|Bright Promises, Dismal Performance:
An Economist's Protest
by Milton Friedman
Is Capitalism Humane? - 1978
I want to talk about an issue that is very much related to the whole problem of human freedom. It has to do with the question of whether capitalism is humane and what that means.
The arguments in the debate which has been going on for so long between the proponents of capitalism and of socialism have changed. The argument used to be strictly about the form of economic organization: Should we have government control of production and distribution, or should we have private market control? The argument of the proponents of government control used to be that centralized control was more efficient.
Nobody makes that argument anymore. Hardly a person in the world will claim today that nationalized industry, or socialism as a method of economic organization, is an efficient way to organize things. The example of Great Britain, the example of Russia, the examples of some of the other countries around the world that have adopted these measures, plus the domestic-grown examples of the post office and its fellows have put an end to that kind of talk.
The interesting thing is that, nonetheless, there is wide10-4 spread opposition to capitalism as a system of organization. There is widespread support for some vague system labeled socialism. I believe that there is a simple explanation for this phenomenon. That explanation is an emphasis on moral values coupled with ignorance and misunderstanding about the relationship between moral values and economic systems.
The problem with this approach is that moral values are individual; they are not collective. Moral values have to do with what each of us separately believes and holds to be true—what our own individual values are.
Capitalism, socialism, central planning are means not ends. In and of themselves, they are neither moral nor immoral, humane nor inhumane. We have to ask what are their results. We have to look at what are the consequences of adopting one or another system of organization. From that point of view, the crucial thing is to look beneath the surface. Don’t look at what the proponents of one system or another say are their intentions, but look at what the actual results are.
Socialism, which means government ownership and operation of means of production, has appealed to high-minded, fine people, to people of idealistic views, because of the supposed objectives of socialism, especially because of the supposed objectives of equality and social justice. These are fine objectives, and it is a tribute to people of good will that those objectives should appeal to them.
But you have to ask the question: Does the system—no matter what its proponents say—produce those results? Once you look at the results, it is crystal clear that the system does not. Where are social injustices greatest? Social injustices are clearly greatest where you have central control. The degree of social injustice, torture, and incarceration in a place like Russia is of a different order of magnitude than it is in those Western countries in which most of us have grown up and in which we have been accustomed to regarding freedom as our natural heritage.
Again, look at the question of equality. Where is there the greatest degree of inequality? In the socialist states of the world. I remember about fifteen years ago my wife and I were in Russia for a couple of weeks. We were in Moscow with our tourist guide and I happened to see some of the fancy Russian limousines, the Zivs, that were sort of a takeoff of the 1938 Packard. I asked our tourist guide out of amusement how much those sold for. “Oh,” she said, “those aren’t for sale. Those are only for the members of the Politburo.”
In a country like the Soviet Union there is an enormous inequality in the immediate literal sense that a small select group has all of the services and amenities of life, and large masses have a very low standard of living. Indeed, more directly, the wage rate of foremen is much higher relative to the wage rate of ordinary workers in the Soviet Union than it is in the United States.
Capitalism, on the other hand, is a system of organization that relies on private property and voluntary exchange. It has repelled people, it has driven them away from supporting it, because they have thought it emphasized self-interest in a narrow way. They were repelled by the idea of people pursuing their own interests rather than some broader interests.
Yet it is clear that the results go the other way around. Only those countries in which capitalism has prevailed over long periods have experienced both freedom and prosperity Of course, there is not perfect freedom—we all have our defects. Yet, in those mostly Western countries that have had capitalism there has been far more freedom, far more social justice, and less inequality than in the centrally controlled countries.
The question that you have to ask is, has socialism failed because its good qualities were perverted by evil men who were in charge? Was it simply because Stalin took over from Lenin that communism went the way it did? Has capitalism succeeded despite the immoral values that pervade it? I believe that the answers to both questions are in the negative. The results have occurred because each system has been true to the values it encourages, supports, and develops in the people who live under that system.
In discussing moral values here, we are concerned with those that have to do with the relations among people. In judging relations among people, I do not believe that the fundamental value is to do good to others whether they want you to or not. The fundamental value is not to do good to others as you see their good. Neither is it to force them to do good.
I believe that the fundamental value in relations among people is to respect the dignity and the individuality of fellowmen, to treat them not as objects to be manipulated for, our purposes or in accordance with our values but as persons with their own rights and their own values—as persons to be persuaded, not coerced, not forced, not bulldozed, not brain washed. That seems to me to be the fundamental value in social relations.
The essential notion of a capitalist society (which I’ll come back to) is voluntary cooperation, voluntary exchange. The essential notion of a socialist society is force. If the government is the master, if society is to be run from the center, people ultimately have to be ordered what to do.
