Milton Friedman

We guess that you are looking for biographical data about Milton Friedman, but you already know, that we find that completely useless. Wikipedia is the right place to go: Milton Friedman.

Between the huge amount of authors and lines of thinking that stick and are based on the classical / neoclassical theory, neoliberalism, ordoliberalism, social market economy, austrian school Milton Friedman is an exception, because he is not only famous for his interventions in favour of a (very) free market economy, but as well as the most prominent representative of monetarism and monetarism argues with the same monetary transfer mechanisms as keynesianism, but due to special assumptions gets to the same result as the simple quantity theory of money. We will discuss this topic later, see monetarism.

The differences between neoliberalism, ordoliberalism, social market economy and the austrian school are difficult to grasp, because concerning the concepts about fundamental economic mechanisms there are none. (If we disregard the fact that monetarism argues with keynesian monetary transfer mechanisms.)

All these lines of thinking stick to the (wrong) classical / neoclassical concepts about interest rates, savings, capital and money,
see Keynes.

These lines of thinking focus on freedom, economic order, efficiency and social balance, but assign to each of this criteria different importance. In other words, we can't say that these lines of thinking disregard one of these criteria, but they attach them a different importance.

The champions of the freedom fighters are Milton Friedman and Friedrich Hayek. If we want to keep it short and simple, they argue that everything that has to be organised, controlled and steered are best steered by the market mechanisms, see natural price / market price, and if that is not possible, there is no need to steer it at all.

In comparison to Adam Smith, there is a radical change. For Adam Smith the market is guarantor for efficiency, freedom is not an issue in Wealth of Nations. For Friedrich Hayek and Milton Friedman it is the other way round. The market economy is most of all the guarantor of freedom and efficiency is only a side effect of this economic order.

That leads to the strange situation that a market economy is preferable even in the case, that it is less efficient, because only in this system freedom is guaranteed.

The argumentation is that in a market economy people cooperate voluntary and without coercion, while in a planned economy there is a centrral steering commitee that peole tell what they have to do.

Adam Smith saw that in a very different way. The market economy is efficient, because it exerts an effective and efficient control and reduces freedom to a maximum. That is the positive aspect of a market economy. The restriction of freedom. The baker doesn't produce good and cheap breads because that is what he likes to do, but because he has no chance to something else. (If he wants to work as a baker.) Competition restricts his freedom to almost zero. The advantage of this system is that the control and the restriction of freedom is exerted autmatic and objectively. There is an objective market price and an objective quality and those who can offer their products at this price and in this quality are allowed to continue, the others have to leave the market.

Who has ever worked in a public bureaucracy knows that this is much more efficient. In a bureacracy there is a lot of freedom for the public employee. Very often say can decide what they offer, at least the amount, and at what price. There is no competion, because very often they are the only ones who produce this product or service, the objective costs and therefore the price is unknown and they have no interest to install any kind of interior controlling system.

The total restriction of freedom is the positive aspect of a market economy. The argument with the free cooperation is curious. Companies cooperate with other companies, if that way they can offer the product for the best price in the best quality. If they don't cooperate, they have the freedom to leave the market.

The ordoliberalism, as we can guess from the name, points to a problem that is already mentioned in Wealth of Nations. Entrepreneurs don't feel really free in a market economy and they try to avoid the coercion exerted by competition by making agreements with their competitors concerning prices and qualitiy. In order to make the free market work it is therefore necessary to reduce the free 'cooperation' by establishing an economic order that reduces this kind of 'cooperation' in order to maintain the coercion exerted by competition.

The social market economy is actually pure marketing. After world war II germans associated with free market economy the 'survival of the fittest', as many people erroneously still do today, see homo oeconomicus, and it was therefore impossible for political parties 'to sell' this kind of economic order. The basic idea is that in the social market economy the allocation of resources is steered by the market mechanisms, but the distribution of income and fortune as a result of the market is changed afterwards through taxes and social transfers. This is only a marketing, because social systems existed long before this term was invented in any industrialised country.

But let's focus on Milton Friedman. Milton Friedman is almost always right in the description of a problem and in contrary to most economists he deals with a wide range of very concrete issues from the perspective of a free market economy. However it can be questioned that his solutions, more private initiative and less government intervention, could always work in practice.

Beside that most of the topics he deals with in free to choose are about efficiency, not about freedom. Freedom is only concerned to the extent that the inefficiency of the bureaucracy is a burden for the tax payer, because he pays the bill.

Neoliberalism, Hayek and Friedman, mixed the concept of liberty with capitalism. The most famous work of Milton Friedman is called 'Capitalism and Freedom', although nor the term capitalism nor the term freedom are defined.

We assume that he means by 'capitalism' an economic order based on the principle of a free market economy. In other words, prices signals scarcity what leads to an optimal allocation of resourcers, see natural price / market price. The term 'capitalism' would only have a meaning if it were assumed that the 'capital' determines economic development, something that Milton Friedman denies, see below. (Only in marxism 'capital' has this function, a line of thinking Milton Friedman is completely opposed to.)

The term freedom is only defined negatively as the absence of coercion. Apart from the fact that the advantage of a free market economy is the reduction of freedom, that the point critisiced by people like Adorno, although this reduction is necessary, this is not enough and meaningless. Freedom means that there are subjectively and objectively alternatives, see 'The principle of hope'.

We don't know what Milton Friedman means by the term 'capitalism', because he doesn't define the term nowhere. Perhaps he means an economic order that allows private property. However this is not a necessarily condition for a free market economy. Corporations, especially stock corporations, are 'public' companies. The managers of this companies don't work with their private capital, however nobody would deny that this kind of companies are very typical for a free market economy.

That he uses the term 'capitalism' is even more strange if we take into account that he is the founder of monetarism, who argues with keynesian transfer mechanisms and in the keynesian world 'capital' is just money and printed by the central banks depending on the evaluation of the monetary authorities of the macroeconomic situation, see interest rates.

In the next paragraph he tells us that the capital is almost irrelevant in the capitalism. That is actually what the author of these lines believes as well, but why he calls capitalism a system where 'capital' is irrelevant?

One of the most striking facts which runs counter to many people' s expectation has to do with the sources of income. The more capitalistic a country is, the smaller the fraction of income paid for the use of what is generally regarded as capital, and the larger the fraction paid for human services. In underdeveloped countries like India, Egypt, and so on, something like half of total income is property income. In the United States, roughly one-fifth is property income. And in other advanced capitalist countries, the proportion is not very different. Of course, these countries have much more capital than the primitive countries but they are even richer in the productive capacity of their residents; hence, the larger income from property is a smaller fraction of the total. The great achievement of capitalism has not been the accumulation of property, it has been the opportunities it has offered to men and women to extend and develop their capacities. [...] There is surely drastically less inequality in Western capitalist societies like the Scandinavian countries, France, Britain, and the United States, than in a status society like India or a backward country like Egypt.

aus: Milton Friedman, Capitalism and Freedom, Chicago, 2002, page169

Apart from the problem mentioned before, there is another problem with this paragraph. Milton Friedman wants to convince us that 'capitalism', actually he means a free market economy, leads to higher economic development. However he compares developped countries like the USA with less developped country like Egypt or India. The problem is, nor Egypt nor India were and had ever been 'socialist' countries. Under Gamal Abdel Nasser, he governed Egypt at the time 'Capitalism and Freedom' was first published, communism has been suppressed. Their economic model corresponded to a market economy. The paragraph therefore tells us the exact opposite of what Milton Friedman wanted to tell us. A free market economy alone is no guarantor for economic development. We have rich and poor market economies.

Economists have a problem with history in general. This is due to the fact, that they interpret history based on their economic theory and assume therefore a general law valid in the development of history. Economists, even those who stick to the philosophy of Karl Popper and it criticism on historicism, are never aware, that this is kind of a historicism, see The principle of hope.

If someone tries to 'proove' a theory by example taken from history, he assumes, beside a lot of other problems, that a stable relationship in history is stable in the future as well. This is historicism.

Milton Friedman assumes that it is "chrystal clear", see Milton Friedman Speaks - Is Capitalism Humane?, that the standard of living of the workers is higher in free market economies than in socialist countries. These thesis is far away from being chrystal clear, because there is no industrialised country that follows his model of a free market economy. All industrialised countries have mixed systems with an interference of the government in many areas. It seems that in the course of history people were not very convinced that a free market society alone will increase their living standard and step by step in a democratic decision making process the market economy has been modified. People wouldn't have done that, if the market economy alone would have led to a higher standard of living.

Beside that: In countries with weak governments, Guatemala, Nicaragua, San Salvador, Bolivia etc.. we have very free market economies as a natural result. But nobody would say that the living standard is higher there than for instance in Germany.

Milton Friedman tends to simplify. He compares 'capitalism', whatever that is, with socialism of the soviet union type. However that is not a useful comparison. There is a lot between these two extreme positions.

[There is an interesting similarity between religion fundamentalists. They always compare one religion with another, although this discussion leads to nowhere, because beside religion there are thousands of other mouvements, values, ideas, concepts, philosophical systems, attitudes, affect and emotions that has nothing to do with religion and in developed countries religion plays a minor role. We can discuss islam in comparation to the culture of the western world, but to compare islam with christianism doesn't make a lot of sense if it comes to discuss about real life problems.]

In a democracy it doesn't make a lot of sense to argue with 'freedom', especially if this term is understood almost exclusively as economic freedom, because that means nothing to most of people. For an unknown reason Milton Friedman assumes that the market economy is at stake and people want to abolish it. The truth is, that in no developd country exists an influential political party opposed to the market economy, However this is due to the fact that people assume that this is them most efficient economic order. Freedom doesn't play any role, because there is no freedom without money. East-Germans were free after the fall of the wall, but without heavy social transfers from West-Germany, they wouldn't have realised that they were free.

Fundamentally, there are only two ways of co-ordinating the economic activities of millions. One is central direction involving the use of coercion - the technique of the army and of the modern totalitarian state. The other is voluntary co-operation of individuals - the technique of the market place.

Milton Friedman, Capitalism and Freedom, Chicago, 2002, page 13

We have to distinguish between two different scenarios. The first scenario is the David Ricardo scenario. In this scenario employment depends on the amount of 'capital' that the 'capitalist' can use to employ workers. The more 'capital' he has, the more people he can employ. However whatever the amount of 'capital' disposable, there will always be more people looking for a job and that allows the 'capitalist' to pay a wage at the subsistence level. In this scenario the freedom of the workers consists in their choice between working and get a wage that allows them to survive or to starve hunger. This options exists as well in a socialist country. Workers have always the choice to commit suicide. If we call that voluntary cooperation between the worker and the capitalist, freedom is guaranteed in the David Ricardo scenario. (Actually we have this scenario in the labour market for poorly qualified people, if the demand for their services and products is limited, for instance cleaning.)

The second scenario, the neoclassic scenario Milton Friedman sticks to, is a little bit more complicated. In this scenario people will be employed until the (monetary) marginal output is higher or equal than the market price. That means, that the wage corresponds to the (monetary) marginal output. To keep it simple. Companies will employ people as long as they earn more money with the product or service produced by the worker than what they have to pay him. In this scenario workforce can become scarce and the workers have therefore a certain power. Companies will produce until the wage exceeds the price. In this scenario there is no voluntary unemployment. At a certain market price for a product or service, a certain amount of people are needed. Companies will never pay more than this market price, but never less as well, because a certain price requires a certain amount of workforce and if they pay less, they won't get it. People who don't want for the market price, are therefore voluntarily unemployed.

This logic makes sense as long as workforce becomes scarce at a wage level higher than the subsistence level. If it is under this level, people starve hunger and die. The neoclassical theory is still true in this case, dead people are not unemployed, but becomes a truism.

However it is questionable that this is a question of freedom. As long as the wage is higher than the subsistence level, people can work less. This is kind of freedom, but only a question of productivity and efficiency. Besides that, the theory assumes total mobility of labour. In some areas of the economy the demand is limited and therefore even a very low price and therefore a very low wage will not clear the market.

[Once again the neoclassical logic: If the price for trousers is very high, few trousers will be sold and produced and few workers will be needed to produce them. There is an exceed of workforce. This will lower the wages and trousers will be produced cheaper and therefore more trousers will be sold. This will last, until there is no workforce left. In this scenario the workers have a power, because workforce is scarce. They don't get more than the (monetary) marginal output of their work, but not less as well. However this is only true, if the demand is high enough to reach this point, what is not the case for instance in cleaning services, hair cutting, etc.. In these cases we will have an exceed of workforce and the wage will fall to subsistence level. Workers have no power. Beside that the theory is only meaningful if the point of full employment is reached at a wage higher than the subsistence level.]

