2 CAPITALISM AND FREEDOM

over and above them. He is proud of a common heritage and

loyal to common traditions. But he regards government as a
means, an instrumentality, neither a grantor of favors and gifts,
nor a master or god to be blindly worshipped and served. He
recognizes no national goal except as it is the consensus of the
goals that the citizens severally serve. He recognizes no national
+ purpose except as it is the consensus of the purposes for which
the citizens severally strive.
The free man will ask neither what his country can do for
Introduction him nor what he can do for his country. He will ask rather
"What can I and my compatriots do through government" to
help us discharge our individual responsibilities, to achieve our
several goals and purposes, and above all, to protect our free-
dom? And he will accompany this question with another: How
can we keep the government we create from becoming a Frank-
enstein that will destroy the very freedom we establish it to pro-
tect? Freedom is a rare and delicate plant. OUf minds tell us,
and history confirms, that the great threat to freedom is the
concentration of power. Government is necessary to preserve our
freedom, it is an instrument through which we can exercise
our freedom; yet by concentrating power in political hands, it is
also a threat to freedom. Even though the men who wield this
power initially be of good will and even though they be not
corrupted by the power they exercise, the power will both attract

I N A MUCH QUOTED PASSAGE in his inaugural address, President

Kennedy said, "Ask not what your country can do for you - ask
and form men of a different stamp.
How can we benefit from the promise of government while
avoiding the threat to freedom? Two broad principles embodied
what you can do for your country." It is a striking sign of the in our Constitution give an answer that has preserved our free-
temper of our times that the controversy about this passage cen- dom so far, though they have been violated repeatedly in prac-
tered on its origin and not on its content. Neither half of the tice while proclaimed as precept.
statement expresses a relation between the citizen and his gov- First, the scope of government must be limited. Its major func-
ernment that is worthy of the ideals of free men in a free society. tion must be to protect our freedom both from the enemies out-
The paternalistic "what your country can do for you" implies side our gates and from our fellow-citizens: to preserve law and
that government is the patron, the citizen the ward, a view order, to enforce private contracts, to foster competitive markets.
that is at odds with the free man's belief in his own responsibility Beyond this major function, government may enable us at times
for his own destiny. The organismic, "what you can do for your to accomplish jointly what we would find it more difficult or
country" implies that government is the master or the deity, the expensive to accomplish severally. However, any such use of gov-
citizen, the servant or the votary. To the free man, the country ernment is fraught with danger. We should not and cannot
is the collection of individuals who compose it, not something avoid using government in this way. But there should be a clear
Introduction 3 4 CAPITALISM AND FREEDOM

and large balance of advantages before we do. By relying pri- ingale, and Albert Schweitzer; no one of these opened new fron-
marily on voluntary co-operation and private enterprise, in both tiers in human knowledge and understanding, in literature, in
economic and other activities, we can insure that the private sec- technical possibilities, or in the relief of human misery in re-
tor is a check on the powers of the governmental sector and an sponse to governmental directives. Their achievements were the
effective protection of freedom of speech, of religion, and of product of individual genius, of strongly held minority views, of
thought. a social climate permitting variety and diversity.
The second broad principle is that government power must Government can never duplicate the variety and diversity of
be dispersed. If ,government is to exercise power, better in the individual action. At any moment in time, by imposing uniform
county than in the state, better in the state than in Washington. standards in housing, or nutrition, or clothing, government
If I do not like what my local community does, be it in sewage could undoubtedly improve the level of living of many individ-
disposal, or zoning, or schools, I can move to another local com- uals; by imposing uniform standards in schooling, road con-
munity, and though few may take this step, the mere possibility struction, or sanitation, central government could undoubtedly
acts as a check. If I do not like what my state does, I can move improve the level of performance in many local areas and per-
to another. If I do not like what Washington imposes, I have few haps even on the average of all communities. But in the proc-
alternatives in this world of jealous nations. ess, government would replace progress by stagnation, it would
The very difficulty of avoiding the enactments of the federal substitute uniform mediocrity for the variety essential for that
government is of course the great attraction of centralization to experimentation which can bring tomorrow's laggards above
many of its proponents. It will enable them more effectively, today's mean.
they believe, to legislate programs that - as they see it - are in
the interest of the public, whether it be the transfer of income This book discusses some of these great issues. Its major theme
from the rich to the poor or from private to governmental pur- is the role of competitive capitalism - the organization of the
poses. They are in a sense right. But this coin has two sides. The bulk of economic activity through private enterprise operating
power to do good is also the power to do harm; those who con- in a free market - as a system of economic freedom and a neces-
trol the power today may not tomorrow; and, more important, sary condition for political freedom. Its minor theme is the
what one man regards as good, another may regard as harm. role that government should play in a society dedicated to free-
The great tragedy of the drive to centralization, as of the drive dom and relying primarily on the market to organize economic
to extend the scope of government in general, is that it is mostly activity.
led by men of good will who will be the first to rue its The first two chapters deal with these issues on an abstract
consequences. level, in terms of principles rather than concrete application.
The preservation of freedom is the protective reason for limit- The later chapters apply these principles to a variety of particu-
ing and decentralizing governmental power. But there is also a lar problems.
constructive reason. The great advances of civilization, whether An abstract statement can conceivably be complete and ex-
in architecture or painting, in science or literature, in industry or haustive, though this ideal is certainly far from realized in the
agriculture, have never come from centralized government. Co- two chapters that follow. The application of the principles can-
lumbus did not set out to seek a new route to China in response not even conceivably be exhaustive. Each day brings new prob-
to a majority directive of a parliament, though he was partly lems and new circumstances. That is why the role of the state
financed by an absolute monarch. Newton and Leibnitz; Ein- can never be spelled out once and for all in terms of specific
stein and Bohr; Shakespeare, Milton, and Pasternak; Whitney, functions. It is also why we need from time to time to re-examine
McCormick, Edison, and Ford; Jane Addams, Florence Night-
Introduction 5 6 CAPITALISM AND FREEDOM

