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October 22nd, 2009 Posted in Economics, US Politics by

friedmanMilton Friedman was a Nobel Prize winning economist and economic historian, associated with the Department of Economics at the University of Chicago, and was most famous as a ‘Monetarist’.  That is someone who regards the control of the money supply at a very constant, and slow, rate of increase, as central to controlling inflation, and for establishing the best framework for economic growth. He put this in the context of limited government, which establishes a framework for the market, rather than intervening in the market.

He explained his political ideas and public policy suggestions in Capitalism and Freedom, a book advocating a liberalism based on markets, individualism and limited government.     Friedman was not just concerned with business interests, criticising businesses strongly for their activities in trying to rig markets and influence the political process.  As Friedman points out, income inequality is greatest in those countries where the state is most inclined toward economic privileges for powerful interests.    Even in better governed countries, many schemes to help the poorest, and redistribute income, are counter productive. High income tax rates on high earners blocks entry to higher income groups, because it reduces the incentives to  earn income at that level, so the effect is to keep the same people rich.

Similar effects have come from efforts to improve the conditions of the poorest through minimum wages.  These have the effect of improving the income of some low earners, but the overall effect is to keep lower earners out of work as it is less economically viable for employers to hire them.  Friedman warned of the tendencies to bad and counter-productive effects where interventionism goes beyond very modest goals, and very simple methods.  The basis for legitimate interventionism is explained with reference to ‘neighbourhood effects’, in a negative sense, as a label for the impact of individual actions on a locality (or any general group of individuals), where it is very difficult to work out how everyone affected could be individually compensated through the law courts.  There are ‘neighbourhood effects’ in a positive sense when public policy provides something which brings great benefits to most people, and where it would be difficult in practice to charge individuals.  Pollution is an obvious example for Friedman of negative ‘neighbourhood effects’, and city parks are an example of a positive ‘neighbourhood effect’ following from public policy.

Friedman thought that it was a legitimate state activity to alleviate poverty through funds collected by taxation, but that the these efforts should remain simple and direct rather than becoming an element in a variety of schemes, with more than one gaol.  An example of the latter approach is Social Security in the United States, which compels everyone to contribute to a state old age pension fund.  One defence of this program is that it ensures a minimum living standard for the poorest on retirement.  Friedman’s response was that alleviating the poverty of the poorest retired could be done without such a big bureaucratic scheme, which takes away individual responsibility and choice.  Social Security both forces individuals to contribute a certain amount to old age, and to contribute that money to a state fund only, when we should all be free to exercise individual choice on these matters.

Concerns with simplicity and limited gaols led Friedman to suggest a combined program of flat tax, and negative income tax, as a means of funding the state and alleviating poverty.  Flat tax means setting one rate of income tax only at a high threshold, and with very few tax deductions allowed.  He argues that this will raise as much money as a multi-rate tax system, if the flat rate is set at just above the minimum rate in the previous system and well above the income threshold in the previous system.  It will also reduce incentives to find ways to avoid taxation; and reduce the size, and expense, of government tax raising bureaucracies.  This can be combined with a ‘negative income tax’ in which the lowest earners, and those on no income, receive money from the state sufficient to guarantee a basic income. This is contrasted with rent controls and public housing as means of assisting the poorest.  Rent control reduces incentives to rent out homes, and build homes for rent.  It makes housing cheaper for some people, while reducing the amount and quality of housing, particularly for the poorest.  Public housing groups together the poorest, inevitably therefore grouping together that section of the poorest who are poor because of family and psychological problems, creating a concentration of dysfunctional people and a very negative environment, inadvertently creating a negative version of the ‘neighbourhood effect’.

The best way of improving the educational chances of the poorest is to give everyone vouchers for purchasing education, enabling everyone to have choice, and not just those rich enough to afford private education out of post-tax income.  In general, liberty and prosperity for everyone, including the poorest, increases in a society with clear property rights defined by the state; and which avoids measures of price or wage control, economic subsidies and tariffs, as these all harm overall economic efficiency, along with individual freedom.

14 Responses to “MILTON FRIEDMAN (1912-2006), CAPITALISM AND FREEDOM (1962)”

  1. Ziggy's Current Take On The Lib Dems Says:

    Milton Friedman publically endorsed legalizing drugs

    JHmm Mr Littlewood could learn something from Milt’s lead

  2. Mark Littlewood Says:

    Just for the avoidance of doubt here, and to directly address Ziggy’s singular (and rather bizarre) obsession about my stance on the issue, I should make it plain that I am against the war on drugs and have been so for my entire adult life.

