Friedman Argued That Economic Freedom Comes Before Political Freedom

Here is a quiz question for anyone who thinks economics is the dull part of politics. Suppose you are a writer who thinks the government is wrong, loudly wrong, about nearly everything. Who pays your rent? If the answer is the government, you have a problem, and so does the cause of free speech.

That little puzzle is the engine of the first chapter of Milton Friedman's Capitalism and Freedom, published in 1962. The chapter is titled "The Relation between Economic Freedom and Political Freedom," and it makes one of the most important arguments in modern political thought: you cannot have the second without the first. Many people hear that and imagine a lecture about tax rates. It is closer to a lecture about who owns the printing press. Let me lay it out in numbered steps, as the argument deserves, and then test it against the strongest objection.

The book and the man

Milton Friedman taught economics at the University of Chicago for three decades, won the Nobel Prize in economics in 1976, and became the best-known popularizer of free-market economics in the country. Capitalism and Freedom grew out of lectures he gave in 1956 at a workshop at Wabash College in Indiana, and was published by the University of Chicago Press in 1962, a year when the Soviet Union looked, to many Western intellectuals, like the wave of the future.

That context matters. The book is not a manual on how to get rich. It is a defense of a free society written during the Cold War, by an economist who believed the central question of politics is how to restrain concentrated power. Friedman opens by taking on a famous line from John F. Kennedy's inaugural address, the one about asking what your country can do for you and what you can do for your country. He objects that the first half implies government is the patron and the citizen the ward, and the second that government is the master and the citizen the servant. The free man, Friedman says, asks neither question. He asks what he and his compatriots can do through government to help discharge their individual responsibilities, achieve their goals, and above all protect their freedom.

Friedman's two kinds of coordination

To follow the argument you need his terms.

Friedman says there are two basic ways to coordinate the economic activity of millions of people. One is central direction involving the use of coercion, the technique of the army and of the modern totalitarian state. The other is voluntary cooperation of individuals, the technique of the marketplace.

The second rests on a simple observation: exchange can be voluntary only if both sides benefit. Friedman pictures the simplest form as a collection of independent households, Robinson Crusoes as it were, each producing goods to exchange with the others. A household can always produce for itself, so it trades only if it gains, and as long as the exchange is voluntary and informed, no one is forced and both sides win. A society of such exchanges can coordinate the work of millions who never meet, with no one in charge.

Friedman calls the modern form of this competitive capitalism. By it he means private ownership of the means of production together with free exchange in markets, under a framework of law. He is careful to separate it from monopoly and from favors from the state. We will return to that.

The argument in numbered steps

Here is the chain, as Friedman builds it.

1. Political freedom means the absence of coercion of one person by his fellows. The great threat to freedom is concentrated power, whether in the hands of a monarch, a party or a majority.
2. Government is necessary to preserve freedom, to enforce contracts, to protect against force and fraud, but it is also a threat, because it is the most concentrated form of coercive power.
3. The way to reduce the threat is to limit and disperse power. The fewer decisions made by the political authority, the less there is to capture or abuse.
4. A free market removes the organization of economic activity from the control of the political authority. It takes a vast range of decisions about who works where, who produces what, and who consumes what, and leaves them with individuals trading voluntarily.
5. That removes a source of coercive power, and it also provides a counterweight: wealth and income held outside the state, in the hands of people who can support causes and persons the government dislikes.
6. Therefore economic freedom is a necessary condition of political freedom. The chapter says "necessary," and it says it carefully, because the claim is not that economic freedom guarantees political freedom.

Notice the shape of premise 5, because that is where the book's most striking example lives.

The dissenter and the printer

Friedman asks what happens to dissent in a society where the state controls the economy. His test case is a supporter of capitalism living under socialism. How would he finance his cause? Where would he get paid if he dissented from the government's policy? He would have to persuade a government paper factory to sell to him, a government printing press to print his pamphlets, a government post office to distribute them and a government agency to rent him a hall.

Now turn to a free market society. There, Friedman says, it is enough to have the funds: the suppliers of paper are as willing to sell it to the Daily Worker as to the Wall Street Journal. A man who wants to advocate socialism can do so, and radical movements in capitalist societies have typically been backed by a few wealthy patrons who were persuaded, Friedrich Engels being his older example. It is only necessary to persuade someone that the venture can succeed, and there are many independent sources of support. In short, a socialist in a free market economy can still buy paper and pay a printer. He does not need the permission of a minister of information. If the idea is bad, it fails. If it is unpopular, it can still survive on a small but devoted following. Either way, no bureaucrat decides.

Compare the alternative in the abstract. In a country where the state owns every printing press, every paper mill and every meeting hall, a request to publish is a request for permission from the officials you want to criticize. Friedman does not need to name any country, because the pattern is plain to anyone who has read the history of censorship. The control of the means of expression follows from the control of the means of production. This is the same worry that animated Milton's Areopagitica against licensing, as we trace in Milton's Areopagitica of 1644 Is Still the Best Case Against Licensing Speech.