the bearing of what we hope are unchanged principles on the against which classical liberalism fought. In the very act of
problems of the day. A by-product is inevitably a retesting of turning the clock back to seventeenth-century mercantilism, he
the principles and a sharpening of our understanding of them. is fond of castigating true liberals as reactionary!
It is extremely convenient to have a label for the political and The change in the meaning attached to the term liberalism is
economic viewpoint elaborated in this book. The rightful and more striking in economic matters than in political. The twen-
proper label is liberalism. Unfortunately, "As a supreme, if un- tieth-century liberal, like the nineteenth-century liberal, favors
intended compliment, the enemies of the system of private en- parliamentary institutions, representative government, civil
terprise have thought it wise to appropriate its label", 1 so that rights, and so on. Yet even in political matters, there is a notable
liberalism has, in the United States, come to have a very different difference. Jealous of liberty, and hence fearful of centralized
meaning than it did in the nineteenth century or does today power, whether in governmental or private hands, the nine-
over much of the Continent of Europe. teenth-century liberal favored political decentralization. Com-
As it developed in the late eighteenth and early nineteenth mitted to action and confident of the beneficence of power so
centuries, the intellectual movement that went under the name long as it is in the hands of a government ostensibly controlled
of liberalism emphasized freedom as the ultimate goal and the by the electorate, the twentieth-century liberal favors centralized
individual as the ultimate entity in the society. It supported lais- government. He will resolve any doubt about where power
sez faire at home as a means of reducing the role of the state in should be located in favor of the state instead of the city, of the
economic affairs and thereby enlarging the role of the individ- federal government instead of the state, and of a world organiza-
ual; it supported free trade abroad as a means of linking the tion instead of a national government.
nations of the world together peacefully and democratically. In Because of the corruption of the term liberalism, the views
political matters, it supported the development of representative that formerly went under that name are now often labeled con-
government and of parliamentary institutions, reduction in the servatism. But this is not a satisfactory alternative. The nine-
arbitrary power of the state, and protection of the civil freedoms teenth-century liberal was a radical, both in the etymological
of individuals. sense of going to the root of the matter, and in the political sense
Beginning in the late nineteenth century, and especially after of favoring major changes in social institutions. So too must be
1930 in the United States, the term liberalism came to be associ- his modern heir. We do not wish to conserve the state interven-
ated with a very different emphasis, particularly in economic tions that have interfered so greatly with our freedom, though,
policy. It came to be associated with a readiness to rely primarily of course, we do wish to conserve those that have promoted it,
on the state rather than on private voluntary arrangements to Moreover, in practice, the term conservatism has come to cover
achieve objectives regarded as desirable. The catchwords became so wide a range of views, and views so incompatible with one
welfare and equality rather than freedom. The nineteenth- another, that we shall no doubt see the growth of hyphenated
century liberal regarded an extension of freedom as the most designations, such as libertarian-conservative and aristocratic-
effective way to promote welfare and equality; the twentieth- conservative.
century liberal regards welfare and equality as either prerequi- Partly because of my reluctance to surrender the term to pro-
sites of or alternatives to freedom. In the name of welfare and ponents of measures that would destroy liberty, partly because
equality, the twentieth-century liberal has come to favor a re- I cannot find a better alternative, I shall resolve these difficulties
vival of the very policies of state intervention and paternalism by using the word liberalism in its original sense - as the doc-
1 Joseph Schumpeter, History of Economic Analysis (New York: Oxford Uni- trines pertaining to a free man.
versity Press, 1954) p. 394.
 8 CAPITALISM AND FREEDOM

