Owning Milton Friedman with Facts and Logic (Part One)

Socialism is making a major comeback in the U.S., as plenty of people will tell you. We've seen a surge in the membership of the Democratic Socialists of America since the 2016 election, a high-ranking Democratic incumbent toppled by a socialist challenger, and according to a Gallup poll released this August, Democrats prefer socialism to capitalism by a clear margin. But not everyone's happy--indeed, there are plenty of people armed with Margaret Thatcher quotes and "pictures of Venezuelan supermarkets" (that are actually pictures of American supermarkets) who are ready to tell you that socialism is not cool and that socialists are dumb idiots who would turn our country into the next Soviet Union.

But of course, those people are only pallid imitations of the real masters of the genre--guys like F.A. Hayek, Ludwig von Mises and, of course, Milton Friedman. For anyone unfamiliar, Milton Friedman was a champion of deregulation who served as one of Ronald Reagan's top economic advisers and helped bring us the global economic crisis we had about a decade ago. He also inspired the economic policies of the brutal dictator Augusto Pinochet, which were such a disaster that Pinochet ended up firing his Friedmanite economic advisers (the "Chicago boys") and nationalizing Chile's financial institutions. So you know his economic arguments have got to be good stuff.

With that in mind, I thought it would be fun to go back and look over Friedman's truly dazzling argument against socialism as expressed in the first chapter of his book Capitalism and Freedom (the full chapter can be read here). Full disclosure: I have not read the rest of this book, but I can only imagine what it's like based on this killer first chapter.

Milton Friedman, deep in thought about how to further screw up
the world economy (Picture from Wikimedia Commons)

Because there is a whole lot to unpack and all of our attention spans are only so long, I have decided to make this a two-part series rather than one single, extra-long post. Part two should be up within a few days after this post is published, so make sure to check my blog's front page for it.

Friedman starts off:

It is widely believed that politics and economics are separate and largely unconnected; that individual freedom is a political problem and material welfare an economic problem; and that any kind of political arrangements can be combined with any kind of economic
arrangements. The chief contemporary manifestation of this idea is the advocacy of "democratic socialism" by many who condemn out of hand the restrictions on individual freedom imposed by "totalitarian socialism" in Russia, and who are persuaded that it is possible for a country to adopt the essential features of Russian economic arrangements and yet to ensure individual freedom through political arrangements.

I'm willing to bet that very few democratic socialist would agree that they're advocating "for a country to adopt the essential features of [Soviet] economic arrangements." Democratic socialism's entire point is democratic control of the economy, whereas in the USSR the economy was managed by a party bureaucracy with no meaningful democratic control. Lenin actually undermined workers' control of the economy (which he basically acknowledged) and strikes were illegal under Soviet law, so the differences between say, Stalin and Rosa Luxemburg were definitely not just based on questions of "individual freedom."

In literally the next sentence, we get this gem: "The thesis of this chapter is that such a view is a delusion, that there is an intimate connection between economics and politics, that only certain combinations of political and economic arrangements are  possible, and that in particular, a society which is socialist cannot also be democratic, in the sense of guaranteeing individual freedom." So the ideology that supports workers controlling the economy through--wait for it--democracy, is not democratic, because it doesn't support "individual freedom." As Friedman probably knew, democracy isn't about individual freedom, it's about rule of the people, but given that his ideology is extremely antidemocratic it's not surprising he would change the definition of the word "democracy".

Things start to get really good when we begin to delve into Friedman's idea of individual liberty, though. He writes:

The citizen of Great Britain, who after World War II was not permitted to spend his vacation in the United States because of exchange control, was being deprived of an essential freedom no less than the citizen of the United States, who was denied the opportunity to spend his vacation in Russia because of his political views. The one was ostensibly an economic limitation on freedom and the other a political limitation, yet there is no essential difference between the two. 

Yes, that crucial liberty to take a vacation overseas--good thing everyone can afford to do that under capitalism! I also seem to remember a certain capitalist country not letting people vacation in Cuba, but somehow that doesn't seem to come up here.

