Milton Friedman's Hidden Anarchism in Capitalism and Freedom

Andrew Chrucky

Aug. 8, 2008

Milton Friedman's book Capitalism and Freedom (1962) is divided into two parts. In the first part, consisting of the first two chapters, he lays down his two explicit political principles, and in the second part -- the rest of the book -- he allegedly applies these principles to existing society.

Superficially, I agree with Friedman's two political principles as presented in the first two chapters. However, as one digs further, the principles presented in the first two chapters are not all the principles which Friedman presupposes. The additional principle presupposed must be gleaned from other chapters in the book. I will talk about this principle later. The conclusion I want to reach is that his three principles are not consistent, and that his so-called application of the principles is not really such. It is really the application of only one of these principles, the principle that government should not intervene in economic matters. But that principle is misused given that his other principle is not invoked.

I start with an examination of the following text:

In its simplest form, such a society consists of a number of independent households -- a collection of Robinson Crusoes, as it were. Each household uses the resources it controls, to produce goods and services that it exchanges for goods and services produced by other households, on terms mutually acceptable to the two parties to the bargain. It is thereby enabled to satisfy its wants indirectly by producing goods and services for others, rather than directly by producing goods for its own immediate use. The incentive for adopting this indirect route is, of course, the increased product made possible by division of labor and specialization of function. Since the household always has the alternative of producing directly for itself, it need not enter into any exchange unless it benefits from it. Hence, no exchange will take place unless both parties do benefit from it. Co-operation is thereby achieved without coercion.

Anarchism = (1) a community of independent households; (2) cooperating politically and economically by mutual agreements (laissez-faire politics and economics).

When Friedman writes that "such a society consists of a number of independent households," he cannot be talking about any present industrial society: there are no societies with independent households in the industrialized world; all such societies are found in primitive, i.e., unindustrialized communities. So, he is imagining either a primitive society, an ideal one, or a purely fictitious one.

No industrial country contains independent households for the following reasons. The first reason is that the only way a household can be independent is if it has access to free subsistence land. But, second, all available land in industrial societies has to be either bought, inherited, donated, or rented. And third, all owned land is subject to property taxes. It follows that no household is, properly speaking, independent.

If Friedman were true to his principles, then he should be proposing a way to realize his ideal of independent households. But, in fact, he has no proposals at all for this. And without the existence of independent households, everything else he has to say about political relations is within the context of a society of dependent households.

So, when it comes to the application of these two principles, Friedman is entirely preoccupied with (2) and totally neglects (1).

He never asks what are the conditions necessary for "independent households." On reflection, if I am indeed Robinson Crusoe, and have an "independent household," this means that (a) I have a normal body and mind, and (b) have access to subsistence land. By "subsistence land" I mean all those things necessary for survival. In the first place, land on which I can hunt and gather food. In the second place, land on which I can farm and herd. Note that Friedman remarks that a "household has always the alternative of producing directly for itself" -- yes, if it has access to subsistence land.

If Friedman were to apply his principles, then he should be concerned with agrarian reform in order to create "independent households." And if he were to look at history and peasant uprising, it should have been evident to him that all peasants wanted an "independent household" -- free from government taxation, and free from rent. This was true of the Mexican, Russian, and Spanish civil wars. But in his book Capitalism and Freedom there is no mention of how to bring about "independent households." Well, there is a simple way -- by decree. The decree cannot be made at present in the United States because such a decree would have to be made by the government. But the U.S. government, which serves the interests of corporations, will not make it. However, other governments have made efforts in making such a decree, i.e., land distribution. This was made by Mexico, by Guatemala, by Cuba, by Nicaragua, and currently by Venezuela. All these attempts were crushed by the U.S. government except for Cuba, which suffers an embargo, and Venezuela which is getting away with it because of its control of oil and the U.S. government's overwhelming involvement in the Middle East.

If Friedman were true to his principles, then he should have called for agrarian reform -- calling for a restitution of something like the Homestead Act (1862), remind us of Shay's rebellion and of General Sherman's attempt to give land to former slaves after the Civil War. But, no, Friedman is silent on the issue of agrarian reform.

In lieu of agrarian reform, does Friedman have a way of creating independent households? The closest he comes to this is through his recommendation of a negative income tax. But this is not consistent with his principle; such households would not be "independent" but "dependent" on other households. And, in principle, this would amount to taking from some for the benefit of others -- something which violates Friedman's ideal of freedom, i.e, voluntary agreements. At best, the negative income tax must be viewed as a proposal to improve our present welfare programs.

So, the puzzle arises: Why didn't Friedman recommend agrarian reform?

A clue to Friedman's mind-set is revealed in the following passage on p. 165.