Whenever we depart from voluntary cooperation and try to do good by using force, the bad moral value of force triumphs over good intentions.
In the past few decades there has been a great decline in the moral climate. We see it in the rising crime statistics, in the lack of respect for property, in the kind of rioting that broke out in New York after the blackout, in the problems of maintaining discipline in elementary schools.
Why? Why have we had such a decline in moral climate? I submit to you that a major factor has been a change in the philosophy which has been dominant, a change from belief in individual responsibility to belief in social responsibility. If you adopt the view that a man is not responsible for his own behavior, that somehow or other society is responsible, why should he seek to make his behavior good?
Don’t misunderstand me. On a scientific level it’s true that what we are is affected a great deal by the society in which we live and grow up. Of course all of us are different than we would have been if we had grown up in a different society. So I’m not denying in the slightest the effect on all of us of the social institutions within which we operate, both on our values and on our opportunities.
I am saying only that a set of social institutions that stresses individual responsibility, that treats the individual—given the kind of person he is, the kind of society in which he operates—as responsible for and to himself, will lead to a higher and more desirable moral climate than a set of institutions that stresses the lack of responsibility of the individual for what happens to him and relieves him of blame or credit for what he does to his fellowmen.
I go back to the essence of capitalism and its relevance to the question of humanity. The essence of a capitalist system in its pure form is that it is a system of cooperation without compulsion, of voluntary exchange, of free enterprise.
I hasten to add that no actual system conforms fully to that notion. In the actual world we are always dealing with approximations, with more or less. In the actual world we always have impediments to voluntary exchange.
But the essential character of a capitalist system is that it relies on voluntary exchange, on your agreeing with me that you will sell something to me if I will pay you a certain amount for it. The essential notion is that both parties to the exchange must benefit. That was the great vision of Adam Smith in his Wealth of Nations: that individuals each separately pursuing his own self-interest could promote the social interest through exchange between people on the basis of mutual benefit.
This notion extends far beyond economic matters narrowly conceived. That’s really the main point I want to get across, and I want to give you two very different kinds of example.
Consider the development of the English language. There was never any central government that dictated the English language and set up some rules for it. There was no planning board that determined what words should be nouns and what words adjectives. Language grew through the free market, through voluntary cooperation. I used a word, you used a word; if it was mutually advantageous to us to keep on using the word, we would keep on using it. Language grows, it develops, it expands, it contracts through the free market.
How did scientific knowledge and understanding arise? How do we get the development of science? Is there somehow or other a government agency that decides what are the most important problems to be studied, that prevents cooperation? Unfortunately, such agencies are developing, but in the history of science that isn’t the way science developed. Science developed out of free-market exchange.
Capitalism is often reproached as being materialistic. It is often reproached as erecting money as a chief motive. Money is not a very noble motive, but it’s cleaner than most. Look at the facts.
In any society, whatever may be its form of organization the people who are not interested in material values are a small minority. There are no societies in the world today that are more materialistic than the collectivist societies. The Russian society, the Chinese society, the Yugoslav society— these are societies that put all their stress on materialism, on achieving economic goals and five-year plans, that destroy the non-materialistic achievements of mankind. Why? Because they are in a position to suppress minorities.
In order for a society to be at once humane and to give opportunity for great human achievements it is necessary that the small minority of people who do not have materialistic objectives have the greatest degree of freedom. And the only society that anybody has ever invented, that anybody has ever discovered, which comes close to doing that is a capitalist society.
When you hear people objecting to the market or to capitalism and you examine their objections, you will find that most of those objections are objections to freedom itself. What most people are objecting to is that the market gives people what the people want instead of what the person talking thinks the people ought to want. That is true whether you are talking of the objections of a Galbraith to the market, whether you are talking of the objections of a Nader to the market, whether you are talking of the objections of a Marx or an Engels or a Lenin to the market.
In a market society, in a society in which people are free to do their own thing, in which people make voluntary deals, it’s hard to do good. You’ve got to persuade people, and there’s nothing in this world that is harder. But the important thing is that in that kind of society it’s also hard to do harm.
It’s true that if you had concentrated power in the hands of an angel he might be able to do a lot of good, as he viewed it, but one man’s good is another man’s bad. The great virtue of a market capitalist society is that, by preventing a concentration of power, it prevents people from doing the kind of harm which concentrated power can do.
So I conclude that capitalism per se is not humane or inhumane; socialism is not humane or inhumane. But capitalism tends to give much freer rein to the more humane values of human beings. It tends to develop an atmosphere which is more favorable to the development on the one hand of a higher moral climate of responsibility and on the other greater achievements in every realm of human activity.