Milton Friedman And Free-Market Capitalism Essay, Research Paper
Milton Friedman and Free-Market Capitalism
Milton Friedman is known worldwide for his belief in defending free-market capitalism and his faith that it can proficiently and impartially distribute wealth throughout a nation. Most of Friedman?s peers are not able to put that same amount of confidence in the ability of the market as he. Friedman has suspicions of government interference in the business of a nation?s economy. These suspicions are based on his belief in a limited government and that a capitalist economy free of government interference would provide the best choices for a consumer. Instead of being so involved in the market, he believes that the government has a responsibility to keep a high standard of living through certain functions like defense, education, and public utilities and set certain laws regarding economic policy in order to keep in check the ?game? of economics. (Friedman 25) Friedman suggests that the government pass ?a legislated rule instructing the monetary authority to achieve a specified rate of growth in the stock of money.? (Friedman 54) Besides serving this purpose, Friedman believes the government?s interference is detrimental.
Friedman?s Suspicions of Government Interference
The United States government portrays the idea that without government intervention, society?s economic growth would stagger. According to Friedman, economic growth and stability are due to the reduction of government interference. Friedman has many reasons for why he believes that government interference in the economy is not good. He believes that the government creates monopolies and impedes on personal freedoms and liberties. He argues that although the government has to take care of basic essentials of its people, it should have as small a role as possible. Friedman?s attitude is similar to that of Adam Smith, who believed in Laissez-faire, a capitalistic economy free of governmental restrictions and regulations. Smith also believed that the government was supposed to promote well-being not to sustain or accelerate economic growth. (Heilbroner & Milberg 117)
?Monopoly implies the absence of alternatives and thereby inhibits effective freedom of exchange.? (Friedman 28) Monopolies upset the balance of an effective economy. Friedman argues that through federal programs, the government has initiated the establishment of monopolies.
One such federal program that, in Friedman?s opinion, has brought about the advancement of monopoly is the Interstate Commerce Commission (ICC). It was established to protect the railroads and the public from exploitation. (Friedman 29) This meant that the government had control over interstate commerce. In recent years it has protected the railroad industry from truck companies and other transport means. There was too much regulation for the good of the railroad company. Free competition was not allowed, and Friedman argues that ?if railroads had never been subjected to regulation in the United States, it is nearly certain that by now transportation?would be highly competitive industry with little or no remaining monopoly elements.?(Friedman 29)
In the past, national employment rate and economic growth statistics have provided sufficient rationalization for the government?s expanding role in economic affairs. However, by broadening its control, the government has exercised its power poorly by misdirecting resources and mismanaging public investments. In placing tariffs on both imports and exports, imposing high tax burdens on different industries and individuals, rent control, licensure programs, establishing minimum wage, and creating governmental agencies such as the US Postal Service and the National Park, the government has overstepped its boundaries and impaired the US economy.
These practices may not seem harmful, but under closer scrutiny it is revealed that placing tariffs and taxes and fixing a minimum wage creates unmerited inflation. By instituting rent control, landlords face ceilings, which impede on how much profit they can make off of their property, thus diminishing the capitalist system. Governmental agencies such as the US Postal Service and National Park Service are nothing more than monopolies. Under the law, no one but the federal government can deliver the mail. Also, not many realize that only the government can collect money for visiting a park, thus causing monopolies.
Friedman?s Methods on how Quality of Goods and Services Should be Insured
Friedman does not believe in licensure and monopolistic practices. He believes that these governmental actions are detrimental to the quality of goods and services. The lack of competition gives the producer no incentive to create the highest quality product possible. Licensure laws try to eliminate low quality goods and services, but in actuality they are working in reverse. They limit the amount of people that can do certain jobs, which in turn lowers competition, and promotes shoddy goods and services. Monopolies do the same thing, lower competition that in turn lowers quality. Friedman?s solution is to end licensure practices and monopolies. In doing this the consumer can decide what company or individual has the highest quality service, not the government. With raised competition there will be a huge incentive to have the best product or service. (Friedman 137-160)
Samuel Bowles? View of the Market
Samuel Bowles is an economic philosopher whose liberal views on the market are practically opposite to those of the Milton Freeman. Whereas Friedman?s conservative views would say that governmental intervention was would make the market fail, Bowles would rather find a balance between the centralized planning of government and the competitive markets of our society. Bowles believes that the government and the economy are irrevocably intertwined. Bowles argues:
Markets are political because contracts are incomplete. And where contracts are incomplete, what actually gets transacted cannot be enforced by a court of law; rather, the de facto terms of exchange are fought out between the exchanging parties. This is the reason why markets are political. (Bowles 13)
Bowles says that when unregulated, certain markets tend to lose control and collapse, ?Policy response to a market failure depends critically on the extent to which the relevant governmental agencies may be relied on to intervene.? (Bowles12) In other words, the government should intervene to make sure the laws are being obeyed and contracts are being enforced. Friedman wanted this too but to a lesser degree.
Different Views of Economists
There are two main types of economists, the Neoclassical and Keynesian. Divided amongst them are radical and the institutional. Radical economists believe in more governmental influence than institutional, and are very concerned with distribution fights between workers and capitalists than most economists. They also wanted to establish worker cooperatives to replace the corporation. (Colander 158) Radicals believe that it is human nature to want to change for the better of all mankind, while institutional economists believe that individuals are fundamentally selfish and greedy. Friedman would be viewed as an institutional economist. Friedman ?thought that markets promoted self-interest or greedy behavior, which brought destruction to the community.? (Wisman 5) Samuel Bowles is considered a radical economist. He was very concerned with the social conflicts and tensions in society than most other economists. (Colander 158) The two economist?s views lead to two different versions of how they would like the government to be run. One way is with a small government providing essentials and other needs, and the other is with a big government taking care of all of the needs of its people.
The drastic uneven distribution of wealth and opportunity is the main worry of the economist. This is the main reason for governmental intervention in economics. The government believes that only through its intervention will the distribution of wealth and opportunity be evened out so that every person will be able to succeed.