Capitalism and Freedom

Capitalism and Freedom

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Capitalism and Freedom is a book by Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...

 originally published in 1962
1962 in literature
The year 1962 in literature involved some significant events and new books.-Events:*January 7 - In an article in the New York Times Book Review, Gore Vidal calls Evelyn Waugh "our time's first satirist."...

 by the University of Chicago Press
University of Chicago Press
The University of Chicago Press is the largest university press in the United States. It is operated by the University of Chicago and publishes a wide variety of academic titles, including The Chicago Manual of Style, dozens of academic journals, including Critical Inquiry, and a wide array of...

 which discusses the role of economic capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...

 in liberal
Liberalism
Liberalism is the belief in the importance of liberty and equal rights. Liberals espouse a wide array of views depending on their understanding of these principles, but generally, liberals support ideas such as constitutionalism, liberal democracy, free and fair elections, human rights,...

 society
Society
A society, or a human society, is a group of people related to each other through persistent relations, or a large social grouping sharing the same geographical or virtual territory, subject to the same political authority and dominant cultural expectations...

. It sold over 400,000 copies in the first 18 years and more than half a million since 1962. It has been translated into 18 languages. Friedman argues for economic freedom
Economic freedom
Economic freedom is a term used in economic and policy debates. As with freedom generally, there are various definitions, but no universally accepted concept of economic freedom...

 as a precondition for political freedom. He defines liberal in European Enlightenment
Age of Enlightenment
The Age of Enlightenment was an elite cultural movement of intellectuals in 18th century Europe that sought to mobilize the power of reason in order to reform society and advance knowledge. It promoted intellectual interchange and opposed intolerance and abuses in church and state...

 terms, contrasting with an American usage that he believes has been corrupted since the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

. Many North Americans usually categorized as conservative
Conservatism
Conservatism is a political and social philosophy that promotes the maintenance of traditional institutions and supports, at the most, minimal and gradual change in society. Some conservatives seek to preserve things as they are, emphasizing stability and continuity, while others oppose modernism...

 or libertarian
Libertarianism
Libertarianism, in the strictest sense, is the political philosophy that holds individual liberty as the basic moral principle of society. In the broadest sense, it is any political philosophy which approximates this view...

 have adopted some of his views. The book finds several realistic places in which a free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...

 can be promoted for both philosophical and practical reasons, with several surprising conclusions. Among other concepts, Friedman advocates ending the mandatory licensing
Licensure
Licensure refers to the granting of a license, which gives a "permission to practice." Such licenses are usually issued in order to regulate some activity that is deemed to be dangerous or a threat to the person or the public or which involves a high level of specialized skill...

 of doctor
Physician
A physician is a health care provider who practices the profession of medicine, which is concerned with promoting, maintaining or restoring human health through the study, diagnosis, and treatment of disease, injury and other physical and mental impairments...

s and introducing a system of vouchers
Education voucher
A school voucher, also called an education voucher, is a certificate issued by the government, which parents can apply toward tuition at a private school , rather than at the state school to which their child is assigned...

 for school education.

Context


Capitalism and Freedom is written from the perspective of the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

. It was published nearly two decades after World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

, a time when the Great Depression was still in collective memory. Under the Kennedy
John F. Kennedy
John Fitzgerald "Jack" Kennedy , often referred to by his initials JFK, was the 35th President of the United States, serving from 1961 until his assassination in 1963....

 and preceding Eisenhower administrations, federal expenditures were growing at a quick pace in the areas of national defense
Defense (military)
Defense has several uses in the sphere of military application.Personal defense implies measures taken by individual soldiers in protecting themselves whether by use of protective materials such as armor, or field construction of trenches or a bunker, or by using weapons that prevent the enemy...

, social welfare and infrastructure
Infrastructure
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...

. Both major parties, Democratic
Democratic Party (United States)
The Democratic Party is one of two major contemporary political parties in the United States, along with the Republican Party. The party's socially liberal and progressive platform is largely considered center-left in the U.S. political spectrum. The party has the lengthiest record of continuous...

 and Republican
Republican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...

, supported increased spending in different ways. This, as well as the New Deal
New Deal
The New Deal was a series of economic programs implemented in the United States between 1933 and 1936. They were passed by the U.S. Congress during the first term of President Franklin D. Roosevelt. The programs were Roosevelt's responses to the Great Depression, and focused on what historians call...

, was supported by most intellectuals with the justification of Keynesian economics
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...

.

