Milton Friedman taught at the University of Chicago. In 1961, a student publication on campus was launched that Friedman wrote for: New Individualist Review. It was a great publication.
Its greatest contribution: it helped end the draft. This fact is long forgotten. I have discussed this here.
Friedman wrote an anti-draft article for the NIR in 1967. I regard it as his second-greatest article. But a 1962 article was better. It was on the stability of a free market social order.
A standard argument of collectivists is this: the free market is unstable. The free market is not directed, meaning not controlled, by the civil government. It does not maintain coherence. There are too many conflicting economic forces. Some of them are evil. We should not allow evil to flourish. Evil undermines society.
The problem, Friedman said, is that when the government attempts to eradicate the evil, more evils appear. But this is not widely understood.
If one is concerned to remedy clear evils in a society, as everyone is, the natural reaction is to say, "let's do something about it," and the "us" in this statement will in a large number of cases be translated into the "government," so the natural reaction is to pass a law. The argument that maybe the attempt to correct this particular evil by extending the hand of the government will have indirect effects whose aggregate consequences may be far worse than any direct benefits that flow from the action taken is, after all, a rather sophisticated argument. And yet, this is the kind of argument that underlies a belief in a free or laisser-faire society.
THE TYRANNY OF THE STATUS QUO
The problem in responding, Friedman said, is the tyranny of the status quo. We assume that the existing circumstances are best. They are familiar to us. They are "normal."
In discussing issues of this kind, the tendency always is to take what is for granted, to assume that it is perfectly all right and reasonable, and that the problem to argue about is the next step. This tends to mean that movements in any one direction are difficult to reverse.
This creates pressure to stick with the familiar. This pushes society in one direction. The problem is, this may be the equivalent of going over the falls in a canoe. This produces instability.
Then there is the problem of tyranny. It seems to be irreversible, once collectivism takes over people's thinking.
If one departs from a free society, the people in power in a collectivist society will not hesitate to use force to keep it from being changed. Under such circumstances, it is more difficult to achieve a revolution that would convert a totalitarian or collectivist society into an individualist society than it is to do the reverse. From the point of view of the forces that may work in the direction of rendering a free society an unstable system, this is certainly one of the most important. . . .
Is this correct? Is this tendency inevitable? Friedman cited Marx's doctrine of the inevitability of revolutionary socialism. Then he cited Joseph Schumpeter's variant: capitalism moves toward monopoly. He denied both positions. The predictions have not come true. But then he added a third. This one is powerful. People have a strong tendency to obey the law. This is the tyranny of the status quo. He describes this. It began in Great Britain with respect for the law. In the 1840s, Great Britain adopted laissez-faire.
Once laisser-faire was adopted, the economic incentive for corruption was largely removed. After all, if governmental officials had no favors to grant, there was no need to bribe them. And if there was nothing to be gained from government, it could hardly be a source of corruption. Moreover, the laws that were left were for the most part, and again I am oversimplifying and exaggerating, laws that were widely accepted as proper and desirable; laws against theft, robbery, murder, etc. This is in sharp contrast to a situation in which the legislative structure designates as crimes what people individually do not regard as crimes or makes it illegal for people to do what seems to them the sensible thing. The latter situation tends to reduce respect for the law. One of the unintended and indirect effects of laisser-faire was thus to establish a climate in Britain of a much greater degree of obedience and respect for the law than had existed earlier. Probably there were other forces at work in this development but I believe that the establishment of laisser-faire laid the groundwork for a reform in the civil service in the latter part of the century--the establishment of a civil service chosen on the basis of examinations and merit and of professional competence. You could get that kind of development because the incentives to seek such places for purposes of exerting "improper" influence were greatly reduced when government had few favors to confer.In these ways, the development of laisser-faire laid the groundwork for a widespread respect for the law, on the one hand, and a relatively incorrupt, honest, and efficient civil service on the other, both of which are essential preconditions for the operation of a collectivist society. In order for a collectivist society to operate, the people must obey the laws and there must be a civil service that can and will carry out the laws. The success of capitalism established these preconditions for a movement in the direction of much greater state intervention.
This is a powerful argument. It means, if true, that capitalism dies of its own success. This is a variant of Schumpeter's argument.
But there is hope. The process runs both ways.
The process I have described obviously runs both ways. A movement in the direction of a collectivist society involves increased governmental intervention into the daily lives of people and the conversion into crimes of actions that are regarded by the ordinary person as entirely proper. These tend in turn to undermine respect for the law and to give incentives to corrupt state officials. There can, I think, be little doubt that this process has begun in Britain and has gone a substantial distance.
So, which direction are we heading? He asked this half a century ago. He began with Great Britain.
