In the summer of 1962, I read Milton Friedman's essay, "Is a Free Society Stable?" It was published in a campus quarterly journal, New Individualist Review. A group of students at the University of Chicago published it. It remains the best campus journal I have ever read. It ceased publication after seven years: April 1961 to Winter 1968.
Friedman's main argument has stayed with me ever since: the case for limited civil government as a way to gain widespread voluntary cooperation.
In this article is the most important sentence Friedman ever wrote. His refusal to adhere to it when discussing central banking, educational vouchers, and the gold coin standard constitutes the major criticism by his Austrian School critics, of whom I am one.
An efficient governmental organization and not an inefficient one is almost surely the greater threat to a free society.
Here, I reprint a section of his article. The complete article is online at the Liberty Fund's site. Read it here.
THERE IS ANOTHER DIRECTION, it seems to me, in which there is a different kind of a tendency for capitalism to undermine itself by its own success. The tendency I have in mind can probably best be brought out by the experience of Great Britain--Great Britain tends to provide the best laboratory for many of these forces. It has to do with the attitude of the public at large toward law and toward law obedience. Britain has a wide and deserved reputation for the extraordinary obedience of its people to the law. It has not always been so. At the turn of the nineteenth century, and earlier, the British had a very different reputation as a nation of people who would obey no law, or almost no law, a nation of smugglers, a nation in which corruption and inefficiency was rife, and in which one could not get very much done through governmental channels.
Indeed, one of the factors that led Bentham and the Utilitarians toward laisser-faire, and this is a view that is also expressed by Dicey, was the self-evident truth that if you wanted to get evils corrected, you could not expect to do so through the government of the time. The government was corrupt and inefficient. It was clearly oppressive. It was something that had to be gotten out of the way as a first step to reform. The fundamental philosophy of the Utilitarians, or any philosophy that puts its emphasis on some kind of a sum of utilities, however loose may be the expression, does not lead to laisser-faire in principle. It leads to whatever kind of organization of economic activity is thought to produce results which are regarded as good in the sense of adding to the sum total of utilities. I think the major reason why the Utilitarians tended to be in favor of laisser-faire was the obvious fact that government was incompetent to perform any of the tasks they wanted to see performed.
Whatever the reason for its appeal, the adoption of laisser-faire had some important consequences. 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.
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. 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.
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.
I HAVE BEEN EMPHASIZING forces and approaches that are mostly pessimistic in terms of our values in the sense that most of them are reasons why a free society is likely to be unstable and to change into a collectivist system. I should like therefore to turn to some of the tendencies that may operate in the other direction.
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. If I may refer to my own casual observation of Britain and France a few years after the war, the impression that I formed on the the basis of very little evidence but that seemed to me to be supported by further examination was that Britain at the time was being economically strangled by the law obedience of her citizens while France was being saved by the existence of the black market. The price system is a most effective and efficient system for organizing resources. So long as people try to make it operate, it can surmount a lot of problems. There is the famous story about the man who wrote a letter to Adam Smith, saying that some policy or other was going to be the ruin of England. And Adam Smith, as I understand the story, wrote back and said, "Young man, there is a lot of ruin in a nation."
This seems to me an important point. 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.
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