thesis of this chapter is that such a view is a delusion, that there

is an intimate connection between economics and politics, that
only certain combinations of political and economic arrange-
Chapter I ments are possible, and that in particular, a society which is
socialist cannot also be democratic, in the sense of guaranteeing

+ individual freedom.
Economic arrangements playa dual role in the promotion of
a free society. On the one hand, freedom in economic arrange-
ments is itself a component of freedom broadly understood, so
The Relation between
economic freedom is an end in itself. In the second place, eco-
Economic Freedom nomic freedom is also an indispensable means toward the
achievement of political freedom.
and Political Freedom The first of these roles of economic freedom needs special
emphasis because intellectuals in particular have a strong bias
against regarding this aspect of freedom as important. They tend
to express contempt for what they regard as material aspects of
life, and to regard their own pursuit of allegedly higher values
as on a different plane of significance and as deserving of special
attention. For most citizens of the country, however, if not for
the intellectual, the direct importance of economic freedom is at
least comparable in significance to the indirect importance of
economic freedom as a means to political freedom.
The citizen of Great Britain, who after World War II was not
permitted to spend his vacation in the United States because of
exchange control, was being deprived of an essential freedom
no less than the citizen of the United States, who was denied
the opportunity to spend his vacation in Russia because of his
political views. The one was ostensibly an economic limitation
IT IS WIDELY BELIEVED that politics and economics are separate on freedom and the other a political limitation, yet there is no
and largely unconnected; that individual freedom is a political essential difference between the two.
problem and material welfare an economic problem; and that The citizen of the"United States who is compelled by law to
any kind of political arrangements can be combined with any devote something like 10 per cent of his income to the purchase
kind of economic arrangements. The chief contemporary man- of a particular kind of retirement contract, administered by the
ifestation of this idea is the advocacy of "democratic socialism" government, is being deprived of a corresponding part of his
by many who condemn out of hand the restrictions on individ- personal freedom. How strongly this deprivation may be felt
ual freedom imposed by "totalitarian socialism" in Russia~ and and its closeness to the deprivation of religious freedom, which
who are persuaded that it is possible for a country to adopt the all would regard as "civil" or "political" rather than "eeo..
essential features of Russian economic arrangements and yet to nomic", were dramatized by an episode involving a group of
ensure individual freedom through political arrangements. The farmers of the Amish sect. On grounds of principle, this group
Economic Freedom and Political Freedom 10 CAPITALISM AND FREEDOM
9
regarded compulsory federal old age programs as an infringe- institutions. So also did political freedom in the golden age of
ment of their personal individual freedom and refused to pay Greece and in the early days of the Roman era.
taxes or accept benefits. As a result, some of their livestock were History suggests only that capitalism is a necessary condition
sold by auction in order to satisfy claims for social security levies. for political freedom. Clearly it is not a sufficient condition. Fas-
True, the number of citizens who regard compulsory old age cist Italy and Fascist Spain, Germany at various times in the
insurance as a deprivation of freedom may be few, but the be- last seventy years, Japan before World Wars I and II, tzarist
liever in freedom has never counted noses. Russia in the decades before World War I - are all societies that
A citizen of the United States who under the laws of various cannot conceivably be described as politically free. Yet, in each,
states is not free to follow the occupation of his own choosing private enterprise was the dominant form of economic organ-
unless he can get a license for it, is likewise being deprived of ization. It is therefore clearly possible to have economic ar-
an essential part of his freedom. So is the man who would like rangements that are fundamentally capitalist and political
to exchange some of his goods with, say, a Swiss for a watch but arrangements that are not free.
is prevented from doing so by a quota. So also is the Californian Even in those societies, the citizenry had a good deal more
who was thrown into jail for selling Alka Seltzer at a price below freedom than citizens of a modern totalitarian state like Russia
that set by the manufacturer uncler so-called "fair trade" laws. or Nazi Germany, in which economic totalitarianism is com-
So also is the farmer who cannot grow the amount of wheat he bined with political totalitarianism. Even in Russia under the
wants. And so on. Clearly, economic freedom, in and of itself, is Tzars, it was possible for some citizens, under some circum-
an extremely important part of total freedom. stances, to change their jobs without getting permission from
Viewed as a means to the end of political freedom, economic political authority because capitalism and the existence of private
arrangements are important because of their effect on the con- property provided some check to the centralized power of the
centration or dispersion of power. The kind of economic or- state.
ganization that provides economic freedom directly, namely, The relation between political and economic freedom is com-
competitive capitalism, also promotes political freedom because plex and by no means unilateral. In the early nineteenth century,
it separates economic power from political power and in this Bentham and the Philosophical Radicals were inclined to re-
way enables the one to offset the other. gard political freedom as a means to economic freedom. They
Historical evidence speaks with a single voice on the relation believed that the masses were being hampered by the restrictions
between political freedom and a free market. I know of no that were being imposed upon them, and that if political reform
example in time or place of a society that has been marked by a gave the bulk of the people the vote, they would do what was
large measure of political freedom, and that has not also used good for them, which was to vote for laissez faire. In retrospect,
something comparable to a free market to organize the bulk of one cannot say that they were wrong. There was a large meas-
economic activity. ure of political reform that was accompanied by economic re-
Because we live in a largely free society, we tend to forget how form in the direction of a great deal of laissez faire. An enormous
limited is the span of time and the part of the globe for which increase in the well-being of the masses followed this change in
there has ever been anything like political freedom: the typical economic arrangements.
state of mankind is tyranny, servitude, and misery. The nine- The triumph of Benthamite liberalism in nineteenth-century
teenth century and early twentieth century in the Western world England was followed by a reaction to\vard increasing interven-
stand out as striking exceptions to the general trend of historical tion by government in economic affairs. This tendency to collec-
development. Political freedom in this instance clearly came tivism was greatly accelerated, both in England and elsewhere,
along with the free market and the development of capitalist by the two World Wars. Welfare rather than freedom be-
Economic Freedom and Political Freedom II 12 CAPITALISM AND FREEDOM

