Capitalism and Freedom Part Three – Friedman

Part two of this blast from the past looked at The Relation Between Economic Freedom and Political Freedom. There seems to have been some consensus in the 50s that economic and political freedom were separate items: Friedman argues that they are one and the same. In part three, we turn to chapter two: The Role of Government In a Free Society.

Friedman On Government as Rule Maker and Umpire

Nothing new here. These are the legislative and judicial branches of government. Government defines society. Government provides a level playing field for free enterprise. By maintaining personal freedoms (freedom to relocate to a different county or state, freedom to change careers, freedom to shop around, etc.,), free enterprise can function. But there is the thorny problem that to preserve one person’s freedom is to take away another person’s freedom. To demonstrate the point, Friedman has a memorable quote from a Supreme Court Justice: ‘My freedom to move my fist must be limited by the proximity of your chin’.

Friedman On the Necessity of Government

The need for government in these respects [i.e. to modify, mediate, and enforce rules] arises because absolute freedom is impossible. However attractive anarchy may be as a philosophy, it is not feasible in a world of imperfect men.

So anarchy would be feasible in heaven? It was surprising to see this admission by Friedman. He is full of surprises.

Private Monopoly, Public Monopoly, or Public Regulation?

Here’s a question that’s still hot today. Friedman talks about monopolies or regulation regarding the issues of his day: phones, railways, and letter delivery. Technical (phones) or infrastructure (railways) or competitive (letter delivery) factors in the decades leading up to the 1960 had made it so that telecommunications, railways, and the postal service had single providers. The question was whether they should be in the hands of a private monopoly, a public monopoly, and how they should be regulated. Today the question applies to things like BC Ferries, medical marijuana, the internet, the pharmaceutical industry, and so on. The industries are different but the question still relevant.

Here’s what Friedman says:

When technical conditions make a monopoly the natural outcome of competitive market forces, there are only three alternatives that seem available: private monopoly, public monopoly, or public regulation. All three are bad so we must choose among evils. Henry Simons, observing public regulation of monopoly in the United States, found the results so distasteful that he concluded public monopoly would be a lesser evil. Walter Eucken, a noted German liberal, observing public monopoly in German railroads, found the results so distasteful that he concluded public regulation would be  lesser evil. Having learned from both, I reluctantly conclude that, if tolerable, private monopoly may be the least of evils.

Interestingly, since the 1960s, telecommunications, railways, and letters delivery are no longer monopolies. Still publicly regulated though. All three industries seem to be in good shape, at least from the viewpoint of the consumer. Maybe public regulation is the least of evils?

Friedman’s Predictions On the Future

The historical reason why we have a post office monopoly is because the Pony Express did such a good job of carrying the mail across the continent that, when the government introduced transcontinental service, it couldn’t compete effectively and lost money. The result was a law making it illegal for anybody else to carry the mail. That is why the Adams Express Company is an investment trust today instead of an operating company. I conjecture that if entry into the mail-carrying business were open to all, there would be a large number of firms entering it and this archaic industry would become revolutionized in short order.

DHL, Loomis, UPS, Fedex: it’s happened. And the industry has been revolutionized. Parcels from China or Great Britain arrive on the doorstep (Victoria, BC), in some cases, in less than a week. Crazy. In fact, the competition has become so efficient that Canada Post pays the likes of UPS and Fedex to move their mail around: it’s only on the last leg where the postie comes to the door that Canada Post ‘delivers’.

Top 14 Things the Government Does To Irk Friedman

1 Parity price support programs for agriculture [still around today, i.e. dairy industry]

2 Tariffs on imports or restrictions on exports, such as oil import quotas, sugar quotas [less today with NAFTA and other free trade deals]

3 Government control of output, such as through the farm program, or through prorationing of oil as is done by the Texas Railroad Commission [the Texas Railroad Commission was the OPEC before OPEC (setting prices on oil) and the farm program gave money to farmers for not growing crops: seems to be less government control of output today than in the 1960s, though I am not sure on this one]

4 Rent control [still around and on the rise in the form of low income housing]

5 Legal minimum wage rates [here to stay and more and more of a contentious issue, i.e. ‘minimum living wages’]

6 Detailed regulation of industries, such as regulation of transportation or banking [on the rise after the Great Recession. If the banks have a problem, fix it with regulation!]

7 Control of radio and television by FCC [no problem, we have internet these days]

8 Present social security programs, especially old age and retirement programs [these programs are getting bigger and bigger, pretty soon CPP will be bigger than the Canadian economy!–then what?]

9 Licensure provisions in various cities [Uber vs taxi licences]

10 So-called ‘public housing’ [You know this one doubly irks Friedman because he uses ‘so-called’ and surrounds ‘public housing’ with quotations as well!]

11 Conscription in peacetime [Friedman won over some unexpected allies with this one back in the day]

12 National parks [Friedman is referring to BIG places like Grand Canyon and Yellowstone]

13 Legal prohibition to carry mail for profit [No longer!]

14 Publicly owned and operated toll roads [Trend is toward P3 projects that are a mix of private and public funds with a private operator leasing out assets for 100 years. In fact, a Canadian company, Brookfield Asset Management, is a world leader in maintaining and managing infrastructure (roads, bridges, etc.,) the world over]

Until next time, I’m Edwin Wong, and, while Doing Melpomene’s Work isn’t a monopoly, it seems like I’m the only one doing it!

1 thought on “Capitalism and Freedom Part Three – Friedman

  1. Pingback: Capitalism and Freedom Part Four - Friedman | Doing Melpomene's Work

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