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 7-8Chapter Summaries & Analyses
Chapter 7 Summary: “Capitalism and Discrimination”
Friedman asserts that the growth of capitalism is associated with decreases in religious, racial, and social discrimination in the economic realm and beyond. One turning point involved contracts replacing status arrangements, which helped medieval serfs gain freedom. The free market plays a large role, too. Friedman says it helps people disregard the attributes they might find unacceptable in other people. That’s because the market “separates economic efficiency from irrelevant characteristics” (109).
Prejudice is undesirable, but anti-discrimination laws are the wrong tactic for addressing the problem, Friedman says. This is a major reason he opposes legislation by the Fair Employment Practice Committee (FEPC). Friedman shares an example of a grocer whose customers do not want to interact with black clerks. The grocer is not necessarily prejudiced, but he knows what his customers want. If he must hire a black person to abide by a law requiring him to take the first qualified applicant regardless of race, he could lose business. Though this law is supposed to address customers’ prejudice, it is likely to punish the grocer the most. Supporters of FEPC laws argue that minorities are being harmed in situations like these, but Friedman thinks the severity of this harm is overstated. Minorities aren’t suffering “positive harm,” such as being forced to enter a contract; instead, they are subjected to “negative harm,” in the sense that they haven’t been able to form a mutually acceptable contract with another person (112-13). Friedman says government intervention is not warranted in negative-harm situations.
For similar reasons, Friedman opposes “right-to-work” laws that forbid employers from requiring employees to become union members. As in the grocer example, these laws meddle with the freedom of an employment contract. Friedman argues that employers should be able to offer any terms of employment to prospective hires. As he sees it, requiring union membership is not so different from compensating employees with play facilities rather than cash: “None of this involves any interference with the freedom of individuals to find employment. It simply reflects an attempt by employers to make the characteristics of the job suitable and attractive to employees” (115-16).
Friedman also includes a brief discussion of segregation in schools. Since public schools are run by the government, they were forced to choose between segregation and integration in the early 1960s, when Capitalism and Freedom was being written. Friedman says it’s “impossible not to choose integration” in this situation (117).
Chapter 8 Summary: “Monopoly and the Social Responsibility of Business and Labor”
A competitive market has an impersonal character, and one person or business can’t have too large of an impact. When there’s not enough competition, the power of a single party can become too concentrated. A monopoly exists when one party has so much control over a product that it determines, to a significant degree, the terms on which others can access that product. The personal rivalry that’s absent from a competitive market can enter a noncompetitive market through monopolies.
First, Friedman identifies two types of problems a monopoly creates for a free society: It limits voluntary exchange by reducing the number of alternatives available to consumers and gives the consumer little power to shape the terms of the exchange. According to Friedman, the latter issue makes many people feel that monopolists have a responsibility to “further socially responsible ends” (120). However, he feels that forcing businesses to do this is dangerous and limits freedom.
Next, Friedman discusses the extent of industry monopolies, labor monopolies, and monopolies produced by the government. He says monopolies are rarer than people think they are in industry; oftentimes, parties described as monopolies are just large businesses. Unions sometimes create labor monopolies, but Friedman says people think unions are more powerful and effective than they actually are. The cases that deserve the most attention are those where the government allows a union to set wages, he argues. Meanwhile, government-produced monopolies like the U.S. Postal Service increase the power of the state in a way that concerns Friedman. However, Friedman is more alarmed by government-produced monopolies like the Interstate Commerce Commission (ICC), which he says evolved into a group that pursues the interests of the rail and trucking industries. He calls the ICC a “notorious” example of the “use of government to establish, support and enforce cartel and monopoly arrangements among private producers” and says this type of state intervention is more important to address than direct government monopolies like the Postal Service (126). Friedman also identifies two positive examples of government-produced monopolies: patents and copyrights, which he says promote innovation.
Friedman also addresses the causes of monopoly. These include technical considerations, which arise when it’s more economical or efficient to have just one provider of a service; government assistance, which may take the form of tariffs or tax legislation; and private collusion through cartels and other means. Dealing with technical considerations involves choosing among three evils: a private monopoly with no regulation, a private monopoly regulated by the state, or a state-run monopoly. Ending tariffs and revising the tax code would help keep monopolies from forming as the result of government assistance. Friedman notes how the current tax structure encourages corporations to reinvest their earnings in themselves because there is a tax savings in doing so; he says ending the corporate tax would help remedy this. He also thinks antitrust laws are effective at addressing much private collusion.
A discussion of corporate social responsibility concludes the chapter. Friedman feels that the only true responsibility a corporation has is to serve its shareholders’ interests. Since these shareholders cannot possibly have identical preferences regarding charitable giving, charitable giving from corporations is an infringement on personal freedom. The only way for shareholders to truly express these preferences is to donate to charity as private individuals.
Chapters 7-8 Analysis
The market’s impersonal nature is an essential idea in Chapters 7 and 8. This feature discourages discrimination based on non-economic attributes and keeps individual participants from having much of an effect on prices and other conditions. However, as Friedman points out in Chapter 8, when the market is prevented from functioning properly, personal rivalries and other factors unrelated to trade can creep in. This is especially true in the case of monopolies. Friedman thinks many problems with the market stem from government intervention, so he often advocates reductions in intervention as a way of addressing these problems. However, in the case of monopolies, government intervention may be the best available approach at the time.
In contrast, Friedman is certain that government intervention is not an acceptable way of discouraging racial discrimination in economic activities; that’s because it’s too likely to restrict at least one participant’s freedom in a harmful way and prevent voluntary cooperation. Instead, “the appropriate recourse is for [Friedman] to seek to persuade [prejudiced people] that their tastes are bad and that they should change their views and their behavior,” (111). This is his preferred approach because there is a free and open forum for discussion, and because the discussion is voluntary.
In both chapters, Friedman forcefully defends people’s right to hold differing opinions, even if some of those opinions are offensive. He thinks that any attempt to act on someone’s behalf that contradicts those opinions is a violation of freedom, as is any attempt to force that person to behave counter to his opinions. An example of the former is corporate charitable giving, and an example of the latter is FEPC anti-discrimination laws.
