Capitalism and Freedom is a book by Milton Friedman originally published in 1962 by the University of Chicago Press which discusses the role of economic capitalism in liberal society. It has sold more than half a million copies since 1962 and has been translated into eighteen languages.
Friedman argues for economic freedom as a precondition for political freedom. He defines "liberal" in European Enlightenment terms, contrasting with an American usage that he believes has been corrupted since the Great Depression.
The book identifies several places in which a free market can be promoted for both philosophical and practical reasons. Among other concepts, Friedman advocates ending the mandatory licensing of physicians and introducing a system of vouchers for school education.
Contents
Context
Capitalism and Freedom was published nearly two decades after World War II, a time when the Great Depression was still in collective memory. Under the Kennedy and preceding Eisenhower administrations, federal expenditures were growing at a quick pace in the areas of national defense, social welfare, and infrastructure. Both major parties, Democratic and Republican, supported increased spending in different ways. This, as well as the New Deal, was supported by most intellectuals with the justification of Keynesian economics. Capitalism and Freedom introduces the idea of how competitive capitalism can help to achieve economic freedom.
The book drew inspiration from a series of lectures Friedman gave in June 1956 at Wabash College.
Chapter summaries
Introduction
The introduction lays out the principles of Friedman's archetypal liberal, a man who supports limited and dispersed governmental power. Friedman opts for the continental European, rather than American, definition of the term.
i. The Relation between Economic Freedom and Political Freedom
In this chapter, Friedman promotes economic freedom as both a necessary freedom and also as a vital means for political freedom. He argues that, with the means for production under the auspices of the government, it is nearly impossible for real dissent and exchange of ideas to exist. Additionally, economic freedom is important, since any "bi-laterally voluntary and informed" transaction must benefit both parties to the transaction. Friedman states that economic freedom protects minorities from discrimination since the market is apathetic to "their views or color".
ii. The Role of Government in a Free Society
According to the author, the government of a liberal society should enforce law and order and property rights, as well as take action on certain technical monopolies and diminish negative "neighborhood effects". The government should also have control over money, as has long been recognized in the constitution and society.
iii. The Control of Money
He discusses the evolution of money in America, culminating in the Federal Reserve Act of 1913. Far from acting as a stabilizer, the Federal Reserve failed to act as it should have in several circumstances. Friedman proposes that the Federal Reserve have a consistent rule to increase the money supply by 3–5% annually.
iv. International Financial and Trade Arrangements
This chapter advocates the end of the Bretton Woods system in favor of a floating exchange rate system and the end of all currency controls and trade barriers, even "voluntary" export quotas. Friedman says that this is the only true solution to the balance of trade 'problem'.
Influence
The effects of Capitalism and Freedom were great yet varied in the realm of political economics. Some of Friedman's suggestions are being tested and implemented in many places, such as the flat income tax in Estonia (since 1994) and Slovakia (since 2004), a floating exchange rate which has almost fully replaced the Bretton Woods system, and national school voucher systems in Chile (since 1981) and Sweden (since 1992), to cite a few prominent examples. However, many other ideas have scarcely been considered, such as the end of licensing, and the abolition of corporate income tax (in favor of an income tax on the stock holder). Though politicians often claim that they are working towards "free trade", an idea the book supports, few American politicians have considered taking his suggestion of phasing out all tariffs in 10 years. Nevertheless, Friedman popularized many ideas previously unknown to most outside economics. This and other works helped Friedman to become a household name. The Times Literary Supplement called it "one of the most influential books published since the war".
Capitalism and Freedom, along with much of Friedman's writing, has influenced the movement of libertarian philosophy in America. Friedman's philosophy of economic and individual freedom has coincided with the emergence of political parties that have declared alignment with Friedman's ideas, such as the Libertarian Party.
Capitalism and Freedom made the Intercollegiate Studies Institute's 50 Best Books of the 20th Century Archived August 1, 2018, at the Wayback Machine and also was placed tenth on the list of the 100 best non-fiction books of the twentieth century compiled by National Review. In 2011, the book was placed on Time magazine's top 100 non-fiction books written in English since 1923.