Capitalism and Freedom

Summary

Capitalism and Freedom is Milton Friedman's short, plainly written case for limiting government and relying on competitive markets. It grew out of lectures he gave in 1956 at a series of conferences at Wabash College, and it was prepared for publication with the help of his wife, Rose Director Friedman. The University of Chicago Press published it in 1962. Friedman calls himself a liberal in the nineteenth-century sense: someone who takes the freedom of the individual as the ultimate goal. His first argument is that economic freedom matters both for its own sake and because it is a condition of political freedom. Markets allow people to cooperate without coercion, disperse power that would otherwise be concentrated in government, and make it possible for dissenters to earn a living and publish their views without official permission. He gives government real tasks: keeping law and order, defining and enforcing property rights, providing a stable monetary framework, promoting competition, dealing with genuine neighborhood effects, and caring for those, such as children and the insane, who cannot be treated as responsible individuals. The chapters then apply these principles to specific policies. Friedman argues for a monetary rule under which the money supply grows at a steady rate, rather than for discretionary management by the Federal Reserve. He favors floating exchange rates and free trade. He proposes that government fund schooling through vouchers that parents could spend at approved schools of their choice. He argues that competitive markets tend to reduce discrimination, that occupational licensing often protects practitioners more than the public, and that the social responsibility of business is to increase its profits within the rules of the game. He criticizes many existing welfare programs and suggests replacing them with a negative income tax that would give cash to people with low incomes. Few of these proposals were taken seriously when the book appeared, and it was hardly reviewed in the major newspapers. Over the following decades floating exchange rates, the end of the military draft, school-choice programs and versions of the negative income tax, such as the earned income tax credit, entered public policy, and the book became one of the most influential works of postwar economic and political thought. Critics, including economists in the Keynesian tradition, have challenged its account of markets, money and inequality.

Top Lessons

• Economic and political freedom

  Friedman argues that a society cannot remain politically free if its economy is centrally directed. Students can test the claim against historical examples.

• Intentions and results

  Friedman repeatedly distinguishes the aims of a policy from its actual effects. This habit of mind is useful in evaluating any proposal.

• Proposals that changed policy

  Several of the book's proposals, such as school vouchers and a volunteer army, later shaped real debates. Students can trace an idea from argument to law.

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