How does the economy relate to these? How can our system of buying and selling affect our political freedoms of speech and thought? And vice versa - how do politics affect the economy? Do labor unions, wage standards, and the price of laundry detergent have anything at all to do with voting, the Constitution, or America's laws? In Milton Friedman's first chapter of Capitalism and Freedom, he demonstrates that political freedom and economical freedom are intimately related, and explores the relationship between the two entities. Also in this chapter Friedman discusses the market as a direct part of freedom, the relation between market arrangements and political freedom as well as briefly tracing the development of free trade concepts and outlining the ideal economy promoting a free society.
First of all, Friedman states that only certain arrangements between these two freedoms are possible - more specifically, that only a competitive capitalistic economy ensures political freedom. (Big surprise.) In other words, a country where people are free to start their own private businesses, compete with other businesses, buy what they want, and sell what they want, all without restrictions of the federal government or anything else, is the only kind that also ensures political freedom. We will be free to live securely in liberty if a capitalistic infrastructure is in place.
In the early 1800s, the trend was laissez-faire economics, ("LAH zay fair", French for basically "do what you want,") which seemed to work very well and greatly improved the conditions of the masses. But then the trend changed, and government began to interfere in the economy more and more - "Welfare rather than freedom became the dominant note in democratic countries." And after World War Two, this collectivist trend was briefly interrupted by a reversal in economic policies and an increased emphasis on private markets. Now we are back to more government and less individualism once more. During these twists and turns in the economy, political freedom has fallen suit - strangely enough, whenever the market was left alone and individuals were free to compete in trade, the nation's population did very well and enjoyed greater freedoms. Whenever welfare prevailed and government stepped into private business affairs, the people suffered, politically and economically.
Next Friedman states that there are two ways to manage the economic activities of the masses - either military/totalitarian coercion, or voluntary individual cooperation; "the technique of the market place." He is saying the government can force people to buy and sell what the government wants them to, or they can allow the natural laws of supply and demand to determine the market. Obviously the latter is the most appealing mode of management...
What does a "free private enterprise exchange economy" look like, and why is it so desirable? These are questions that Milton Friedman will spend the rest of his book answering in detail, but he also briefly and simply answers them in a few paragraphs in the first chapter. Essentially, capitalism in action is - a business that uses the resources it controls to produce goods and services, which, in turn, it exchanges for goods and services produced by other businesses, on terms mutually acceptable to both. Money is the exchangeable commodity that makes this transaction that much easier.
On a very simple level, let's take a very simple example of a free-enterprise market. Let's say I run a butcher shop. You need meat, so you come into my butcher shop and I provide you with the resources, (meat,) and skills, (preparing and packaging the meat,) that you cannot provide for yourself, because you don't have the resources, skill, or time. In return, you give me money, which I can then use to provide for myself the things I need. I go to the bakery and buy bread with that money, because I don't have the resources (flour, ovens, bakers, etc.,) or the time, or the skills, to bake bread myself. Thus you have provided me with something I don't have, and I have provided you with something you don't have. That is a mutual exchange. This is capitalism in its purest and most basic form.
Maybe another butcher opens a similar shop down the street. Maybe he has a larger variety, or cheaper prices, or better quality of meats - so you go to him to buy meat instead. That's free choice. You can decide which butcher you like better. I want more money so I can buy bread for my family, so I lower my prices, or I expand my variety, or I better my quality of meat to bring in more business. That's competition. Does this competition hurt you, the customer? On the contrary, it lowers prices and improves quality/quantity for you, which is very beneficial for you. These laws - the laws of mutual exchange, free choice, and competition - are the basic tenets of capitalism. It is obvious how letting these laws alone to freely balance and improve the market in turn lead to greater freedom of choice and a more prosperous economy. Adam Smith called these natural laws "the invisible hand" of the market.
What does this have to do with politics? History may prove that people are more free when they can buy/sell what they want, but why is this so? Well, for once thing, minorities are more free under a free market because the market is impartial. When you buy bread at a bakery you don't know if the flour was grown by a black person or white person, and you probably don't care. Thus minorities are less likely to be discriminated against in a free-enterprise society. Also, the market naturally "gives people what they want instead of what a particular group thinks they ought to want... each man can vote, as it were, for the color of tie he wants, and get it; he does not have to see what color the majority wants and then, if he is in the minority, submit."
For another thing, the economy has long been a powerful source of coercion by despotic governments - Communist governments make their people their political slaves by determining what they can or can't buy, what occupations they can or cannot hold, what they can sell or not sell. They take away their political freedoms by taking away their economical freedoms. In a society where the government doesn't interfere with the economy, this source of force is gone.
In conclusion, the principles and ideas outlined in this chapter are extremely important to our understanding of what a capitalistic economy should look like. It is vital for Americans to grasp the basics. Friedman covered numerous extremely significant points about economics and politics, and I hope that my interpretation of his thought is accurate and made good sense. Questions/criticisms/praises are encouraged below! :)
