“Capitalism and Freedom” Summary, Chapter 2: The Role of Government in a Free Society

by Danny Fenster

This chapter is a free excerpt from Quicklet on Capitalism and Freedom.

Ends must always justify means, or they are not truly the ultimate ends.

A liberal's means are "free discussion and voluntary cooperation." The market's role is to promote unanimity without conformity. Politics tend toward enforced conformity; a vote is either yes or no.

Markets are full of free individuals; political fields are full of groups and factions. Political ends impose laws on all, regardless of who wins or the number of detractors.


Complete 10-second survey to read full article!

Ends must always justify means, or they are not truly the ultimate ends.

A liberal's means are "free discussion and voluntary cooperation." The market's role is to promote unanimity without conformity. Politics tend toward enforced conformity; a vote is either yes or no.

Markets are full of free individuals; political fields are full of groups and factions. Political ends impose laws on all, regardless of who wins or the number of detractors.

But the political is inevitable. "I cannot get the amount of national defense I want and you, a different amount," writes Friedman. Such matters, argued and voted on, require some conformity.

This inevitability strains social stability, so it should be kept to a minimum and only to issues with broad consensus.

Unanimity is the ideal; majority rule is the practical. Different issues, depending on the strength of differing convictions, require different proportional majorities.

Constitutional rights are protected from all but a complete majority.

People in society are like characters in a game, and the framework of law and customs are the rules of the game. Individuals, like players, must accept the framework and the means of enforcement and arbitration. "The need for government in these respects arises because absolute freedom is impossible," writes Friedman; anarchy is not feasible in a world of imperfect men. "My freedom to move my fist must be limited by the proximity of your chin," as one Supreme Court Justice put it.

In the United States, the "free" in free enterprise has meant the freedom to set up an enterprise and not be impeded from entering the market; in Europe it has historically meant the freedom of enterprises to do as they please, including price fixing and other activities which impede competition.

Property rights are particularly difficult. If I own land, can I stop you from flying your airplane over it? What factors are relevant? Can I charge you to fly past it?

More difficult are monetary systems. Congress has the power "to coin money, regulate the value thereof, and of foreign coin" through the constitution. This "enhances the danger that the scope of government will spread," so a thorough understanding of this agreement is important.

We may use government for that which is too difficult or too costly to do through the market--when voluntary exchange isn’t feasible.

"Exchange is voluntary only when nearly equivalent alternatives exist," which Monopoly implies the absence of. Most monopoly is caused by government support or collusion among individuals. "Technical" monopoly arises when it is technically efficient to have one single producer or enterprise. This happens less often then many think.

Technical monopolies have three alternatives: private monopoly, public monopoly or public regulation. "All three are bad so we must choose among evils," and Friedman "reluctantly conclude(s) that, if tolerable, private monopoly may be the least” evil. The others are too unresponsive to the changing conditions of society.

Railroads presented a technical monopoly in the nineteenth century, so the Interstate Commerce Commission was created. But times changed while the ICC did not. "If railroads had never been subjected to regulation in the United States, it is nearly certain that by now transportation, including railroads, would be a highly competitive industry," monopoly free.

Public monopoly cannot justifiably make it illegal for individuals to compete; technical monopoly exists because it’s impractical for individuals to compete. Giving public monopoly to the post office is unjustified; it is illegal for others to compete.

The government can intervene when it is not feasible to charge or recompense third parties effected by an exchange. Pollution is one such example.

Less obvious is the highway system. The cost of charging all drivers for their use of general access roads would be too costly or too difficult, so a gasoline tax serves as a cheaper way to approximate a usage charge. This is not so, however, for long-distance turnpikes, where collection costs are smaller and alternatives present. These operators should receive revenues from gasoline taxes paid by the travelers of their roads.

Neighborhood effects have been used to justify too many interventions, often illegitimately; government intervention often fails to charge or compensate properly, creating its own neighborhood effects. Which effects are more serious, can only be judged case-by-case, and only approximately.

"Every act of government intervention limits the area of individual freedom directly and threatens the preservation of freedom indirectly."

Freedom is for responsible individuals, and some paternalism is necessary for the legally irresponsible. “The madman cannot be let free nor be shot, so we are willing to arrange for his care through government.”

Because the operative unit in society is the family, not the individual, children are a difficult case. The individual’s freedom to use their economic resources as they please "includes the freedom to use them to have children, to buy, as it were, the services of children as a particular form of consumption." Of course, children have their own value and freedom too.

The government currently undertakes interventions not justifiable by the standards laid out, from agricultural price supports and tariffs on imports to rent and wage controls and "detailed regulation of banking."

Price: $2.99 Add to Cart
  • Lifetime guarantee
  • 100% refund
  • Free updates