In the world of Milton Friedman there is no need for labour law and unions. Everything is based on free cooperation. It seems that nobody agrees with Milton Friedman, because in any country we have labour laws that guarantee certains standards by governmental intervention.

The best example for free 'cooperation' is a marriage. In this case we can really speak of freedom of choice. However even in this case people ask the government to intervene in case of conflicts. Very often free cooperation is brought to court at the end.

The same is true for any kind of cooperation. Companies cooperate because otherwise they would be less efficient. They are not 'free to choose', they have to obey the market. This is without any doubt positive, but has little to do with freedom.

From a purely theoretic perspective Milton Friedman is right, in practice things are a little bit more complicated. Friedman argues that freedom is at stake, if the government possess all the economic resources, is the only employer, decides what to produce and how it is produced and how any productive factor is remunerated. That is true as long as in a free market economy people can choose where they want to work, what they produce and how they produce it. This choice however very often doesn't exist. His black and white logic doesn't fit.

Milton Friedman pushes the idea of free cooperation to its utmost consequences. Everything that must be steered is to be steered by market mechanisms and what cannot be steered by the market mechanism, shouldn't be steered at all. In this logic even democracy is considered coercion, see Milton Friedman on Democracy.

[It is actually a stunning phenomenon that both, Milton Friedman and Karl Popper, were members of the Mont Pélerin Society. Listening to Friedman one can get the impression that they never talked to each other. For Popper the important point is not that the majority rules, but the fact that in democracy there is peaceful way to get rid of incompetent governmnents. Beside that his example doesn't fit. If a minority is simply eliminated, as in his example, there is no longer a competition between ideas and therefore his example doesn't illustrate the way democracies works.]

We understand completely the basic position of Milton Friedman and there can be little doubt, that he is right concerning the fundamental problem he addresses. Public employees are always communists, although most of them suppose the opposite. They work with money they didn't earn themselves. their remuneration is independent from their performance, they have a secure workplace for their whole life, they don't have to adapt themselves to new circunstances, they have power without competence.

However if it is not possible to resolve all the problems by free cooperation, what is actually the case, see below, another control mechanism is needed. We can achieve by transparency mechanisms of control almost as strong as the market mechanisms, see preliminaries. That is not easy, because there are problems on both sides, on the supply side and the demand side, see The open society and its ennemies and The Culture Industry: Enlightenment as Mass Deception, but there is actually no third solution.

If the logic of Milton Friedman is pushed to it's utmost consequences, we get to the anarcho capitalism. (Actually his son, David Friedman and his grandchild, Patri Friedman, are adepts of anarcho capitalism.)

The characteristic feature of action through political channels is that it tends to require or enforce substantial conformity. The great advantage of the market, on the other hand, is that it permits wide diversity. It is, in political terms, a system of proportional representation. Each man can vote, as it were, for the color of tie he wants and get it; he does not have to see what color the majority wants and then, if he is in minority, submit.

Milton Friedman, Capitalism and Freedom, Chicago, 2002, page 15

That is true, but irrelevant, because in democracies an issue that can be resolved on a private basis by 'free' cooperation is never something about what has to be decided by a democratic decision making process. A democracy will never decide what we will have for dinner, the way we dress ourselves, the book we read, the colour of the tie or anything else of this kind. The statement of Milton Friedman is beyond the topic.

Of course Milton Friedman knows that there are external effects, third parties are negatively concerned (pollution), public goods, once a service or good is provided nobody can be prevented from using it (street lightning) and merit goods, the consumption is not high enough (education) what makes governmental intervention necessary. The buyer and the producer of a car by free cooperation will a agree that a car that is cheap, but pollutes the air is better than a more expensive clean car.

It is chrystal clear that the monetary policy, medical health care, jurisprudence, the police etc. can't be organised by free cooperation, although people like Murray Rothbard tells the opposite.

Furthermore it can be questioned whether his criticism addresses the right addressee. A lot of unnecessary governmental interventions are desired by the public. If people are too fat, they want the government to enact laws that prevents them from eating unhealthy food, although everybody knows what is healthy and less healthy and nobody is obliged to buy unhealthy food. In some countries, for instance in Germany, shops are closed on sundays. It is obvious that no regulations are needed here, because no shop owner is obliged to open on sundays and nobody is obliged to go shopping on sundays. Things become even more critical, if the government on behalf of the public imposes "moral concepts", if for instance he penalizes certain sexual behaviours that don't harm anybody or things like that.

However in all these and similar cases it is very often the public that demand governmental intervention. That a bureaucracy is always willing to interfere and enlarge its power is another story.

A general statement of the type "the less the government intervenes, the more freedom we have" is useless. We have to discuss for any single case if government intervention is needed and if needed, what kind of government intervention fits best and how this intervention can be controlled. There are no general answers.

Jurisprudence for instance is an almost uncontrolled system. The independence of the judges for instance is considered something sacrosanct everywhere. That leads to a situation where the complete ignorance of the law, the voluntary disregarding the law, not taking into accounts the facts or only the facts that fits with the previously made opinions are protected. Any country has in theory laws against the perversion of laws, but this laws are almost never applied in practice.

[It is often said that jurisprudence controlls itself, because we have several instances. This is ridiculous. Why a judge should contradict a colleague?]

A possible way to resolve this problem would be a compulsory publication of all sentences and the possibility to research this documents with different criteria. This would allow to detect structures and a judge who see his name very often appear in a dubious context would at the end change his behaviour. The author of these lines is running a website with this goal.

This author would say that Milton Friedman, although he addresses a real problem if he talks about concrete issues, risks to drift to ideology. Whatever he dislikes, taxes, customer duties, laws to protect the envirnment etc. is an attack to freedom. This is similar to the socialist arguing. Everything they don't like, private property, coordination through price signals, entrepreneurship etc. is lack of consciousness of classes.

Of course it is allowed to question everything, but one should go more into details. If a certain sector of the economy for instance benefits from an expansive fiscal policy or an expansive monetary policy, it can be allowed to tax this sector higher. If an expansive monetary policy lead to rising stock prices, it can be legitim to tax speculative profits. To give an example. If a government makes an expansive fiscal policy and the secondary effect needed to refinance this politics flows to foreign countries, it is legitimate that the government increases the customer taxes on imported luxury goods. To give another example. For more details see Keynes.

One may say that the support of Friedman and Hayek to Pinochet was the error of two old man who didn't really understand what was going on in Chile, who didn't speak spanish and had therefore no possibility to get first hand information. However their support for Pinochet is the result of their way of thinking. Democracy is coercion for them and more considered as a risk to freedom than as the protector of freedom.

Die heutige Mode, die Demokratie als den bedrohten Eckpfeiler unserer Zivilisation hinzustellen, hat ihre Gefahren. Sie ist weitgehend für den irreführenden und unbegründeten Glauben verantwortlich, daß keine Willkürherrschaft möglich ist, solange der Wille der Majorität für die Ausübung der Macht maßgebend ist. Die trügerische Sicherheit, in die sich viele Leute durch diesen Glauben wiegen lassen, ist eine Hauptursache der allgemeinen Sorglosigkeit gegenüber den uns drohenden Gefahren. Der Glaube, daß keine Regierung eine Willkürherrschaft sein kann, wenn sie nur ein Produkt des demokratischen Wahlverfahrens ist, ist ganz unbegründet und die darin liegende Gegenüberstellung vollkommen falsch: nicht der Ursprung, sondern die Begrenzung der Regierungsgewalt bewahrt sie vor Willkür. Es ist möglich, daß das demokratische Kontrolllrecht eine Willkürherrschaft verhindert, aber dann nicht durch seine bloße Existenz. Wennn die Demokratie sich zu einer Aufgabe entschließt, die notwendigerweise eine Anwendung der Staatsgewalt voraussetzt, die sich nicht an festen Normen orientieren kann, muss sie zur Willkürherrschaft werden.

aus:Friedrich Hayek, Wege zur Knechtschaft, page 100

The todays fashion to consider democracy as the threaten pilar of our civilisation is risky. This fashion is responsible for the misleading and unfounded belief that tyranny is impossible as long as the will of the majority is the basis of the exertion of power. The deceitful security a lot of people are lulled by this belief is the main reason of the general insouciance and the juxtaposition completely wrong: It is not the origin of governmental power, but the limitation that prevent tyranny. It is well possible that democratic control prevents tyranny, but not by the mere fact that is exists. If a democracy decides to undertake a task that requires the use of governmental power and this power is not bind to norms, it unavoidably becomes tyranny.

We are not going to rediscuss this issue, we have already discussed about it, see a variation of a theory about totalitarism. To keep it short and simple. Any alternative to democracy is an oppression of the majority, because otherwise the government would be willing to be confirmed by democratic elections. Concerning the last sentence, this is true for any form of government and has nothing to do with democracy. Last not least, the point is not whether the majority rules or not, actually a majority is something "formed" by political parties, but nothing that exists by nature. The question is whether it is possible to get rid of east peacefully.

The logic behind this paragraph is this. Friedman and Hayek assumes simply that everything that should be steered should be steered by the market mechanism and what cannot be steered by the market mechanism, shoudn't be steered at all. Under this perspective a democratic decision process is not really needed. A dictator like Pinochet that guarantees 'economic freedom', is better than an democracy that intervenes in the economy, because this would mean 'coercion'.

['Economic freedom' means in this case suppression of unions, privatisation of companies run by the government, lower customer duties, decrease of taxes based on income and increasing the added value tax, restitution of the land that was given to cooperatives in the time of Allende to the former landowners, reduction of the government budget, privatisation of medical health care and pension system, limbering the laws that protects workers. Any of this measures can be useful in some circumstances and in others not. Highly industrialised countries like France, Germany, Sweden etc.. never sticked to this kind of Manchester Liberalism. In Chile his policy failed at the end. For a more detailed discussion about the role of Friedman and Hayek in the Chile in the years 1973 - 1989 see Chicago Boys.]

For Milton Friedman and Friedrich Hayek the biggest risk in democracies is the suppression of minorties. The problem with this thesis is, that this is the END of democracy. Democracy implies that the voice of the minority is still heard and can become part of a new majority. To put is more clearly, that's what they have in mind, they assume that democracies will lead to a complete levelling of income. Actually that never happened in history. People are well aware that incentives are needed. What democracies eventually stop is an income distribution that is not the result of personal performance. (Unfortunately not even that happens in reality.)

A more concrete problem we have in democracy is the exact opposite of that. Minorities have, for different reasons, a better chance to impose their interests than a majority. First of all minorities, for instance the producers of sugar in Europe, are a very compact pressure group and getting their interests taken into account is very important for them, while for the majority it is almost irrelevant or at least not worth the effort. If a customer duty on sugar from South America increases the sugar price, consumers pay a little bit more, but that will not induce them to take action.

Second, see The Culture Industry: Enlightenment as Mass Deception, the news industry will focus on general issues, on information it can get at low costs and concerns everybody a little bit. Information about certain pressure groups try to influence politics don't belong to this kind of news. They are difficult to obtain and the relevance is unclear for the majority. There is a problem on the demand side and on the supply side.

General gossip about freedom is meaningless when it comes to resolve concrete problems. Governments for instance invest for very concrete reasons in research and development. This is a restriction of the freedom of the tax payer, because he pays for it and at the other side the scientist are perhaps too free. They can follow their personal hobbies, because at least as far as the basic research is concerned, there are no concrete criteria for distributing the money.

From a practical point of view this is for instance not a problem of freedom, it is a problem to find the rigth criteria. Right now the promotion of scientiest depends on their publication on scientific journals. If their research has a practical use is irrelevant. It is obvious that the result would be different, if their academic career would depend at least in part on solutions of concrete problems, see research and development financed by the government.

[It is a stunning phenomenon by the way that most of the freedom fighters from the austrian front, Hayek et alter, were paid by the tax payer and the utility of their "research" is unclear.]

Public spending is never a question of freedom. It is a question of efficiency. In general public spending for social transfers, jurisprudence, police, education etc.. is not questioned. What is questioned is the efficiency. Bureaucracies are not automatically and objectively controlled, there are no market prices and very often the goals are defined enough concretely to allow control.

