CAPITALISM AND FREEDOM - IU

1 CAPITALISMANDFREEDOM CAPITALISMANDFREEDOM40thAnniversaryEditi onWitha TOJANETandDAVIDANDTHEIRCONTEMPORARIESWHO MUSTCARRYTHETORCHOFLIBERTYONITSNEXTLAPTh eUniversityofChicagoPress,Chicago60637 TheUniversityofChicagoPress,Ltd.,LondonC opyright 1962,1982, newPrefacein1982, 07062345 ISBN:0-226-26421-1(paper)ISBN:0-226-2642 0-3(cloth)LibraryofCongressCataloging-in -PublicationDataFriedman,Milton,1912-Cap italismandfreedom/MiltonFriedman; ; ( )-ISBN0-226-26421-1( ) , , '2-clc21200206753 +ContentsPREFACE,2002 VBPREFACE,1982 XlPREFACEXVINTRODUCTIONITHERELATIONBETWE ENECONOMICFREEDOMANDPOLITICALFREEDOM7 IITHEROLEOFGOVERNMENTINAFREESOCIETY22 IIITHECONTROLOFMONEY37 IVINTERNATIONALFINANCIALANDTRADEARRANGEM ENTS56 VFISCALPOLICY75 VITHEROLEOFGOVERNMENTINEDUCATION85 VIICAPITALISMANDDISCRIMINATION108 VIIIMONOPOLYANDTHESOCIALRESPONSIBILITYOF BUSINESSANDLABOR119 IXOCCUPATIONALLICENSURE137 XTHEDISTRIBUTIONOFINCOME161 XISOCIALWELFAREMEASURES177 XIIALLEVIATIONOFPOVERTY19 XIIICONCLUSION196 INDEX2 3 ChapterI+TheRelationbetweenEconomicFreed omandPoliticalFreedomITISWIDELYBELIEVED thatpoliticsandeconomicsareseparateandla rgelyunconnected.

2 Thatindividualfreedomisa politicalproblemandmaterialwelfareanecon omicproblem; "democraticsocialism"bymanywhocondemnout ofhandtherestrictionsonindivid-ualfreedo mimposedby"totalitariansocialism"inRussi a~andwhoarepersuadedthatitispossiblefora 8 CAPITALISMANDFREEDOM thesisofthischapteristhatsucha viewisa delusion,thatthereisanintimateconnection betweeneconomicsandpolitics,thatonlycert aincombinationsofpoliticalandeconomicarr ange-mentsarepossible,andthatinparticula r,a societywhichissocialistcannotalsobedemoc ratic, ,freedomineconomicarrange-mentsisitselfa componentoffreedombroadlyunderstood, , ,andtoregardtheirownpursuitofallegedlyhi ghervaluesasona ,however,if notfortheintellectual.

3 Thedirectimportanceofeconomicfreedomisat leastcomparableinsignificancetotheindire ctimportanceofeconomicfreedomasa meansto ,whoafterWorldWarII wasnotpermittedtospendhisvacationintheUn itedStatesbecauseofexchangecontrol,wasbe ingdeprivedofanessentialfreedomnolesstha nthecitizenoftheUnitedStates, politicallimitation, "UnitedStateswhoiscompelledbylawtodevote somethinglike10percentofhisincometothepu rchaseofa particularkindofretirementcontract,admin isteredbythegovernment,isbeingdeprivedof a ,whichallwouldregardas"civil"or"politica l"ratherthan" ",weredramatizedbyanepisodeinvolvinga ,thisgroup result, ,thenumberofcitizenswhoregardcompulsoryo ldageinsuranceasa deprivationoffreedommaybefew, licenseforit, ,say,a Swissfora watchbutispreventedfromdoingsobya a pricebelowthatsetbythemanufactureruncler so-called"fairtrade" ,economicfreedom,inandofitself, meanstotheendofpoliticalfreedom, ,namely,competitivecapitalism, singlevoiceontherelationbetweenpolitical freedomanda societythathasbeenmarkedbyalargemeasureo fpoliticalfreedom,andthathasnotalsouseds omethingcomparabletoa largelyfreesociety,wetendtoforgethowlimi tedisthespanoftimeandthepartoftheglobefo rwhichtherehaseverbeenanythinglikepoliti calfreedom.

