Key Messages
Leaving The Market Alone Ensures That Price Signals Transmit The Value Of Goods And Services
The power of the market lies in voluntary actions by individuals, not in government intervention.
This is because when governments intervene in the market, they distort the signals that tell consumers the true value of goods and services.
This interferes with people’s ability to make informed decisions about how to spend their money efficiently.
Take for example, during gas shortages in the 1970s: The government limited prices which caused a rush from consumers to buy up all the available gasoline at once.
This worsened an already existing problem as there wasn’t enough time for the price to naturally rise according to demand, leaving consumers unaware of how scarce it actually was.
Such situations can be avoided if we follow what has been done time and time again – free trading amongst individuals.
A prime example of this was language that developed from bottom-up; everyone cooperated with each other and found ways to benefit both parties without any control or planning by a central figure.
If we allow people to freely pursue their own interests within the market – it will determine correctly priced goods based on how much they’re demanded or supplied.
Government Intervention Restricts Our Freedom And Undermines A Fairer Society
Economic control by governments over individuals erodes personal freedom.
Governments often intervene in the economy believing they are making it fairer, but in reality, this merely limits people’s ability to choose how they spend their own money.
Take tariffs as an example: tariffs reduce consumer choice and add extra costs to everyday goods.
This means that customers have fewer options and have to pay more for the same item.
This means one of our fundamental liberties – free choice over how to spend our money – is severely reduced.
It gets worse, too – when a government is elected, it spends public funds regardless of whether or not it aligns with people’s preferred outcomes.
We are not given a say beyond voting at election time, so our individual freedom is put under the yoke of government regulation without us having any kind of direct control over it.
History provides us with examples that demonstrate how increased economic freedom can benefit citizens on a large scale.
When Japan destroyed its feudal system, giving its population increased economic and social freedoms, as well as pushing for freer markets, there was a huge boom in prosperity and development levels rose sharply.
Contrast this with India which imposed higher taxes and tight restrictions on business operations while controlling wages and prices; here we see stagnation and extreme poverty then (and still now.)
The inability of individuals to shape their lives through their choices ultimately leads to unfreedom at the hands of government intervention into the economy.
The Fed’S Miscalculation Highlighted The Extreme Complexities Of Stabilizing An Economy During Financial Crises
The Great Depression caused immense suffering and hardship, but it was caused in part by the very institution created to prevent it: the Federal Reserve.
In the early 1900s, banks would band together to give loans to unstable ones and limit the amount of cash that was available for depositors during times of economic wavering.
This strategy worked efficiently to mitigate banking crises, typically lasting only a few months.
However, after a series of bank runs in the early 1900s, political pressure mounted for the Federal Reserve (the Fed) – a central bank which could print new money or borrow itself – to intervene.
Instantly, this instilled confidence in bankers and citizens due to assumed protection from the Fed at all times.
Initially when times grew tough, the Fed would lend to commercial banks during crises.
However, when faced with The Great Depression in 1929, it took a drastically different approach by decreasing available money – leading banks assuming help from the government never restricted funds and operated as if nothing was wrong.
This resulted in devastating consequences between 1930-1934 whereby many banks closed down due to bankruptcy and harsh economic conditions lingered for a decade.
The Hidden Tax Of Inflation: How Governments Create Money And Decrease Our Wealth
Inflation is a direct result of government manipulation of the economy, and can be seen as a hidden tax on those who must pay it.
It occurs when the amount of money in circulation rises faster than the number of goods and services available in an economy.
This increase in demand forces prices up, while the purchasing power of any currency held by individuals decreases – since $100 no longer buys that same $100 worth of goods.
It is governments who have ultimate control over currency creation, giving them greater ability to finance their favored programs by printing more money, regardless if citizens have voted for any tax increases or not.
The United States saw a massive spike in inflation from 1861 to 1864 when it printed more money during the Civil War conflict; this highlights what can happen when governments create too much currency into circulation.
The only remedy for inflation is to reduce dollar growth and restrict how much money gets created by governments – something which can be tricky for politicians keen to keep their voters happy with spending promises.
Government Programs Are Inefficient, Regressive And Do Not Help The Poor
The modern welfare state is both inefficient and detrimental to the very people it was set up to help.
Despite good intentions, government bureaucrats are spending large amounts of money it doesn’t have on people other than themselves, and this reduces their incentive to get the most for their dollar.
Further, taxes redistributed with the aim of helping those in poverty often disproportionately affect them instead.
Social security, for example, is a regressive tax that hits those earning low wages particularly hard.
This means that money is transferred from poor to rich in an ironic twist of fate.
Additionally, due to having fewer political connections than wealthier citizens, the poor are at a disadvantage when competing in the scramble for extra funds alloted for welfare.
Even when money is allocated for government welfare programs, often times much of it is diverted away towards political campaigns or legislators instead of those who need it most.
