Revising Friedman

September 18, 2014 Updated: April 23, 2016


Nothing is above the individual, and his/her freedom to engage in free, mutually beneficial, and above all voluntary trade are self-evident rights. But are they expedient? These are the very precepts which make up Friedman’s basis for pure unregulated Capitalism. At the end of the day it isn’t really just about monetary individualism, rather the extent of a feasible small government which would undeniably lead us to it. Yet, the unceasing and robust form of government intervention we have been witness to historically has shown us the very harm it can cause not only in the economic structure of a nation, but people’s individual freedoms as well. To what extent was Friedman right to suggest that even slight government policies in economic systems, such as mixed economies, can prove pernicious? 

In essence, what all this comes down to is simple public spending. Is it morally, and perhaps more importantly, practically possible to enforce, and at times coerce taxation by majoritarian rule on the masses, for what some might refer to as the “common good”? Friedman-style economic theory suggests that the higher the graduated taxation system on a nation, and the higher the amount of that taxation is spent on welfare and social costs, the closer that nation state gets to an authoritarian, bureaucratic entity created by the greed of men who in fact promote their own self-benefit under the guise of caring for the majority. In capitalism, however, although men and women must indeed take care of their own self-benefit it is, more so than in collectivist societies, honest as everyone knows that corporations and entrepreneurs want profit, while the members of a Soviet “committee” gain profits and privileges with the pretense of spreading equality. The encroachment of individual rights therefore is proportionally entangled to the rate at which government steps in the private sphere. But wait, how can we think of rich entrepreneurs as honest?

Friedman, a Nobel Prize economist, who has published countless works, and has given numerous talks all over university campuses on the harm that government has on the economic system of a nation might seem to be practical at first, yet the idealism of a pure unregulated free market economic scheme might prove to be too idealistic, as evidenced by the infamous Reagan years, whom incidentally Friedman served on as a counsellor to Reagan only to aid him on numerous libertarian economic policies. Thus, when it comes to the study and appreciation of any economic model, the first thing that should be put on the table is simple feasibility. The very word that makes socialists and libertarian capitalists, both on opposite sides of the scale, truly cringe.  Despite the efforts to impose theoretical models, as any reasoned individual should, we have to consider the facts, and practical examples which have come to pass.

The rise of the Federal Reserve in 1913, signalled the end of free economic markets in the United States, as well as the sensational rise of the so called “robber- barons” as nicknamed by the poor, such as Carnegie and Rockefeller. It was also the year before the Great War, which signalled the last recession before the “booming” 20’s, and then the fall of the markets in 1929.  By 1933, Roosevelt’s New Deal was implemented to proportionally alleviate the poor masses of the U.S, which incidentally remained jobless because of government intervention that had caused the Great Depression in the first place. Does this sound by any means new to you?

The recession which started in 1928, was not that different, comparably and considering inflation and interest rate fluctuations, from those of 1907, 1901, and 1893. However, the difference was that the Federal Reserve had not only stepped in with the wrong policies, but enforced them by virtual coercion, to create what Friedman called “The Great Contraction”. In essence, a contraction of the money supply led the banks and other financial institutions to lose a lot of liquidity, which in turn led to loss of demand, speculative markets and finally the “Great” crash. Yet, it was not solely the Federal Reserve, but the incessant protectionism which had caused U.S markets to contract, and Hoover’s lack of “positive” policies to do anything about it as well. 

 Yet, without goverment spending, and really taxation of the general masses, a great deal of the economic structures that prevailed in the late 30s would have not done so without direct goverment intervention. The Second World War which was funded by the public was the single and most important factor in the economic rejuvenation of the United States and Canada. Today, countries where the basic of mixed economic principles are evidently far more prosperous in both economic and internal social balance than other free market societies. For instance, in Canada and other Scandinavian countries where basic graduated taxation is somewhere between 30 to 40%, the highest living standards are available, as well as the best and most effective education systems in the world. Mind you when I refer to mixed economies, I mean real mixed-economies, not ones led by authoritarian regimes.

The question is: is it moral to tax those who earn their money through free enterprises in order to standardize and equalize society, such as public spending on education and heath care? This question holds a complexity which is constituted of layers of moral and economic variables. Does the basic encroachment of an individuals’ right to keep his/her money worth the betterment of society? Is it fair? The answer to this question is to me something close to impossible to answer. However, we can entail one certain thing. The extremes of either Capitalism or Collectivism, as in any economic or system of thought, is sure to yield negative results. 

 In truth both too much government, as well as too little have proved harmful, in contrast to pure moderated economic centres such as Canada, and other Scandinavian nations. The best systems, at least in my opinion, remain to be those such as in the U.K,  and nations where the bounds of taxation does not go into full collectivist nor full capitalist extremes.

