Question

Explain Freedom of Prosperity-1990 by Milton Friedman. Do you agree or disagree? Give examples.

Answer 1

His conclusion: they must accept the verdict of history that governments create no wealth. Economic freedom is the only source of prosperity. That means free, private markets. Attempts to find a “third way” between socialism and free markets are doomed from the start. If the people of Eastern Europe are given the chance to make their own choices they will achieve a high level of prosperity. Friedman tells us individual stories about how small businesses struggle to survive against the remains of extensive government control. Friedman says, “Everybody knows what needs to be done. The property that is now in the hands of the state, needs to be gotten into the hands of private people who can use it in accordance with their own interests and values.” Eastern Europe has observed the history of free markets in the United States and wants to copy our success. After the documentary, Dr. Friedman talks further about government and the economy with Gary Becker of the University of Chicago and Samuel Bowles of the University of Massachusetts. In a wide-ranging discussion, they disagree about the results of economic controls in countries around the world, with Friedman defending his thesis that the best government role is the smallest one.

In 1976, the 200th birth of our nation, Milton Friedman won the Nobel Peace Prize in economics. Two hundred years earlier, in the same year as the Declaration of Independence, Adam Smith, the Scotsman, published a book entitled The Wealth Of Nations. The United States was the first country to apply the ideas in Adam Smith’s book. Those ideas have led to our prosperity and given us our freedom.

In Free to Choose, Milton Friedman shows us how those ideas can help us today. In this program, Milton and his wife Rose, take us on a brief tour of Eastern Europe. They wanted to see if the Czechs, Hungarians and Poles were taking the steps needed to achieve prosperity and a lasting freedom. In fact, a member of the Polish Parliament has said that Milton Friedman’s Free to Choose was a major influence on the Polish drive for freedom.

I find it exciting to watch the rebirth of freedom in Eastern Europe. Being free to choose should be every person’s birthright. Everywhere in the world, and especially here in the United States, we need to keep government on the sidelines. Let the people develop their own skills, solve their own problems, better their own lives. I don’t think it is an exaggeration to call Milton Friedman’s Free to Choose, a survival kit for you, for our nation and for freedom.

Friedman: Those are the parliament buildings. This is the river Danube and I am in Budapest, the capitol of Hungary. Over there somewhere is Czechoslovakia, over there Poland, and farther away yet, the Soviet Union. Socialist states that started out with the very best of intentions, intending only to improve the lots of their citizens, they all ended up making the people poor, miserable and into slaves. And every one of them has been learning that lesson that socialism is a failure. They are all trying to move in the direction of a free, private market.

What happened here in Eastern Europe was a major event. The first time in history that the totalitarian countries decided to move toward free markets. Will they succeed? That is a question that brought my wife Rose and me here. As economists, we wanted to witness the most exciting experiment in political and economic organization that is likely to occur in our lifetime.

In the center of Prague, there is a famous cafe, a relic from the days when Czechoslovakia was one of the wealthiest countries in the world. Today, we find only faded elegance, a pale echo of a productive past that was created by market incentives. What happened? Communist central control __ that is what happened. The same culture, the same people, the same resources who wanted different outcomes of vastly lower standard of living, the result of substituting orders from the top for incentives from below. Who says economic institutions don’t matter?

A year ago, right outside that cafe, hundreds of thousands of Czechs massed in Wensisloss Square to demand their freedom. This is where it all happened. In three days they got political freedom. The hopes were high. They thought economic miracles would follow quickly. Yet now it is a year later and almost nothing has happened. Political freedom can be achieved rapidly; economic freedom and prosperity is a very different thing. That’s what is beginning to dawn on these people. In reality they are not yet free. They are still the victims of thousands of controls the communists put in place.