Concerning the pension system Milton Friedman argues in favour of a system that is based on prior private savings, instead of a system where the working generation pays the pensions of the pensioners and whose pensions will be paid by the future working generation. This system obviously requires governmental intervention and is therefore kind of coercion. However this is not the point. That has nothing to do with freedom. The question is, whether it is possible to transfer by savings present consumption to the future and that is not possible. (If we abstract from very special situations: If people eats less rice today they can store it and eat it in the future. However this case is irrelevant.) What people actually store is MONEY and the amount of money available depends on the monetary policy of monetary authorities and their evaluation of the macroeconomic situation. It is perfectly possible, and actually happens today, we are still in 2015, that nobody needs the savings of the future pensioners, see Keynes. That has nothing to do with 'freedom'. That has to do with economic logic.

The citizen of the United States who is compelled by law to devote something like 10 per cent of his income to the purchase of a particular kind of retirement contract, administered by the goverment, is being deprived of a corresponding part of his personal freedom. How strongly this deprivation may be felt and its closeness to the deprivation of religious freedom, which all would regard as "civil" or "political" rather than "economic", were dramatized by an episode involving a group of farmers of the Amish sect. On grounds of principle, this group regarded compulsory federal old age programs as an infringement of their personal individudal freedom and refused to pay taxes or accept benefits. As a result, some ot their livestock were sold by auction in order to satisfy claims of social security levies. True, the number of citizens who regard compulsory old age insurance as a deprivation of freedom may be few, but the believer in freedom has never counted noses.

Milton Friedman, Capitalism and Freedom, Chicago, 2002, page 8

This paragraph illustrates the general problem. Milton Friedman not really discusses an issue. The only relevant question for him is whether there is a restriction of freedom or not. As an economist he would had done better to warn against a pension system based on a capital stock, because that can't work or is at least a very risky strategy.

[A keynsian approach would be better. By lowering the interest rates and increasing the amortization time of a credit, people could have their own houses and that would allow them to save money in the future.]

Freedom is not an absolute value as we see immediately if we discuss practical problems. Islam requires that meat can only be eat if the animals were butchered in a certain way. This rite is not compatible with the german laws on animal protection.

To put it short. Freedom doesn't dispense from any kind of reflection. If we go into the details concerning taxes, customer duties, education, environment issues, protection of the consumer etc. etc. freedom is not the only criteria to be taken into account and very often it is far away from being the most relevant one.

A relationship between personal freedom, even in the meaning of 'free of coercion', and a free market economy doesn't exist. That there is a relationship between economic freedom, if we understand by that the freedom of an entrepreneur in a David Ricardo world, and a very free market economy is obvious. Under Willhelm II economic freedom guaranted, personal freedom was very restricted. Economic freedom is granted even in Iran, but nobody would say that Iran is a free society. Compared to Iran even the socialist East-Germany was a free society.

Why he assumes that in a free market economy people have the economic resources to advocate for something is unclear. That is only possible, if there exists already a public interest on an issue. To put a topic on the agenda is almost imposible for a private person, at least in a 'before the internet era'.

Milton Friedman tells us, that in a socialiste country nobody have the financial resources to organize a campaign in favour or against something. Unfortunately he doesn't explain us why that would happen in a capitalist country. Most of the mass media are in the hands of few people. For a more detailed discussion see preliminaries.

In order for men to advocate for something, they must in the first place be able to earn a living. This is already a problem in a socialist society, since all jobs are under the direct control of political authorities. It would take an act of self-denial whose difficulty is underlined by experience in the United States after World War II with the problem of "security" among Federal employees, for socialist goverment to permit its employees to advocate policies directly contrary to official doctrine. But let us suppose this act of self-denial to be achieved. For advocacy of capitalism to mean anything the proponents must be able to finance their cause - to hold public meetings, publish pamphlets, buy radio time, issue newspapers and magazines, and so on. How could they raise the funds? There might probably would be men in the socialist society with large incomes, perhaps even large capital sums in the form of goverment bond and the like, but these would of necessity be high public officials. It is possible to conceive of a minor socialist official retaining his job although openly advocating capitalism. It strains credulity to imagine the socialist top brass financing such "subversive" activities.

Milton Friedman, Capitalism and Freedom, Chicago, 2002, page 17

There is actually no need to discuss about this paragraph. Money is not a big problem as it is prooved by the collapse of the socialist regimes. The problem is much simpler: Brutal oppression, but that can happen in any kind of authoritarian or totalitarian government. We understand that Milton Friedman tries by any means to proove that (very) free market economies guarantee automatically freedom, but this thesis is hopeless.

Apart from that in the (very) free market economy of Milton Friedman where everything that must be steered is steered by "free" cooperation and what cannot be steered by "free" cooperation shouldn't be steered at all there is no need for any kind of political campaign.

All that said we can find something positive in the introduction of freedom in the neoclassical world, although this is not really compatible with the basic concepts of the neoclassical world. In the neoclassical world we have "economic laws" that are as stable as natural laws, see economic approach. That means that human beings have little to say in the economic development, their behaviour is determined by these economic laws, as the course of the planets by physical laws. This laws are stable from the beginning of human history until the Last Judgment.

The term freedom, however Milton Friedman never defines the term, suggests that there is a space for human decisions, at least in the field of economics. That means as well that there are alternatives and a simple mathematical model explains nothing. We admit that this is not really a great insight, but given the fact that any textbook about microeconomics tells us the opposite, it is helpfull if someone says that something is wrong with these textbooks.

Inside these models there is no freedom, however the really interesting things happens outside the models. The fact that in a market economy we get automatically to an equilibrium, that to a certain price corresponds a certain amount, is trivial. The really interesting thing is to know from what the prices depend on.

The introduction of the term freedom addresses the fact that the economic development depends on human decisions. In this sense neoliberalism can be considered as well as a criticism of the neoclassical theory. (Something that actually happens not only implicetely as in the neoliberalism, but explicetely in the austrian school.)

The introduction of liberty makes clear that economies don't work like machines. Liberty is a concept that can only be applied to human beings that can act or behave in different ways, what is not the case in the neoclassical models. It is true that, in this sense the neoclassical models are correct, that people must react on the signals given by the prices, but the really interesting things happens beyond the prices.

With the neoclassical mathematical modelling we have the same problem we have with historicism, see Popper. Mathematical modelling excludes freedom. If the behaviour of human beings can be predicted by mathematical equations, they are not free. That we don't have something like an entrepreneur in the neoclassic economy, and in marxism by the way, both have the same methodological approach, is not a mere coincidence, it is the logical consequence of their methodological approach.

However we can assume Milton Friedman had no intention to refute the neoclassical theory, it was just a side effect. (The case of the austrian school, escecially von Mises, is different. Although he shares with the classical theory the basic errors concerning 'capital', savings, interest rates and money, see Keynes, he refutes explicetely the methodological approach of the neoclassic theroy.)

The author of these lines is entrepreneur and there is no need to explain him the importance of entrepreneurial freedom. Bureaucracies are worse than malaria, pest and cancer together. However a general statement of the kind that any governmental intervention is a restriction of freedom is meaningless. The statement that people should be able to do what they want as long as they don't interfere in the freedom of others is meaningless. Freedom is not a sacrosanct value that never should be restricted. If entrepreneurial freedom leads to a very unequal distribution of income and destabilizes the society, governmental intervention can be necessary. To give an example.

Furthermore this approach is a microeconomic approach. It is assumed that there is no difference between the individual interest and the general interest, that the general interest is best served if anyone pursue its own happiness. If that is not true, if a rational behaviour on an individual level is very irrational at a macroeconomic level, governmental intervention can be necessary.

The conception of freedom of Milton Friedman relies implicetly, perhaps Milton Friedman is not even aware of that, on a certain economic theory. On the classical / neoclassical theory, to be more precise.

If a restriction of entrepreneurial freedom is useful or not, depends on the circumstance. If the government imposes norms of security for nuclear power plants, it is useful. If it imposes laws to protect the workers, it can be useful. If it imposes customer duties on computers, as in Cuba, it is completely useless.

Things become more interesting if Milton Friedman discusses about concrete issues, about the education system for instance. His most famous idea in this area are the vouchers. Instead of financing the schools directly, the government should give vouchers to the schools and the school is financed depending on the amount of vouchers they gathered. This would lead to competition between the difference schools and therefore to a better performance especially of the teaching staff.

He distinguishes between basic education, writing, reading, basic math and education for a special profession. To the first he concedes positive external effects, in other words, the positive impact on the society as a whole exceeds the individual costs of training. To put it otherwise: If basic schooling would be financed on a private basis, it would be financed only if the benefit for the individual exceeds the costs to bear by the individual, it would therefore 'produced' less of private schooling than useful.

(To put is simple: If people for instance were not able to read, they wouldn't buy newspapers, books and other products that comes with operating instructions. Almost everything would be a difficult and arduous process.)

Concerning further schooling, for instance academic studies, he assumes that only the receiver profits and that therefore he has to pay all the costs, for instance through tuition fees, see Milton Friedman - Should Higher Education Be Subsidized?.

The first problem with that is obvious. Well organised, some studies, for instance economics, would cost almost nothing. Lectures and things like that can be substituted by e-learning. The whole costa are generated by the exams, that must be conceived, corrected etc.. Well organised the study of economics would cost something like 500 dollars in total.

The second argument put forward by Milton Friedman to explain why the basic education has to be paid by the government and higher education not is this.

What kind of governmental action is justified by this particular neighborhood effect? The most obvious is to require that each children receive a minimum amount of schooling of a specified kind. Such a requirement could be imposed upon the parents without further government action, just as owners of buildungs, and frequently of automobiles, are required to adhere to specified standards to protect the safety of others. There is however, a difference between the two cases. Individuals who cannot pay the costs of meeting the standards required for buildings or automobiles can generally divest themselves of the property by selling it. The requirement can thus generally be enforced without goverment subsidy. The separation of a child from a parent who cannot pay for the minimum required schooling is clearly inconsistent with our reliance on the family as the basic social unit and our belief in the freedom of individual.

Milton Friedman, Capitalism and Freedom, Chicago, 2002, página 87

Well, we totally agree. A car and a child is not the same thing. It was necessary that someone says it.

The main problem with the video linked to above is the fact that the main problem is not addressed. University are inefficient and there is no cost control. Nobody is actually able to say whether there is a relationship between costs and performance. Universities don't have controlling systems established that are comparable to ones in the private economy. There is for instance never a separation of expenditures for research and development, something at least in theory should be beneficial for the whole society and therefore paid by the tax payer and the expenditures for teaching, that could eventuelly assigned to individuals.

The second point is that most studies, law, economics, languages, history, informatics, etc. are based on texts. The university is needed for delivering grades and to control the knowledge, but not for teaching. There is nothing on earth that can be produced as such low costs as knowledge, not even bread. Studying is time consuming and time is a very valuable resource, but it can be doubted that universities accelerate the process.

Before we start discussing who should by for higher studies, it would be more useful to discuss how much does it actually cost if organised optimally.

Milton Friedman argues that it is not fair that low income classes pay for the studies of people who will earn because of their studies much more than the people who financed the studies. We don't know if this is true. If they earn more, they pay more taxes and it is well pausible that the the difference in the tax revenue exceeds governmental spending for higher education.

Furthermore it must be cleared if the investment in education is tax-deductible like any other investment. He can pay for the studies and get more taxes, or don't pay for the studies and get less taxes.

Let's assume that the investment amounts to 50 000 dollars and the person earns each year 60 000 dollars. For the sake of simplicity we assume an income tax rate of 20 percent. If the loan is tax deductible over five years the person woud have a taxable income of 50 000 dollars and would pay in five years 50 000 dollars of taxes. If not, he would pay 60 000 dollars. In case that the income tax rate is 40 percent he would pay 100 000 dollars or 120 000. Beside that: Only in five years in this example the loan would be paid back.

Milton Friedman assumes in the talk with the students that the student is the investor and the student has to take the risk. That can be questioned. We can say as well that the government is the investor and has to take the risk.

The real difference is this. If the difference in income, compared to not study, of the student during life time is inferior to the tuition fees, the study would not be profitable, but the student would had studied anyway, if the study is free. If he had to pay tuition fees, he wouldn't had studied.

The problem is therefore this. Even if the universities are private, they are backed by the government and only because they are backed by the government, their grades have a value. The competition between the universities is therefore low.

A better system would be, to deliver the grades after an official standardized exam, the same for everyone whereever they have studied or without having studied at all. In this case we would have any kind of the studies, pure virtual universities, blended learning, traditional universities, people who studied alone and so on. This way we would find out what are the real costs of a study.

The government is the only provider of studies, being the universities privately financed or by the tax payer. If he charges tuition fees, he has to guarantee that the service is worth the costs. The real problem is the lack of competition between the universities. (Something that Milton Friedman himself in Capitalism and Freedom admits. Medical schools and law schools tries to artificially restrict the amount of places of study.)