Let's learn more about freedom from Uncle Milty:

The citizen of the United States who is compelled by law to devote something like 10 per cent of his income to the purchase of a particular kind of retirement contract, administered by the government, is being deprived of a corresponding part of his personal freedom...True, the number of citizens who regard compulsory old age insurance as a deprivation of  freedom may be few, but the believer in freedom has never counted noses. 

Yeah, since when do the beliefs of a majority of the people matter for democracy? And again, somehow all the people living in poverty and being paid starvation wages under capitalism don't come up as infringements on freedom anywhere in this chapter--we're too busy focusing on the real issues like government retirement contracts and international vacations. But believe it or not, things are about to get even better.

A citizen of the United States who under the laws of various states is not free to follow the occupation of his own choosing unless he can get a license for it, is likewise being deprived of an essential part of his freedom. So is the man who would like to exchange some of his goods with, say, a Swiss for a watch but is prevented from doing so by a quota. So also is the Californian who was thrown into jail for selling Alka Seltzer at a price below that set by the manufacturer under so-called "fair trade" laws. So also is the farmer who cannot grow the amount of wheat he wants. 

So because I can't just be, say, a heart surgeon without a medical license, I'm being deprived of "an essential part of [my] freedom." Milton Friedman's vision of society is apparently a world where there are just Lucy van Pelt-style booths on every sidewalk for if you need a psychiatrist, or a lawyer, or a pharmacist, because why wouldn't we want just anybody to be able to market their skills in one of those fields? How about driver's licenses, one has to wonder--are those another infringement on essential liberty? As for the Alka Seltzer seller he mentions, not being able to sell a product at a price lower than a limit set by a manufacturer seems like it has more to do with capitalism than socialism. But Milton Friedman believes in that mythical form of capitalism where the market stays free and unregulated, not that awful crony capitalism, which just happens to be the real-life result of his ideas. And on that topic:

The kind of economic organization that provides economic freedom directly, namely, competitive capitalism, also promotes political freedom because it separates economic power from political power and in this way enables the one to offset the other.

Don't you love living under capitalism, where rich people and big business have absolutely no influence on politics? It's a good thing we don't live in a system where the average person's political opinions have basically no influence on public policy or anything like that--good job, capitalism!

"I know of no example in time or place of a society that has been marked by a large measure of political freedom, and that has not also used something comparable to a free market to organize the bulk of economic activity," Friedman wisely tells us right afterward. Funny how the freest countries now seem to have highly regulated economies and generous social services--not exactly what's being promoted here. That's not even to get into libertarian socialist societies like revolutionary Catalonia, Makhnovia, and modern-day Rojava, which are also a pretty strong rebuttal.

From here, our friend Milton starts to explore the history of freedom and the free market, with results that are just fascinating.

History suggests only that capitalism is a necessary condition for political freedom. Clearly it is not a sufficient condition. Fascist Italy and Fascist Spain, Germany at various times in the last seventy years, Japan before World Wars I and II, tzarist Russia in the decades before World War I--are all societies that cannot conceivably be described as politically free. Yet, in each, private enterprise was the dominant form of economic organization. It is therefore clearly possible to have economic arrangements that are fundamentally capitalist and political arrangements that are not free.

Even in those societies, the citizenry had a good deal more freedom than citizens of a modern totalitarian state like Russia or Nazi Germany, in which economic totalitarianism is combined with political totalitarianism. Even in Russia under the Tzars, it was possible for some citizens, under some circumstances, to change their jobs without getting permission from political authority because capitalism and the existence of private property provided some check to the centralized power of the state.

Imperial Russia might have had a life expectancy of somewhere between 20 and 35 and a literacy rate of about one in four, but things weren't all bad, I guess. He continues, "The relation between political and economic freedom is complex and by no means unilateral. In the early nineteenth century...There was a large measure of political reform that was accompanied by economic reform in the direction of a great deal of laissez faire. An enormous increase in the well-being of the masses followed this change in economic arrangements." Nice of Friedman to at least pretend to care about the well-being of "the masses" even if his economic ideas have actually been terrible for them.

