Overall Summary for "Capitalism and Freedom" by Milton Friedman

by Danny Fenster

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

Friedman begins the book with a broad philosophical consideration of the relationship between free markets and free society, concluding that the two are inextricably and necessarily linked together. He traces his ideas to the European liberals of the eighteenth century, then describes the assault on these values through the first half of twentieth-century America. The liberal movement sparked a counter-movement among American intellectuals which sought increasing governmental control in the name of protecting the public, culminating in the New Deal.

Friedman then goes on to argue that the role of government must be scaled back. Central planning, he says, will inevitably lead to violations of personal freedom. We need to agree on the laws, the “rules of the game,” and the government must enforce those laws. Beyond that, it must sit back and let us play the game as we choose. Trade restrictions are burdensome, hurtful to the economy and a dangerous overreach of government. The most effective way to turn a market economy into an authoritarian one, says Friedman, is to the impose direct controls on foreign exchange; one step in that direction leads to further controls. A free-floating exchange, based on the market, ought to decide international currency values, not government price settings.

The government is misusing fiscal policy under the mistaken belief that government spending boosts the economy in times of recession. But entitlement programs and spending are not repealed when the economy recovers, and they become yet another burden, expanding the reach and budget of the federal government.


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Friedman begins the book with a broad philosophical consideration of the relationship between free markets and free society, concluding that the two are inextricably and necessarily linked together. He traces his ideas to the European liberals of the eighteenth century, then describes the assault on these values through the first half of twentieth-century America. The liberal movement sparked a counter-movement among American intellectuals which sought increasing governmental control in the name of protecting the public, culminating in the New Deal.

Friedman then goes on to argue that the role of government must be scaled back. Central planning, he says, will inevitably lead to violations of personal freedom. We need to agree on the laws, the “rules of the game,” and the government must enforce those laws. Beyond that, it must sit back and let us play the game as we choose. Trade restrictions are burdensome, hurtful to the economy and a dangerous overreach of government. The most effective way to turn a market economy into an authoritarian one, says Friedman, is to the impose direct controls on foreign exchange; one step in that direction leads to further controls. A free-floating exchange, based on the market, ought to decide international currency values, not government price settings.

The government is misusing fiscal policy under the mistaken belief that government spending boosts the economy in times of recession. But entitlement programs and spending are not repealed when the economy recovers, and they become yet another burden, expanding the reach and budget of the federal government.

Because a certain level of universal education is necessary for a cohesive and democratic society, government spending on education has become government administration of education. This is dangerous. The administering of education should be left to private free enterprise; the government should only be subsidizing those who cannot afford a basic level of education.

Fair Employment law, though intended to fight against discrimination, is a paternalistic move that interferes with the freedom of individuals to voluntarily enter into contracts and agreements. If the proprietor of a supermarket refuses to hire a person of color because his clients are racist, he should not be punished. Prohibiting him from providing the service his customers want, will hurt his business, possibly even putting him out of business. The racist customers who were intended to be discouraged by the law are not.

Occupational Licensure, progressive taxes to redistribute wealth and alleviate poverty, and social welfare measures are all well-intentioned but end up causing more harm than good in unintended consequences. They increase the size and scope of government, endangering liberty. We are not to judge actions on their intentions, we are to judge them on their outcomes.

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