Milton Friedman (1912-2006) was an American public intellectual who specialized in economics, public policy, and statistics. He is among the most prominent American economists and statesmen of the 20th century, alongside John Maynard Keynes. Friedman is famous for championing what would commonly be called conservative political and economic views, though he would prefer the older term “classical liberal.” Friedman wrote and taught economics with the goal of preserving the liberty of Americans from the overreach of the federal government. In Capitalism and Freedom, he articulates a classical liberal theory of economics, and applies it to numerous public policy issues, such as education, monopolies, social welfare, and the draft.

In sketching out the claims of classical liberalism, Friedman dispenses with a false assumption that was and still is very popular amongst Americans. People view politics and economics as distinct and often disconnected spheres of society. This leads people to conclude that a nation may have any combination of political and economic arrangements without any fundamental incoherence.

Thus, arrangements such as democratic socialism exist, which claims that a nation’s political structure may be democratic and free while its economic structure is centralized and controlled. Such an arrangement is actually a mismatch, because politics and economics are intimately connected. According to Friedman, care must be taken regarding how a nation's political and economic structures are to coalesce and function together. If America’s economic arrangements do not promote political freedom, then the liberty our nation prizes will be threatened and diminished.

Capitalism, as the economic structure that nurtures a free market, provides both economic and political freedom. Economic freedom for the individual composes a significant part of his or her overall freedom. For example, the government restrains a person’s ability to pick one’s own line of work by requiring a license for some occupations. This restraint upon a person’s economic freedom overlaps with a restraint on political freedom. By placing an obstacle to their work, such legislation also bars the individual from becoming the kind of citizen he or she wants to be in that society.

The point here is that economic freedom is significantly connected to political freedom. Under the classical liberal framework, capitalism is a necessary condition for political freedom. While the latter needs the former in order to exist, political freedom does not stand solely on the presence of the free market. History affords a few examples, such as Fascist Italy and Spain, where totalitarian governments had private enterprise, and yet were not free societies.

Overall, the relationship between these two spheres of freedom is close, but they do remain distinguishable. Economic freedom is a prerequisite of political freedom, but its presence does not guarantee the flourishing of a free society. Inversely, the decline in economic freedom does always lead to a subsequent withering of individual political liberty.

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Classical liberalism champions a much smaller federal government than presently operates in the United States, but it does recognize that some duties do not belong to the free market and require a responsible government agency. One role for the government is in the sphere of monetary policy. Monetary policy is concerned chiefly with the provision of a stable and valid currency for business and banking.

Unfortunately, due to oversights, ignorance, and fear, America’s current federal government has been given numerous additional powers to regulate money and control economic growth. Though this seems helpful and appropriate, history has shown—most clearly in the Great Depression—that governmental intervention worsens market conditions. Relying on the discretionary powers of government agency technicians is a shallow and idealistic solution. A small group of government agents pulling the levers of monetary mechanisms cannot possibly manage the entire national economy with sufficient depth or care.

On the flipside, letting the markets work on their own—without any government responsibility or intervention—is also unhelpful. Without oversight, the free market is still liable to contractions and economic downturn. We saw this at the beginning of the Depression era. Consumer worries and institutional ineptitude made the original problem worse. While market contractions began the Depression, poor planning and inactivity by the newly established Federal Reserve amplified the Great Depression, making it an era of poverty.

Rather than relying on governmental oversight such as we are currently subject to, or letting the market operate without any constraint or aid, society should pursue a middle path. When contractions or surges occur in the economy, the concerns of individuals and their families often motivate radical alterations in saving and spending. These can create further economic instability. The way forward in such a quandary is not in-the-moment decisions by government technicians, but rather adherence to set laws governing monetary policy. 

These monetary laws need not be fixed for every moment, so long as they reflect the actual status of America’s money. Rather, it is essential that they reflect the citizenry whose habits drive the market, not an external minority of government agents who try to manage it.

As opposed to an extended federal government that exerts influence over the United States through numerous agencies, a smaller federal government with less oversight could still significantly serve the general public. Two crucial distinctions in the classical liberal position can be made here: (1) Government funding need not be tied to government administration; (2) Government has a responsibility in certain situations that have “neighborhood effects.” A neighborhood effect is a set of circumstances that make voluntary exchange impossible, either through a severe liability or benefit that accumulates outside of an individual’s choice. A good example of this is river pollution. If one person pollutes a communal river, then everyone else in the neighborhood who uses that river has to deal with the consequences of that person’s actions.