came the dominant note in democratic countries. Recognizing at the same time as the development of capitalist and market
the implicit threat to individualism, the intellectual descendants institutions. Why should there be a connection? What are the
of the Philosophical Radicals - Dicey, Mises, Hayek, and Si- logical links between economic and political freedom? In dis-
mons, to mention only a few - feared that a continued move- cussing these questions we shall consider first the market as a
ment toward centralized control of economic activity would direct component of freedom, and then the indirect relation be-
prove The Road to Serfdom, as Hayek entitled his penetrating tween market arrangements and political freedom. A by-product
analysis of the process. Their emphasis was on economic free- will be an outline of the ideal economic arrangements for a free
dom as a means toward political freedom. society.
Events since the end of World War II display still a different As liberals, we take freedom of the individual, or perhaps the
relation between economic and political freedom. Collectivist family, as our ultimate goal in judging social arrangements.
economic planning has indeed interfered with individual free- Freedom as a value in this sense has to do with the interrelations
dom. At least in some countries, however, the result has not been among people; it has no meaning whatsoever to a Robinson Cru-
the suppression of freedom, but the reversal of economic policy. soe on an isolated island (without his Man Friday). Robinson
England again provides the most striking example. The turning Crusoe on his island is subject to "constraint," he has limited
point was perhaps the "control of engagements" order which, "power," and he has only a limited number of alternatives, but
despite great misgivings, the Labour party found it necessary to there is no problem of freedom in the sense that is relevant to
impose in order to carry out its economic policy. Fully enforced our discussion. Similarly, in a society freedom has nothing to
and carried through, the law would have involved centralized say about what an individual does with his freedom; it is not
allocation of individuals to occupations. This conflicted so an all-embracing ethic. Indeed, a major aim of the liberal is to
sharply with personal liberty that it was enforced in a negligible leave the ethical problem for the individual to wrestle with. The
number of cases, and then repealed after the law had been in "really" important ethical problems are those that face an indi-
effect for only a short period. Its repeal ushered in a decided vidual in a free society - what he should do with his freedom.
shift in economic policy, marked by reduced reliance on cen- There are thus two sets of values that a liberal will emphasize-
tralized "plans" and "programs", by the dismantling of many the values that are relevant to relations among people, which is
controls, and by increased emphasis on the private market. A the context in which he assigns first priority to freedom; and
similar shift in policy occurred in most other democratic the values that are relevant to the individual in the exercise of
countries. his freedom, which is the realm of individual ethics and
The proximate explanation of these shifts in policy is the lim- philosophy.
ited success of central planning or its outright failure to achieve The liberal conceives of men as imperfect beings. He regards
stated objectives. However, this failure is itself to be attrib- the problem of social organization to be as much a negative prob-
uted, at least in some measure, to the political implications of lem of preventing "bad" people from doing harm as of enabling
central planning and to an unwillingness to follow out its logic "good" people to do good; and, of course, "bad" and "good"
when doing so requires trampling rough-shod on treasured people may be the same people, depending on who is judging
private rights. It may well be that the shift is only a temporary them.
interruption in the collectivist trend of this century. Even so, it The basic problem of social organization is how to co-ordinate
illustrates the close relation between political freedom and eco- the economic activities of large numbers of people. Even in
nomic arrangements. relatively backward societies, extensive division of labor and
Historical evidence by itself can never be convincing. Perhaps specialization of function is required to make effective use of
it was sheer coincidence that the expansion of freedom occurred available resources. In advanced societies, the scale on which co-
Economic Freedom and Political Freedom 13 14 CAPITALISM AND FREEDOM

