Capitalism And Freedom

Western nations have experienced an enormous amount of economic growth over the past 200 years, Friedman says, but poverty is still a problem. He notes that private charity efforts grew alongside the economy during this period and then started to decrease once government programs started addressing the problem as well. People continue to support government intervention in this area, he adds, because they think private charities are not enough to handle the problem.

Friedman argues that regardless of the methods chosen to address poverty, decreasing it benefits everyone. He thinks the majority of citizens might be willing to contribute to poverty relief if they were convinced everyone else was doing the same. This is one reason for the government to get involved. Another justification is that the government can help “set [...] a floor under the standard of life of every person in the community” (191). Friedman thinks establishing a program designed to help the poor is a solid approach, but he doesn’t think it should be aimed at farmers, the elderly, or any other group with impoverished members; it should be for anyone who is poor. It should not impede the market, but it might be able to benefit from the market’s strengths.

For the aforementioned reasons, Friedman proposes a negative income tax. People whose income falls below a certain threshold get cash back, which acts as a subsidy to alleviate poverty. People whose income exceeds the threshold pay a modest amount. The tax would be mildly graduated, so the less money a person makes, the more money his subsidy contains. Since earning a higher income brings in more money than the subsidy, there is an incentive for the poor to keep trying for better pay. Friedman identifies one risk associated with a negative income tax: the majority could try to benefit itself by imposing taxes on a minority group. For instance, the richer people could become richer by taxing the poorer people. However, he thinks this system could work and would likely be less expensive than the government’s current efforts to alleviate poverty.

Friedman wraps up this chapter with a discussion of the difference between equal opportunity and “an equal right to freedom” (195). He says the liberal knows that people will use their freedom differently, and that allowing this enables them to contribute as much as possible to society. That is why the liberal views equal rights as more important than equal opportunity and other goals, such as material equality and equality of outcome. It’s also why the liberal prefers private charity to state-run programs. Friedman explains that egalitarians can’t be liberals because they place more value on equality than freedom. However, some actions, like diminishing the power of monopolies, increase freedom and equality, so they don’t force people to choose between their values. Liberals and egalitarians are both likely to support such measures.

Friedman argues that in the 1920s and 1930s, American thinkers became convinced that capitalism was a flawed system that hampers economic health and freedom. As a result, government intervention in economic affairs increased. Friedman asserts that intellectuals arrived at this state by comparing the flawed conditions of reality to the hypothetical actions of an ideal state. They had witnessed revolutions in science, technology, and beyond, so they assumed there must be a better way of handling economic matters. An increased level of government intervention has persisted for several decades, Friedman says, so there is now enough information to draw evidence-based conclusions, rather than relying on dreams about the ideal.

According to Friedman, the evidence shows that a free market is superior to government intervention, and that communism did not pan out. And while some positive developments have resulted from government intervention—such as effective antitrust laws and reductions in infectious disease—the results have mostly been negative, Friedman concludes. Even more positive developments, such as increased wealth and fewer disadvantages for minorities, have to do with the market.

Friedman briefly highlights several concerns he raised in the book as well. These include loopholes in the income-tax system, monetary reforms that worsened inflation following World War II, and public housing that has exacerbated poverty and juvenile delinquency. He notes that failures like these tend to happen when the government “force[s] people to act against their own interests in order to promote a supposedly general interest” (200). This hinders people’s creativity as well as their freedom. Instead, the government should work to resolve differences of opinion through persuasion or a framework aimed at reducing conflict.

Threats to freedom are both external and internal, Friedman adds, citing the Soviet Union as an example of the former and reformers with good intentions as an example of the latter. The reformers, he says, often push for concentration of power because building consensus is a slow process and they are impatient to make progress. But this doesn’t diminish the danger of concentrated power. This is why it’s important to keep government from intervening in even more areas of society and getting its way with coercion. Friedman believes the fight against this type of government expansion is difficult, but he is comforted by the fact that free institutions have persisted through tough times before. Plus, he has hope that readers will be receptive to his message and make the choice to defend freedom.