Some hypothetical examples may illustrate the fundamental difficulty. Suppose there are four Robinson Crusoes, independently marooned on four islands in the same neighborhood. One happened to land on a large and fruitful island which enables him to live easily and well. The others happened to land on tiny and rather barren islands from which they can barely scratch a living. One day, they discover the existence of one another. Of course, it would be generous of the Crusoe on the large island if he invited the others to join him and share its wealth. But suppose he does not. Would the other three be justified in joining forces and compelling him to share his wealth with them? Many a reader will be tempted to say yes. But before yielding to this temptation, consider precisely the same situation in different guise. Suppose you and three friends are walking along the street and you happen to spy and retrieve a $20 bill on the pavement. It would be generous of you, of course, if you were to divide it equally with them, or at least blow them to a drink. But suppose you do not. Would the other three be justified in joining forces and compelling you to share the $20 equally with them? I suspect most readers will be tempted to say no. And on further reflection, they may even conclude that the generous course of action is not itself clearly the "right" one. Are we prepared to urge on ourselves or our fellows that any person whose wealth exceeds the average of all persons in the world should immediately dispose of the excess by distributing it equally to all the rest of the world's inhabitants ? We may admire and praise such action when undertaken by a few. But a universal "potlatch" would make a civilized world impossible.

Let's think about his claims. First, the analogy between finding a $20 bill and being marooned on islands is a bad analogy. Access to subsistence land is necessary to sustain life, whereas finding a $20 bill is presumably a luxury. But Friedman's thinking seems to be that in both cases finding something gives one a right to it. Perhaps so with luxuries, but certainly not with necessities. And furthermore it is possible to imagine a situation in which the $20 bill was a necessity -- in which sharing would be just, and violence to get the $20 justifiable. If the large island could sustain only one person, then what we have here is a lifeboat situation -- in which the spoils will go to the strongest -- and talk of rights is pointless. But if the rich island is large enough to sustain the four Robinson Crusoes, then they can all occupy it. However, Friedman's language betrays his thinking. He thinks that the Robinson Crusoe who happened to land on it first, has a right to it because of first occupancy. This is Friedman's third implicit principle: All households must start with the condition they justly find themselves in, i.e., the entitlement theory of justice. No! A right is something derived from an agreement, and I don't think that the other three Crusoes would or should agree to any such principle of first occupancy. However, they may agree to a Lockean principle that they do not expect the lucky Crusoe to share any "wealth" (meaning things he has labored to produce for himself) -- as long as he has left for them the opportunity to amass a similar kind of "wealth." For example, suppose he has gathered all the coconuts and is now hoarding them. If he did this, and the coconuts are necessary for survival, then like in any lifeboat situation things have to be shared or fought over.

But if Friedman's example of the four stranded Robinson Crusoes is meant as an illustration of four independent households, then it fails. If the three unlucky Crusoes land on barren islands, they are not independent households because they cannot subsist on barren islands. To be independent, they must have access to the large island for subsistence. Without such access, they are immediately dependents of the rich Crusoe.

But if Friedman is thinking of the present distribution of property as like Crusoes landing on different islands, then he is inconsistent with his theoretical principle of independent households.

He often appeals to what is given to us by chance. By chance one has the heredity one does; by chance one has the health one does; one has a certain intelligence and talents; by chance one gets an inheritance. By this reasoning we all must begin where chance has placed us. True enough. But this is not true with land holdings or property. Land holding is a matter of decision. It is possible and desirable to have a law or rule that everyone has a right to subsistence land.

The anarchist can agree with Friedman that the social unit is an independent household. But the only way this is possible is if each household has access to free subsistence land. So, if Friedman were true to his principle that society is to consist of independent households, then he is committed to making the possession of subsistence land a universal right. Otherwise, the expression "independent households" makes no sense.

It is a myth that anarchists are against all forms of government. To be against government would be to be against all rules. What the anarchist stresses with Friedman is the need to abide by voluntary agreements. And whatever method is set up for ensuring that agreements are kept can be called government. The Amish, for example, use shunning as such a method.

The anarchist model of government consists precisely of independent households making voluntary agreements, and such a grouping can be called a community or a commune -- depending whether or not they want to pool their resources together. If the community needs to coordinate with some other community, each community will elect delegates for this purpose. This constitutes a federative mode of government, and answers to Friedman's ideal of decentralized government.

Unfortunately, Friedman does not consider this form of representative democracy, instead he assumes the kind of mass democracy which exists in the United States. He is simply proposing a change of laws. He does not care that the present form of government in the United States is run by a military-industrial complex.

To realize Friedman's ideal of a liberal society, two things are needed: (1) a law or agreement between people giving to each person an inalienable right to free subsistence land, and (2) a decentralized government (not simply decentralized laws). Laissez-faire economics (and globalization, for that matter) will work under these conditions. That is the ideal of anarchism. Under the present economic and political conditions, however, laissez-faire economics and less government are a road towards monopoly and serfdom.