In the video, see above, Milton Friedman rejects the argument that governmental subsidize for the studies can be justified by positive external effects. He argues that the production of the Tin Lizzie had positive external effects as well, but nobody had ever argued that it should be subsidized therefore.

The argument is wrong, because there are no external effects in Tin Lizzie, computers etc.. Only the person who bought this car, got an advantage. It may be that the Tin Lizzie was used as well for transporting goods, but even in this case there were no external effects. It was possible to transport the merchandises at lower costs and make higher profits, or to offer them at a lower price and to eliminate competitors. In any case there was a clear relationship between investment and benefit and no positive effects nowhwere.

There is no doubt that Henry Ford created thousand of jobs with Tin Lizzie, but that didn't generate positive external effects. Some people worked for Ford and got money for it. That's all.

Studies are more comparable to basic research and basic research, in contrary to applied research, is subsidized everywhere in the world. The benefit of the studies is unclear. If we stick to the argumentation of Milton Friedman, it should be possible to calculate the benefits of studies with the same precision the benefit of the Tin Lizzie could be calculated. In this case there would be indeed no need for subsidizing the studies. People would take a loan and would pay back the loan taken for the investment. In this case the only relevant question are the costs.

Milton Friedman wants a 19 year old student to be able to predict the future and take all the risk in order to pay people, the academic staff, that don't care about the future, as long as they are paid by the students through the tuition fees. Nobody knows what his studies are really worth and how the economic structure is going to change in the future.

If we follow the logic of Milton Friedman until its utmost consequences, we can say as well that there is no need at all for universities backed or run by government. Tin Lizzie, to stick with his example, was produced by an entirely private company.

In average better trained people adapt themselves better to changes in the economic structures than untrained people. A country that is interested in being prepared for the unpredictible has to improve therefore the access to training and in this sense subsidizing the universities is similar to basic research. If 90 percent of basic research leads nowhere, but the remaining 10 percent can compensate or exceed the loses, subsidizing basic research is useful, but under this conditions, a probability of only 10 percent to get the money back, very few people would invest, especially if the investment is so high, that in case of failure it will lead to existencial problems.

We don't know who is going to profit in the future from higher education and therefore the only one who can finance that is the one who profits in any case.

That's the difference between subsidizing Tin Lizzie and higher education. The question is whether a profitable investment would had been realised or not without subsidies. That is actually the same problem we have already seen in the case of expansive fiscal policy, see Keynes. If everybody considers the risks to high, nobody will invest and the only entity that can invest is the government, because only the government profits from all secundary effects.

What is to be done is therefore clear, for the details see preliminaries. We need more transparency concerning the costs of higher education. Universities needs a controlling system that is comparable to the systems we have in private companies.

More attention is to be paid to informal training and there must exist a possibility to get the training acquainted informally certified.

In the evaluation of the teaching staff more attention is to be paid to their success in integrating their students to the labour market. This can be achieved by publishing the amount of students who fount a job two years after they had finished their studies. Right now we have the problem that there is no control related to the qualitiy of the services offered by universities.

Everywhere where it is possible teaching should rely on e-learning. That is cheaper, more efficient and offers more didactical possibilities.

Public debate about tuition fees is dominated by the universities and other pressure groups, for instance companies who want to make earn money with higher education. It is chrystal clear that nor the last ones nor the first ones won't say that the costs for studies in law or economics, to take an example, are almost zero and for things like medicine much cheaper. They are interested in getting more money, wherever this money comes from. They are less interested in improving their efficiency. That is something that was already described by Adam Smith in Wealth of Nations, see a purely literary perspective.

The poor performance of public schooling is due, in the opinion of Milton Friedman, to the lack of competition and administrative overhead due to centralisation and the lack of influence of the parents. The most obvious solution for that would be privatisation of the schools, however this would mean, that schools would become unaffordable for poor people and their children.

Beside that the parents who wish to send their children to private schools would pay twice. With their taxes they would pay for the public schools and with the fees for the private schools.

[And there is another problem. Public schools are always a compromise between different groups of the society. It is guaranteed therefore that the students are not indoctrinated, at least in a pluralistic society, by a certain ideology. The students become acquainted with several perspective. Milton Friedman assumes that this is an interference in the freedom of the parents. This author would say, that the students should have a choice as well and if private schools without any government control were allowed, we would see appear schools sponsered by Saudi Arabia based on the Coran. To illustrate the problem with an example.]

Therefore he advocates in favour o a voucher system. The parents can give this voucher to the school they want and the schools get paid depending on the number of vouchers. Nobody would go to bad schools and that way the bad schools would be obliged to improve or to disappear from the market.

We agree that his description of the problem is correct, not only in the USA (and not only in the public schooling system). However there are a lot of problems with this solution.

Let's start with the trivial one. In small towns there are only one school and therefore all the vouchers would end up there. There would be no difference between direct public financing and indirect public financing.

The next problem is that it is hard to see how the problems Milton Friedmans describes here What's Wrong With Our Schools Featuring Milton Friedman can be resolved by vouchers. The description of the problem is correct, we have schools like that, like to ones described at the beginning of the video, everywhere in the world. But what would be the changes triggered by a voucher system.

If students are not willing to learn, if they introduce arms in the classroom, if they don't care about the furniture and so on there is a manifest problem of didactic. It doesn't make any sense to teach them spanish grammar, explain them the conflicts described in Pride and Prejudice or the laws of gravity. In order to get them back to school it is needed to do things whose usefulnes they understand immediately. A more useful approach would be for instance to buy three old cars for 100 dollars each, dismantle them and put together a working one. The most diligent and competent gets it at the end. This kind of kids are only interested in very concrete things and motivated only by very concrete incentives and that way they can learn a lot.

[By the way. Some people may think that this example is absurd, but actually there is a school like that in Berlin. They had all the problems described by Milton Friedman in the video, but than they changed the didactical approach and things improved dramatically. The car is only an example. They started to offer a lot of activities in order to bring the kids back to school.]

The voucher idea of Milton Friedman assumes that the parents feel themselves responsible for their children. This author has no clue what happens in Boston, he has never been there, but the author doubts that serious problems as the ones depicted in the video can be resolved with vouchers. If it is a general problem similar in all schools in this area, even responsible parents have no real choice.

This author has no sympathy for bureaucracies, but from a historical point of view in most countries schooling was imposed by the government and was not the result of a private initiative. In some cases even bureaucracies can do something useful.

The main problem however is not addressed in none of the videos. How much liberty a school schould have? As long as a school gets enough vouchers, can it do whatever they want? Should they be able to decide themselves which contents they teach? For instance creationsim? Which authors in literature? How many hours should be dedicated to the different subjects? What will be the required qualification of the teachers? If we get a large range of profils, who should train the teachers? Should all the students should get access to college whatever the level of the school they came from or should the government establish a standard?

Milton Friedman assumes that the parents alone will reach to an agreement on all this issues. That can be doubted.

In the logic of Milton Friedman all that is no problem as long as the will of the parents is respected. Any other thing is a restriction of their liberty. But what would Milton Friedman say if the parents give their vouchers to a school that wants to create the 'socialist personality'?

There is no doubt that a public employee has no incentive to do more than what is strictly necessary, that is valid as well for academic teachers. However it has one big advantage. The teaching content is always a compromise. Furthermore there are different possibilities to take into account the different interests of the students.

Last not least there is an empirical problem. In some countries, for instance in Germany, we have public and private schools, although the private schools are under goverment control as well and are subsidized by the goverment. However there is no empirical evidence that their performance is better.

Even those who never agree with Milton Friedman, as the author of these lines, have to admit that in opposite to most economists Milton Friedman deals with real world problems, putting aside all the modelling that leads nowhere.

The fundamental problem with the argumentation of Milton Friedman is that he overstreches his concept of freedom, although we agree that freedom is a necessary, although not a sufficient, condition for a free market economy. In the neoclassical modells there is no freedom, because the behaviour of the people is very predictible. Freedom describes what is happening 'behind the scene'. The model is only a description of effects. Behind the scene people take the decisions that determines the model, see methodological approach.

However free cooperation is only possible if every person involved has a good understanding of the topic. In this case they can decide whether cooperation fits their interest, moral values, beliefs etc.. and most of all they have to decide upon their own affairs, what is not the case in schooling. They decide what they believe best fits their children. A religion fundamentalist of any kind can have very special ideas concerning this issue.

We can assume that the parents are able by free cooperation to set up a primary school, because the teaching content is not very controversial, at least in most countries. Concerning high schools it becomes more difficult.

The neoclassical theory we find in modern textbook is exclusively about efficiency. An equilibrium it the most effecient allocation of resources, see equilibrium in the short run and equilibrium in the long run. The question is therefore not whether people are free or not, but whether their behaviour is rational, in other words efficient, or not. However the the situation wherin a rational decision is made (or not) depends on prior free decisions. The dynamic process, where economic freedom is relevant, happened before. In this sense the term freedom describes better what actually happens in a market economy than the term efficiency.

However his concept of vouchers wouldn't work in practise. But if people behave in a responsible way, they can improve things indirectly, at least in a democratic society. They can question the way teachers are trained, they can question the teaching content, the didactical approach, they can discuss about the amount of money to be spent for the education system, about the organisation of schools etc.. They can even attack directly certain persons, teachers, schooldirctors, union leaders, politicians etc.. if they are incompetent.

There is a contradiction in the thinking of Milton Friedman. At one hand he assumes that people are competent enough to resolve any problem by free cooperation. At the other side he doesn't believe that the people can exerce a control through public debate. A public debate that addresses the problem, will have the same effect, as free cooperation. If people don't find an agreement in a public discussion, they won't find it either by free cooperation. If they reach to a conclusion, they can chose as well a bureaucracy as the executer of their will.

Free cooperation works, if only few people are involved, but concerning schooling, there are a lot of people involved. A school with twenty kids can work at the basic schooling level, in this case only one teacher is needed who teaches all the subjects. This kind of school exists in small villages. Organising higher schooling for twenty kids would be very, very expensive. High schools in Germany for instance has to have at least 2 classes on every 8 grade levels. In other words 16 classes with at least 15 students at each class. That makes at least 240 students. Otherwise it becomes too expensive and they will be shut down. (However normally high schools are much bigger in Germany.)

Milton Friedman wants more competition between the schools and he believes that this can be achieved by vouchers. However what would he say if a school that offers russian and chinese as foreign languages is shut down, because they don't get enough vouchers, because the parents want their children to learn french and spanish? Following his logic that freedom doesn't count noses the freedomo of choice of these parents would be restricted. The fact that his system is introduced nowhere in the world is given to fact that for many reasons it is not practicable.

What is practicable is a public debate. This debate happens everywhere and leads to concrete results. In the last thirty years we have seen everywhere in the world changes in the qualification of the teachers, changes in the teaching content, changes in the organisation of schools, changes in the dictactical methods, etc.. If this system can be improved or not depends on the level of the public discussion and if this system can be improved by free cooperation depends on the intellectual level of the parents. There is actually no difference.

The quality of the people taken decisions is never addressed nor by Milton Friedman, nor by Friedrich Hayek. They assume that they know what fits them best and as long as they don't interfere in the freedom of others they can do what they want.

[We would say that Milton Friedman goes in a completely different direction as Adam Smith. The logic of Adam Smith is this: Public interest is best served, if everybody pursue its own happiness, see homo oeconomicus. This addresses efficiency. Competition leads to a situation where everybody has to use the resources as efficient as possible. If everybody uses the resources as efficient as possible, all the resources are used as efficient as possible. To use resources for consumption, is even considered as kind of a sin, see productive activity and unproductive activity.

However if we stick to this definition, the title of the book of Milton Friedman 'Capitalism and Freedom' doesn't make any sense. Freedom can mean as well to waste the resources and actually, as we have seen already, Milton Friedman would prefere an inefficient system if this guarantees freedom. Perhaps Milton Friedman supposes that freedom will automatically lead to an efficient use of resources, but in this case, there is no need to introduce the term freedom.

Neoliberalism is normally considered as an economic line of thinking. However as an economic line of thinking it would focus on efficiency, what is not the case. An inefficient use of resources is perfectly compatible with his definition of freedom, free from coercion.]

The argumentation of Milton Friedman is somehow intuitive in the sense that implicetly some things are assumed. He assumes for instance that a study most be profitable, in a strictly economic sense. Only if it is profitable people will study. However the profitability depends in some areas from the government. If a nation decides to teach history, languages, literature, music etc. at school teachers are needed who teach that. We can say that all this stuff is completely useless and most of all an intervention in the freedom of the students. We don't have to discuss this topic here again, we have already done it, see culture industry.