ordination is needed, to take full advantage of the opportunities in their capacities as suppliers of service and as purchasers of
offered by modern science and technology, is enormously goods. And similarly, specialization of function and division of
greater. Literally millions of people are involved in providing labor could not go very far if we had to continue to rely on the
one another with their daily bread, let alone with their yearly barter of product for product. In consequence, money has been
automobiles. The challenge to the believer in liberty is to recon- introduced as a means of facilitating exchange, and of enabling
cile this widespread interdependence with individual freedom. the acts of purchase and of sale to be separated into two parts.
Fundamentally, there are only two ways of co-ordinating the Despite the important role of enterprises and of money in our
economic activities of millions. One is central direction involving actual economy, and despite the numerous and complex prob-
the use of coercion - the technique of the army and of the mod- lems they raise, the central characteristic of the market technique
ern totalitarian state. The other is voluntary co-operation of in.. of achieving co-ordination is fully displayed in the simple ex-
dividuals - the technique of the market place. change economy that contains neither enterprises nor money. As
The possibility of co-ordination through voluntary co-opera.. in that simple model, so in the complex enterprise and money-
tion rests on the elementary - yet frequently denied - proposi- exchange economy, co-operation is strictly individual and vol-
tion that both parties to an economic transaction benefit from untary provided: (a) that enterprises are private, so that the
it, provided the transaction is bi-laterally voluntary and ultimate contracting parties are individuals and (h) that indi-
informed. viduals are effectively free to enter or not to enter into any par-
Exchange can therefore bring about co-ordination without co- ticular exchange, so that every transaction is strictly voluntary.
ercion. A working model of a society organized through volun- It is far easier to state these provisos in general terms than to
tary exchange. is a tree private enterprise exchange economy- spell them out in detail, or to specify precisely the institutional
what we have been calling competitive capitalism. arrangements most conducive to their maintenance. Indeed,
In its simplest form, such a society consists of a number of much of technical economic literature is concerned with pre-
independent households - a collection of Robinson Crusoes, as cisely these questions. The basic requisite is the maintenance of
it were. Each household uses the resources it controls to produce law and order to prevent physical coercion of one individual by
goods and services that it exchanges for goods and services pro.. another and to enforce contracts voluntarily entered into, thus
duced by other households, on terms mutually acceptable to the giving substance to "private". Aside from this, perhaps the most
two parties to the bargain. It is thereby enabled to satisfy its difficult problems arise from monopoly - which inhibits effec-
wants indirectly by producing goods and services for others, ra.. tive freedom by denying individuals alternatives to the particu-
ther than directly by producing goods for its own immediate lar exchange - and from "neighborhood effects" - effects on
use. The incentive for adopting this indirect route is, of course, third parties for which it is not feasible to charge or recompense
the increased product made possible by division of labor and spe- them. These problems will be discussed in more detail in the
cialization of function. Since the household always has the following chapter.
alternative of producing directly for itself, it need not enter into So long as effective freedom of exchange is maintained, the
any exchange unless it benefits from it. Hence, no exchange will central feature of the market organization of economic activity
take place unless both parties do benefit from it. Co-operation is is that it prevents one person from interfering with another in
thereby achieved without coercion. respect of most of his activities. The consumer is protected from
Specialization of function and division of labor would not go coercion by the seller because of the presence of other sellers with
far if the ultimate productive unit were the household. In a whom he can deal. The seller is protected from coercion by the
modern society, we have gone much farther. We have intro- consumer because of other consumers to whom he can sell. The
duced enterprises which are intermediaries between individuals employee is protected from coercion by the employer because of
Economic Freedom and Political Freedom 15 16 CAPITALISM AND FREEDOM