If the newly elected governments are going to keep the support of the people, they must give them real freedom and they’ve got to do it fast. That was the secret of Margaret Thatcher’s success in England. She had a well worked out program and she put it into effect right after coming into office. It was the secret of Ronald Reagan’s program. On the other hand, Manahem Began in Israel came in without any plans whatsoever, and he ended up a failure. If Czechoslovakia is going to achieve the objectives of its revolution, it must move rapidly to put into effect the economic institutions which alone can convert political freedom into economic and human freedom. Those institutions are the institutions of free, private markets.

There are examples all over the place of both the opportunities and the problems. Yuri Malick wants to publish a magazine for people who are trying to set up their own private businesses in Czechoslovakia. He runs it from his living room. It’s a small family enterprise. The magazine is packed with information for would-be businessmen on how to thread their way through the jungle of bureaucratic regulations that still exist. The irony is that some of those very regulations are preventing him from getting his business off the ground. For a start, he needs to obtain 15 separate government licenses before he can distribute the magazine. After nearly a year, he still hasn’t got them. He has had to come here again and again to this government licensing bureau to try to persuade a bureaucrat to allow him to do business.

Yet again, it’s not his lucky day. Yuri Malick doesn’t give in easily, but things are not looking too hopeful. The man he has got to see is not available and no one else is interested in his problem. The Cheque government owns all the newsstands, the book shops, the nationwide distribution system which is controlled from here. There is one way, and only one way, to put an end to all this nonsense, the government must get out of business and stay out. It must transfer these assets into private hands.

These are the kinds of forms you have to fill out in this country in a place like that if you want to start a business or get anything done. But if you think that only happens here, tell me when was the last time you stood in line to get a driver’s license or a registration plate, or do you know anybody in Britain, France, Germany or the United States who has built a house sometime in the last 10 years. Ask him what he went through.

In Capitalism and Freedom, Milton Friedman asks what types of inequality are ethically justifiable.

“Inequality resulting from differences in personal capacities, or from differences in wealth accumulated by the individual in question, are considered appropriate, or at least not so clearly inappropriate as differences resulting from inherited wealth."

“This distinction is untenable. Is there any greater ethical justification for the high returns to the individual who inherits from his parents a peculiar voice for which there is a great demand than for the high returns to the individual who inherits property? …

“Most differences of status or position or wealth can be regarded as the product of chance at a far enough remove. The man who is hard working and thrifty is to be regarded as ‘deserving’; yet these qualities owe much to the genes he was fortunate (or fortunate?) enough to inherit.”

I think Friedman is correct here. This is basically the same point that I made earlier: the money that you make because you are smart and hard working is the product of good fortune just as much as the money that you inherit directly from your parents.

Of course, we draw opposite policy conclusions from the same moral observation. For Friedman, the inequality of outcomes that results from chance is necessary to ensure equality of treatment. He uses the example of a lottery to make his point: “Redistribution of the income after the event is equivalent to denying [individuals] the opportunity to enter the lottery” (p. 162). According to this principle, a tax on inheritances is just as pernicious as a tax on earnings: both infringe on a person’s right to the fruits of her production, even though both inheritances and earnings are ultimately the result of chance.

For me, a tax on earnings is just as valid as a tax on inheritances. You didn’t do anything to deserve, in a moral sense, the $10 million you get from your parents, nor did you do anything to deserve the genes that got you into Harvard and landed you a job at Goldman Sachs. Friedman makes a similar point (p. 164): Parents can give their children an advantage by giving them cash or by buying them an elite education that enables them to earn lots of cash. So from my perspective, if you think that a high tax rate on inheritances is justified (as many people do), then a high tax rate on earnings is equally justified.

Friedman recognized that what he called the “capitalist ethic” — everyone gets the value of what she produces — could not be proven to be morally superior to any alternative. Instead, his main argument is that it is required for allocative efficiency (p. 166). That’s a plausible position to take. I just wish more people in the anti-tax camp would realize, along with Friedman, that there is no fundamental, God-given right to your gross earnings that is somehow infringed upon when the government levies an income tax. Calling yourself a “maker” doesn’t make you morally superior or give you the right to keep all your money.