Friedman adds an observation from American history. During the McCarthy era, he notes, people who were accused had little protection if government employment was their only option, and their fundamental protection was a private market in which they could earn a living. He grants the protection was not absolute, since many private employers were averse to hiring them, but the costs were limited and not prohibitive. He also notes the impersonality of the market: no one who buys bread knows whether the wheat was grown by a Communist or a Republican, a constitutionalist or a Fascist, and the market separates economic activity from political views.

The role of competitive capitalism

Friedman's claim is not that any economy with private property will do. The word "competitive" in competitive capitalism is doing real work. His case for freedom depends on the dispersal of power, and a monopoly, whether public or private, concentrates it. A single private firm that controls an essential good has its own leverage over individuals, and a government that grants a private monopoly through licensing or protection has created a power it can later use as a lever.

That is why the chapter is a defense of the market and not of every business. A conservative who defends free enterprise should be the first to condemn crony arrangements, where firms use the state to shield themselves from competition, because those arrangements are the point at which economic power and political power merge. Adam Smith made a similar complaint about merchants and the mercantile system, which we cover in The Invisible Hand Appears Once in The Wealth of Nations, Here Is Why.

The best objection: authoritarian markets

Now the counterexamples. The sharpest objection to Friedman is that history seems to contain societies with substantial market economies and no political liberty. The objector states the case this way.

Friedman says economic freedom is a necessary condition for political freedom, yet there are authoritarian regimes that allow wide markets: Chile under Pinochet, South Korea and Taiwan in their decades of one-party rule, Singapore, and today's China, whose economy is in large part private and whose politics are not free. If markets and dictatorship can live together, markets cannot guarantee liberty, and Friedman's thesis is empty.

Here is the reply in five parts.

1. Friedman anticipated the objection and conceded the point. He says explicitly that capitalism is a necessary condition for political freedom, not a sufficient one. He acknowledges that economic freedom has coexisted with political tyranny and cites examples from his own century: he lists Fascist Italy, Fascist Spain, Germany at various times, Japan before the world wars and tsarist Russia in the decades before World War I as societies where private enterprise was the dominant form of economic organization yet political freedom was absent.
2. "Necessary, not sufficient" is a real claim, and the cases fit it. The counterexamples show markets without freedom. The thesis says there is no freedom without markets. To refute it you need a society with political liberty and a fully state-run economy, and no such case has appeared. Every durable free society has had a substantially private economy.
3. The authoritarian market economies drifted toward liberty, not away from it. South Korea and Taiwan became democracies in the late 1980s and 1990s, after decades of market-driven growth had created a middle class with property to protect and opinions to voice. Chile returned to elected government at the end of the 1980s. The market was the seed of the change, and not its enemy.
4. Partial markets are not Friedman's competitive capitalism. Where the state allocates credit, licenses firms and punishes the disloyal, the economy is not free in his sense, however many private companies it contains. The test is whether a person can take up a trade, start a business or publish a view without permission from a party official. That test is why China's economic openness has stopped well short of the thing Friedman meant.
5. The dispersal of power still works at the margins. Even in these regimes, the people who gain independent wealth are the ones who first begin to ask for rules that bind the rulers, such as courts that enforce contracts against the state. That is the logic of the argument in motion.

The verdict on the objection: it refutes the claim that markets alone produce freedom, which Friedman never made, and it leaves standing the claim that freedom does not survive without them.

What it means for a family

This is not only a theory of regimes. It has a domestic edge. The same logic that protects the dissenter protects the ordinary household: the ability to choose where to work, where to shop, what to save and whom to hire. Each of those is a small piece of independence. The more of them the state takes, the more a family's livelihood depends on keeping officials happy, and the less room there is to say no.

That is a reason to examine each proposal to expand government's role in the economy with one question beyond "will it work?" The question is: whose permission will a person now need? A licensing regime, a price control or a government monopoly each adds a gatekeeper. Sometimes a gatekeeper is justified, to prevent fraud, force and genuine harm. But Friedman teaches us to count the cost in liberty as well as in dollars, and to keep a ledger of the permissions we have handed over. His follow-up on how government money actually gets spent, in Friedman's Four Ways to Spend Money Explain Every Government Budget, pursues that ledger.

The Founders had the same instinct in a different key. They separated powers because they knew concentrated authority corrupts, and they protected property in the Fifth Amendment because independent holdings are the ballast of a free people. Madison wrote in 1792 that a man has a property in his opinions and the free communication of them, and a property in his faculties and his free use of them, as discussed in Madison's 1792 Essay Says Your Conscience Is Your Property Too. Friedman built the economic half of that house.

The case in brief

1. In Capitalism and Freedom (1962), Friedman argues that a free economy is a necessary condition of political freedom, because it removes economic decisions from political control and disperses power.
2. The voluntary exchange of the marketplace coordinates millions without coercion, while central direction requires force.
3. Dissenters survive in a free market because a socialist can still buy paper and hire a printer; where the state controls all employment and printing, dissent needs official permission.
4. The thesis claims necessity, not sufficiency, so authoritarian market economies do not refute it, and those that grew rich drifted toward liberty, not away from it.
5. For families the test of any economic proposal includes whose permission a person must now obtain.

What you can do: look up the occupational licenses your state requires for an ordinary trade, from your state's licensing board website, and ask your legislator whether each one protects the public or protects incumbents.