other employers for whom he can work, and so on. And the nomic strength to be at the expense of existing centers. Political
market does this impersonally and without centralized power, on the other hand, is more difficult to decentralize. There
authority. can be numerous small independent governments. But it is far
Indeed, a major source of objection to a free economy is pre- more difficult to maintain numerous equipotent small centers of
cisely that it does this task so well. It gives people what they political power in a single large government than it is to have
want instead of what a particular group thinks they ought to numerous centers of economic strength in a single large econ-
want. Underlying most arguments against the free market is a omy. There can be many millionaires in one large economy.
lack of belief in freedom itself. But can there be more than one really outstanding leader, one
The existence of a free market does not of course eliminate person on whom the energies and enthusiasms of his country-
the need for government. On the contrary, government is essen- men are centered? If the central government gains power, it is
tial both as a forum for determining the "rules of the game" and likely to be at the expense of local governments. There seems to
as an umpire to interpret and enforce the rules decided on. What be something like a fixed total of political power to be distrib-
the market does is to reduce greatly the range of issues that must uted. Consequently, if economic power is joined to political
be decided through political means, and thereby to minimize the power, concentration seems almost inevitable. On the other
extent to which government need participate directly in the hand, if economic power is kept in separate hands from political
game. The characteristic feature of action through political power, it can serve as a check and a counter to political power.
channels is that it tends to require or enforce substantial con- The force of this abstract argument can perhaps best be dem-
formity. The great advantage of the market, on the other hand, onstrated by example. Let us consider first, a hypothetical ex-
is that it permits wide diversity. It is, in political terms, a system ample that may help to bring out the principles involved, and
of proportional representation. Each man can vote, as it were, then some actual examples from recent experience that illustrate
for the color of tie he wants and get it; he does not have to see the way in which the market works to preserve political free-
what color the majority wants and then, if he is in the minority, dom.
submit. One feature of a free society is surely the freedom of individu-
It is this feature of the market that we refer to when we say als to advocate and propagandize openly for a radical change in
that the market provides economic freedom. But this character- the structure of the society - so long as the advocacy is restricted
istic also has implications that go far beyond the narrowly eco- to persuasion and does not include force or other forms of coer-
nomic. Political freedom means the absence of coercion of a cion. It is a mark of the political freedom of a capitalist society
man by his fellow men. The fundamental threat to freedom is that men can openly advocate and work for socialism. Equally,
power to coerce, be it in the hands of a monarch, a dictator, an political freedom in a socialist society would require that men be
oligarchy, or a momentary majority. The preservation of free- free to advocate the introduction of capitalism. How could the
dom requires the elimination of such concentration of power to freedom to advocate capitalism be preserved and protected in
the fullest possible extent and the dispersal and distribution of a socialist society?
whatever power cannot be eliminated - a system of checks and In order for men to advocate anything, they must in the first
balances. By removing the organization of economic activity place be able to earn a living. This already raises a problem in
from the control of political authority, the market eiiminates a socialist society, since all jobs are under the direct control of
this source of coercive power. It enables economic strength to be political authorities. It would take an act of self-denial whose
a check to political power rather than a reinforcement. difficulty is underlined by experience in the United States after
Economic power can be widely dispersed. There is no law of World War II with the problem of "security" among Federal
conservation which forces the growth of new centers of eco..
Economic Freedom and Political Freedom 18 CAPITALISM AND FREEDOM

