Capitalism and Freedom summary

Introduction: Explore the Economics of Freedom

Capitalism and Freedom by Milton Friedman. What is in it for me, explore the economics of freedom? The Cold War between state-sponsored Soviet socialism and the Western world's capitalism ended in a decisive victory for the latter camp as communism crumbled, politicians and intellectuals of all stripes reached a similar verdict, liberal democratic capitalism, was the only game in town. As Margaret Thatcher famously put it, there is no alternative.

That is a view which has been increasingly challenged in the decade since the 2008 financial crash. In the US, self-declared democratic socialist Bernie Sanders is one of the frontrunners to lead the democratic party into the 2020 presidential election. On Amazon, books with titles like Communism for Kids meanwhile race up the best-seller lists. The idea that the state can and should play a role in the economic life of our societies is back in fashion.

All that would have worried Milton Friedman, one of the 20th century economists, most closely associated with the argument that economic freedom is the only guarantor of political liberty. As he saw it, the road to hell really is paved with good intentions. What starts out as a promise to redress market imbalances ends up aiding monopolies, undermining living standards and paradoxically increasing inequality. Was he right?

Well, that is something you will have to decide for yourself as you read this summary along the way you will learn why government spending does not necessarily lead to economic growth, how a negative income tax could boost social welfare and why basic education benefits society as a whole while the social benefits of university education are much harder to justify. This is capitalism and freedom by Milton Friedman.

Economic and Political Freedom

Economic and political freedom are both dependent on a small, decentralized government. Economics and politics are often taught as separate subjects in school. We typically learn that economics is about material well-being while politics is about individual freedom.

Follow that approach to its logical conclusion and you soon end up with the idea that any political system can be combined with any economic system. But that is a mistake. In reality, you cannot mix the state-led socialist economy of the Soviet Union with the individual political freedoms of the US to create a kind of democratic socialist society. Why not?

Well economic and political freedoms are actually interdependent and if you curtail the former, you also limit the latter. Imagine a hypothetical British holiday maker in the aftermath of the Second World War set on taking a vacation in the US. As he goes about booking his travel, he realizes he cannot afford the trip because the government's capital controls mean that sterling is undervalued relative to the dollar. Now compare that to the case of an American citizen who is not allowed to visit the Soviet Union because she holds pro-capitalist views.

In both cases, restrictions on economic and political freedoms have the same result. They prevent individuals freely pursuing their own dreams and destinies. That means you need a system that guarantees both the economic and political liberties we need to thrive. That system is called free market capitalism.

Let's take a closer look at how it works in practice. The most important point is that the government's role in this ideal society is strictly limited. Its purpose is to guarantee basic law and order rather than infringe upon our individual freedoms. A prime example of this view was Friedman's strong opposition to the military draft.

He argued that forcing citizens to serve in the military is a severe violation of personal liberty. Instead, he advocated for an all-volunteer armed force where soldiers are recruited through market incentives and fair wages. Think of it as setting the rules of the game. Buying and selling is a basic economic freedom and we are at liberty to use it as we please.

The government, on the other hand, has only one job to enforce individuals' property rights and protect them against theft and extortion. When governments restrict themselves to this role, the free market can take care of the rest how people want to live their lives, what they want to buy and sell, and ultimately who they want to be.