Milton Friedman, world renowned economist and champion of political and economic freedom passed away this afternoon. He will be missed.
We never met Mr. Friedman, but we took an economics course from one of his former students while at Brigham Young University. His course was heavily influenced by the Chicago School of economic thought and many of his ideas about markets influence the editorial opinion of this blog. We are incredibly grateful to our econ professor and Mr. Friedman.
In light of the debates about redistribution of wealth we thought it would be worthwhile to reproduce selections from some of Mr. Friedman’s influential contributions to economics. (hat tip: WSJ)
**Update: Scroll to the end for video footage of Milton Friedman teaching economics, and more.
[A free economy] gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself.
The existence of a free market does not of course eliminate the need for government. On the contrary, government is essential both as a forum for determining the “rules of the game” and as an umpire to interpret and enforce the rules decided on. What the market does is to reduce greatly the range of issues that must be decided through political means, and thereby to minimize the extent to which government need participate directly in the game. The characteristic feature of action through political channels is that it tends to require or enforce substantial conformity. The great advantage of the market, on the other hand, is that it permits wide diversity. It is, in political terms, a system of proportional representation. Each man can vote, as it were, for the color of tie he wants and get it; he does not have to see what color-the majority wants and then, if he is in the minority, submit.
It is this feature of the market that we refer to when we say that the market provides economic freedom. But this characteristic also has implications that go far beyond the narrowly economic. Political freedom means the absence of coercion of a man by his fellow men. The fundamental threat to freedom is power to coerce, be it in the hands of a monarch, a dictator, an oligarchy, or a momentary majority. The preservation of freedom requires the elimination of such concentration of power to the fullest possible extent and the dispersal and distribution of whatever power cannot be eliminated — a system of checks and balances. By removing the organization of economic activity from the control of political authority, the market eliminates this source of coercive power. It enables economic strength to be a check to political power rather than a reinforcement.
The two ideas of human freedom and economic freedom working together came to their greatest fruition in the United States. Those ideas are still very much with us. We are all of us imbued with them. They are part of the very fabric of our being. But we have been straying from them. We have been forgetting the basic truth that the greatest threat to human freedom is the concentration of power, whether in the hands of government or anyone else. We have persuaded ourselves that it is safe to grant power, provided it is for good reasonsâ€¦
We have persuaded ourselves that it is safe to grant power, provided it is for good reasons. Fortunately, we are waking up. We are again recognizing the dangers of an overgoverned society, coming to understand that good objectives can be perverted by bad means, that reliance on the freedom of people to control their own lives in accordance with their own values is the surest way to achieve the full potential of a great societyâ€¦
When the law contradicts what most people regard as moral and proper, they will break the law — whether the law is enacted in the name of a noble ideal … or in the naked interest of one group at the expense of another. Only fear of punishment, not a sense of justice and morality, will lead people to obey the law. When people start to break one set of laws, the lack of respect for the law inevitably spreads to all laws, even those that everyone regards as moral and proper – laws against violence, theft, and vandalismâ€¦
Self-interest is not myopic selfishness. It is whatever it is that interests the participants, whatever they value, whatever goals they pursue. The scientist seeking to advance the frontiers of his discipline, the missionary seeking to convert infidels to the true faith, the philanthropist seeking to bring comfort to the needy — all are pursuing their interests, as they see them, as they judge them by their own values.
On the Bush Tax Cuts
The tax cuts did favor the rich because the top 1% of taxpayers pay a disproportionate amount of taxes. You can’t give tax relief to those who don’t pay a lot of tax. This is not a bad thing. What in fact do the rich do with their money? They can only consume a limited amount. In practice they end up either investing it or giving it away.
Some people say that those in the middle and low tax brackets are more likely to spend any tax relief they get, giving the economy a stimulus.
Well, that’s a different argument and I do not accept it. It’s very dubious. The tax cut may lead people to spend more, but that is offset by those who have less to spend because they buy the bonds to finance the deficit. In my opinion, we had a mild recession not because of the tax cuts but because of the Fed. Its expansionary monetary policy is the primary reason for the shallow recession. I do not believe that fiscal policy played a big role.
My support for tax cuts is not only on the supply side. I think the real problem is government spendingâ€¦ Where did you get the Clinton surpluses? They were the result of less legislation and less spending. When that gridlock was broken, many items had accumulated on the agenda and were put through.
I have sometimes been associated with the aphorism “There’s no such thing as a free lunch,” which I did not invent. I wish more attention were paid to one that I did invent, and that I think is particularly appropriate in this city [Washington], “Nobody spends somebody else’s money as carefully as he spends his own.” But all aphorisms are half-truths. One of our favorite family pursuits on long drives is to try to find the opposite of aphorisms. For example, “History never repeats itself,” but “There’s nothing new under the sun.” Or “look before you leap,” but “He who hesitates is lost.” The opposite of “There’s no such thing as a free lunch” is clearly “The best things in life are free.”
And in the real economic world, there is a free lunch, an extraordinary free lunch, and that free lunch is free markets and private property. Why is it that on one side of an arbitrary line there was East Germany and on the other side there was West Germany with such a different level of prosperity? It was because West Germany had a system of largely free, private markets – a free lunch. The same free lunch explains the difference between Hong Kong and mainland China, and the prosperity of the United States and Great Britain.
**Update: A few video links of Mr. Friedman explaining economic principles. (hat tip: Mary Katharine Ham)
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