Capitalism and Freedom

Eighteenth and Nineteenth centuries witnessed many revolutionary acts that left their trace in history. During these times, economic terms were redefined, roles of public and private sector were reassigned and economies worldwide underwent great changes. People started to enhance freedom and to look at it from different perspective. In his book, Capitalism and Freedom, Milton Friedman introduced his theories by how they are seen by a free man: “ To the free man, the country is the collection of individuals who compose it, not something over and above them… he regards government as a means, an instrumentality, neither a grantor of gifts, nor a master or god to be blindly worshiped and served”. In other words, a free man works besides the government and not below it, he aims to achieve and proceed through the authorities and not to be condemned by them. Friedman also considered that the concentration of power through government constitutes a threat to freedom. Thus, in order to protect freedom of speech, religion and thought, the scope of government must be limited through the cooperation with the private enterprise and the government power must be dispersed. In this way, the social climate will be one that induces variety and diversity, it will be one that provides opportunities and new frontiers to success. Once this is said, we can now proceed and examine Friedman’s most important theories: economic and political freedom, role of government, fiscal policy, distribution of income and many more.

People believe that an intimate and close connection exists between economics and politics but what about economic freedom and political freedom? Economic freedom is the freedom in arrangement and the establishment of free markets, in other words it is the development of capitalist institutions. So, political freedom came along with economic freedom. But in the other hand, history suggests that it is possible to have capitalist economic arrangement in a politically tied country. Thus, capitalism is a necessary condition for political freedom but not a sufficient condition. However, Bentham and the Philosophical Radicals regard political freedom as a means to economic freedom. In this context, history shows that when politicians shaped the Laissez faire concept an increase in well-being emerged. Also, one remarkable historical event that cannot be disregarded when examining economic and political freedom is the world war, both of them actually. These wars caused great shifts in economics where collectivism emerged and the game was reversed: economic freedom became a means to political freedom. Later, in the healing process from the devastating wars, many democratic countries tempted to reduce reliance on government intervention and emphasized private market. It is important to highlight that these countries knew an elevated social welfare compared with other socialist countries. One simple and straightforward example is the comparison between western and eastern Germany where it is obvious that West Germany enjoyed economic comfort and wealth that outweighed East Germany. The capitalist Germany also enjoyed better football! To summarize, we notice that there wasn’t one clear and consistent relation between economic and political freedom but a relation existed for sure. Many argued that what specifies this relation is ethics where the extent of responsibility of individuals in a free economy was questioned. People were considered as imperfect beings that implied a basic problem of social organization it is “how to coordinate the economic activities of large number of people”. Well, capitalists found the solution by introducing the division of labor and specialization but unfortunately they had to reconcile interdependence in production with individual freedom. But wait! This was also settled by exchange in competitive markets. So, among the two systems, socialism and capitalism, the latter was able to present solutions while the former wasn’t. Capitalism was also able to preserve political freedom where the impersonal market was able to separate economic activities from political views and put an end to discrimination.

Capitalists also set the role of government in their system. Since the market is a system of proportional representation, political channels are required to enforce substantial conformity. So, government was called to establish law and order and reconcile the differences and conflicts between the players in the market. Unanimity was obviously unattainable so a majority rule came into the picture. Of course, this rule was flexible depending on the kind of issue. So, different issues required different majorities. Government was called to settle conflicts in men’s freedom where it was agreed that “one man’s freedom must be limited to preserve another’s”. Once we agreed on the role of government, now we should agree on the appropriate activities that it should perform while serving its role. For example, how property rights should be handled and the proper monetary system that should be adopted. Government had to prevent coercion. It also had to fight monopolies and neighborhood effects and protect the irresponsible (children and madmen). However, it is also believed that government dominated many activities by tariffs, rent control, regulation of industries and technical monopoly in telephone services. This leads us to question the feasibility of a system where the protector is corrupt himself! Government role covered fiscal policy as well. In this context, government was expected to eliminate unemployment or at least decrease it. In fact, the government did raise its expenditures but failed to overbear unemployment and it ended up in huge deficits. As a solution, securities were issued so that the deficit would be financed, unemployment problem would be solved and people would be able to save. However, this solution was discredited not only by theoretical analysis but also by experience. So, the government tried one last shot by making its expenditures a balance wheel: whenever private expenditures decline, the government should raise its own expenditures and vice versa. Unfortunately, it turned out that “the balance wheel is unbalanced” as stated Friedman. The reason is that the pace at which spending take place is not matched by an equal pace to revoke them when the recession is over. In the other hand, it makes no sense to jeopardize a healthy expansion by cuts in government expenditures. Friedman considered that a solution lies in the taxing system instead. He argued that “taxes can be lowered during recessions and raised during expansions”. Personally, I think that he totally makes sense in this point where government gets to avoid falling in deficit.

On a more personal level, Friedman tackled the ethics of distribution of income. Collectivists had an ultimate goal: equality of income, which they worked on promoting. However, a normal and rational person would ask: “what is the justification for state intervention to promote equality? And does these measures have positive impacts?” What collectivists didn’t understand that in order for people to get equal wages they need to have equal abilities in the first place. And since every person is unique, the equality in abilities is impossible and unrealistic which means that equality in income is unfair. A capitalist justifies the distribution of income by “To each according to what he and the instruments he owns produce”. It means that he won’t pay everyone equally but he is treating them equally in terms of the payment procedure. So, ethically speaking, Capitalists as usual are in a more potential position. In a more practical sense, people make choices based on their preferences and tastes. Some are risk lovers so they invest in accordance with their taste for uncertainty; others are risk-averse so they stay on the safe side and avoid risky opportunities. In other words, what we should understand is that “inequality may be the result of arrangements designed to satisfy men’s tastes”. Risk lovers people may win a lot or lose a lot and responsible people they will have to deal with all the consequences: they may be very wealthy which they deserve for being brave and engaging in risky activities, or they may be very poor which they have to accept for engaging in risky activities. Risk-averse people chose their own destiny and should accept getting paid a low wage compared with the lucky and wealthy risk lovers. So, as Freidman said, “inequality resulting from differences in personal capacities, or from differences in wealth accumulated by the individual in question, are considered appropriate”.

Many more conflicting issues need to be discussed and examined closely. Most of the times the issues rotating about individuals and their well-being are the most debatable ones. In this paper, only few issues were discussed broadly, but the bottom line is that all the conflicts and problems start with the different perspectives capitalists and socialists have. Perhaps, the cause of this endless war between the two parties is one word: liberalism. Capitalists considered it as “private voluntary arrangements” to achieve personal and social welfare; but socialists considered it as readiness to rely mainly on the state to achieve “equality”. This change in the meaning caused a big controversy: should centralized power be in the hands of government or private institutions? So, the term “liberalism” became corrupted and is more labeled to conservatism which was supposed to be in people’s favor. But, empirical evidence showed that the system caused even further corruption and inequality. At the end, allow me to conclude that capitalism might be corrosive, unfair, evil, an exploiting system to the poor but communism is definitely not the alternative where people will get to live happily ever after!


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