4 Thetypicalstateofmankindistyranny,servit ude, ,Germanyatvarioustimesinthelastseventyye ars,JapanbeforeWorldWarsIandII,tzaristRu ssiainthedecadesbeforeWorldWarI ,ineach, ,thecitizenryhada gooddealmorefreedomthancitizensofa moderntotalitarianstatelikeRussiaorNaziG ermany, ,itwaspossibleforsomecitizens,undersomec ircum-stances, ,BenthamandthePhilosophicalRadicalswerei nclinedtore-gardpoliticalfreedomasa ,andthatif politicalreformgavethebulkofthepeoplethe vote,theywoulddowhatwasgoodforthem, , largemeas-ureofpoliticalreformthatwasacc ompaniedbyeconomicre-forminthedirectiono fa reactionto\ ,bothinEnglandandelsewhere, ,theintellectualdescendantsofthePhilosop hicalRadicals-Dicey,Mises,Hayek,andSi-mo ns,tomentiononlya few-fearedthata continuedmove-menttowardcentralizedcontr olofeconomicactivitywouldproveTheRoadtoS erfdom, ,however,theresulthasnotbeenthesuppressi onoffreedom, "controlofengagements"orderwhich,despite greatmisgivings,theLabourpartyfoundit , wasenforcedina negligiblenumberofcases,andthenrepealeda fterthelawhadbeenineffectforonlya decidedshiftineconomicpolicy,markedbyred ucedrelianceoncen-tralized"plans"and"pro grams",bythedismantlingofmanycontrols.

5 Thisfailureisitselftobeattrib-uted,atlea stinsomemeasure, , wassheercoincidencethattheexpansionoffre edomoccurred connection?Whatarethelogicallinksbetween economicandpoliticalfreedom?Indis-cussin gthesequestionsweshallconsiderfirstthema rketasadirectcomponentoffreedom, ,wetakefreedomoftheindividual,orperhapst hefamily, valueinthissensehastodowiththeinterrelat ionsamongpeople;it hasnomeaningwhatsoever toa RobinsonCru-soeonanisolatedisland(withou thisManFriday).RobinsonCrusoeonhisisland issubjectto"constraint,"hehaslimited"pow er,"andhehasonlya limitednumberofalternatives, ,ina societyfreedomhasnothingtosayaboutwhatan individualdoeswithhisfreedom; ,a "really"importantethicalproblemsarethose thatfaceanindi-vidualina liberalwillemphasize-thevaluesthatarerel evanttorelationsamongpeople,whichistheco ntextinwhichheassignsfirstprioritytofree dom;andthevaluesthatarerelevanttotheindi vidualintheexerciseofhisfreedom, negativeprob-lemofpreventing"bad"peoplef romdoingharmasofenabling"good"peopletodo good.

6 And,ofcourse,"bad"and"good"peoplemaybeth esamepeople, , ,thescaleonwhichco- EconomicFreedomandPoliticalFreedom13ordi nationisneeded,totakefulladvantageoftheo pportunitiesofferedbymodernscienceandtec hnology, , , , ,sucha societyconsistsofa numberofindependenthouseholds- acollectionofRobinsonCrusoes,asit householdusestheresourcesit controlstoproducegoodsandservicesthatit , , ,ofcourse, ,it neednotenterintoanyexchangeunlessit , , ,specializationoffunctionanddivisionofla borcouldnotgoveryfarif ,moneyhasbeenintroducedasa meansoffacilitatingexchange, ,anddespitethe numerousandcomplexprob-lemstheyraise, ,sointhecomplexenterpriseandmoney-exchan geeconomy,co-operationisstrictlyindividu alandvol-untaryprovided:(a)thatenterpris esareprivate,sothattheultimatecontractin gpartiesareindividualsand(h)thatindi-vid ualsareeffectivelyfreetoenteror nottoenterintoanypar-ticularexchange, , , ,thusgivingsubstanceto"private".

