Notes on Milton Friedman (1912 - 2006)

Capitalism And Freedom (1962)

Friedman operated within the constructs of natural law theory. He believes in the sanctity of contracts and property. He advocated an updated version of nineteenth-century liberalism called laissez-faire economics. He opposed the economic doctrines of mercantilism, the physiocrat philosophy, and collectivism (= socialism, that is, dictatorship). Freedom and ethics are found in an open marketplace unconstrained by government interference, which must be minimal and only when necessary. He contends that the best way to overcome discrimination suffered by marginal groups in our society is to exercise their free choice in the marketplace, as he defines it.

The view has been gaining widespread acceptance that corporate officials and labor leaders have a "social responsibility" that goes beyond serving the interest of their shareholders or their members. This view shows a fundamental misconception of the character and nature of a free economy. In such an economy, there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception and fraud. Similarly, the "social responsibility" of labor leaders is to serve the interests of the members of their unions. It is the responsibility of the rest of us to establish a framework of law such that an individual in pursuing his own interest is, to quote Adam Smith again, "led by an invisible hand to promote an end which was not part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good." (Capitalism and Freedom)

Let us divide his book into key categories.

Monetary Policy

Each individual knows his own interest best. There are to be no corporate taxes; rather capital gains and dividends are to be passed on to the shareholders who will be responsible for what is due. There is to be monetary liquidity at a federal level, which means every level of government to prevent depressions. Friedman says the Great Depression was a crisis of liquidity. He believes in balanced budgets, free trade, and floating currency rates to create unimpeded cash flows. He argues that the welfare state subtracts freedom of choice from the individual, which leads to economic control by bureaucracies in the government, in turn captured by special interest groups that disempower the individual.

Education

Friedman advocates vouchers so that people have choice for either public or private schools. He emphasizes education, not welfare measures, as the escape route for the poor. There should be no laws against discrimination(e.g., no ffirmative action), because he believes he market punishes economically those who discriminate.

Licensure in Occupations

The producers of a good or service, such as medical personnel, control supply, and hence the price of entry into the field monopolistically so that quality control really is undercut. The basic reason to control entry into a field is not the pursuit of excellence but price control to guarantee a high income. In the end, the worst off are left with insufficient or no services. Thus abolish licensing and let the marketplace decide who is fit to endure through fair competition.

Income

Friedman believes in taxing individuals, not corporations, so as to distribute capital gains to create more money in the economy—liquidity. There is to be no inheritance tax but a flat income tax. He claims that special interest groups control welfare agencies and their institutions so as to keep the poor poor through the administration of things—socialism.The graduated income tax punishes those who perform meritoriously and innovatively in the economy and is a disincentive to take risks to fashion the means to make more capital by change. He hammers at the minimum wage as interference in the sanctity of the contract between worker and management, foreclosing income opportunities for the poor. Something is better than nothing in the short term.

Conclusion

The Great Recession of 2008 has Keynes's ideas triumph over Friedman and the supply side economists.