Capitalism and Freedom – Friedman


Not a recommended read.

This lengthy book by Friedman feels more like multiple opinion pieces rather than accurate research.

The crux of the book is about letting markets operate with minimum government intervention. He argues that this will reduce inequality, improve living standards, and make everything great.


  • You cannot separate political freedom and economic freedom, they are intertwined.
  • Further, you cannot join any two models (economic and political) as they are not always compatible (fundamentally).
  • Free-market capitalism fosters freedom by distributing capital and hence power-to-revolt into the hands of many.
  • Free-market capitalism fosters freedom by separating politics from capitalism. This allows capital to be used in ways that are against the dominant political view.
  • A liberal says that there should be complete freedom in the market as this will enable competition to bring about the most efficient outcome.
  • While being true, the most efficient outcome is not always the best outcome for society at large. This is the problem of capitalist production, it has no limits or morals.


  • “The possibility of co-ordination through voluntary co-operation rests on the elementary—yet frequently denied—proposition that both parties to an economic transaction benefit from it, provided the transaction is bi-laterally voluntary and informed. Exchange can therefore bring about co-ordination without coercion. A working model of a society organized through voluntary exchange is a free private enterprise exchange economy—what we have been calling competitive capitalism.”
  • “Aside from this, perhaps the most difficult problems arise from monopoly—which inhibits effective freedom by denying individuals alternatives to the particular exchange—and from “neighborhood effects”—effects on third parties for which it is not feasible to charge or recompense them. These”
  • “The existence of a free market does not of course eliminate the need for government. On the contrary, government is essential both as a forum for determining the “rules of the game” and as an umpire to interpret and enforce the rules decided on. What the market does is to reduce greatly the range of issues that must be decided through political means, and thereby to minimize the extent to which government need participate directly in the game. The characteristic feature of action through political channels”
  • “Indeed, it is important to preserve freedom only for people who are willing to practice self-denial, for otherwise freedom degenerates into license and irresponsibility. What is essential is that the cost of advocating unpopular causes be tolerable and not prohibitive.”
  • “The widespread use of the market reduces the strain on the social fabric by rendering conformity unnecessary with respect to any activities it encompasses. The wider the range of activities covered by the market, the fewer are the issues on which explicitly political decisions are required and hence on which it is necessary to achieve agreement. In turn, the fewer the issues on which agreement is necessary, the greater is the likelihood of getting agreement while maintaining a free society.”
  • “The day-to-day activities are like the actions of the participants in a game when they are playing it; the framework, like the rules of the game they play. And just as a good game requires acceptance by the players both of the rules and of the umpire to interpret and enforce them, so a good society requires that its members agree on the general conditions that will govern relations among them, on some means of arbitrating different interpretations of these conditions, and on some device for enforcing compliance with the generally accepted rules.”
  • “These then are the basic roles of government in a free society: to provide a means whereby we can modify the rules, to mediate differences among us on the meaning of the rules, and to enforce compliance with the rules on the part of those few who would otherwise not play the game.”
  • “Government responsibility for the monetary system has long been recognized. It is explicitly provided for in the constitutional provision which gives Congress the power “to coin money, regulate the value thereof, and of foreign coin.” There is probably no other area of economic activity with respect to which government action has been so uniformly accepted.”
  • “The role of government just considered is to do something that the market cannot do for itself, namely, to determine, arbitrate, and enforce the rules of the game. We”
  • “The choice between the evils of private monopoly, public monopoly, and public regulation cannot, however, be made once and for all, independently of the factual circumstances. If the technical monopoly is of a service or commodity that is regarded as essential and if its monopoly power is sizable, even the short-run effects of private unregulated monopoly may not be tolerable, and either public regulation or ownership may be a lesser evil.”
  • “In a fractional reserve banking system like ours, a bank does not of course have a dollar of currency (or its equivalent) for a dollar of deposits. That is why “deposits” is such a misleading term. When you deposit a dollar of cash in a bank, the bank may add fifteen or twenty cents to its cash; the rest it will lend out through another window. The borrower may in turn redeposit it, in this or another bank, and the process is repeated. The result is that for every dollar of cash owned by banks, they owe several dollars of deposits. The total stock of money—cash plus deposits—for a given amount of cash is therefore higher the larger the fraction of its money the public is willing to hold as deposits. Any widespread attempt on the part of depositors to “get their money” must therefore mean a decline in the total amount of money unless there is some way in which additional cash can be created and some way for banks to get it. Otherwise, one bank, in trying to satisfy its depositors, will put pressure on other banks by calling loans or selling investments or withdrawing its deposits and these other banks in turn will put pressure on still others. The vicious cycle, if allowed to proceed, grows on itself as the attempt of banks to get cash forces down the prices of securities, renders banks insolvent that would otherwise have been entirely sound, shakes the confidence of depositors, and starts the cycle over again.”
  • “Our problem is not to “solve” a balance of payments problem. It is to solve the balance of payments problem by adopting a mechanism that will enable free market forces to provide a prompt, effective, and automatic response to changes in conditions affecting international trade.”
  • “Under a real gold standard, the prices of different national currencies in terms of one another would be very nearly rigid since the different currencies would simply be different names for different amounts of gold.”
  • “To take a more general example, the preserves of discrimination in any society are the areas that are most monopolistic in character, whereas discrimination against groups of particular color or religion is least in those areas where there is the greatest freedom of competition.”
  • “A businessman or an entrepreneur who expresses preferences in his business activities that are not related to productive efficiency is at a disadvantage compared to other individuals who do not. Such an individual is in effect imposing higher costs on himself than are other individuals who do not have such preferences. Hence, in a free market they will tend to drive him out.”


Sebastian Kade, Founder of Sumry and Author of Living Happiness, is a software designer and full-stack engineer. He writes thought-provoking articles every now and then on

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