Ultimately, only human kindness or self-interest ensures that a charity’s funds are spent appropriately–when someone has a vested interest in ensuring their donations are spent wisely (i.e., they spend their own money), they will make better decisions and produce more efficient results.
The Poor Pay The Price For The Centralization Of Public School Education
It’s clear that our education system has greatly suffered as the control of schools has been taken away from local communities and centralized in Washington DC.
Since the 1840s, government-run schools replaced diverse system of private schools, leading to lower quality education.
This process has caused three major problems: larger classrooms, reduced school choice and growth of administrative power.
What’s worse is that the poor are particularly affected by this decision as they don’t have the ability to send their children to a better school or move to wealthier districts with superior parent-supported schools.
As more money pours into ‘fixing’ these problems through taxes only serves to make them worse – more teachers, administrators and staff – while students’ influence on their own education diminishes.
It’s evident that local control and parental involvement in schooling has been largely replaced by federal bureaucrats and this is one of the main causes for our current educational predicament.
The Government’s Attempts To “Protect” Consumers Can Lead To The Opposite Effect
The government often believes that regulating the market and protecting consumers is beneficial, when in reality it can have the opposite effect.
Not only does it impede economic growth, but regulations also cause prices to rise as businesses must comply with increasingly complex rules and regulations.
This leads to higher cost of production that is inevitably passed on to the consumer.
A classic example of this can be seen in the New Deal – a package of progressive reforms in the 1930s which saw a quickening of federal intervention in the economy followed by slow growth throughout the following decades.
At its worst, 21 new regulatory agencies were created which caused economic growth to suffer dramatically.
Furthermore, government intervention can limit competition by protecting powerful special interests, as shown in late 19th century railroad industry where faltering companies successfully lobbied for intervention from the Interstate Commerce Commission to regulate their own industry – ultimately raising prices and preventing fresh competition from entering.
For ultimate protection of customers, we need less regulation and more competition so that prices stay low and sellers are incentivised to provide better products or risk losing their patrons’ loyalty.
The Free Market Provides Natural Protection From Exploitation Of Workers And Employers
Attempting to protect workers from exploitation through government regulations and labor unions can do more harm than good.
Unions, for instance, are granted special privileges which give workers benefits above and beyond what non-union workers make.
This drives up the cost of goods and services, prevents competition from unlicensed individuals, and forces workers to accept higher wages – all at the expense of the less skilled.
The minimum wage is one example of this type of protection policy causing more harm than good.
Despite being intended to benefit those with lower skills, it often results in high unemployment among low income households and black teenagers in particular, because they simply do not have the skills necessary to command a higher wage yet also cannot afford to work for less than what is mandated by law.
In contrast, leaving labor provision and pricing to the free market is a much better approach as it provides both employers and employees with natural protection from exploitation without interfering with the economic balance.
A freer market environment expands job opportunities while providing employers with access to larger pools of potential employees – thus avoiding oversaturation or shortages that would bring about exploitation or underpayment.
We Need To Limit Government Power In Order To Preserve Human Freedom
We are in danger of losing our freedom if the power of government continues to grow and control more aspects of our lives.
Unfortunately, when the size of government increases, so too do the costs and inefficiencies associated with it.
For example, even though we’re paying taxes to fund programs that discourage smoking, we’re simultaneously also paying to subsidize tobacco farmers.
This leads to a lot of money being wasted on unnecessary items.
What’s worse is the fact that citizens find it difficult to understand what their government is doing due to the sheer number of laws and agendas they have to keep up with.
This further puts a wedge between people and their government when more bureaucracy is introduced.
But there is hope – if we can limit the power of government by putting restrictions on their spending, then this will empower citizens by placing them back in control.
One such great idea is an economic Bill of Rights that specifically targets economic areas where a restriction has been placed on what the government can and cannot do; for instance, limiting their total budget each year would ensure that those vying for special interests would need to compete for a fixed pie instead colluding with the government.
At its core, unlimited power whether from political or other entities is a threat to human freedom – this fundamental truth must not be forgotten!
The good news is that while our country may not be completely free at present, we still have choices and as citizens let us use them wisely as we work towards preventing further concentrations of power in order to ultimately reclaim back our freedoms.
Wrap Up
The overall message of Free to Choose by Milton Friedman is that economic freedom is vital for personal freedom.
The book provides actionable ideas on how to reintroduce economic freedom into today’s society and protect individuals from government control via economic commands.
It outlines a voucher system to improve the quality of education, with parents using vouchers equal to the cost of their child’s schooling as a tool for school choice and competition amongst schools.
It also suggests an economic Bill of Rights be added to the Constitution in order to limit the federal government’s spending capacity and enable taxpayers funds to be spent more wisely.
In summation, Friedman advocates for a return to an economy based on personal responsibility and free markets.