However if we stick to the neoclassical model people will only study history and things like that if the profit exceeds the loans taken to pay the tuition fees. If we stick to this logic, it doesn't make any difference whether the government subsidizes universities or not. If the loans are higher, the government has to pay higher wages. It doesn't therefore make any difference. He can subsidize less or pay higher wages.

If we assume complete transparency, the basic assumption of the neoclassic model, that is true everywhere. If people know the profit they get from their studies, in other words if they can predict their futur income, they will only go to the university if they get their money back. That means, that the higher the tuition fees, the higher the wages the future employer must pay and the higher the products and services.

That is actually something we can see in some areas. In all countries were the universities are publicly financed, the costs for medical services are much, but really much cheaper than in the USA. In the USA 17 percent of GDP is spent for medical services, the OECD average is 9 percent. This is due to the fact, at least in part, that the costs of the medical studies are not included in these numbers. So at the end the society has the choice to pay for the studies or to pay more for the products and services. In this concrete example, medical services, we can assume that paying the studies would be the cheaper version, because tuition fees not only have the effect that people can ask higher wages, but the amount of supply diminishes as well, if people have to endebt themselves.

The idea of Milton Friedman, that only the student profits from studies is wrong.

The situation of teachers is similar to the physicians. American high school teachers earn more than german high school teachers and german high school teachers, for an unknown reason, because their performance is poor, are one of the best paid teachers in the world.

If we don't see that in other areas it it due to the fact that transparency is missing and or some people study something even if it is not profitable from a pureley economic point of view.

The thesis of Milton Friedman is only right, if the profit exceeds the loan. However this can only be the case, if the tuition fees reduces the supply for the respective qualification. Under the neoclassic assumptions, especially total transparency, it is impossible that the profit exceeds the loans and in both cases it is finally the buyer of the product or service that will pay the bill.

Tuition fees are the standard case we find in any textbook about microeconomics. It is a shift of the supply curve to the left. Prices increases and the amount is reduced. The demand pays the loan and if the demand doesn't pay the loan, people will pay back the loan through higher taxes. Milton Friedman is wrong.

If the students take to much risks and the tuition fees are not profitable, the academic stuff earns more than it should, because people pay more than they should. Tuition fees are only justified in the case and at the degree that it is a consumer product. In other words, if people study just for fun. In this case they should pay it themselves.

The next thesis is difficult to test against reality. He states that students don't take their studies seriously if they get it for free. The thesis is not very plausible, because students pay anyway. They spent a lot of time studying and beside that they need money to make a living.

Se next paragraph refers to teachers in high school. The argument in general is obviously true. If the remuneration is completely independent from the performance it is rational behaviour to do absolutely nothing. The problem has already been addressed by Adam Smith, see a literary perspective. The question is why he doesn't apply the same argument to academic teacher?

[In general we can say that concerning schooling he sees the problems more on the supply side, but concerning universities more on the demand side. That can be explained by the fact that he was a university professor.]

Beside that the argument is true. In a lot of countries, for instance in Germany, only people who have studied for teaching can work as teachers, although everybody knows, that there are lot of people out there, engeneers, people who had studies physics or math, who have a talent for teaching. Concerning foreign languages a native speaker with a certain talent for teaching is better than a person who studied languages.

Restricting the access to this market has advantages for the teachers. In case that there are not enough teachers, it is difficult hire more teachers, because a lot of people are excluded for pure formal reasons. That allows them to ask for higher wages in this situation. In case that there are to much teachers, they can't be fired, because it is always difficult or impossible to fire public employees.

With respect to teachers' salaries, the major problem is not that they are too low on the average - the may well be too high on the average - but that they are too uniform and rigid. Poor teachers are grossly overpaid und good teachers are grossly underpaid. Salary schedules tend to be uniform and determined far more by seniority, degrees received, and teaching certificates acquired than by merit. This, too, is largely a result of the present system of governmental administration of schools and becomes more serious as the unit over which governmental control is exercised becomes larger. Indeed, this very fact is a major reason why professional educational organizations so strongly favor broadening the unit - from the local school district to the state, from the state to the federal government. In any bureaucratic, essentially civil-service organization, standard salary scales are almost inevitable; it is next to impossible to stimulate competition capable of providing wide differences in salaries according to merit.

Milton Friedman, Capitalism and Freedom, Chicago, 2002, page 95

The same thing can be said related to other areas, for instance jurisdiction. In some countries only people with a grade in law are allowed for judicial presentation. (In detail it is a little bit more complicated, but we simplify, because that doesn't change the general statement.) It is clear that there are a lot of people who can do that job better. Someone who had already dealed with the same kind of legal problem, for instance because he had been several times involved in a process, can be much more competent than an unspecialised lawyer.

Beside all the problems already mentioned concerning academic studies there is another problem. The only thing students know at the beginning of their studies, in the case that there are tuition fees, is the amount of these tuition fees, but they have no information about the quality of the service or product they buy. This is a strang situation for a market economy. Normally the buyer is well informed about the quality of the product, at least if the product is expensive.

There is a solution for this problem. This solution won't make happy the academic staff of the universities, but this is normal. No companies likes competition. If the government subsidizes the universities, it can oblige them to publish on the internet all the lectures, all the teaching content, the whole curriculum and any kind of information necessary to evaluate the quality. It can even oblige them to offer a complete e-learning course. Milton Friedman would consider that as an infringement of freedom, but this is his basic error in thinking. Market economies are not about freedom, they are about efficiency and infringement of freedom and if they don't want to do it, there will be others willing to make their performance transparent.

Independently from the question whether the universities want to do that or not, the private sector is doing it see www.coursera.org, www.iversity.org, www.kan-academy.org etc. etc.. Rigth now these initiatives don't deliver recognized grades, but this will change in the future. There is only a governmental institution needed that takes the exams. This would be the end of the discussion of tuition fees, because they would be almost zero.

This kind of exams can be repeted one thousand times. If it necessary to proove to an employer certain qualifications there is no reason for not allowing the repetition of an exam and exams that tests concrete skills, like the certificates issued from microsoft, sap, oracle, cisco can be repeted as often as someone wants to repete them. Only if an exam test the 'diligence'. 'inteligence' or whatsoever in general it is useful to restrict the possibility of repeating it. In this case time is a useful criteria.

The problem with the ideas of Milton Friedman is that empirical data don't confirm his thesis. In some countries, for instance in Germany, we have both, private universities, especially in the field of economics and management, and public universities. At the private universities we have all that people who spent half of their lifes in a university and didn't get a tenure at an university at the end. The quality of these universities is not better than the public ones.

Milton Friedman denies that the studies have positive external effects. That depends on the goals assigned to universities. In most countries, culture in general, museums, theaters, operas, dance, etc.. are subsidized. True or not it is supposed that the consumption of art and education in a humanistic meaning, for a more detailed discussion see culture industry, leads to a society that shares common values and is therefore more stable. The same goal we can assign to the universities and as far as humanties are concerned this is the case. If the society has decided that humanities have positive external effects, than we need teachers to teach them. The arguing of Milton Friedman is therefore wrong. If he assumes that humanties have as less positive external effects as the Tin Lizzie, he should had argued against the basic assumption.

It is a little bit difficult to discuss about neoliberalism, because neoliberalism is not really an economic theory. Concerning Friedrich Hayek, who can be assigned to neoliberalism, there is a close relationship to the neoclassical theory, because he shares with the neoclassical theory some (wrong) basic concepts concerning capital, saving, interest rates and money. Concerning Milton Friedman things are more complicated. Milton Friedman is the most prominent representative of monetarism and monetarism argues with keynesian transfer mechanisms, but gets finally to the same result as the neoclassical theory, especially that expansive fiscal policy is useless, because he makes some special assumptions.

Therefore many people uses neoclassical theory and neoliberalism as synonyms, but if we take a closer look, we will find that they are completely different. Neoclassical theory is about efficiency and about equilibrium, that describe a situation where the allocation of resources is optimal. There is no freedom in the neoclassical theory, there is an adaptation to the market. Neoliberalism is about freedom. Freedom means, that the market player can use their resources inefficiently as well, what undermines the principal goal of a market economy. If we take away from the market economy its main goal, it becomes useless. Efficiency is incompatible with freedom. Efficiency means that there is exactly ONE optimal allocation of resources. There is no freedom.

Neoliberalism and a market economy are only compatible if we consider the market in a broader sense. Behind the neoclassical models we find in any textbooks, we have a more complicated situation. In this area people take complicated decisions where efficiency is only one criteria between a lot of others. In this area they are free. (What is without any doubt the important area.)

The second reason why people see a strong relationship between the neoclassical theory and neoliberalism is the fact that both are opposed to keynesianism. However they argue in a different way. The austrian school and Hayek argue on the basis of their wrong concepts about capital, savings, interest rates and money. Milton Friedman argues that expansive fiscal policy will lead to inflation, inflation will increase the need for money for transaction purposes, that will lead to a rise in interest rates and the higher interest rates will lead to stagnation. In other words. We will end up where we started. The basic error in this is that he takes a possible consequence of the keynesian theory as the theory itself, see Keynes.

Another reason why neoclassical theory and neoliberalism is so often confused is because of the fact that both saw now need for social transfers of any kind, however the argumentation is different. For the neoclassical theory social transfers are always at the expense of efficiency, a misallocation of resources and diminishes therefore the national income. Resources a taken away from people who can make a good use of them and given to people who consume them. For Milton Friedman and Friedrich Hayek social transfer are an infringement to freedom. The money given to one group is taken away from others.

[Needless to say that in practice things are much more complicated. It depends how the social transfers are financed, by taxes or by higher endebtment, the way they are used, for mere consumption or investments, if the money keeps circulating or disappears in speculation etc.. We have already discussed this issue several times.]

This author would say that neoliberalism is more the opposite the neoclassical theory than a synonym for it. The term freedom addresses more the essentials of a market economy, entrepreneurship, creativity, dynamic, risk taking, innovation than the neoclassical efficiency. In the neoclassical theory we have no entrepreneur, no creativity, no dynamic, no risk and no innovation. People just react to the signals of the market. In other words, modern textbooks about microeconomics describes something, but not a market economy.

If someone doesn't understand what the author is talking about, he can go to youtube and put in the words free to chose. He will get a television series of Milton Friedman describing market economies where a clear stress is put on the characteristics mentioned before.

It is obvious that Milton Friedman is completely right in these videos, for instance this one, Free to Choose (1990) - The Failure of Socialism and there is no need to say than any bureaucracy works like that, anywhere in the world and not only in socialist countries.

The problem is, that Milton Friedman knows only two kind of systems, an economic order without any government intervention and total planning by the government. On this basis no discussion is really possible.

Schooling and higher education is one issue, housing another one, another one is the pension system and medical health care, consumer protection is one issue and environment protection something else and so on. For thousands of different constellations he has always the same answer: Keep the government out.

We are not even sure that the statement made in the film is right. He states that normal people want to get most of all rid of the government. Sometimes one can have a different impression. For every little problem people want the government to step in. If they are to fat, they ask the government to intervene and to oblige the food industry to produce healthier food. This author would say, that they already can buy healthy food, that is even cheaper, that they eat simple too much and don't make enough sport. To illustrate that with an example.

Furthermore the question arises if it is true that people want the government step out, why they don't vote for political parties that reduce government interventions. People want labour laws that protect them, even sometimes these laws are against their own interests, they want the government to protect them against big data and an infringement in their privacy, although nobody hinders them to block cookies on a private basis, and forget completely that any bank collects much more and precise data about them than google, they want more police on the streets etc. etc.. They want even more subsidizes for theaters and operas, although most people never go to the theater or to the opera. (The city of Berlin for instance subsidizes EACH NIGHT the operas with half a million euros and everybody is happy with that. For whatever reason.)

The statement that the housing problem, not enough apartments for affordable prices, can be resolved on a private basis contradicts reality. If we have big differences in national income, it is perfectly possible that it is more interesting for the construction industry to focus exclusively on luxury apartments that are not affordable for lower income classes. There are a lot of possibilities to resolve this problem, but experience shows that the market can't resolve it.

Concerning the topic that always has a prominent place on the political agenda, the distribution of income Milton Friedman is right in stating that the fact that some people get richer doesn't mean that others get poorer. If we succed in getting all the unemployed resources employed, for instance by lowering the interest rates, everybody, apart from the owner of money, get richer.

