Wednesday, November 4, 2020

Review of Capitalism and Freedom by Milton Friedman

This review was written by Eugene Kernes

Book can be found in:
Genre = Economics
Intriguing Connections = Capitalism, Socialism, their Alternatives and Critiques

Elaborate Description

This book is less about the benefits of capitalism or markets, it is about the role for government. A key distinction between markets and the government is the limitation on individual action. The various diversities of individual actors cannot be replicated by the government. Government provides uniform standards which would mean a lack of experimentation. No experimentation leads to stagnation and uniform mediocrity. Usually, when government enters production, there is a precipitous drop in competition leading to concentration of power. Concentration of power corrupts freedom as it increases coercion. The markets provide for dispersed power.

There are three forms of freedom; political, civil, and economic. Competitive capitalism is required for freedom because in that way, the organization of activity is via private enterprise. Capitalism providers liberty to individuals, while centralized power takes away liberties. Rather than producing for immediate use, capitalism produces by division of labor, an indirect way to produce the things everyone wants. Exchanging the goods only when both parties benefit, provided by a dual voluntary want. Given the increased production via capitalism, many decry a free economy as it provides what each individual wants rather than a third part.

The term free market is highly misunderstood, and this book does not really elucidate the misunderstanding based on how its written. When the term is used, it usually references a lack of government or in favor of privatization. For a free market to work, Friedman points out that government is needed to provide rules of the game. Free markets require an arbiter to interpret the rules and enforce compliance with the generally accepted rules. Conformity is not required in free markets, but an agent to arbitrate disagreements is necessary.

Being an arbiter is seen as the only role of government that markets cannot do. Friedman states that there are two other conditions for government intervention. The two conditions are a technical monopoly and externalities (neighborhood effect). At their core, both conditions occur because voluntary exchange is impractically costly. If government does enter into production, it usually creates laws preventing competition. This Friedman vehemently argues against. For if private enterprise can produce the good or service, they have an incentive to produce it at a higher quality / lower price (or both) due to competition.

From monetary and fiscal policies to discrimination and distribution or income, Friedman targets the best cases for government intervention and then explains that government may not actually be needed those interventions. The privatization bias is ubiquitous in this work, but institutions which Friedman does not like, does not prevent Friedman from saying the institutions (such as Unions) are welcome in a capitalistic system. This book is not difficult to read, and is filled mostly with examples.

Book Details

Edition ISBN:  9780226264219
Pages to read:   212
Publication:     2002
1st Edition:      1962
Format:            Paperback

Ratings out of 5:
Readability     4
Content          4
Overall           4