Thursday, April 23, 2009
Milton Friedman: Capitalism and Freedom (1962)
“A government which maintained law and order, defined property rights, served as a means whereby we could modify property rights and other rules of the economic game, adjudicated disputes about the interpretation of the rules, enforced contracts, promoted competition, provided a monetary framework, engaged in activities to counter technical monopolies and to overcome neighborhood effects widely regarded as sufficiently important to justify government intervention, and which supplemented private charity and the private family in protecting the irresponsible, whether madman or child – such a government would clearly have important functions to perform. The consistent liberal is not an anarchist.” The central text of the Chicago School of economics, Friedman's book exemplifies American neo-liberalism in its purest form. Friedman's unbending, unsentimental submission of everything he sets his eyes on to the hands (or rather, Invisible Hand) of the competitive market is striking for its cold adherence to a single logic. Naomi Klein's admirably partisan portrayal of Friedman and alarming documentation of Friedmanite economics running rampant across the globe in The Shock Doctrine only sharpens the implications of Friedman's intentionally razor-edged ideas. Since the 1980s, the Republican Party has assimilated the arguments of Capitalism & Freedom to an eerie extent. It is hard not to hear Reagan's or a Bush's voice while reading Friedman's words, making for a rather schizophrenic reading experience. Yet due to its political popularity on the Right, Friedman's book serves little function today, its arguments having been so thoroughly woven into the very fabric of the contemporary public sphere (that is, completely stored in the caches of the blogosphere) as to have made their origin irrelevant. Like the rest of the American neo-liberals, Friedman owes a clear debt to Hayek, taking the latter's claims about the totalitarian essence of centralized planning for granted and borrowing heavily from the idea of a liberal Rule of Law (see the blogs on Hayek and Foucault below). Like Hayek, Friedman accepts government intervention if it establishes the rules of the economic game but does not interfere with the actions of individual players. He claims politics necessarily tends towards a centralization of power, whereas economics doesn't, so a liberal economy will act as a benevolent counterforce to politics' undesirable tendencies. Two more problematic types of government intervention focus on the removal of monopolies (which Friedman mostly blames on government interference in the first place) and what he calls "neighborhood effects," where individuals are affected unwillingly by others' exchanges on the market. Having delimited this very narrow space for legitimate government action, Friedman uses the rest of his book to attack a wide range of government programs, many that have now been ended due to the influence of his ideas. Early on, he lists the government activities the ideology of liberal economics requires to be eliminated, mentioning: protective tariffs, rent control, minimum wage, industrial regulations, social security, professional licensing, public housing, conscription, national parks, the nationalized postal service, and toll roads. He argues competitive capitalism is opposed to all forms of racism and discrimination, since the individual who discriminates has to literally "pay a price" for discriminating, usually in the form of higher labor costs. However, Friedman admits but is completely unable to explain why those marginalized groups whom he claims have benefited from liberalism clamour so strongly for anti-liberal government intervention. He proposes primary education be turned over to the market and largely rejects the government subsidizing vocational schools. He argues that such subsidies can only be justified by treating students as "underinvested" "human capital" that an enterprise, perhaps even the government, might make an investment in only so long as it literally pays back well. And contrary to Peter Drucker's hope that the corporation might function as a social institution, Friedman claims "there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stay within the rules of the game." By the end of the book, one is so desensitized that it comes as no shock when Friedman unveils his solution to the problems of economic inequality and poverty to be nothing more than a flat-rate tax.