A prominent example, already mentioned by Adam Smith, where privatisation doesn't make sense are the so called natural monopolies. Natural monopolies are companies where the fix costs per unit decrease eternally. Railways and water supply are prominent examples for that. The maximum price they can put is the monopol price in other words the same price a private monopoly would put. So it doesn't make any difference if it is a private company or a company run by the government, but in the case that the government runs the company, there is a control, because governments need to be reelected. It is therefore plausible that the price would be lower than the monopoly price.

The videos describe the situation correctly, but not the reasons of the problems. The problem is, that in central planning there are no real prices, therefore there is no way to find out whether there is o not a more productive use for the resources. That's the first problem. The second problem is, that there is a lack of control. If there is no control, something exerted in market economies by competition, the homo oeconomicus is not in his home country. He still pursues his own happiness, but his interests differs from the general interest. In market economies the freedom to pursue ones own happiness is restricted by competition.This control is automatic and objective.

An unsuccessful entrepreneur whose product are for any reason not accepted by the market, has not even a place where he can put forward his complains. For whatever reason someone is doing better. Bureaucracies are very different beast. There is no objective market price and they can always say that for any reason they work too much, they don't earn enough, they are the only ones that can do the job and so on and so on.

However it is possible to simulate competition even in bureaucracies by installing a controlling system that calculates the direct costs of a product. In this case their performance can be compared with other bureaucracies who produce the same product. If it costs 50 dollars to register a car in New York and 100 dollars in Chicago we can assume that the bureaucracy in New York has a problem with efficiency.

The budgeting system can therefore be changed. The bureaucracy doesn't get what it wants, but what they need if they deliver the service efficiently and efficient are, let's say, the average costs. (The actual system that is implemented in a lot of countries, for instance in Germany, is a little bit more complicated, but basically it works like that.)

Implementing this kind of controlling system, an adaptation of what is used in private companies, and the corresponding software is more useful than a somehow abstract discussion about freedom, especially if the market can't resolve the problem. In this case the only option is to make the bureaucracy as efficient as possible, because shutting it down is not possible.

Freedom in a strictly economic context will always be controlled by the market. It can be assumed that there will be more experiences, creativity,new products, innovations in the production, distributing, financing and marketing of a product or service in the case that people can do what they want, but they are controlled by the market.

If we understand by freedom personal freedom, things become more difficult. We can nowadays imagine easily that one day it is possible that the satisfaction of basic needs is guaranteed by the government. In this case people can do the whole day whatever they want, what is fun, if they had an idea how to spend their time in a funny way. Something that eventually becomes a problem in the future.

From a purely didactical point of view Milton Friedman goes in the right direction. In textbook about microeconomics we learn that economy is kind of a machine that works automatically. If the curves are moved from the right to the left and from the left to the right, for any reason, there will be automatically an adaption of prices and amount. That's all.

Students never hear in their studies about innovation, creativity, dynamic etc.. However that is what the whole thing is about. The problem is, that university professors have in general no working experience.

There is no doubt that Milton Friedman addresses very concrete problems in a very concrete way. We can discuss about his solutions, but we can't discuss about his approach.

If we want we can summarize the concepts of Milton Friedman in the following way.

If we want we can summarize the concepts of Milton Friedman in the following way.
> We abstract from the fact that the prices in the future are unknown and therefore it is impossible to take decisions concerning the future based on prices. Concerning the future we have very often the strategy "safety first" and a preference for liquidity. This preference can paralyse the economy.
A market economy is cooperation without coercion
> This is true if we abstract from the fact that the power in a market economy can be very unequally distributed. It is well possible that for the simple worker there is not a big difference between working for a private employer or for the government. In both cases he has little choice. Only if there is really a lot of dynamic in the market, if there are people who can make use of their freedom not only in theory but in practice, the efficiency of the worker and therefore his wage will be higher.
apart from that: If the 'free cooperation' of Milton Friedman were true, we wouldn't have that amount of legal procedures related to labour conflicts. Instead of filing lawsuits, people would look for another job.
A lot of problems can be resolved without the intervention of the government. He assumes that this is true for instance for higher schooling.
> This is obviously only true if there are no external costs, it is not a merit good or public good and if the market leads to stable situations.
A market economy offers the maximum of opportunities for an improvement of the individual economic situation.
> This is more or less true, at least if the government provide equality of opportunies through schooling, higher education, access to universities, loans to start a company and so on. However already well trained parents can offer more opportunities to their kids than less trained parents.
A market economy breaks power.
> This is at least true concerning the demand side. No buyer depends on a certain supplier. Market economies suppose competition and therefore there are always several suppliers. Concerning the labour market things are not so clear and this topic is always in the center of public debate. Employees very often depend on their employers. That's why we have a lot of labour laws protecting workers. Some of them may be contraproductive, but we can deduce from their existence that the situation is not as clear as Milton Friedman assumes.
Governments tend to infringe in the economic freedom and sometimes even in the personal freedom and bureaucracies tend to become bigger and bigger.
> For different reasons, sometimes on demand of the society and sometimes because they were looking for new tasks and sometimes for both reasons, government tends to infringe on economic freedom. As long as these bureaucracies are paid by the tax payer, they have an interest to grow. This is a well known phenomenon described by Parkinsons laws. A company that does useless things goes bankrupt, a bureaucracies never goes bankrupt.
The government has the task to keep the level competition intense enough.
> This is the basic message of Walter Eucken. In general Milton Friedman agrees, but he assumes that most monopolies were created by government intervention, for instance by customer duties. At a global level monopolies are almost inexistent. For any merchandise and good there are a lot of suppliers on a world wide level. Beside that there is always the risk that the primary goal in fighting monopolies is not the breaking of economic power, but to generate income and justify the existence cartel authorities. (The controversy between microsoft and the cartel authority of the European Comission is an illustrative example for that.)

As a tendency all that is true. However there is a lot in between a very free market economy and socialism and this statement is therefore wrong.

Historical evidence speaks with a single voice on the relation between political freedom and the free market. I know of no example in time or place of a society that has been marked by a large measure of political freedom, and that has not also used something comparable to a free market to organize the bulk of economic activity.

Milton Friedman, Capitalism and Freedom, Chicago, 2002, page 9

If we put it the other way round, market economies without political freedom, there are a lot of examples. Market economies without any political freedom and strong infringement on personal freedom: Chile under Pinochet, Peru under Fujimori, Guatatemala under Carlos Castillo Armas, etc. etc.. More difficult to find are systems with political freedom and a planned economy. Therefore historical evidence prooves the opposite. Political freedom leads to free markets, but the trick doesn't work the other way round.This version is more logical as well. Whenever a political group, mouvement, party won't to take over the power and if they have the military means to do that, they will do it. Without or with a free market economy. Milton Friedman is confusing the effects with the cause.

Beside the fact that there is actually no historical evidence for the thesis of Milton Friedman that economical freedom leads to political freedom this theses can only be true under the condition that economic freedom serves the majority. In this case we can assume that democratic standards are accepted, because they would only confirm the status quo. No need for suppression, obviously.

As far as the free market economy doesn't fit the interests of the majority, economic freedom will restricted in democratic states. That's it was actually happens. Everywhere. The ultra free market of Milton Friedman exists nowhere in the world.

The thesis of Milton Friedman can therefore be resumed in the following way: The free market economy maximizes the wealth of the majority and this systemic order will therefore be confirmed in a democratic decision making process. This is true in all highly industrialized country, but what we actually have is more a social market economy.

[However it is perfectly possible that we see completely different systems appear in the next 50 years. It is for instance possible that satisfying basic needs become a trivial problem and can be done with any economic order.]

If the economic order doesn't fits the majority, there is a problem and we see radical mouvements from the extrem right or the extreme left appear who question the market economy, as for instance the Front National in France, the Golden Dawn in Greece etc. etc..The Hayek solution of just suppresing this mouvements didn't work in the past and will not work in the future. In these cases a public debate is needed and compromises.

In a strictly economic sense the definition of freedom as "free com coercion", is meaningless in practice. Beside the arguments already mentioned, the government can exert indirect coercion. The monetary authorities can for instance lower the interest rates. Same owner of money or savers will say that this way the monetary authorities exert coercion, because they lower the "price" for money, for details see interest rates.

The government can as well increase the places of studies for profitable careers, that will affect the interests of people already working in these areas.

The government can stop the speculation on the stock markets, for instance through a Tobin tax.

In a perhaps more theoretical scenario, we can imagine as well that people use their freedom to consume their money instead of investing it in profitable branches. This will perhaps lead to a "boom" in the market for luxury goods, but would be fatal in the long run, especially if these luxury goods are imported.

Sometimes Milton Friedman is pure ideology, for instance here í Why soaking the rich won't work. In this video he falls back to crude classical / neoclassical concepts (investments depends on prior savings). We know that he knows it better, because monetarism argues with keynesian concepts. The problem mentioned by this women is possible. It is possible that basic needs, for instance housing, are not satisfied, because the construction industry focus on luxury appartments, because this is more profitable.

Without government intervention we can easily get to a David Ricardo scenario. This is wrong, and Milton Friedman knows, that it is wrong. We have no minimal wage in the David Ricardo scenario and that means, that there is no unemployment, but not because the workers are employed, but because they are simply dead.

[The causal relationship he argued with is not true. If McDonald pays higher wages, it doesn't necessarily mean, that has to rise the prices and get less customers. It simply means that they make more profit. Milton Friedman didn't really understand the neoclassical logic. The neoclassical logic works, if labour at a certain moment becomes scarce, but thats only happens, if the demand is endless. The demand for Hamburgers is not endless, even at low prices. That means, that McDonalds can pay a wage at subsistence level, what they actually do. We have the David Ricardo scenario. All that is very basic and Milton Friedman knows that. If he didn't know it, one can wonder how he get the nobel price in economics.]

This author would say that the next statement is correct, although it is more based on "intuition".

If one were to seek deliberately to devise a system of recruiting and paying teachers calculated to repel the imaginative and daring and self-confident and to attract the dull and mediocre and uninspiring, he could hardly do better than imitate the system of requiring teaching certificates and enforcing standard salary that has developed in the larger city and state-wide systems. It is perhaps surprising that the level of ability in elementary and secondary school teaching ist as high as it is under these circumstances. The alternative system would resolve these problems and permit competition to be effective in rewarding merit and attracting ability to teaching.

Milton Friedman, Capitalism and Freedom, Chicago, 2002, page 9

A problem is that people never learned at the university to teach and especially they never learned that for some subjects, literature, history, art, music, languages it is more important to arouse interest than to deal with the topics 'scientifically', see as well culture industry.

Problems with the content and the quality of teaching arises more often if their is no control by 'reality'. If an engeneer or a physician for instance can't do at the end of his studies what he is expected to do, there will be complaints and the respective universities will get into trouble. If the goal is more or less undefined, as for instance in economics, control is difficult. That is always true. Hard to say that something is inefficient if there is no way to measure efficiency.

Economists will find a lot of arguments why they teach nonsense. They will say that economics helps to learn abstract thinking, that the world is to complex and therefore no problem can actually be resolved, that there have been a lot of new insights in the last decades due to mathematical abstraction and so on. None of these theses can actually be prooved and what they finally want to say is that they want to follow their personal hobbies. That is not possible in informatics. In informatics there are very concrete problems to be resolved and people who can resolve them, gets the job.

The arguing of Milton Friedman in the discussion about tuition fees is of this kind. He discusses the topic in a very abstract way. The question whether there should be tuition fees or not. However even if we agree that tuition fees are useful, something we have no intention to do, the question is how hight they should be. Milton Friedman would argue that they should be high enough to substitue governmental funding. This author would say, that they should be high enough to cover the costs, if the universities are efficiently organised.

And here we get to a strange point. It is correct, as he says, that bureaucracies are inefficient, however universities are bureaucracies and they are everything but efficient. Everybody who ever thaught at a university knows that. In economics for instance there is the problem that subjects like math, statistics, accounting, controlling, marketing, basic programming etc. are taught by professors, although everybody knows that it can be taught as well by advanced students. It the same stuff since 150 years. To illustrate that with an example.

Furthermore we should know the costs of the different studies. An average is not helpful, because in these case student of humanities would subsidize the studies in medecine. Even if we have some kind of distinction, the distribution of the overhead costs is a problem.

Universities as any bureaucracy don't have a controlling system comparable to the one established in private companies. Expenditures for research and development, to be paid by the public, are mixed up with the expenditure for teaching, correcting exams etc.. We understand that a university professor like Milton Friedman don't like to talk about the details, but sometimes economists have to talk about the details, because that can lead to astonishing results.

We don't mention that by introducing e-learning in a lot of studies the costs of the studies can be reduced to almost zero. There is even a potential for optimization in the exams. Correct exams is the most time consuming task of a university professor related to teaching. They can be designed in a way that a computer can correct them.