    There’s a different issue of course about how much time and effort Liberal Vision should spend on the drugs debate. My own view, for a wide range of reasons, is “not much”. This is because across the gamut of lifestyle issues, the LibDems are at least a bit more liberal than the government on the drugs issue (although not liberal enough). Whereas on smoking, drinking, gambling, airbrushing photos etc., the party has not adopted a liberal stance (and in some cases actually argues for the law to be less liberal, rather than more). Additionally, the drugs issue isn’t a live issue in mainstream media/political discourse. Perhaps it should be, but it isn’t.

    My strategy might be wrong, of course. But I don’t think anyone could say it’s unfounded.

    Of course, it’s important to distinguish between a strategy and a policy. Ziggy seems incapable of separating the two, thereby leading him to the erroneous and (for him) rather embarrassing conclusion that I’m sort of enthusiast for the continued criminalisation of drugs.

  3. Ziggy's Current Take On The Lib Dems Says:

    Mark smoking & drinking are still legal but smoking marijuana isn’t. You can still spark up a ciggie in your own house without being labelled a criminal but where as anytime I spark up a spliff I’m running the risk of being criminalized.

    You could have had me advocating on the issue of marijuana legalization whilst you could bang on about smoking & drinking. But you didn’t even want Liberal Vision to support medical marijuana & that’s why I walked away from Liberal Vision & why I’ve been belligerent towards you. Yeah compassionate of you Liberal Vision is prepared to advocate that you can smoke & drink yourself silly but we too scared of the voters of Tonbridge Wells to advocate that anybody in pain should be proscribed marijuana to ease that pain. By the way did it ever occur to you that I’m a user sure it use be recreational but its definitely now medicinal.

    You know the dealer I score off could end up in stir for a long stretch & well don’t we have a bit of problem currently with public spending so don’t you think locking up people for selling drugs is well not being fiscally responsible as well as inhumane. I don’t see people selling aspirin going to prison nor have turf wars. I could go on but you know all the arguments & you know the issue isn’t just about my right to get high & you know the war on drugs needs to come to an end. But until Liberal Vision says it loud, proud & in neon then you’ll have nothing but my distain for being more interested in the voters of Middle England then being prepared to say what needs to be said.

    There are many issues Mark I’m prepared to compromise on or keep my mouth on but this isn’t one of those issues because it’s an issue which personally affects me.

  4. Link: Me on Milton Friedman, ‘Capitalism and Freedom’ « Stockerblog Says:

    […] Milton Friedman (1912-2006), Capitalism and Freedom (1962) at LiberalVision, 23 October 2009. […]

  5. Julian H Says:

    Ziggy, Liberal Vision doesn’t have collective views on specific policies (see FAQ on this page).

    I support the complete legalisation of all drugs.

  6. Angela Harbutt Says:

    I dont know of anyone in Liberal Vision who is not against the war on drugs – though there may be – I just dont know who. That is wholly different from banging on about it tirelessly – and somewhat boringly. For information, the issue of the was raised at our fringe meeting on Prohibition at this years Lib Dem conference – and discussed freely and for some considerable time at the post-discussion party afterwards. I also see no reason why we should not or would not raise the issue of pointless war on drugs at a Lib Dem fringe at an appropriate time.
    I believe this view to be shared by many of my collegues who write for Liberal Vision.

    What I dislike and will stand up to is being bullied or cowed into covering an issue because one person thinks its the most important thing to tackle now and takes it upon himself to make it a personal vendetta against one of our contributors.

    If every time Julian wrote a piece on the world trade I launched a personal attack on him about why he was writing about Africa rather than focusing on the issue of human rights in the UK I think he – and anyone else reading these posts – would get very irritated very soon.

    Every indidivual has every right to create their own dedicated site on any issue they feel strongly about – such as the legalisation of drugs – and I am pretty sure that none of us would have any qualms pointing to such posts were they well articulated and had something new and interesting to say.

    We have enough on our plate fighting the bully state on every front without silly, personal and unpleasant attacks on individuals.

  7. Angela Harbutt Says:

    Sorry – I also meant to say – really interesting article Barry. Thank you.

