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Zusammenfassung von Capitalism and Freedom

Name: Capitalism and Freedom
Rating: 4.4 (499 reviews)
Author: Milton Friedman

Milton Friedman

The definitive statement of Friedman's immensely influential economic philosophy

4.4 (499 Bewertungen)

19 Min.

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Wirtschaft der USA Wohlstand Wirtschaftstheorie Kapitalismus & Freie Marktwirtschaft

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Capitalism and Freedom
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What’s 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’s 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 bestseller 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 twentieth-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’s something you’ll have to decide for yourself as you read these blinks. Along the way, you’ll learn

why government spending doesn’t necessarily lead to economic growth;
how a negative income tax could boost social welfare; and
why basic education benefits society as a whole but university education doesn’t.

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’s a mistake. In reality, you can’t 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 holidaymaker 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 can’t 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 isn’t 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. Think of it as setting the rules of the game. Buying and selling is a basic economic freedom, and we’re 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.

Increasing government spending doesn’t create economic growth and expansion.

You’ve probably heard politicians arguing that the government needs to intervene in the economy to ensure that it functions properly. You might also have come across the notion that free-market capitalism is inherently unstable and causes financial crises when it’s left to its own devices. Both ideas are popular among advocates of big government, but they’re rooted in bad economics.

To understand why, we have to look at where they came from. In the aftermath of the Great Depression, a new consensus emerged. Economists began arguing that boosting government expenditure with an eye to correcting market contractions was the best way of promoting stability. At its most basic, this boils down to a theory promoted by the British economist John Maynard Keynes that every dollar of government spending creates another dollar of increased wealth for private individuals.

The government should play a much more restricted role in monetary policy than it currently does.

Spending isn’t the only way governments intervene in markets – there’s also monetary policy. The outcome, however, is the same: the more governments intervene in economic life, the worse the results.

Take the Great Depression. The severity of the crisis was amplified by the government’s mismanagement of the money supply via the Federal Reserve, the US central bank. Between July 1929 and March 1933, the money supply dropped by a third. The Federal Reserve, which had a free hand in making policy, actively decided to do nothing. That error transformed what would have been a minor contraction into a full-blown crisis.

While the government must have a role in education, it should be limited.

Most people agree that governments have a legitimate role to play in education. While it’s true that state education provides society with a productive labor force, governments should restrict their focus to “K-12” schooling – education from kindergarten to twelfth grade.

Why? Well, that’s where the neighborhood effect comes in. That’s a way of describing how individual actions affect other people regardless of whether they’ve consented or not. This can be positive or negative. In the case of K-12 schooling, the neighborhood effect is clear: an educated society benefits everyone to a much greater extent than living in an uneducated society. If people couldn’t read, write or do basic arithmetic, social life as we know it would break down.

Government intervention often results in unnecessary monopolies.

Monopolies emerge when companies gain so much control over a given product or service that they can determine the price at which it’s sold rather than the free market. That makes monopolies the ultimate enemy of economic freedom. So how do they arise?

The root of the problem is the absence of competition in markets. But let’s define our terms here. In a free-market capitalist economy, “competition” isn’t about mindless rivalry, that is, the desire to beat opponents or drive them out of the market. Rather, it’s about the number of alternatives in economic life. A healthy, competitive economy is one in which individuals have numerous choices about which goods and services they wish to voluntarily exchange.

Income inequality is a necessary aspect of society.

In the societies of the past, people were born into a class or caste that determined what kind of work they could do. That meant that it was virtually impossible to earn large amounts of money. Capitalist society is different. Anyone can do any job they please. As a result, people have access to much higher potential incomes. This creates the conditions for social mobility and a wealth of opportunities – features unique to capitalist societies.

But if people are to be truly free when it comes to choosing their occupations – and destinies – the government needs to stop policing and redistributing incomes. After all, there’s a good reason why some jobs are more handsomely rewarded than others. Folks who work in difficult or unappealing jobs deserve to be paid more than those in cushier positions. When the government regulates incomes, fewer people will want to do these difficult jobs, causing labor shortages in various economic sectors.

Inefficient social welfare programs should be replaced by measures such as a negative income tax.

Social welfare programs invariably claim to reduce inequality. Time and again, however, they fail in their stated objectives and actually end up making society less egalitarian.

Take public housing. Run by an inefficient bureaucracy rather than efficiency maximizing market forces, public housing programs not only reduce the overall supply of housing, but confine poor people to a small number of dangerous neighborhoods.

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Worum geht es in Capitalism and Freedom?

Capitalism and Freedom (1962) is one of the most influential discussions of the relationship between economic and political freedom to have ever been put to paper. Written at the height of the Cold War between Soviet socialism and Western capitalism, Milton Friedman argues that only free markets can guarantee liberty. His theory remains every bit as relevant and thought-provoking today as when it was first published.

Wer Capitalism and Freedom lesen sollte

Economics buffs fascinated by the intellectual history of the last century
Free-marketeers, classical liberals and libertarians
Opponents of free-market capitalism interested in the other side of the argument

Über den Autor

Milton Friedman (1912-2006) studied mathematics and economics at Rutgers University during the Great Depression before taking up a position at the University of Chicago in 1946. Over the following three decades, he established himself as one of the world’s most vocal champions of the free market. His work was a major influence on Margaret Thatcher and Ronald Reagan’s governments. Friedman won the Nobel Memorial Prize in 1976 and is regarded as one of the most important economists of the twentieth century.

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