Free to Choose (1980) is a book (ISBN 978-0-15-633460-0) and a ten-part television series broadcast on public television by economists Milton and Rose D. Friedman that advocates free market principles.
Part 1: The power of the Market
Finding examples in his visits to Hong Kong, the U.S. and Scotland, Dr. Friedman says that free markets are the fundamental engines of economic progress. In free markets, individuals can go into any business they want, trade with whomever they want, buy as cheap as they can, and sell at the highest price they can get. In truly free markets, governments do not interfere with any of these privileges. Individuals are free to enter the marketplace to do business, and they, and they alone, enjoy the fruits of their successes and the consequences of their failures. In free markets, producers of goods and services respond to signals they receive from buyers in the marketplace. They key production to their understanding of what people are buying and, apparently, wish to continue to buy. Using this information, they decide what to produce and in what quantity. Competitive forces in free markets promote efficiency. Because there is free entry of new producers into the market, individual producers must keep costs down in order to price their products at competitive levels. This means the resources they consume tend to be used efficiently. If they are not, costs of production rise, selling prices go up, and the producer may not be able to sell his product because it is not priced competitively. Free markets promote voluntary cooperation among a great diversity of people. As Milton Friedman points out, even making something as simple as a pencil requires the cooperation of thousands of people largely unknown to one another. Because the pencil manufacturer needs paint, graphite, wood, glue, and other components, widely separated groups of individuals have an incentive to produce these items and ship them to the pencil plant. This cooperation is not accomplished by any government. Individual freedom and economic freedom are tightly linked. It is difficult to conceive of personal freedom existing in isolation from economic freedom. Thus, the free market system not only promotes economic progress, but also buttresses our cherished individual freedoms.
Part 2: The Tyranny of Control
In this program, Dr. Friedman visits India, Japan and the U.S. He argues that those nations fortunate enough to have had basic economic policies established in an atmosphere of free markets have tended to develop more rapidly and to meet the needs of their citizens more adequately than those nations whose economic policies were established in an atmosphere of centralized planning and control. According to 18th century Scottish economist Adam Smith, free market economies are based on a belief that permitting individuals to pursue their own self-interests will have the happy side effect of serving the interest of society as a whole. Friedman points to the development of the British economy during the 19th century and the Japanese economy in the 20th as examples of robust development that accompanied governmental decisions to allow the free market to operate. Where nations have adopted central planning policies instead of economic freedom, economic development has been considerably less than that in free market societies. Though central planning policies may be well intended, they inevitably retard economic progress. Dr. Friedman cites the case of India as a classic example of a nation that has great potential for economic development but, because it has chosen to rely upon centralized controls for organizing economic activities, its people have been relegated to an unnecessarily low standard of living. This program focuses on the case for free trade. If people are free to trade with whoever offers the most advantageous terms, resources will be used efficiently, and a higher standard of living will be realized. But free trade requires free and open competition. Many producers have advocated public policies to protect their businesses from competition in the name of “public interest.” Dr. Friedman warns us to be suspicious of public interest advocates, concluding that through their policies the special interests win at the expense of the rest of society.
Part 3: Anatomy of a Crisis
Between the Civil War and the Depression, laissez faire was the economic order of the day. But the Depression reversed public attitudes because it was viewed as a failure of capitalism. Many people were persuaded that free market capitalism was fundamentally unstable, that government must play a more active role, intervening to correct the instability of the system. This view of history still dominates popular belief and government policy. The Depression also prompted a dramatic shift in professional economic opinion — away from the long-held belief that monetary policy was a powerful instrument of economic policy to nearly the opposite view that “money does not matter.” The economics profession embraced the new theories of British economist John Maynard Keynes, who offered an appealing justification for extensive government intervention. According to Milton Friedman, the shift of both public and economic opinion “arose from the misunderstanding of what actually happened… the Depression reflected a failure of government, not free enterprise.” In particular, it was a failure of the Federal Reserve System to exercise its powers to halt the slide. The evidence is clear “that the Depression was produced — or at the very least made far worse — by perverse monetary policies followed by the U.S. authorities.” The irony, as Dr. Friedman explains, is that this crisis, which resulted from government failure, led to decades of government expansion.