  8. Gandhi Says:

    Yerrrrs, more Friedman fawning, ZZZzzzzzz.

    You might like this:

  9. Ziggy's Take On Nick Griffin's Appearance On QT Says:

    Angela give up trying to get rid of me because the more you try the more I’ll charge particularly as Liberal Vision is supposedly meant to represent the classical liberal point of view as in the view of greater individual freedom you all seem to be very selective about what individual freedoms your prepared to shout for & you don’t like me reminding you of that. I think Mark will find that there are folk with similar if not stronger points of view to my own this weekend at the LA Conference, tell me are they also waging a vendetta against Mark for being a f**king two faced creep.

  10. Adam Smith Says:

    A great Liberal. The inspiration for those other great Liberals Ronald Reagan and Margaret Thatcher.

  11. Mark Littlewood Says:

    @ Adam Smith. What a completely extraordinary misunderstanding of modern Western politics and economics.

    @ Ziggy. The personal attacks are becoming a bit tiresome now. You’ve already wrongly said that I don’t support “medical marijuana”. Whereas (and after a while, this becomes boring folks…) I actually favour the legalisation of heroin entirely for recreational purposes. I’m confident that you won’t find many – if any – people at the LA Conference this weekend accusing me of being “a fucking two faced creep”. But, in any event, I will argue my case to the best of my ability, try my damndest to explain what I think libertarians should do and will treat everyone there with respect. What you won’t find me doing is hurling personal bile and abuse at other libertarians, even if I disagree with some of them on some points. Neither will I have the arrogance to tell other people what it is they should “shout for”.

  12. Ziggy Says:

    I think you going to get tough questions on why you’re pro Europeanwhich ironically its an issue I agree with you on. But I think you’re get tough questions on other issues because I know there are other libertarians who are not impressed with Liberal Vision.

  13. Mark Littlewood Says:

    Well, I welcome tough questions. I’m persuadable if I reckon the questioner has a better case than me.

    What I don’t welcome is petty, juvenile, personal abuse. I’m fairly confident there won’t be much of that.

  14. Barry Stocker Says:

    Thanks Angela, I’ve only just checked comments, because I was looking for news about Marks IEA appointment, which is great news, though some regrets on his departure from party politics.

    I suppose ‘Adam Smith’ is trolling but here are some reasons why Reagan/Thatcher were not Friedmanite liberals, for the sake of keeping some clarity about the limits of certain conservative governments which gesture towards classical liberalism/libertarianism. They did no more than take a few small steps in the right direction economically, and balance this with social and national conservatism, and its not such a great record. Good at improving economic growth, but within a renewed corporatist structure.

    1. Did not substantially reduce the role of the state, I suppose if you wanted to be kind you could say they were unable to put into practice what they really wanted to do. I don’t know about their inner intentions, anyway government leaders are responsible for what governments do, and those governments did some restructuring of the corporatist state, with some changes at the margins which were ‘Friedmanite’ as far as they went.
    2. Were not for open borders on immigration. I remind everyone of Thatcher’s 79 remarks about being swamped
    3. Continued criminalisation of recreation drugs, hard and soft, and ramped up a ‘war on drugs’ in Reagan’s case,
    4. I haven’t seen Friedman’s views on censorship of pornography/obscenity, but i strongly doubt he would have approved of the Reagan/Meese war on obscenity.
    5. They did not introduce flat taxes, and did not act decisively against the Byzantism of tax exemptions and allowances, and while it’s true both reduced top rate taxes, cuts had been made by previous Democrat administrations in the US.
    6. Neither made any moves to abolish compulsory pension/social security deductions, or to replace a complex system of welfarism with a simple cash benefit system.
    7. Both engaged in outrageous corporate welfarism via Reagan’s military build up, Thatcher’s ‘batting for Britain’ etc etc
    8. They very certainly did not move towards negative income tax/universal basic income.
    9. Following on from 5, a lot of ‘Reaganomics’ including the appointment of Paul Volcker (a Democrat), and various acts of deregulation as chair of the Federal Reserve was initiated by Jimmy Carter. Peanuts as libertarian hero?
    10 Listen to Friedman himself on how disappointed he was that his ideas had so little influence, hardly a ringing endorsement of Thatcher and Reagan 2 podcasts of Russ Roberts, an ex student, in conversation with the great man. Also a great series of podcasts in general, essential listening.