to what extent this has replaced public funding for public universities.
  • Friedman makes the case that the voucher system would tend to help economically disadvantaged minorities, in part by unbundling schooling from residential location decisions: a poor single mother who wants to invest in her child’s education may have a better chance under a voucher system, where she could save money and purchase that good like any other, than she does under the current system, in which (assuming that private school is prohibitively expensive) she would have to move the family to an expensive town to benefit from better schools — in other words, buy a whole package of goods in order to get one thing she wants.
  • In the chapter on discrimination, Friedman follows up this discussion of segregation and schooling by highlighting the importance of attitudes of tolerance: In addition to getting the government out of schooling, “we should all of us, insofar as we possibly can, try by behavior and speech to foster the growth of attitudes and opinions that would lead mixed schools to become the rule and segregated schools the rare exception.” In the margin here I wrote “this has happened” — not the part about privatization, but rather that public attitudes have shifted (at least where I live) to where a classroom of white faces is a problem. The avidity with which elite private schools and university pursue diversity suggests that a school system with more choice and competition would not have whiter schools. I somehow doubt however that it would have fewer schools in which almost all students are poor minorities. It makes me want to know more about experiments with school choice. For most of the claims he makes about the virtues of school choice, it would seem that almost everything depends on the way in which you deal with undesirable schools and pupils, and I don’t recall reading anything about that here.