There is a discussion in the USA about differences in the quality between private and public universities, however this author was not able to find any data that prooves objectively that there is a difference. Perhaps the difference is not in the teaching and the content, but in networking. Beside that: If there are genious professors at Harvard, Stanford, Princepton in economics this authors suppose that they write books that can be read by everyone everywhere.

The next problem, already mentioned by Adam Smith in 1776, see a literary perspective, is the question whether general tuition fees, paid to the university, can have any impact on the quality of the studies. That is the assumption of Milton Friedman. However if there is no direct impact on concrete department or a concrete teacher, why tuition fees should have any impact? The single department or the single teacher don't care if the money comes from the government or from tuition fees.

What would have an impact is the publication of information concerning the integration in the labour market of the graduates one year after they have finished their studies. That would even a low to steer the use of resources. Faculties with poor results could be shut down and the resources reallocated to departments with better results. More important thant the question whether the universities should be subsidized or not is the question whether the resource are used optimally.

Every abstract discussion about tuition fees is useless without concret data. Whether the investment in higher education is a business for the government or not, depends on the relation between the input and the output. Depending on this relation it can even be interesting to induce more people to study.

The logic of Milton Friedman leads nowhere. In case that the studies are not profitable, he would argue that too much people study, although it is equally possible, that the quality of the teaching and the teaching contents don't meet the expectations of the market.

If there are several schools, that's the condition for voucher system of Milton Friedman, there is another solution, at least if the students have a certain age, let's say oder than 16 years. The quality of teaching has two components. The teaching content and the didactical skills of the teachers. The last problem is dificult to resolve, however the first problem can be resolved.

The government can fix a certain amount of credit points that must be obtained in order to get a high school diplom. Let's say 50 credit points in math, physics, chemistry, informatics and biology, another 50 in languages, literature, history, philosophy art and music. They get credit points if they achieved a course and passed an exam and a mark. Each course is marked with level I, II, III and in order to assist a higher level the lower level must be achieved. 25 credit points must be obtained in II level courses.

This credit points can be obtained at any school available in a period of five years. This would enlarge dramatically the choice. One school for instance can only offer a limited amount of languages, several schools together can offer much more courses. If one school don't get enough students for chines, five of them probably get it. One school alone perhaps can't focus on astrophysics, several school together will find enough students. Furthermore there will be a competition between the teachers.

The next advantage is, that there would be no need to finish high school in a fix period of time. If a student decides to travel around the world for one year, do carpentry apprenticeship, program an app or give live concerts he can do it. The system is even flexible enough to give credit points for extracurricular activities. Some NGO, asociaciones for instance can be given the right to deliver credit points as far as they do something for which training is needed. For instance asociaciones de música.

This system would also diminish a central problem. The employees of any burocracy, and schools and universities are most of all burocracies, have an certain interest have an interest to do as little as possible. That is a rational behaviour, because the remuneration is always the same and therefore optimization means reduction of the effort. That means that they have an interest to teach for an endless time the same contents. In this system they can continue doing it, but there is a wider range of offers and students can choose what they like best or what they believe to be relevant. Some teachers will have no students and can therefore be fired.

We admint that this system is only possible in big cities with several schools, but this is true as well for the proposal of Milton Friedman. However this system would be more precise. A general competition between the schools is not possible, because in any school there are good things and bad things, good teachers and bad teachers. Furthermore the real problem is the teaching content. In this system the best of everything can be taken.

This system would be very near to the 'free cooperation' of Milton Friedman, but is feasible, because there is no cooperation between the parents needed, something difficult to organise. Furthermore we would avoid that the offer of the teaching content is reduced.

The example with schooling illustrates a fundamental problem of neoliberalism and the austrian school. The assume that the only way to control a system is by the mechanisms of the market. There is no doubt that this is the most efficient and objective steering mechanism, at least as long as the intensity of competition is high enough. However depending on the situation, there are different ways to control the system. By more transparency, by implementing a controlling system or by changing the organisation.

One point of criticism put forward by Milton Friedman are the special licenses needed to work as a teacher in a public school. Illustrating the problem of licenses with the schooling system is perhaps not a very good idea. There are other examples where one cas see the problem more clearly.

The examples of Milton Friedman are taken from the USA, obviously. In some countries, for instance Germany, it is even worse, much worse.

Milton Friedman distinguishes between a certificate and a license. With a certificate a government institution testifies that someone is an expert on something, however this certificate is not a necessary condition to work in this area. An english teacher for instance can get a tefl certification. This certification testifies that he has acquainted a certain knowledge in teaching english as a second language, but anyone can teach english without this certification as well.

A license is different. A license is needed to work in a certain area. A taxi driver for instance needs a license, otherwise he can't work in this area.

A certification is not critical. If someone has no clue about an issue, he can hire someone with a certification. Than he can be sure that this person has at least an idea of the subject, because his knowledge has been testified by a third party. If this person for any reason knows someone he trusts, although this person is not certified, he can hire this person.

If someone has no clue for instance about constructing houses, the best thing he can do is to hire an architect with a certificate. If he knows someone who he trusts in, he can hire him.

Milton Friedman illustrates the problem with another example. In the USA exists something like the Pennsylvania State Board of Cosmetology License Requirements. (At least it existed at the moment where 'Capitalism and Freedom' were first published.

The discussion whether a license is needed in order to work as a haircutter can be abbreviated. This is obviously not the case and even in Germany this is no requirment nowadays. (At least if someone doesn't have apprentices.) The worst thing that can happen is that someone looks awful after having had his hair cut, but the problem will be resolved as times goes by.

It seems that in the United States, at least fifty years ago, haircutters had to be almost as qualified as physicians.

One of the most amusing sets of regulations is that laid down for barbers, a trade that is licensed in many places. Here is an example from a law which was declared invalid by Maryland courts, though similar language can be found in statues of other states which were declared legal: "The court was depressed rather than impressed by a legislative command that neophyte barbers must receive formal instruction in the "scientific fundamentals for barbering, hygiene, bacteriology, histology of the hair, skin, nails, muscles and nerves, structure of the head, face and neck, elementary chemistry relating to sterlilisation and antiseptics, disease of the skin, hair, glands and nails, haircutting, shaving and arranging, dressing, coloring, bleaching, and tinting of the hair." One more quotation on the barbers: "Of eigteen respresentatives states included in a study of barbering regulations in 1929, not one then commanded an aspirant to be graduated of a `barber college`, though apprenticeship was nesessary in all. Today, the states typically insist upon graduation from a barbering school that provides not less (and often much more) than one thousand hours of instruction in `theorectical subjects` such as sterilization of instruments, and this must still be followed by apprenticeship.

Milton Friedman, Capitalism and Freedom, Chicago, 2002, page 142

Inside Europe licenses conflicts with european law. The basis european law is simple. Anyone who is allowed to practice a certain profession in one of the european states, can practice this profession in any european state. That conflicts with the national licenses. So far the interested groups, lawyers, physician, architects, pharmacists were able to prevent this european law from being applied strictly, but it is to supposed that in the long run national licences will be abolished or reduced to a minimal standard.

Another problem is, that the service or product can be bought in any other country of the european country. The intention to protect some professionals therefore fails. If somenone needs his car repaired in Germany and due to the production the costs are higher, he can get his car repaired in Poland, at least if he lives near the frontier.

One can wonder how it is possible that certain professions succedds in protecting their interest at the charge of the consumer. It could be argued, that the consumers as well as the people who want to work in these areas will prevent the government from issuing this kind of protecting laws.

The problem is, a phenomenon already well described by Anthony Downs, that the producer side is much better organised than the demand side. The producers has a strong interest in restrict the access and suppress competition. For the consumer at the other side the difference in the prices compared to free competition is not high enough to induce them to oppose against these restrictions.

The declaration by a large number of different state legislatures that barbers must be approved by a committee of other barbers is hardly persuasive evidence that there is in fact a public interest in having such legislation. Surely the explanation is different; it is that a producer group tends to be more concentrated politically than a consumer group. This is an obvious point often made and yet one whose importance cannot be overstressed. Each of us is a producer and also a consumer. However, we are much more specialized and devote a much larger fraction of our attention to our activity as a producer than as a consumer. We consume literally thousands if not millions of items. The result is that people in the same trade, like barbers or physicians, all have an intense interest in the same problems of this trade and are willing to devote considerably energy to doing something about them. On the other hand, those of us who use barbers at all, get barbered infrequently and spend only a minor fraction of our in barber shops.

Milton Friedman, Capitalism and Freedom, Chicago, 2002,
página 143

Actually this is only a special scenario of a general problem. As long as people don't know the bureaucratic burden imposed on them or the effort required to do something against is not compensated by an eventual benefit they want protest. The bureaucracy at the other hand has its own interest. They want to become larger and larger. A withdrawal of the government is not an attractive scenario for political parties.

In the case that the government imposes useless bureaucratic acts on companies, the consumer will pay the pice, although he is not aware of it.

However Milton Friedman describes only the problem, without making any concrete proposition to resolve it. The simple statement that all problem on earth would be resolved if only the government retired is not very helpful in practice. For a lot of reasons. Real world problems are more complex. Sometimes government intervention is needed, but it must be controlled. Sometimes the people asked for more government regulation and government are always interested in intervening. In this case it is helpful to explain to the people that they are better off, if they try to resolve the problem themselves.

There is no general solution, as we will see in the next example, medical licenses. The only general rule it that. Whether governmental intervention is needed or not, whether the people demand governmental intervention or whether the government has its own interest to intvervene, we need more transparency. This transparency is difficult to establish, because for the suppliers of information the business consists in delivering news that concerns a lot of people a little bit and that can be obtained at low costs. Delivering information that only interest few people and where expensive research is needed to obtain them, is not an interesting business. On the demand side people prefer news that can be consumed without any effort, although they are irrelevant, see cultural industry.

However this can change in the future and is changing right now. A lot of people have relevant information without making any efforts, the whistle blowers for instance, to name a prominent example, and they can spread them almost free of charge. (Through the internet.) That allows the offer of information for relatively small groups.

Concerning democratic decision making the slogan of Milton Friedman that there is no free lunch is right. Democracies only work if people are interested in knowing what is going on. Democracy is work. Concerning the economy the slogan, see The Free Lunch Myth, is wrong. In case of stagnation due to high risk aversity or too high interest rates the productive potential is not fully employed. If this hindrances were reduced by an expanisve monetary or fiscal policy there is a free lunch. Everybody earns more and nobody has less.

The advantage of 'free cooperation' is not that it is free. Very often, especially if the 'cooperation' between employees and employers are concerned, the cooperation is not really free. The advantage is, that it is a drastic reduction of complexity. Anybody has only decides on issues he knows well. If an employer for instance hires someone, both are well informed about the respective circumstances. If the government plans the work assignment there is a good chance that for a lot of reasons they send the wrong people for the respective job.

The term coined by Friedrich Hayek fatal conceit has become famous, although it doesn't address the real problem. The problem is not the bureaucracies tend to accumulate power and resources without having the competence to make efficient use of them. The problem is transparency. For obvious reasons.

Intransparency allows allows to manipulate public opinion. If there is a big information gap between a bureaucracy and the society the society is always in a bad position. All the problems with the freedom of information act, similar laws exists in almost all industrialised countries, illustrates the problem. Although governmental institutions are obliged to respond to the inquiry of people they always find a reason why they are not going to do that if the issue is really interesting, in other words if someone is really interested in not seeing it published.

Furthermore intransparency allows certain interests groups to pursue their interests at the expense of the rest of the society. If the society not even knows that it is abused, it will not oppose.

Obvious missmanagement is not really a big problem, not even in socialist societies, because very few people really want to be denounced publicly for the waste of resources. If the problems are obvious, it will have consequences. The problem is, that these kind of problems are never obvious.

The solution of Friedman / Hayek, complete retreat of the government, is meaningless in practice. Nice academic debate, but irrelevant. What actually can be done in practice is a step by step introduction of more transparency. That is what is happening right now. We don't have an abstract public debate about freedom, because that leads nowhere. See as well preliminaries.

The problem of Milton Friedman as, that he tends to black and white schemes. Concerning lawyers and barbers he is right. Certificates would be enough, no need for licenses. That is simply due to the fact that there are a lot of people who in a certain field of law are as competent as lawyers. A lawyer how has never be involved in a copyright process is less competent as someone who had been, for any reason, involved in copyright issues several times. Furthermore an error in a lawsuit can be corrected. An error in medecine very often can't be corrected.