Although respect for the law may still be greater than it is here, most observers would agree that respect for the law in Britain has gone down decidedly in the course of the last twenty or thirty years, certainly since the war, as a result of the kind of laws people have been asked to obey. On the occasions I have been in England, I have had access to two sources of information that generally yield quite different answers. One is people associated with academic institutions, all of whom are quite shocked at the idea that any British citizen might evade the law--except perhaps for transactions involving exchanging pounds for dollars when exchange control was in effect. It also happens that I had contact with people engaged in small businesses. They tell a rather different story, and one that I suspect comes closer to being valid, about the extent to which regulations were honored in the breach, and taxes and customs regulations evaded--the one thing that is uniform among people or almost uniform is that nobody or almost nobody has any moral repugnance to smuggling, and certainly not when he is smuggling something into some country other than his own.
In other words, the smuggling mindset remains powerful. The black market is real.
There is a war between these two tendencies.
The erosion of the capital stock of willingness to obey the law reduces the capacity of a society to run a centralized state, to move away from freedom. This effect on law obedience is thus one that is reversible and runs in both directions. It is another major factor that needs to be taken into account in judging the likely stability of a free system in the long run.
THE ROAD FROM SERFDOM
He thought that the road from serfdom was more powerful than the road to serfdom, to use Hayek's phrase.
What are the sources of strength for a free society that may help to maintain it? One of the major sources of strength is the tendency for extension of economic intervention in a wide range of areas to interfere directly and clearly with political liberty and thus to make people aware of the conflict between the two. This has been the course of events in Great Britain after the war and in many other countries. I need not repeat or dwell on this point.A second source of strength is one that has already been suggested by my comments on law obedience. In many ways, perhaps the major hope for a free society is precisely that feature in a free society which makes it so efficient and productive in its economic activity; namely, the ingenuity of millions of people, each of whom is trying to further his own interest, in part by finding ways to get around state regulation.
People learn how to beat the system.
Once government embarks on intervention into and regulation of private activities, this establishes an incentive for large numbers of individuals to use their ingenuity to find ways to get around the government regulations. One result is that there appears to be a lot more regulation than there really is. Another is that the time and energy of government officials is increasingly taken up with the need to plug the holes in the regulations that the citizens are finding, creating, and exploiting. From this point of view, Parkinson's law about the growth of bureaucracy without a corresponding growth of output may be a favorable feature for the maintenance of a free society. An efficient governmental organization and not an inefficient one is almost surely the greater threat to a free society. One of the virtues of a free society is precisely that the market tends to be a more efficient organizing principle than centralized direction. Centralized direction in this way is always having to fight something of a losing battle.
This is the most important paragraph Friedman ever wrote. Why? Because it showed the utter futility of his lifetime quest to provide pseudo-market solutions whose effects would supposedly make civil government more like a free market and therefore more efficient. He began this line of reasoning with his arguments for income tax withholding during World War II, when he was an economist with the Treasury Department. More famously, this line of reasoning undergirded his arguments for tax-funded school vouchers. (I debated him on this point two decades ago.)
But wait! There's more!
The three major sources of strength I have suggested so far are the corroding effect of the extension of state activities and state intervention on attitudes toward the enforcement of the law and on the character of the civil service; the ingenuity of individuals in avoiding regulation; and the visibility of government action and of monopoly. Implicit in these is a fourth, namely the general inefficiency in the operation of government.
People will eventually see the inefficiency of the civil government. In our day, this is so visible that the United States government does 98% of its shipping through UPS and FedEx, not the U.S. Postal Service.
Then, he said, there is the power of ideas. In 1962, this seemed far-fetched. The outlook of the intellectuals was collectivist. But he was right. The case for the free market is far more widely understood today than in 1962.
No very clear conclusion can be drawn from this examination of the forces adverse and favorable to a free society. The historical record suggests pessimism, but the analysis gives no strong basis for either great optimism or confirmed pessimism about the stability of a free society, if it is given an opportunity to exist. One of the most important tasks for liberal scholars to undertake is to examine this issue more fully in the light of historical evidence in order that we may have a much better idea of what factors tend to promote and what factors to destroy a free society.
CONCLUSION
The failures of civil government are visible today. There is growing skepticism regarding politics as a way of social redemption. When the unfunded liabilities of every Western government finally are so large that the can is too large to be kicked by legislators, there will be a day of reckoning. Central governments in the West will lose much of their legitimacy. Citizens will adopt more of the smuggler's mindset. They will withdraw more of their cooperation. That will bankrupt national governments. They all rely on self-government by the masses to support the extension of collectivism. This support will be steadily withdrawn. It is already happening. This is irreversible. This is why collectivism is highly reversible.
Thatcher was right. Socialism works only until the state runs out of other people's money.
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