"For Love of Neighbor" is a new documentary film offering a hopeful vision for Christian engagement in politics. Click here to learn more.

The Power of the Market: Part 2

This is part of a series on Milton Friedman’s “Free to Choose.” In my previous post I explained the three ways a market economy naturally regulates prices in a way that is more efficient than a command economy. This is part three of a book series on Free to Choose by Milton Friedman. Some people think the free market is full of greedy men who respond to monetary stimuli. But this isn’t the essence of a market (despite some types of those men acting within the free market). Rather, self-interest is “whatever it is that interests the participants, whatever they value, whatever goals they pursue.” This is why an economy is very much like any industry: science, linguistics, theology, etc. In each industry there is the attempt to build and grow the knowledge within the field, so that the bad ideas will dissolve over time and the good ideas succeed and live on. So what is the role of the government in all of this? In a way, the government is like a market because people voluntarily choose what they believe is the most effective way of achieving something (like universal healthcare). Friedman points to local governments as entities where we can object to what the government does because we can move. And yet government is more than a voluntary cooperation of individuals because “it is also the agency that is widely regarded as having a monopoly on the legitimate use of force or the threat of force as the means through which some of us can legitimately imposes restraints through force upon others.” Friedman cites three points from Adam Smith. First, a government has a duty to protect its people from violence and invasion from other societies. Second, a government has a duty to protect its people from people within the society (and to set up a system that administers justice). Third, a government should erect and maintain certain public works and institutions. This third point has been grossly misused to defend all sorts of government programs. “In our view it describes a valid duty of a government directed to preserving and strengthening a free society; but it can also be interpreted to justify unlimited extensions of government power.” Consider the example of road building. The costs may be too high for any one organization to build roads and then collect tolls to cover their costs. Therefore we give this task to the government to handle. However, despite the benefits there are also costs, and often, unforeseen costs. Aside from poorly budgeted projects, delays and unions to work with, there are third parties that are affected. Parties that do not use the roads and would otherwise never have paid to use such a government program or institution. Friedman writes, “as a result a government attempt to rectify the situation may very well end up making matters worse rather than better—imposing costs on innocent third parties or conferring benefits on lucky bystanders.” Moreover, there is a greater risk with power for some of the citizens to take advantage of others. This is seen on the low-income end where people may abuse the system or on the high-income end where the crony capitalism takes place. The lesson to be learned is that there ought to be a very clear cost-benefit analysis where the burden of proof is on the bureaucrats before any plan is implemented. Even still, “experience shows that once government undertakes an activity, it is seldom terminated.” Rather than its abolition, a license for more power and more money is granted. Today we are suffering under the size and power of the federal government. Some of us are suffering from the size of our state governments, too! We need to elect wise individuals who have a basic knowledge of economics and markets, who can understand that the government is not the solution to our problems, but the cause.