Chapter summaries

Introduction
The introduction lays out the principles of Friedman's archetypal liberal, a man who supports limited and dispersed governmental power. Friedman opts for the continental European, rather than American, definition of the term.
i. The Relation between Economic Freedom and Political Freedom
In this chapter, Friedman promotes economic freedom
Economic freedom
Economic freedom is a term used in economic and policy debates. As with freedom generally, there are various definitions, but no universally accepted concept of economic freedom...

 as both a necessary freedom and also as a vital means for political freedom. He argues that, with the means for production under the auspices of the government, it is nearly impossible for real dissent and exchange of ideas to exist. Additionally, economic freedom is important, since any "bi-laterally voluntary and informed" transaction must benefit both parties to the transaction.
ii. The Role of Government in a Free Society
According to the author, the government of a liberal society should enforce law and order and property rights, as well as take action on certain technical monopolies and diminish negative "neighborhood effects." The government should also have control over money, as has long been recognized in the constitution and society.
iii. The Control of Money
He discusses the evolution of money in America, culminating in the Federal Reserve Act
Federal Reserve Act
The Federal Reserve Act is an Act of Congress that created and set up the Federal Reserve System, the central banking system of the United States of America, and granted it the legal authority to issue Federal Reserve Notes and Federal Reserve Bank Notes as legal tender...

 of 1913. Far from acting as a stabilizer, the Federal Reserve failed to act as it should have in several circumstances. Friedman proposes that the Federal Reserve have a consistent rule to increase the money supply by 3-5% annually.
iv. International Financial and Trade Arrangements
This chapter advocates the end of the Bretton Woods system
Bretton Woods system
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century...

 in favor of a floating exchange rate
Floating exchange rate
A floating exchange rate or fluctuating exchange rate is a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market. A currency that uses a floating exchange rate is known as a floating currency....

 system and the end of all currency controls and trade barriers, even "voluntary" export quotas. Friedman says that this is the only true solution to the balance of trades problem.
v. Fiscal Policy
Friedman argues against the continual government spending justified to "balance the wheel" and help the economy to continue to grow. On the contrary, federal government expenditures make the economy less, not more stable. Friedman uses concrete evidence from his own research, demonstrating that the rise in government expenditures results in a roughly equal rise in GDP, contrasting with the Keynesian multiplier theory. Many reasons for this discrepancy are discussed.
vi. The Role of Government in Education
The policy advocated here is vouchers which students may use for education at a private school of their choice. The author believes that everyone, in a democracy, needs a basic education for citizenship. Though there is underinvestment in human capital (in terms of spending at technical and professional schools), it would be foolish of the government to provide free technical education. The author suggests several solutions, some private, some public, to stop this underinvestment.
vii. Capitalism and Discrimination
In a capitalist society, Friedman argues, it costs money to discriminate, and it is very difficult, given the impersonal nature of market transactions. However, the government should not make fair employment practices laws (eventually embodied in the Civil Rights Act of 1964
Civil Rights Act of 1964
The Civil Rights Act of 1964 was a landmark piece of legislation in the United States that outlawed major forms of discrimination against African Americans and women, including racial segregation...

), as these inhibit the freedom to employ someone based on whatever qualifications the employer wishes to use. For the same reason, right-to-work law
Right-to-work law
Right-to-work laws are statutes enforced in twenty-two U.S. states, mostly in the southern or western U.S., allowed under provisions of the federal Taft–Hartley Act, which prohibit agreements between labor unions and employers that make membership, payment of union dues, or fees a condition of...

s should be abolished.
viii. Monopoly and the Social Responsibility of Business and Labor
Friedman states, there are three alternatives for a monopoly: public monopoly, private monopoly, or public regulation. None of these is desirable or universally preferable. Monopolies come from many sources, but direct and indirect government intervention is the most common, and it should be stopped wherever possible. The doctrine of "social responsibility", that corporations should care about the community and not just profit, is highly subversive to the capitalist system and can only lead towards totalitarianism.
ix. Occupational Licensure
Friedman takes a radical stance against all forms of state licensure. The biggest advocates for licenses in an industry are, usually, the people in the industry, wishing to keep out potential competitors. The author defines registration, certification, and licensing, and, in the context of doctors, explains why the case for each one of these is weaker than the previous one. There is no liberal justification for licensing doctors; it results in inferior care and a medical cartel.
x. The Distribution of Income
Friedman examines the progressive income tax, introduced in order to redistribute income to make things more fair, and finds that, in fact, the rich take advantage of numerous loophole
Loophole
A loophole is a weakness that allows a system to be circumvented.Loophole may also refer to:*Arrowslit, a slit in a castle wall*Loophole , a short science fiction story by Arthur C...

