53 pages • 1 hour read
Milton FriedmanCapitalism And Freedom
Nonfiction | Book | Adult | Published in 1962A modern alternative to SparkNotes and CliffsNotes, SuperSummary offers high-quality Study Guides with detailed chapter summaries and analysis of major themes, characters, and more.
Chapters 1-2Chapter Summaries & Analyses
Chapter 1 Summary: “The Relation Between Economic Freedom and Political Freedom”
Friedman opens Chapter 1 by asserting that the term “democratic socialism” is an oxymoron: a society cannot be both democratic and socialist. This is because socialism does not support freedom, whereas democracy does. Economic freedom, while valuable in and of itself, is also needed for political freedom to occur. When the government controls key aspects of the economy, as in a socialist system, it curbs economic freedom and prevents political freedom. The liberal considers how a society can limit the effects of bad actions and maximize the effects of good actions while preserving as much freedom as possible.
Next, Friedman lists ways a government might limit an individual’s economic freedom. One example is a person who goes to jail for selling an over-the-counter drug at a lower price than the manufacturer has set in conjunction with the government. In addition to restricting economic freedom, this situation hampers political freedom, which Friedman defines as the absence of coercion. The government has a tendency toward coercion, he says, so by “removing the organization of economic activity from the control of political authority, the market eliminates […] coercive power” (15).
Friedman says that throughout time, the majority of people have lacked economic freedom. They have suffered from the tyranny of their leaders and the servitude that’s been forced upon them. Friedman says “[h]istory suggests only that capitalism is a necessary condition for political freedom” but not a “sufficient condition” (10). He cites fascist regimes in Spain and Italy as examples of capitalist systems that lacked political freedom. However, these systems still had more freedom than a totalitarian state like Nazi Germany, which lacked both political and economic freedom.
In a society where the economic activities of a large group must be coordinated, the options are coercion or voluntary cooperation. Competitive capitalism promotes exchange that is voluntary and benefits both parties in the transaction. Coercion is absent because the market provides alternatives; if a seller doesn’t like a buyer’s demands, he can sell to someone else, and if a buyer is not pleased with a seller’s offerings, he can buy from someone else. Additionally, the market allows more matters to be handled through economic channels and fewer through political ones. This “minimize[s] the extent to which government need participate directly in the game” (15). He adds that the government’s proper role in this game involves determining the rules, interpreting them, and enforcing them.
Economic power tends to be widely dispersed in a free market; political power is harder to disperse widely. However, the market does work to preserve political freedom. Friedman illustrates how the opposite is true in a socialist system, where government control of economic institutions makes it very difficult for a person to share a minority viewpoint or unconventional idea with a large audience. For instance, if this person cannot afford or access ink to print his newspaper, his opinions will reach a limited audience. In contrast, an individual in a capitalist system can find a wealthy patron to defray this cost. Friedman concludes that the groups with the most stake in the preservation of competitive capitalism are minority groups.
Chapter 2 Summary: “The Role of Government in a Free Society”
Friedman explains how the market permits unanimity without conformity. He likens the market to a system of proportional representation that lets people express differences of opinion. Friedman says using the market to make decisions is preferable to using political channels, the latter of which destroys consensus by requiring people to choose from a small set of options and “strain the social cohesion necessary for a stable society” (23). However, proportional representation doesn’t work for some issues like national security; people can’t receive different amounts of national security. Thus, the market can’t be used to solve every problem. And since unanimity is so hard to achieve in decision-making, majority rule is often more expedient.
Economic activities are a sort of game with players and rules, Friedman says. All players must accept the rules, but they will often interpret them differently. That’s one reason the government is needed: to interpret the rules, settle disputes, and enforce contracts that are made in the process of playing the game, like an umpire does in a baseball game. This role also includes making decisions when two people’s freedoms come into conflict, defining property rights, and creating a monetary framework. The government might also be used to break up a monopoly through regulation, but depending on the situation, other approaches, such as the creation of a private monopoly, might be preferable.
Friedman says government intervention may be warranted in managing some neighborhood effects—that is, situations where the actions of one player “impede voluntary exchange because it is difficult to identify the effects on third parties and to measure their magnitude” (31-32). A negative example of this is pollution of a stream. The polluter forces others to exchange their good-quality water for poor-quality water, and it can be hard to determine exactly whose water quality has been compromised by the pollution. Neighborhood effects are an important consideration when determining property rights, and a strong reason for the government to take charge of road building. However, it is important to tread carefully: when the government is enlisted to deal with one neighborhood effect, it may unwittingly unleash others, for instance by failing to charge certain individuals properly or compensate others adequately.
The concept of paternalism, which posits that some people should make decisions for others, also arrives in Chapter 2. Though Friedman opposes paternalism, he argues that it’s occasionally warranted, especially in matters involving children. He says that since the family is the primary operative unit in the United States, and families often contain children, some paternalism is inevitable. However, it is preferable to make policy that relies on “consensus reached by imperfect and biased men through free discussion and trial and error” (34). Friedman adds that paternalism has been a driving force in many of the welfare-state programs he considers unjustifiable. These include government control of agricultural output, social-security programs, national parks, and public housing.
Chapters 1-2 Analysis
In Chapters 1 and 2, Friedman examines the relationships among political freedom, economic freedom, and government intervention, concluding that a free and competitive market tends to promote freedom, while the government tends to limit it. He explores these concepts in somewhat abstract terms, providing definitions and examples to make his points clear and compelling. By establishing some foundational knowledge in this way, he prepares readers for the more technical arguments of future chapters. He also unveils an argument structure that he repeats throughout the book: introducing a type of government intervention, sharing some of the most common justifications for this intervention, indicating which justifications a liberal would accept and which he would reject, and, in some cases, proposing an alternative that would better serve liberal principles, such as preserving freedom.
Friedman also makes some distinctions between liberal ideals and what the liberal finds acceptable. For instance, the liberal strives for unanimity in decision-making but is often willing to accept consensus because it is more practical and efficient. By making these distinctions, Friedman shows that he is committed to the liberal perspective but not enslaved by it.