Part 4: From Cradle to Grave
Since the Depression years of the 1930s, there has been almost continuous expansion of governmental efforts to provide for people’s welfare. First, there was a tremendous expansion of public works. The Social Security Act followed close behind. Soon other efforts extended governmental activities in all areas of the welfare sector. Growth of governmental welfare activity continued unabated, and today it has reached truly staggering proportions. Travelling in both Britain and the U.S., Milton Friedman points out that though many government welfare programs are well intentioned, they tend to have pernicious side effects. In Dr. Friedman’s view, perhaps the most serious shortcoming of governmental welfare activities is their tendency to strip away individual independence and dignity. This is because bureaucrats in welfare agencies are placed in positions of tremendous power over welfare recipients, exercising great influence over their lives. Because people never spend someone else’s money as carefully as they spend their own, inefficiency, waste, abuse, theft, and corruption are inevitable. In addition, welfare programs tend to be self-perpetuating because they destroy work incentives. Indeed, it is often in the welfare recipients’ best interests to remain unemployed. Dr. Friedman suggests a negative income tax as a way of helping the poor. The government would pay money to people falling below a certain income level. As they obtained jobs and earned money, they would continue to receive some payments from the government until their outside income reached a certain ceiling. This system would make people better off who sought work and earned income. This contrasts with many of today’s programs where one dollar earned means nearly one dollar lost in welfare payments.
Part 5: Created Equal
In this program, Milton Friedman visits India, the U.S., and Britain, examining the question of equality. He points out that our society traditionally has embraced two kinds of equality: equality before God and equality of opportunity. The first of these implies that human beings enjoy a certain dignity simply because they are members of the human community. The second suggests societies should allow the talents and inclinations of individuals to unfold, free from arbitrary barriers. Both of these concepts of equality are consistent with the goal of personal freedom. In recent years, there has been growing support for a third type of equality, which Dr. Friedman calls “equality of outcome.” This concept of equality assumes that justice demands a more equal distribution of the economic fruits of society. While admitting the good intentions of those supporting the idea of equality of outcome, Dr. Friedman points out that government policies undertaken in support of this objective are inconsistent with the ideal of personal freedom. Advocates of equality of outcome typically argue that consumers must be protected by government from the insensitivities of the free market place. Dr. Friedman demonstrates that in countries where governments have pursued the goal of equality of outcome, the differences in wealth and well being between the top and the bottom are actually much greater than in countries that have relied on free markets to coordinate economic activity. Indeed, says Dr. Friedman, it is the ordinary citizen who benefits most from the free market system. Dr. Friedman concludes that any society that puts equality ahead of freedom will end up with neither. But the society that puts freedom before equality will end up with both greater freedom and great equality.
Part 6: What’s wrong with our Schools?
Our schools are in trouble. Test scores are down. Costs are up. There is a growing conviction that American schools are not turning out youngsters who possess knowledge and skills needed by contributing members of society. Milton Friedman suggests that the crux of the schools’ problem is the erosion of parental control. Centralization has resulted in a gradual transfer of power from parents to professional school authorities. School bureaucracies, Dr. Friedman points out, often have goals far different from those of the parents of school children. They tend to be more concerned with job security and employment benefits than with quality education, though they may profess a primary concern for the latter. Dr. Friedman suggests that the market system could work in education. He recommends a “voucher” system. Under this plan, parents would be given vouchers in an amount equivalent to what typically is paid now to support one child for one year in the school. These vouchers could be “spent” at any school of the parents’ choice — wherever parents felt their children might receive the best education. This system would again actively involve parents in the educational process. Schools catering to diverse interests would grow up. There would be clear incentives for schools to concern themselves with the quality of education being provided. Dr. Friedman is also concerned about the inequity of public support for institutions of higher learning. He points out that young people who attend state colleges and universities are being subsidized with taxes collected from all the people, poor as well as rich. Yet, as a result of their subsidized education, these individuals will make higher than average incomes. Dr. Friedman suggests it would be more equitable if those who realize the benefits of education bear the costs.
Part 7: Who protects the Consumer?
Do consumers need protection? Increasingly the public answer to this question has been “yes.” Increasingly, too, the Federal government has been identified as the source of this protection. Milton Friedman disputes the views that (1) consumers are in dire need of governmental protection against the wiles of the business community and that (2) governmental actions tend to make consumers better off. He argues that consumers’ problems more frequently than not can be attributed to failures of government rather than to failures of free markets. The best protection for the consumer, in Dr. Friedman’s view, is the free market. Despite popular mythology, business interests do not have the power to make people purchase something they do not want. Consider, for example, the failure of the highly touted Edsel, a product that was heavily promoted by the best advertising brains at the Ford Motor Company and its advertising agencies.
When people have alternatives, they will not accept products they do not want. In a competitive market system, business people’s recognition that consumers have alternatives provides a powerful stimulus to keep product quality high. Fear of losing business to competitors provides a strong protective shield for the consumer. Armed with the protection offered by the free market, the consumer, says Dr. Friedman, really needs very little protection by the government. Indeed, many government attempts to protect consumers have made them worse off than they were before.