"The triumph of Benthamite liberalism in nineteenth-century England was followed by a reaction toward increasing intervention by government in economic affairs. This tendency to collectivism was greatly accelerated, both in England and elsewhere, by the two World Wars. Welfare rather than freedom became the dominant note in democratic countries," our champion of the masses continues. What an awful thought, that people might value the right to not die from treatable diseases or languish in poverty over such crucial freedoms as the right to take an overseas vacation or practice medicine without a license. "Recognizing the implicit threat to individualism, the intellectual descendants of the Philosophical Radicals--Dicey, Mises, Hayek, and Simons, to mention only a few--feared that a continued movement toward centralized control of economic activity would prove The Road to Serfdom, as Hayek entitled his penetrating analysis of the process." For anyone curious, Hayek also happened to be a notable stan of the brutal Pinochet dictatorship. Funny how that works.

Skipping ahead a bit, we come to this passage:

Even in relatively backward societies, extensive division of labor and specialization of function is required to make effective use of available resources. In advanced societies, the scale on which coordination is needed, to take full advantage of the opportunities offered by modern science and technology, is enormously greater. Literally millions of people are involved in providing one another with their daily bread, let alone with their yearly automobiles. The challenge to the believer in liberty is to reconcile this widespread interdependence with individual freedom.

Fundamentally, there are only two ways of co-ordinating the economic activities of millions. One is central direction involving the use of coercion--the technique of the army and of the modern totalitarian state. The other is voluntary co-operation of individuals--the technique of the market place.

The possibility of co-ordination through voluntary co-operation rests on the elementary--yet frequently denied--proposition that both parties to an economic transaction benefit from it, provided the transaction is bi-laterally voluntary and informed. [Italics in this passage and all others from the book are in the the original text.]

Uh-huh, and how voluntary is it when people accept badly paying jobs because the alternative is to be homeless? The idea that an agreement is truly voluntary when it's between a rich corporation and someone whose only alternative is to beg for a living is a bad joke, but also one that libertarianism is based on, so no surprises here.

Exchange can therefore bring about co-ordination without coercion. [Again, only if we accept that someone who takes a low-paying job to avoid starving to death isn't being coerced.] A working model of a society organized through voluntary exchange is a free private enterprise exchange economy--what we have been calling competitive capitalism.

In its simplest form, such a society consists of a number of independent households--a collection of Robinson Crusoes, as it were. Each household uses the resources it controls to produce goods and services that it exchanges for goods and services produced by other households, on terms mutually acceptable to the two parties to the bargain. It is thereby enabled to satisfy its wants indirectly by producing goods and services for others, rather than directly by producing goods for its own immediate use. The incentive for adopting this indirect route is, of course, the increased product made possible by division of labor and specialization of function. Since the household always has the alternative of producing directly for itself, it need not enter into any exchange unless it benefits from it. Hence, no exchange will take place unless both parties do benefit from it. Co-operation is thereby achieved without coercion.

This isn't a description of capitalism. Capitalism is based on wage labor, meaning that the owners of the means of production hire workers to do the actual labor and then the owners sell their goods or services at a profit--so the workers don't get to keep the full fruits of their labor, which is exactly why it's been criticized over and over again by socialists. Everyone is this situation Friedman laid out owns the product they produce and gets to decide what to do with it, and the workers (the households) own and manage the means of production--meaning that Friedman has actually just described a primitive form of socialism. Whatever you think about free markets and free exchange, they're not the same thing as capitalism--but because it would be a lot harder to justify the actual defining characteristic of capitalism (exploitation of labor), Friedman has invented a scenario that has pretty much nothing in common with how capitalism works in the real world.

Friedman's weak attempt to justify the realities of capitalism comes next: "Specialization of function and division of labor would not go far if the ultimate productive unit were the household. In a modern society, we have gone much farther. We have introduced enterprises which are intermediaries between individuals in their capacities as suppliers of service and as purchasers of goods." Thank God for those handy "intermediaries" that let investors and business owners get rich as their employees rely on food stamps to survive. What would we do without them?

Don't worry, though--Uncle Milty has the perfect Free Market solution for beleaguered employees: "The employee is protected from coercion by the employer because of other employers for whom he can work[.]" So if your employer has you working in unsafe conditions for starvation wages, no problem--just quit your job! Checkmate, socialists.

This seems like as good a point as any to wrap up this first installment. Make sure to check back soon for the next one, where Friedman's arguments get a lot more ridiculous than anything we've seen so far. Don't miss it!