employees, for a socialist government to permit its employees to In this way, the market breaks the vicious circle and makes
advocate policies directly contrary to official doctrine. it possible ultimately to finance such ventures by small amounts
But let us suppose this act of self-denial to be achieved. For from many people without first persuading them. There are no
advocacy of capitalism to mean anything, the proponents must such possibilities in the socialist society; there is only the all-
be able to finance their cause - to hold public meetings, publish powerful state.
pamphlets, buy radio time, issue newspapers and magazines, and Let us stretch our imagination and suppose that a socialist gov-
so on. How could they raise the funds? There might and proba- ernment is aware of this problem and is composed of people
bly would be men in the socialist society with large incomes, anxious to preserve freedom. Could it provide the funds? Per-
perhaps even large capital sums in the form of government haps, but it is difficult to see how. It could establish a bureau for
bonds and the like, but these would of necessity be high public subsidizing subversive propaganda. But how could it choose
officials. It is possible to conceive of a minor socialist official re- whom to support? If it gave to all who asked, it would shortly
taining his job although openly advocating capitalism. It strains find itself out of funds, for socialism cannot repeal the ele-
credulity to imagine the socialist top brass financing such "sub- mentary economic law that a sufficiently high price will call
versive" activities. forth a large supply. Make the advocacy of radical causes suffi-
The only recourse for funds would be to raise small amounts ciently remunerative, and the supply of advocates will be un-
from a large number of minor officials. But this is no real answer. limited.
To tap these sources, many people would already have to be Moreover, freedom to advocate unpopular causes does not
persuaded, and our whole problem is how to initiate and finance require that such advocacy be without cost. On the contrary, no
a campaign to do so. Radical movements in capitalist societies society could be stable if advocacy of radical change were cost-
have never been financed this way. They have typically been less, much less subsidized. It is entirely appropriate that men
supported by a few wealthy individuals who have become per- make sacrifices to advocate causes in which they deeply believe.
suaded - by a Frederick Vanderbilt Field, or an Anita McCor- Indeed, it is important to preserve freedom only for people who
mick Blaine, or a Corliss Lamont, to mention a few names are willing to practice self-denial, for otherwise freedom degen-
recently prominent, or by a Friedrich Engels, to go farther back. erates into license and irresponsibility. What is essential is that
This is a role of inequality of wealth in preserving political the cost of advocating unpopular causes be tolerable and not
freedom that is seldom noted - the role of the patron. prohibitive.
In a capitalist society, it is only necessary to convince a few But we are not yet through. In a free market society, it is
wealthy people to get funds to launch any idea, however strange, enough to have the funds. The suppliers of paper are as willing
and there are many such persons, many independent foci of to sell it to the Daily Worker as to the Wall Street Journal. In a
support. And, indeed, it is not even necessary to persuade people socialist society, it would not be enough to have the funds. The
or financial institutions with available funds of the soundness hypothetical supporter of capitalism would have to persuade a
of the ideas to be propagated. It is only necessary to persuade government factory making paper to sell to him, the govern-
them that the propagation can be financially successful; that the ment printing press to print his pamphlets, a government post
newspaper or magazine or book or other venture will be profit- office to distribute them among the people, a government agency
able. The competitive publisher, for example, cannot afford to to rent him a hall in which to talk, and so on.
publish only writing with which he personally agrees; his touch- Perhaps there is some way in which one could overcome these
stone must be the likelihood that the market will be large difficulties and preserve freedom in a socialist society. One can-
enough to yield a satisfactory return on his investment. not say it is utterly impossible. What is clear, however, is that
there are very real difficulties in establishing institutions that
Economic Freedom and Political Freedom 19 20 CAPITALISM AND FREEDOM

