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,thedirectimportanc eofeconomicfreedomisatleastcomparableins ignificancetotheindirectimportanceofecon omicfreedomasa meansto ,whoafterWorldWarII wasnotpermittedtospendhisvacationintheUn itedStatesbecauseofexchangecontrol,wasbe ingdeprivedofanessentialfreedomnolesstha nthecitizenoftheUnitedStates.

3 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, ,thisfailureisitselftobeattrib-uted,atle astinsomemeasure, , wassheercoincidencethattheexpansionoffre edomoccurred connection?

5 Whatarethelogicallinksbetweeneconomicand politicalfreedom?Indis-cussingthesequest ionsweshallconsiderfirstthemarketasadire ctcomponentoffreedom, ,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;and,ofcourse,"bad"and"good"peoplema ybethesamepeople, , ,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.

6 (a)thatenterprisesareprivate,sothattheul timatecontractingpartiesareindividualsan d(h)thatindi-vidualsareeffectivelyfreeto enteror nottoenterintoanypar-ticularexchange, , , ,thusgivingsubstanceto"private".Asidefro mthis,perhapsthemostdifficultproblemsari sefrommonopoly-whichinhibitseffec-tivefr eedombydenyingindividualsalternativestot heparticu-larexchange-andfrom"neighborho odeffects" , 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?

7 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,oranAnitaMcCor- mickBlaine,ora CorlissLamont,tomentiona fewnamesrecentlyprominent,orbya FriedrichEngels, capitalistsociety,itisonlynecessarytocon vincea fewwealthypeopletogetfundstolaunchanyide a,howeverstrange,andtherearemanysuchpers ons, ,indeed.

8 ,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 ,noneofthepeoplewhohavebeeninfavorofsoci alismandalsoinfavoroffreedomhavereallyfa ceduptothisissue,ormadeevena ,itisclearhowa ,ChurchillwasnotpermittedtotalkovertheBr itishradio,whichwas,ofcourse,a leadingcitizenofhiscountry,a MemberofParliament,aformercabinetministe r.

9 Amanwhowasdesperatelytryingbyeverydevice possibletopersuadehiscountrymentotakeste pstowardoffthemenaceofHitler' "controversial".Anotherstrikingexample,r eportedintheJanuary26,1959issueofTime,ha stodowiththe"BlacklistFadeout".SaystheTi mestory,TheOscar-awardingritualisHollywo od'sbiggestpitchfordig-nity, ~, pseudonym, ' (JohnnyGotHisGun)Trumbo,oneoftheoriginal "HollywoodTen" ,whohadstoutlyinsistedthatRobertRichwas" ayoungguyinSpainwitha beard":" ".. , ," 'rejustthefirsttoconfirmwhateverybodykno ws."Onemaybelieve,asI do,thatcommunismwoulddestroyallofourfree doms,onemaybeopposedtoitasfirmlyandasstr onglyaspossible,andyet,atthesametime,als obelievethatina ,ofcourse, wasa 'tworkpreciselybecausethemarketmadeit ,thefactthatpeoplewhoarerunningenterpris eshaveanincentivetomakeasmuchmoneyasthey can,protectedthefreedomoftheindividualsw howereblack-listedbyprovidingthemwithana lternativeformofemploy-ment, inEnglandithadbeena questionofemploy-mentbytheBritishBroadca stingCorporationitisdifficulttobelieveth atthe "HollywoodTen" ,itisdifficulttobelievethatunderthosecir cumstances, , ,andthemeritsofthechargesmade,whatprotec tiondidindividuals,andinparticulargovern mentemployees,haveagainstirresponsibleac cusationsandprobingsintomattersthatit wentagainsttheirconsciencetoreveal?

10 TheirappealtotheFifthAmendment EconomicFreedomandPoliticalFreedom21woul dhavebeena private-marketeconomyinwhichtheycouldear na , ,rightlyorwrongly, , disproportionatelylargefractionofthepeop leinvolvedapparentlywentintothemostcompe ti-tivesectorsoftheeconomy-smallbusiness ,trade, Communistora Republican,bya con-stitutionalistora Fascist,or,forthatmatter,bya ,thegroupsinoursocietythathavethemostats takeinthepreservationandstrengtheningofc om-petitivecapitalismarethoseminoritygro upswhichcanmosteasilybecometheobjectofth edistrustandenmityofthemajor-ity-theNegr oes,theJews,theforeign-born, ,paradoxicallyenough, ,theymis-takenlyattributetheresidualdisc riminationtothemarket. ChapterII+ , ,whatdoes?Butthiseasyanswerdoesnotdispos eoftheobjection; , , ,theappropriatemeansarefreediscussionand voluntaryco-operation, Governmentina ,theroleofthe market,asalreadynoted,isthatit permitsunanimitywithoutconformity; ,thecharacteristicfeatureofactionthrough explicitlypo-liticalchannelsisthatit "yes"or"no";atmost,provisioncanbemadefor a , ,thefactthatthefinaloutcomegenerallymust bea lawapplicabletoallgroups,ratherthansepar atelegislativeenactmentsforeach"party"re p-resented,meansthatproportionalrepresen tationinitspoliticalversion,farfrompermi ttingunanimitywithoutconformity, cannotgettheamountofnationaldefenseI wantandyou,a ,andargue, , , ,whileinevitable,tendstostrainthesocialc ohesionessentialfora 24 CAPITALISMANDF R E E D 0 goessofarastotouchanissueonwhichmenfeeld eeplyyetdifferently,it.