Because a neighborhood effect has sweeping consequences for entire communities, the government is obligated to step in as an arbiter to ensure that exchanges can be conducted fairly between all parties. The specific nature of the government’s procedure will vary somewhat depending on the situation in question. One important neighborhood effect that the government is obligated to mitigate is education.

An important aim of education is to form stable, responsible people who will contribute to the health and security of the nation and its values. The education of a child has untold effects on their choices as an adult, with clear impact on their local community. Of course, tracing out all of these benefits and tying them to specific families or individuals is impossible, and thus the responsibility for the neighborhood effects of education lies with the government.

The government has two key responsibilities in education. The first is imposing a minimum level of schooling for all citizens, to ensure an elementary set of values is commonly shared. Second, financing this minimum level of schooling is essential to ensure an equal contribution from every household in that neighborhood, rather than a disproportionate contribution by some. The key here is that the government ensures the lowest possible education to provide the necessary knowledge and training for raising citizens. What is not essential is the nationalization of these schools and their subsequent administration by the government. This would be an overextension of its responsibility to provide financial stability so that a community can meet its educational requirements. In handling neighborhood effects, the government tries to provide stability for people, not control in place of individual action.

One form of governmental overreach that many people seem to favor lately is redistribution of income. Because some people never accrue wealth and move beyond their economic position, a government sometimes takes on the task of collecting a percentage of income from the wealthier and giving it to the poorer.

This is accomplished primarily through a graduated income tax, which increases the tax contribution of the wealthy, freeing up some money for the government to then give to the poor, who are taxed less. Many assume that such a plan will significantly reduce inequality by improving the economic status of some people without damaging the economic status of those who already had wealth.

Unfortunately, such a plan is an oversimplified response to a complex problem. Redistributing income treats a symptom, not the core problem. No matter the skill of any government agency, at the end of the day, it is composed of flawed people with limited knowledge who are tasked to exercise control over a national economy. Even those who work at the Federal Reserve are not omniscient about the American economy, which is dynamic, living and constantly changing through millions of daily decisions made by consumers and corporations. When it comes to resolving poverty, simply redistributing wealth will not eliminate it. Moreover, it further ignores the economic conditions that created an impoverished area in the first place.

Trying to balance the total amount of money each person has access to mistakes inequality of outcomes for inequality of opportunity. The strength of a free market economy is not that everyone can make the same amount of money, but rather that everyone can have access to greater opportunities to move up the economic ladder. Improving one person’s lot in life promotes long-term development and prosperity more than a stipend of redistributed wealth can.

This does not mean the poor cannot receive any governmental financial assistance. It does mean that the aid cannot come from a coerced group of wealthy individuals. To aid people by coercively taking from others violates the principle of individual liberty the government was formed to protect.

Rather than coerce a monetary gift from wealthier people to redistribute to the poor, the government should oversee a voluntary arrangement that provides financial relief. It is the responsibility of a community to come together and agree to a specific donation, taken up by the government, for alleviating poverty.

The government can then exercise its authority, not in coercing money from some for others, but in maintaining a proper form of financial aid for those in need. Some important characteristics for this aid are as follows: (1) This relief program cannot select recipients on any basis other than the fact that they are poor. Age, occupation, gender and race have no bearing, since the goal of this program is solely to alleviate poverty. (2) This relief program cannot impact the ordinary operations of the free market, which restricts the kind of program that it can be.

One popular solution under these two conditions is a negative income tax. Essentially, such a tax is a subsidy or stipend, paid to people who make less than a certain income. This income floor is specific to each community and determined by its unique economy. People with an income above the income floor pay taxes like normal. The amount of financial assistance given to people receiving the subsidy is determined in part by their participation in the free market, not merely by their poverty.

In summary, the centralized plans of government agencies pale in comparison to the movements of the free market in the creation of prosperity. Because relatively small groups of people run government agencies, the total knowledge within these groups is severely limited. Even in an ideal government agency, protected from corruption and selfishness, the good intentions of otherwise well meaning government agents does not mean they achieve what they are trying to accomplish. It is unrealistic to expect a group of government workers to control or solve economic issues that reflect millions of citizens.

A free market society such as ours needs the input and plans of the many, not of the few. Given our country’s commitment to the principles of individual liberty and representation, we must acknowledge the coercive practices of our overextended government. Regardless of the intentions of those in the halls of power, it is the centralization of economic decision making that threatens the long term prosperity, health, and values of our country. Recognizing the subtle, often unseen effects of government interference is essential if we are to renew effective constraints and seek after national flourishing and prosperity.

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