Part 8: Who protects the Worker?
Naturally, workers are concerned about wages, fringe benefits, and job security. Many people feel vulnerable, at the mercy of the “system.” One response has been the development of a variety of unions, professional organizations, and other groups dedicated to looking after the interests of members. There is evidence that working people have made significant progress over the past two centuries. In the United States, each succeeding generation has enjoyed a higher standard of living than the previous generations. What accounts for this improvement — unions? The government? Or is there an alternative explanation? Unions claim to have raised wages of all workers – members and nonmembers – through their collective bargaining efforts. But analyses reveal that whereas some unions have raised wage levels of their own members, these increases have come at the expense of nonunion workers. Unions have also suggested that their concerns center on the lowest paid workers in our society. But Dr. Friedman points out that the most successful unions are those whose members are highly skilled workers. The airline pilots union is a notable example. Union efforts to secure wage increases for unskilled laborers have not been notably successful. Some have argued that workers have gained great benefits from actions of the government. But many governmental actions have had negative effects. Rules and regulations have increased employers’ costs and reduced demand for workers. In particular, minimum wage laws have reduced the amount of unskilled labor employed. Milton Friedman points out that one unfortunate, and quite unintended, consequence of minimum wage legislation has been to worsen the employment position of young blacks, including many unskilled laborers whom employers cannot afford to train at high minimum wage rates. In the final analysis, the best protection for the worker is neither unions nor government. Rather, it is the existence of other employers willing to compete for services of skilled individuals.
Part 9: How to cure Inflation
While many people have a fairly good grasp of what inflation is, few really understand its fundamental cause. There are many popular scapegoats: labor unions, big business, spendthrift consumers, greed, and international forces. Dr. Friedman explains that the actual cause is a government that has exclusive control of the money supply. Friedman says that the solution to inflation is well known among those who have the power to stop it: simply slow down the rate at which new money is printed. But government is one of the primary beneficiaries of inflation. By inflating the currency, tax revenues rise as families are pushed into higher income tax brackets. Thus, inflation transfers wealth and resources from the private to the public sector. In short, inflation is attractive to government because it is a way of increasing taxes without having to pass new legislation to raise tax rates. Inflation is in fact taxation without representation. Wage and price controls are not the cure for inflation because they treat only the symptom (rising prices) and not the disease (monetary expansion). History records that such controls do not work; instead, they have perverse effects on both prices and economic growth and undermine the fundamental productivity of the economy. There is only one cure for inflation: slow the printing presses. But the cure produces the painful side effects of a temporary increase in unemployment and reduced economic growth. It takes considerable political courage to undergo the cure. Friedman cites the example of Japan, which successfully underwent the cure in the mid-seventies but took five years to squeeze inflation out of the system. Inflation is a social disease that has the potential for destroying a free society if it is unchecked. Prolonged inflation undermines belief in the basic equity of the free market system because it tends to destroy the link between effort and reward. And it tears the social fabric because it divides society into winners and losers and sets group against group.
Part 10: How to stay Free
The Great Depression of the 1930s changed the public philosophy regarding the appropriate role of government in American life. Before the Depression, government was not assumed to have special responsibilities for individual or business welfare. The severity of the economic tragedy of the 1930s resulted in a dramatic change in public attitudes. Many believed the Depression represented a “failure of capitalism.” Because of this alleged failure, government has ever since been expanding its power and the scope of its control. Government growth has resulted in waste, inefficiency, and a loss of personal freedom. Intended to serve the interests of the people, many governmental programs have been revealed to serve primarily the interests of the bureaucrats. Many government programs serve at cross purposes. For example, different agencies attempt, on the one hand, to discourage use of tobacco as potentially dangerous to good health and, on the other hand, to encourage production of tobacco through subsidies to tobacco farmers. The list of government inconsistencies and inefficiencies goes on and on. Dr. Friedman, however, says that there is reason for optimism. Today, he notes, the public is better informed about these matters and is increasingly willing to take a stand against further unnecessary expansion of government services. He suggests the most fruitful approach is to remove discretionary budget power from the government. Friedman favors passage of a Constitutional amendment limiting the government’s budget and forcing government to work within that budget. But this is only the first step. As Dr. Friedman points out, “What we need is widespread public recognition that the central government should be limited to its basic functions: defending the nation against foreign enemies, preserving order at home, and mediating our disputes. We must come to recognize that voluntary cooperation through the market and in other ways is a far better way to solve our problems than turning them over to the government.”