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Dec. 15, 2006
For free enterprise and free will
Renowned economist adopted Smith's laissez-faire approach as his
standard for policy.
EUGENE KAELLIS
Milton Friedman died this year at the age of 94. He was born in
Brooklyn, the son of Jewish immigrant parents from Austria-Hungary.
Friedman was an outstanding student and easily made his way up the
university education ladder, concentrating on economics and mathematics.
Most of his academic career was spent at the University of Chicago.
He was awarded the Nobel Prize in 1976.
During his lengthy and prolific lifetime, Friedman became the leader
of a school of economists that advocated the return to the free
enterprise system of Adam Smith, whose treatise, The Wealth of
Nations (1776), is the "proof text" of believers in
laissez-faire economics, with government playing as minimal a role
as possible in the economy and, indeed, in everything else. Friedman,
for example, opposed government-operated pensions, such as the Canada
Pension Plan or Old Age Security, minimum wages, regulation of foods
and drugs, compulsory and free public schooling, restrictions on
banned substances, compulsory licensing of doctors, the establishment
of national parks and certainly Canada's public health-care system.
He opposed government programs on the grounds that they are based
on politics, rather than sound economics, they are mismanaged by
huge, expensive bureaucracies; they provide undeserved rewards in
the form of import duties and subsidies for groups that lobby intensively,
they offer opportunities for corruption and, most of all, they are
often ineffective.
While Smith was the patron saint of free enterprise economics, he
was just one of a number of theorists who sprang up during a period
of vast economic and political changes in Britain, the leading country
of the day: Smith, Ricardo, Bentham, Malthus, Mill and, later, Darwin,
Marx and Engels and a number of utopian socialists and anarcho-syndicalists.
Most of them paved the way for capitalism – by providing its
theory – and for civil liberties in a democratic society. Some
had what we would today call humane outlooks. Others, for example,
Malthus, blamed the poor for over-producing progeny and some, of
course, advocated overthrowing capitalism, by force if needed, and
its replacement by socialism.
Friedman, and the so-called Chicago School he helped found, sincerely
felt that Smith's "invisible hand" of self-interest would
ultimately sort out the economic and related social problems of
society in a more consistent, more equitable, more effective and
efficient manner than would government intervention. His arguments
were brilliant, inventive and creative and his energy in advocating
them almost inexhaustible, but part of the problem lies in "ultimately."
It is a word used by some Marxists too: "ultimately,"
the USSR would have evolved along classical socialist-communist
lines. Stalinism, it turns out, was just a 30-year aberration.
Friedman's ideas challenged Keynesianism, a policy highly influential
in determining government conditioning of the economy: tax in good
times, inject the accumulated capital in bad times. Friedman opposed
John Maynard Keynes's theories, favoring a monetary, rather than
a fiscal, policy, meaning that the government should increase the
supply of money at a steady, unalterable rate. He believed that
Keynesian methods were always applied too late to be effective.
By the time the government became aware of a recession, it could
do little to avoid its deepening. One wonders how potent this argument
would be today, with enormous and almost immediate data collection
and rapid processing by computers. One can even wonder if the failed
planned economy of the USSR, for example, would have fared better
if everything had been computerized.
Some of the major criticism directed against Friedman was that he
had in mind an economy of competing businesses that would increase
productivity and lower prices through competition. Friedman, of
course, knew that capitalism had strayed very far from the free
enterprise model of its early days, so he also advocated a ruthless
application of the antitrust laws and strict controls of the equities
market. However, if big business is to be believed, the economy
of scale, i.e., bringing prices down by the mass production of commodities
for a national and international market, is dependent on some form
of monopoly. Hardly a week goes by without news of a merger or acquisition.
Advocating a return to small businesses seems somewhat reminiscent
of the backyard steel furnaces of Mao's cultural revolution. Try
making a bus or truck that way. Corporations claim that the growth
of monopolies, by rationalizing production and through economies
of scale, have improved standards of living.
Friedman realized, of course, that some people, for a variety of
reasons, cannot support themselves. He therefore became an early
advocate of the "negative income tax," a sort of guaranteed
annual income. With Friedman's encyclopedic knowledge of economics,
he must have known that something similar was tried from 1795 to
1834 in Berkshire, England.
It was a desperate measure by a local government faced with unprecedented
unemployment and misery that resulted from the capitalization of
a formerly feudal agriculture and the inability of new industries
to provide adequate jobs. Employers in the Speenhamland Plan, as
it was known, simply lowered subsistence wages, letting the government
make up the difference. Canada tried a brief experiment, allegedly
successful, with a Guaranteed Annual Income in Dauphin, Man., some
years ago, but no political party has so far advocated it.
In line with his laissez-faire economic policy, Friedman was also
an extreme civil libertarian. Many North Americans would today join
him in opposing security measures to counter terrorism. It may comfort
them to remember that democracies are resilient. In the United States,
despite the Alien and Sedition Act to protect the country from subversion
after the French Revolution, the suspension of habeas corpus during
the Civil War, the Palmer Raids and Red Scare after the Bolshevik
Revolution, the McCarran Act, McCarthyism, the House Un-American
Activities Committee and now the Patriot Act, America has always
returned to its basic system of freedom after the danger subsided.
Friedman would likely not have objected to being called an ideologue,
although that word has acquired a pejorative sense. It's interesting,
therefore, to review historically what happened to the plans of
other ideologues. After the Bolshevik seizure of power and the consequent
disruption of industry and agriculture, both of which had made substantial
progress under the czar, Lenin devised the New Economic Plan, a
form of limited capitalism needed to undo the damage and to continue
the accumulation of primary capital, vital to economic growth.
And now, "communist" China has a rapidly growing capitalist
system. Mao's Cultural Revolution, the last gasp of utopian ideology,
advocated the backyard production of steel. Perhaps the Chinese
government is just waiting for further industrial development before
it "returns" to its socialist dream. Could that be accomplished
without another revolution?
Friedman was a strong advocate for free trade. He certainly took
issue with aspects of NAFTA, but on the whole supported it, as a
lesser of evils. He also supported the outsourcing of jobs to Asia
and Latin America. We will have to wait a few decades to find out
if such measures actually improve the lives of people here and abroad.
Democracy means individual freedom and economic freedom, both within
bounds designed to protect individual rights, uphold group rights,
protect enterprise as well as the working and consuming public.
It is, in other words, a constantly adjusting balance between contending
interests and forces.
Regardless of whether one agrees or disagrees with Friedman, it
must be conceded that he made important, well-reasoned contributions
to determining where the balance point should be.
Eugene Kaellis is a retired academic living in New Westminster.
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