53 pages • 1 hour read
Milton FriedmanCapitalism And Freedom
Nonfiction | Book | Adult | Published in 1962A modern alternative to SparkNotes and CliffsNotes, SuperSummary offers high-quality Study Guides with detailed chapter summaries and analysis of major themes, characters, and more.
Chapters 5-6Chapter Summaries & Analyses
Chapter 5 Summary: “Fiscal Policy”
Friedman says people often justify the expansion of government power by arguing that additional state expenditures are necessary to curb unemployment. He notes that New Deal policies popularized this argument and established a pattern of unwarranted government spending. During the New Deal, government spending was thought to “prime the pump”: a short period of extra spending would boost the economy, and then the government could step back (75). This makes sense in theory but was not true in practice, Friedman says.
More recently, arguments for extra government spending have focused on a balance-wheel theory: when private expenditures decrease, government spending should increase and vice versa. “Unfortunately, the balance wheel is unbalanced,” Friedman remarks, noting that each recession “sends a shudder through politically sensitive legislators and administrators with their ever present fear that perhaps it is the harbinger of another 1929-33” (76). Therefore, the government pours money into new programs when a recession looms but fails to repeal them when conditions improve. Friedman thinks fears about short-term economic stability should not drive government spending. Instead, expenditures should be funded by taxes and driven by what a community believes the government will achieve more efficiently than private efforts.
Friedman also thinks the balance-wheel theory is based on shaky reasoning. He says it originates from “a crude Keynesian analysis” that conceives of a “multiplier” effect for government expenditures (79-80). For instance, when the government spends an extra $100, income grows by $300. Friedman says this logic is flawed because it doesn’t account for other factors influencing this growth. It also doesn’t consider what the government is funding with the $100. It could be a program that drains money from the economy. It’s not clear where the government got the $100, either. As Friedman explains, if the government “borrows $100 with its right hand from some individuals and hands the money with its left hand to those individuals to whom expenditures go [...] [d]ifferent people hold the money but the total amount of money held is unchanged” (81-82). Plus, Friedman says there’s extensive empirical evidence showing that, on average, $100 of government spending results in $100 of income; in other words, there’s no multiplier effect.
Chapter 6 Summary: “The Role of Government in Education”
Friedman thinks the government plays too great a role in the nation’s schools. However, widespread education is useful for instilling a common set of values and providing a basic level of literacy and knowledge, conditions that sustain democracy. Government intervention can be justified by neighborhood effects, such as the fact that the education of one person’s child works to build a “stable and democratic society” that benefits many (86). Paternalistic concern for children’s well-being may also be an acceptable rationale for government involvement in schooling.
There are ways to promote the aforementioned neighborhood effect with less government intervention. For instance, the government could require all children to receive a minimum amount of schooling of a certain type. It could impose this requirement on parents but refrain from providing the schooling itself, Friedman asserts. In a typical community, most families could pay for this schooling, which would eliminate the need for taxing the entire population to pay for the young residents’ schooling. In these communities, subsidies could be given to the neediest families to ensure that the requirement is met. In some other communities, however, there might be a justifiable reason to subsidize all schooling of a certain level or type. Each community must decide which forms of schooling provide the most social good to its residents.
Friedman says it’s difficult to justify nationalization of basic education. One justification is that without it, providing a “common core of values deemed requisite for social stability” might be impossible (90). Another justification involves technical monopolies. such as a situation where a community is too small and remote to provide enough schools, though Friedman thinks this type of monopoly is becoming less common with the expansion of transportation infrastructure. However, the government might need to step in to ensure that an adequate number of acceptable schools is available in the smallest, most isolated communities. A third justification involves the claim that private schools intensify class distinctions, but Friedman suspects that this problem has more to do with stratification of residential areas.
It’s even harder to advocate nationalization of higher education using the aforementioned justifications, Friedman argues. Federal subsidies for college education might be justified as a way of training young people for citizenship and community leadership, but this rationale doesn’t apply to vocational training. Friedman says subsidizing general forms of schooling is preferable to subsidizing vocational training. He says the bulk of “general schooling adds to the economic value of the student” and that “much vocational training broadens the student’s outlook,” noting that the former produces a neighborhood effect that benefits numerous people while the latter does less to benefit others (88).
Denationalization of schools is ideal, Friedman says, since it would widen the range of choices for parents and increase competition among schools, thereby increasing quality and efficiency. Plus, it’s important for the school system to adapt to the country’s changing needs. In the early 19th century, when there was an influx of immigrants with different cultures, customs, and languages, there was an acute need for a common core of values and knowledge, especially English-language knowledge. The need for such conformity has decreased, Friedman argues, while the need to “foster diversity” has increased (97).
Friedman also proposes that school vouchers replace the government-run public school system. The government would give parents vouchers to redeem at any school that meets a specified set of requirements. Friedman says this system would be fairer than the current system for parents who choose private school since they wouldn’t be forced to pay for both public schools and the institutions their children actually attend. Instead, they’d receive “a sum equal to the estimated cost of educating a child in a public school,” which they’d apply to the private school’s tuition (93). Friedman also complains that teacher salaries in the current system are “too uniform and rigid” (95). The best teachers are underpaid, the worst overpaid. Seniority and credentials play too great a role in salaries, while merit is inadequately compensated. The market, he says, could remedy these issues if a voucher system were adopted.
Chapters 5-6 Analysis
Both of these chapters share examples of state interventions that ultimately increased the government’s size and power. In Chapter 5, Friedman explains how the New Deal made the federal government accustomed to spending more than it should, especially when fears of recession ran high. He asserts that people get used to these spending habits and products of that spending, for instance safety-net programs. They don’t want to give up the habits or the programs when economic conditions improve, so they justify continued spending by coming up with excuses: fear of yet another recession, needing to reduce unemployment, and so on. What they should actually do, according to Friedman, is accept that times and conditions have changed and that the government’s response must therefore change to meet these needs.
The concept of changing needs also ties together Chapter 6. It is a major component of Friedman’s argument that government control of schools is no longer desirable because the need for conformity has decreased. When schools were filled with immigrant children from different cultural and language backgrounds, it made sense for the government to step in to make sure that certain common goals were being met, such as with providing English-language instruction. Now that most school-age children speak English, there’s a greater need to provide more educational choices to families, Friedman says. The market is better at providing such choices because it promotes competition, so decreasing government involvement in schools is a smart choice, he argues.