Furthermore a good lawyer is someone able and willing to make his own researches, but that has nothing to do with the knowledge of the laws, this is actually the trivial part of the issue.

However Milton Friedman wants to show that even in this case his simple logic, all the problems are resolved, if only the government retires, would work as wll.

The medical profession is one in which practice of the profession has for a long time been restricted to people with licenses. Offhand, the question, "Ought we to let incompetent physicians practice?" seem to admit of only a negative answer. But I want to urge that second thought may give pause.

Milton Friedman, Capitalism and Freedom, Chicago, 2002, page 149

He mixes two different problems. The first question is whether licences are needed or not. Obviously there are not needed for barbers and lawyers. The second question is, how we can impede that the requirement of licences leads to a protection of the people working in this area.

It is well possible that the American Medical Association tries to restrict the access to the market. We have similar phenomenons in Europe. It is christal clear that inside the European Union the quality of medical studies is more or less the same everywhere and the general rule, see above, is simple. Someone who can practice a profession in any country of the European Union can practice it as well in another. However the respective authorities in the respective countries have an interest to protect their members by restricting the access.

However the question in this case is not whether licences are needed or not, the question is how to increase the access to this market.

The American Medical Association is perhaps the strongest trade union in the United States. The essence of the power of a trade union is its power to restrict the number who may engage in a particular occupation. This restriction may be exercised indirectly by being able to enforce a wage rate higher than would otherwise prevail. If such a wage can be enforced, it will reduce the number of people who can get jobs and thus indirectly the number of people pursuing the occupation. This technique of restriction has disadvantages. There is always a dissatisfied fringe of people who are trying to get into the occupation. A trade union is much better off if it can limit directly the number of people who enter the occupation - who ever try to get jobs in. The disgruntled and dissatisfied are excluded at the outset, and the union does not have worry about them.

Milton Friedman, Capitalism and Freedom, Chicago, 2002, página 149

He compares the American Medical Association with a worker union, although the mechanisms are little bit different. Labour Unions are kind of a monopoly and they can demand a monopoloy price. To put is short and simple: If the employer is confronted with the situation in which he gets no workers at all or pay a higher wage, he will pay a higher wage, but he will not pay a wage higher than the (monetary) marginal outcome of labour. That means that the prices for the products and services will be higher and less people will be employed.

However in this case there will always be some workers willing to work for a lower wage and it will be difficult for the unions to keep this people out.

A licence has the same effect, but is better. The people without the licence, can't simple don't work and don't compete therefore with the physicians with a licence.

The American Medical Association is in this position. It is a trade union that can limit the number of people who can enter. How can it do this? The essential control is at the stage of admission to medical school. The Council on Medical Education and Hospital of the American Medical Association approves medical schools. In order for a medical school to get and stay on its list of approved schools it has to meet he standards of the Council. The power of the Council has been demonstrated at various times when there has been a pressure to reduce numbers. For example, in the 1930` during the depression, the Council on Medical Education and Hospitals wrote a letter to the various medical schools saying the medical schools were admitting more students than could be given the proper kind of training. In the next year or two, every school reduced the number it was admitting, giving strong presumptive evidence that the recommendation had some effect.

Milton Friedman, Capitalism and Freedom, Chicago, 2002, page 150

This author can't find any logic in this paragraph. From the fact that the American Medical Association restricts the amount of licences Milton Friedman draws the conclusion that licences should be abolished. This author would draw a much simpler conclusion. The amount of licences must be increased and that is something a government can always do. It can create as much study places in medecine as it wants.

[Another issue, related to this one, is mor interesting. In a lot of countries, especially in Germany, exist campaign arguing of private universities paid by tuition fees; with similar arguments as the ones put forward by Milton Friedman. Behind these campaigns are certain groups who want to make a business with higher studies and they don't like therefore public universities without tuition fees. However they can only make a profit, if the tuition fees are high enough to yield a profit and the tuition fees will only be high, if the product and services provided by the future graduates are high.]

Concerning the lawyers the situation is different. In any country the lawyers were not successful in restricting the access to the market. In Germany for instance the amount of lawyers has doubled in the last 20 years. (What is actually a problem. Because in order to survive, they have to fill lawsuits.) For the USA Milton Friedman explains that this way.

As an aside, the lawyers have never been as successful as the physicians in getting control at the point of admission to professional schools, though they are moving in that direction. Almost every school on the American Bar Association`s list of approved schools is a full time day school; almost no night schools are approved. Many state legistlators, on the other hand, are graduates of night law schools. If they voted to restrict admission to the profession to graduates of approved schools in effect they would be voting that they themselves were not qualified. Their reluctance to condemn their own competence has been the main factor that has tended to limit the extent to which law has been able to succeed in imitating medicine.

Milton Friedman, Capitalism and Freedom, Chicago, 2002, page 152

In most countries the remuneration of lawyers is completely crazy. The remuneration is not based on the success, but on the service provided independently from the question whether this service was necessary or efficiently provided. That means that the most incompetent lawyers earns more than a serious one, because he had a good chance to reach the second instance. Furthermore he has no interest to dissuade his clients from suing a process, even if the case is completely desesperate, because the lawyer benefits in any case.

If we are looking for a system with wrong incentives, in other words for something diametrically opposed to a market economy, it is the remuneration of lawyers.

In the following paragraph is some truth, although this author would put it a little bit different.

A story about lawyer will perhaps illustrate the point. At a meeting of lawyers at which problems of admission were being discussed, a collegue of mine, arguing against restrictive admission standards, used an analogy from the automobile industry. Would it not, be absurd if the automobiles industry were to argue that no one should drive a low quality car and therefore that no automobile manufacturer should be permitted to produce a car that did not come up to the Cadillac standard. One member of the audience rose and approved the analogy, saying that, of course, the country cannot afford anything but Cadillac lawyers! This tends to be the professional attitude. The member look solely at technical standards of performance, and argue in effect that we must have only firstrate physicians even if this mean that some people get no medical service - though they never put it that way. Nonetheless, the view that people should get only the "optimum" medical service always lead to a restrictive policy, a policy that keeps down the number of physicians. I would not, of course, want to argue that this is the only force at work, but only that this kind of consideration leads many well-meaning physicians to go along with policies that they would reject out-of-hand if the did not have this kind of comforting rationalization.

Milton Friedman, Capitalism and Freedom, Chicago, 2002, page 152

It can questioned indeed whether all physicians need the same training. Some diseases can be treated easily at low costs, but have fatal consequences, for instance the cataract, that leads to blindness. The disease can be cured with an operation that costs 40 dollars. Instead of full trained ophthalmologists it would be better to train people for this specifique operation. It can be said that this is risky, because in case of problems these 'half ophthalmologists' are not sufficiently trained, but the worst case already happened. There are a lot of diseases of this kind, especially in underdeveloped countries and the problem can't be resolved by full trained physicians because it takes too much time and is too expensive to train them.

It is useless to train physicians in underdeveloped countries able to handle sophisticated medical equipment if they don't have this equipment. It should be done what realistically could be done.

Concerning lawyers a better choice would be specialisation. Students of law studiy all field of laws but have no clue of none of them at the end. Jurisdiction is normally trivial, but it is a lot of stuff. It would be better if lawyers specialises on something labour law, criminal law, traffic law, tax law, medical law etc. etc.. This would be useful, especially because in some areas, for instance medical law, the problems rely more in the understanding of medical facts than in the law. For a layman, and lawyers are layman in this field, it will be difficult to proove that a hospital committed an error, because the hospital knows much more about the issue than he. For tax law very often a good understanding of accounting is needed, something a lawyer has no clue, it is not even part of his studies.

The point is not whether we need "cadillac" lawyers or physicians. What is actually needed in some areas is specialisation. It is useless and a restriction of market access if we require full trained professionals where only a knowledge of well defined area is needed.

In other branches this is already normal. Due to the complexity information scientist for instance specialises very quickly, data bases, web programming, administration of servers of any kind, app programming, image processing whatever and they care very little about licences. Actually they not even care about certificates.

Concerning the description of the situation Milton Friedman is right, but his analysis doesn't fit with the titles he gave to his chapters "The relation between economic freedom and political freedom" and "The role of goverment in a free society". The problems described have nothing to do with the government. The government delegated power to semi - private institutions and these institutions abuse their power. In this case it would be better that the government takes over control again, because it is more probable that a democratically elected government works in the general interest than an interest group. Given transparency a government will always serve both sides, the supply side and the demand side.

To put it short and simple: All the problems he mentioned have nothing to do with freedom or the role of the government in a free society. It is a problem of efficiency. Wherever there is no control, we will have this kind of problem. Whether this control is exerted by the market mechanism of democractic control is almost irrelevant. Even in a market economy we can have a situation where a small group dominates and abuses its power. In this case the government must intervene to break this power.

Actually the term freedom is more interesting in relation to the neoclassical theory or marxism, because these lines of thinking, in contrary to what is generally believed, are very similar. Both suppose that there is NO FREEDOM. That the market player can only react to the market signals. What they forget is that the situation where people react automatically was previously determined by free decisions. The neoclassical models we find in any textbook about microeconomics has nothing to do with a free market.

Given a certain supply and demand curve, there is only one equilibrium possible. There is no freedom. However the course of the supply curve is determined by free decisions.

There is no doubt that the description of the problems in Free to Choose Part 10 How to Stay Free Featuring Milton Friedman is completely right. Not only in the United States, but all over the world. However the solution, complete retreatment of the government, is not feasable in practice. A completely private health care system exists nowhere in the world, apart from underdeveloped countries who has no working health care system at all. A private pension system is failing right now in Germany. (It is conceived as a support for the public pension system, but not even this modest goal is achieved. This is due to fundamental errors in economic thinking, see Keynes.)

If we want to see that private universities are not more efficient than public ones it is enough to take a look at the departments of economics. Private or public, they teach the same nonsense. It is therefore difficult to see why privatisation would change something.

There is no doubt that bureaucracies are always willing to intervene if someone asked them to do that, but it can't be denied, that the public very often asks the government to intervene, even if that is not realy useful. At the beginning the internet was completely free, without any regulation and after the telecommunication companies has been privatizised, the costs of getting access were very low. That explains the very fast growth of the internet in the early years with millions of new services.

Then appears some problems and for any problem the public asked the government to intervene. The first problem were the spam emails and the government issued a law that regulates its use. (Although a technical solution is much more efficient.) Than the question arose whether a website is kind of newspaper and the public asked the government to regulate that. The next problem was the imprint and the government issued a law that was so complicated, that in some countries, for instance in Germany, not even the ministry of justice was able to understand it. With e-commerce becomming more relevant, people asked the government to regulate that as well. It is not a big problem to block any kind of tracking, but people asked the government to issue a law regulating the use of cookies. When copyright infringement became in issue, laws were issued to regulate this area as well, with the result that for a lot of authors it becomes much more interesting to prosecute copyright violations instead of selling their works.

(With strange effects. For the music industry it becomes interesting to buy any piece of music, even if they have no intention to promote it.)

At the end a new industry was created. Lawyers who comb through the internet looking for infractions. We can assume that in some countries a lot of lawyers had already been obliged to look for a real job, if they could not had made a living prosecuting this kind of "infractions".

We have already said that Milton Friedman never really defined the term freedom and that his thesis that a market economy automatically lead to political or personal freedom is wrong. Experience shows the opposite. However he got the basic point.

In a democratic society the free market economy will only survive, if it can proove that is serves the majority. In a non democratic society, an economic order that doesn't serve the interests of the majority will be overthrown violently. The point is therefore much more simple: A free market economy is normally, if we disregard very big infrastructure projects, more efficient than a planned economy and it is therefore easier to defuse potential conflicts.

If a free society could not help the starving men it would be very difficult to remain free very long thats why the ability of a free society to improve the lot of the ordinary person is a very, very necesary condition for it remaining free but it is not the fundamental reason why I want a free society. I want a free society for human and the effect on moral values...

Free to Choose Part 10 How to Stay Free Featuring Milton Friedman 48:20

Milton Friedman may wish a free market economy because, in his belief, it guarantees political freedom. The truth is, that it is more efficient and is therefore supported by the majority. To be more precise, the majority want the free market economy modified from time to time and we get to systems like the social market economy, but it doesn't want a complete nationalisation of the industry.

(At least normally. This author for instance would say that in Germany a complete privatisation of the railways is deeply needed and prices for tickets would than fall dramatically. However, for whatever reason, Germans stick to their government owned railway.)

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Milton Friedman

Between neoliberalism, ordoliberalism, austrian school, social market economy there is a difference in the tone, but not in the underlying economic theory