s, nullifying the redistributive effects. It would be far more fair just to have a uniform flat tax
Flat tax
A flat tax is a tax system with a constant marginal tax rate. Typically the term flat tax is applied in the context of an individual or corporate income that will be taxed at one marginal rate...

 with no deductions, which could meet the 1962 tax revenues with a rate only slightly greater than the lowest tax bracket at that time.
xi. Social Welfare Measures
Though well-intentioned, many social welfare measures don't help the poor as much as some think. Friedman focuses on Social Security
Social Security (United States)
In the United States, Social Security refers to the federal Old-Age, Survivors, and Disability Insurance program.The original Social Security Act and the current version of the Act, as amended encompass several social welfare and social insurance programs...

 as a particularly large and unfair system.
xii. Alleviation of Poverty
He advocates a negative income tax
Negative income tax
In economics, a negative income tax is a progressive income tax system where people earning below a certain amount receive supplemental pay from the government instead of paying taxes to the government. Such a system has been discussed by economists but never fully implemented...

 to fix the issue, giving everyone a guaranteed minimum income
Guaranteed minimum income
Guaranteed minimum income is a system of social welfare provision that guarantees that all citizens or families have an income sufficient to live on, provided they meet certain conditions. Eligibility is typically determined by citizenship, a means test and either availability for the labour...

, rather than current measures, which he sees as misguided and inefficient.
xiii. Conclusion
The conclusion to the book centers on how, time and time again, government intervention often has an effect opposite of that intended. Most good things in the United States and the world come from the free market, not the government, and they will continue to do so. The government, despite its good intentions, should stay out of areas where it does not need to be.

Impact


The effects of Capitalism and Freedom were great yet varied in the realm of political economics. Some of Friedman's suggestions are being tested and implemented in many places, such as the flat income tax in Estonia
Estonia
Estonia , officially the Republic of Estonia , is a state in the Baltic region of Northern Europe. It is bordered to the north by the Gulf of Finland, to the west by the Baltic Sea, to the south by Latvia , and to the east by Lake Peipsi and the Russian Federation . Across the Baltic Sea lies...

 (since 1994) and Slovakia
Slovakia
The Slovak Republic is a landlocked state in Central Europe. It has a population of over five million and an area of about . Slovakia is bordered by the Czech Republic and Austria to the west, Poland to the north, Ukraine to the east and Hungary to the south...

 (since 2004), a floating exchange rate which has almost fully replaced the Bretton Woods system
Bretton Woods system
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century...

, and national school voucher systems in Chile
Chile
Chile ,officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...

 (since 1981) and Sweden
Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....

 (since 1992), to cite a few prominent examples. However, many other ideas have scarcely been considered, such as the end of licensing, and the abolition of corporate income tax (in favor of an income tax on the stock holder). Though politicians often claim that they are working towards "free trade," an idea the book supports, no one has considered taking his suggestion of phasing out all tariffs in 10 years. Nevertheless, Friedman popularized many ideas previously unknown to most outside economics. This and other works helped Milton Friedman to become a household name. The Times Literary Supplement
The Times Literary Supplement
The Times Literary Supplement is a weekly literary review published in London by News International, a subsidiary of News Corporation.-History:...

called it "one of the most influential books published since the war
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

." However, many of the ideas described in this book are considered controversial or even radical to this day.

Capitalism and Freedom made the Intercollegiate Studies Institute
Intercollegiate Studies Institute
The Intercollegiate Studies Institute, Inc., or ', is a non-profit educational organization founded in 1953 as the Intercollegiate Society of Individualists...

's 50 Best Books of the Twentieth Century and also was placed tenth on the list of the 100 best non-fiction books of the twentieth century compiled by National Review
National Review
National Review is a biweekly magazine founded by the late author William F. Buckley, Jr., in 1955 and based in New York City. It describes itself as "America's most widely read and influential magazine and web site for conservative news, commentary, and opinion."Although the print version of the...

. In 2011, the book was placed on Time Magazine's top 100 non-fiction
Non-fiction
Non-fiction is the form of any narrative, account, or other communicative work whose assertions and descriptions are understood to be fact...

 books written in English since 1923.

External links

  • A Tract for the Times — contemporary review from The Economist
    The Economist
    The Economist is an English-language weekly news and international affairs publication owned by The Economist Newspaper Ltd. and edited in offices in the City of Westminster, London, England. Continuous publication began under founder James Wilson in September 1843...

    , 16 February 1963.
  • Capitalism and Freedom A commentary by Tom Butler-Bowdon
    Tom Butler-Bowdon
    Tom Butler-Bowdon is a non-fiction author based in Oxford, England, most notable for the 50 Classics series of books, which provide commentaries on key writings in the personal development field....