So Can Friedman-styled economics be a possibility? I can answer that with another question: Can Marx? The sequentiality and perhaps absolutism that comes as a result of such idealism becomes beaconed to the contrary. It is perhaps best evidenced by those who a few years ago with no economic illiteracy spilled out in the 99%, with fantasised beliefs in the spread of wealth, and those who believed that full unregulated capitalism is the way to ensure the destruction of inequality. Friedman is absolutely right to say that the individual rights of human beings should not be ever violated, yet to allow small goverment to have only minute control of structures such as the police to defend the rights of citizens is to spell disaster as seen during the Industrial age of “empire building”, whereas the opposite of the spectrum would yield the horrid conditions of collectivist societies, which ultimately led to the suffering and death of millions. Suffering is usually the result of extremism, where as moderation as an economic principle can prove beneficial. How so?

History shows us that those societies which took advantage of pure unregulated Capitalism, although had massive social and economic gains experienced disparaging and widening gaps between the poor and the rich to great extremes. In a more feasible example, imagine a state where all roads were built by public enterprises, which would entail a massive amounts of toll taxes. Although at cheap rates because of the heightened competition it would also make competitors to reach for lowered costs in a Carnegie-style gamble to increase profits. What would the quality of those roads be? Would they be made cheaply to save costs, or would private organizations strive to build the best products in order to attract consumers? Wouldn’t such a system be ripe for “unregulated” corruption?

To move to the other side of the spectrum imagine a system, like many we have seen such as in Russia, Romania and other Communist countries where the goverment uses all of its allocated resources to build roads using nationalized firms, whose framework is completely run by a laborious bureaucracy. Now, let us suppose that the economic strength of such a country would allow it to construct massive well-built roads, although historically this has never been the case, what would be the costs on the entire populace of that country? More realistically the more probable result would be a series of poorly built roads, whom most would not be able to use as a result of shortage of auto-mobiles. Imagine the amount of “regulated” corruption and grafting that would entail in this form.

The feasibility of a mix between the economic principles suggested by both Keynes and Friedman, to yield an economic sphere of freedom where and individual will be able to expand his/her wealth through voluntary trade, but where just enough government intervention ensures that the social balance is optimal. The severe complexities of such a suggestion, of course, are very well known to us. Yet again we need practical examples, to provide evidence for practical solutions. 

The first example is that of Iceland, whose real mixed economic system has given people freedoms through free trade, but has also afforded the social order a relative equalization of economic rights. Although a small economy, given to the small population it has proved to reach an effective balance of just enough government consumption-in fact lower than most Nordic countries- as well as the maintenance of free economic trade and private ownership. With a population of roughly 300,000, the country produced a GDP of 12.4 billion in 2012, and maintains a balanced 4.4% unemployment rate. Education and Health-Care is completely free for all citizens, while the nation maintains a GDP per capita of $ 40.000. The point is that perhaps the quality of life is far higher than expected. 

A much better example would be that of Canada, which although not at the same level as Iceland in terms of the extent of goverment intervention, functions as a mixed economic structure. Education in Canada is completely free until the 12th grade, and loans and grants are given to those students who wish to further their post-secondary education. Although there is a private health sector, the universal health care system which is afforded to all Canadian citizens. Yet Canada is also very much a free economic system, with huge financial districts in Ottawa and Toronto. 

The truth remains that men and women are corruptible and in both economic systems corruptibility is possible, even in a mixed economy. Yet interestingly when such a system experiences surges of corruption it tends to lead either towards the corporate monetary policies, and other times towards the collective mindset. Yet, to remain in the middle is to understand that it is necessary to be in the left, and the libertarian right simultaneously to allow for the rights of men and women to be protected, while the rights of society to equally be protected. Which leads me to the point that a mixed economy, despite its advantages, does hold the weakness of uncertainty- one which perhaps leads many of its critics to always fight over either too much or too little government intervention. Also those who do not advocate for mixed economies sometimes like to suggest that perhaps it brings the “worst” of both sides. Yet it is not systems that create the worst circumstances, it is as Friedman suggested: people that do so. 

Economic systems such as Capitalism, Socialism, Communism and mixed economies are as Friedman said “not moral” as it is people that have values and moralities. In other words, regardless of systems, it is people who are evil and choose avarice, although mind you those terms are not one and the same, each is its own value system, and although they may overlap they are distinct. This is why pure unregulated Capitalism leads to authoritative structures run by the elite, and that is why in Communist structures, the elite take advantage of their power for their own benefit no different from Capitalist systems.

Human nature is what truly creates inequality, economics is only a medium by which is can be produced. It is thus only a piece among many others in the natural hegemony created by human society. That is why moderation is key.

It might be true that the price of a civilized society is taxation, yet the price of keeping a civilized society is to know how to moderate tax effectively.