7 Asidefromthis,perhapsthemostdifficultpro blemsarisefrommonopoly-whichinhibitseffe c-tivefreedombydenyingindividualsalterna tivestotheparticu-larexchange-andfrom"ne ighborhoodeffects" , EconomicFreedomandPoliticalFreedom15othe remployersforwhomhecanwork, ,a majorsourceofobjectiontoa ,governmentisessen-tialbothasa forumfordeterminingthe"rulesofthegame" , ,ontheotherhand, ,inpoliticalterms,a ,asit were,forthecoloroftiehewantsandgetit;hed oesnothavetoseewhatcolorthemajoritywants andthen,ifheisintheminority, ,beit inthehandsofa monarch,a dictator,anoligarchy,ora , checktopoliticalpowerratherthana ,ontheotherhand, singlelargegovernmentthanitistohavenumer ouscentersofeconomicstrengthina ,onepersononwhomtheenergiesandenthusiasm sofhiscountry-menarecentered?

8 Ifthecentralgovernmentgainspower, ,ifeconomicpowerisjoinedtopoliticalpower , ,if economicpoweriskeptinseparatehandsfrompo liticalpower,it canserveasa checkanda ,a hypotheticalex-amplethatmayhelptobringou ttheprinciplesinvolved, freesocietyissurelythefreedomofindividu- alstoadvocateandpropagandizeopenlyfora ,politicalfreedomina socialistsociety?Inorderformentoadvocate anything,theymustinthefirstplacebeableto earna problemina socialistsociety, "security"amongFederal EconomicFreedomandPoliticalFreedomemploy ees,fora , theproponentsmustbeabletofinancetheircau se-toholdpublicmeetings,publishpamphlets ,buyradiotime,issuenewspapersandmagazine s, ,perhapsevenlargecapitalsumsintheformofg overnmentbondsandthelike, strainscredulitytoimaginethesocialisttop brassfinancingsuch"sub-versive" ,manypeoplewouldalreadyhavetobepersuaded ,andourwholeproblemishowtoinitiateandfin ancea fewwealthyindividualswhohavebecomeper-su aded-bya FrederickVanderbiltField.

9 OranAnitaMcCor-mickBlaine,ora CorlissLamont,tomentiona fewnamesrecentlyprominent,orbya FriedrichEngels, capitalistsociety,itisonlynecessarytocon vincea fewwealthypeopletogetfundstolaunchanyide a,howeverstrange,andtherearemanysuchpers ons, ,indeed, ; ,forexample,cannotaffordtopublishonlywri tingwithwhichhepersonallyagrees;histouch -stonemustbethelikelihoodthatthemarketwi llbelargeenoughtoyielda satisfactoryreturnonhisinvestment. 18 CAPITALISMANDFREEDOMI nthisway,themarketbreakstheviciouscircle andmakesit ; providethefunds?Per-haps, gavetoallwhoasked,it wouldshortlyfinditselfoutoffunds,forsoci alismcannotrepealtheele-mentaryeconomicl awthata sufficientlyhighpricewillcallfortha , , ,nosocietycouldbestableifadvocacyofradic alchangewerecost-less, ,itisimportanttopreservefreedomonlyforpe oplewhoarewillingtopracticeself-denial, freemarketsociety, ,it ,thegovern-mentprintingpresstoprinthispa mphlets,a governmentpostofficetodistributethemamon gthepeople,a governmentagencytorenthima hallinwhichtotalk, ,however,isthatthereareveryrealdifficult iesinestablishinginstitutionsthat.

10 Noneofthepeoplewhohavebeeninfavorofsocia lismandalsoinfavoroffreedomhavereallyfac eduptothisissue,ormadeevena ,itisclearhowa ,ChurchillwasnotpermittedtotalkovertheBr itishradio,whichwas,ofcourse,a leadingcitizenofhiscountry,a MemberofParliament,aformerc