will effectively preserve the possibility of dissent. So far as I rent Hollywood films are reportedly written by blacklist members.
know, none of the people who have been in favor of socialism Said Producer King, "There are more ghosts in Hollywood than in
Forest Lawn. Every company in town has used the work of black-
and also in favor of freedom have really faced up to this issue,
listed people. We're just the first to confirm what everybody
or made even a respectable start at developing the institutional knows."
arrangements that would permit freedom under socialism. By
contrast, it is clear how a free market capitalist society fosters One may believe, as I do, that communism would destroy all
freedom. of our freedoms, one may be opposed to it as firmly and as
A striking practical example of these abstract principles is the strongly as possible, and yet, at the same time, also believe that
experience of Winston Churchill. From 1933 to the outbreak of in a free society it is intolerable for a man to be prevented from
World War II, Churchill was not permitted to talk over the making voluntary arrangements with others that are mutu-
British radio, which was, of course, a government monopoly ad- ally attractive because he believes in or is trying to promote com-
ministered by the British Broadcasting Corporation. Here was munism. His freedom includes his freedom to promote commu-
a leading citizen of his country, a Member of Parliament, a nism. Freedom also, of course, includes the freedom of
former cabinet minister, a man who was desperately trying by others not to deal with him under those circumstances. The
every device possible to persuade his countrymen to take steps to Hollywood blacklist was an unfree act that destroys freedom be-
ward off the menace of Hitler's Germany. He was not permitted cause it was a collusive arrangement that used coercive means to
to talk over the radio to the British people because the BBC was a prevent voluntary exchanges. It didn't work precisely because
government monopoly and his position was too "controversial". the market made it costly for people to preserve the blacklist.
Another striking example, reported in the January 26, 1959 The commercial emphasis, the fact that people who are running
issue of Time, has to do with the "Blacklist Fadeout". Says the enterprises have an incentive to make as much money as they
Time story, can, protected the freedom of the individuals who were black-
The Oscar-awarding ritual is Hollywood's biggest pitch for dig- listed by providing them with an alternative form of employ-
nity, but two years ago dignity suffered. When one Robert Rich ment, and by giving people an incentive to employ them.
was announced as top writer for the The Brave On~, he never If Hollywood and the movie industry had been government
stepped forward. Robert Rich was a pseudonym, masking one of enterprises or if in England it had been a question of employ-
about ISO writers ... blacklisted by the industry since 1947 as ment by the British Broadcasting Corporation it is difficult to
suspected Communists or fellow travelers. The case was particularly believe that the "Hollywood Ten" or their equivalent would
embarrassing because the Motion Picture Academy had barred any have found employment. Equally, it is difficult to believe that
Communist or Fifth Amendment pleader from Oscar competition. under those circumstances, strong proponents of individualism
Last week both the Communist rule and the mystery of Rich's
and private enterprise - or indeed strong proponents of any
identity were suddenly rescripted.
Rich turned out to be Dalton (Johnny Got His Gun) Trumbo,
view other than the status quo - would be able to get em-
one of the original "Hollywood Ten" writers who refused to testify ployment.
at the 1947 hearings on Communism in the movie industry. Said Another example of the role of the market in preserving politi-
producer Frank King, who had stoutly insisted that Robert Rich cal freedom, was revealed in our experience with McCarthyism.
was "a young guy in Spain with a beard": "We have an obliga- Entirely aside from the substantive issues involved, and the
tion to our stockholders to buy the best script we can. Trumbo merits of the charges made, what protection did individuals, and
brought us The Brave One and we bought it". . . . in particular government employees, have against irresponsible
In effect it was the formal end of the Hollywood black list. For accusations and probings into matters that it went against their
barred writers, the informal end came long ago. At least 15% of cur- conscience to reveal? Their appeal to the Fifth Amendment
Economic Freedom and Political Freedom 21

would have been a hollow mockery without an alternative to

government employment.
Their fundamental protection was the existence of a private-
market economy in which they could earn a living. Here again,
the protection was not absolute. Many potential private em-
ployers were, rightly or wrongly, averse to hiring those pilloried.
It may well be that there was far less justification for the costs
imposed on many of the people involved than for the costs gen-
erally imposed on people who advocate unpopular causes. But
the important point is that the costs were limited and not pro-
hibitive, as they would have been if government employment
had been the only possibility.
It is of interest to note that a disproportionately large fraction
of the people involved apparently went into the most competi-
tive sectors of the economy - small business, trade, farming-
where the market approaches most closely the ideal free market.
No one who buys bread knows whether the wheat from which
it is made was grown by a Communist or a Republican, by a con-
stitutionalist or a Fascist, or, for that matter, by a Negro or a
white. This illustrates how an impersonal market separates eco-
nomic activities from political views and protects men from
being discriminated against in their economic activities for rea-
sons that are irrelevant to their productivity - whether these
reasons are associated with their views or their color.
As this example suggests, the groups in our society that have
the most at stake in the preservation and strengthening of com-
petitive capitalism are those minority groups which can most
easily become the object of the distrust and enmity of the major-
ity-the Negroes, the Jews, the foreign-born, to mention only
the most obvious. Yet, paradoxically enough, the enemies of
the free market - the Socialists and Communists - have been
recruited in disproportionate measure from these groups. Instead
of recognizing that the existence of the market has protected
them from the attitudes of their fellow countrymen, they mis-
takenly attribute the residual discrimination to the market.