Capitalism and Freedom

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Summary: Brilliant writing from Friedman
Review: This book really needs no introduction. Should be recommended reading for all university students.

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Summary: Neo-classical Economics is Pseudo-Science
Review: Uncle Milton is an authority on neoclassical economics. The problem is that this theory is rubbish that masquerades as a science. For an elaborate expose see Steve Keen's "Debunking Economics: The Naked Emperor Of The Social Sciences."

Dating back to the days of Adam Smith, economists used to incorporate ethics, literature and philosophy into their analysis. But these days, Smith's intellectual offspring have the idea that economics is a physical rather than a social science that has nothing to learn from other disciplines. They cling to the notion that their models are not tainted by the subjectivity that confuses other social sciences. Chicago School affiliate George Stigler once scornfully remarked that "without mathematics, we'd be reduced to the caviling of sociologists and the like." The 1969 introduction of the Nobel prize in economics - which Stigler won in 1982 - seems to have fueled these delusions of grandeur.

Critics of neoclassical economics chuckle at the the idea that its precepts can withstand the rigor of the scientific process. They argue that Homo economicus - the theoretical self-interested `everyman' that economists base their analyses on - is a misrepresentation of human nature. The model does not account for structural factors and altruism, and assumes rather ambitiously that peoples' choices are guided by perfect rationality.

The reliability of this and other neoclassical economic models would be irrelevant to the wider world if the prescriptions of Stigler and his ilk were confined to the halls of academia. But the Chicago School had an enormous influence on governments and helped set the tone for the era of fervent free-enterprise boosterism, market liberalization and privatization that swept the globe during the 1980s and 1990s. Their thinking has also helped shape the International Monetary Fund and World Bank directives that have only managed to widen the gap between the rich and poor.

The physical environment has also suffered under neoclassical economic orthodoxy. Since economists treat land like any other form of capital, they often see it as expendable and easily substitutable. When land and resources were plentiful, the environmental implications of this view were not immediately evident. But with the economy so much bigger than it was in Smith's day, the failure to measure the impact of economic activity on the environment is devastating. Meanwhile, economists show their disregard for nature with comments like those of Nobel laureate Robert Solow who stated, "if it is very easy to substitute other factors for natural resources, then there is in principle no `problem.' The world can, in effect, get along without natural resources, so exhaustion is just an event, not a catastrophe."

Solow's outlook epitomizes old-school neoclassical thinking, but the ivory tower he and his cohort sit in is ripe for demolition. A new paradigm is waiting in the wings, one that values nature flows and money flows equally. One that addresses the social and environmental costs of the current model. One that calls for limits to growth and more comprehensive ways of measuring progress. A global economic collapse might be needed to facilitate this paradigm shift, but economics students shouldn't underestimate their ability to force the change themselves. University campuses have an enormous capacity for agitation. The time for revolution is now.



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Summary: CLASSIC ECONOMICS, FRIEDMAN'S BEST
Review: Milton Friedman is one fo the strongest proponents of freedom in society as the only way towards development (a concept later expanded by Amartya Sen). This book is not an economics textbook, since he does not spend much time on the basic concepts of economics such as price theory. He assumes a bit of knowledge and uses it to make the case for many different economic ideas ranging from macroeconomics (monetarism) to microeconomics (school vouchers).

For a book that was written in the 60s, it is amazing how current his ideas remain. It is perhaps the most important book on the libertarian philosophy, focusing on preventing the accumulation of power by any individual or group of individuals in society.

Overall, it is a great read for someone familiar with economics and social sciences, it will definitely expand your horizons of thought. However, if you are looking for an introduction to interesting eocnomic ideas, I would suggest you read Free to Choose, which Friedman wrote a dozen years later to reach a more general audience.

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Summary: Fifty years old and still truly refreshing
Review: Five decades on, Friedmans thoughts of the functioning of the economic and political life, are still mind-blowing. Written in a clear and powerful language, the points are well made after logical discussions of some important issues facing all societies.

The main theme in the book is the close link between democracy and capitalism, or political freedom and economic freedom. Without the latter the former is very difficult. The Hollywood blacklist threatened the freedom of many film workers. However, the movie companies desires to make money gave them incentives to hire the blacklisted writers, producers and actors, and the workers got to work because of capitalism. Conversely, Winston Churchill never got to speak against Hitler on the government owned BBC between 1933 and the outbreak of WWII.

Throughout the book, Friedmans belief in the individual and his abilities to take care of himself stands as a lighthouse. However, because man is imperfect, and cares mostly of himself and the closest ones, often disregarding others, power should be dispersed as much as possible. Those two propositions are the bedrock of the conservative ideology (Friedman calls it liberal, furious that the left has stolen the term), and of this book and its attacks on ICC (a regulating body turning into a lobby organization), Social Security (why is the government monopolizing saving), counter-cyclical economic policy (impossible), corporate social responsibility (not a corporate issue), the Medical Association (modern guild restricting the education of doctors) and a range of other organizations and institutions.

In general, I think Friedman is giving to little weight on neighborhood effects, or public goods as it is called now. Nor is the fact that most human beings are irrational shortsighted, and therefore better off forced to save for later, touched upon. At last, information problems make several markets, among them education, far from perfect. Still, its one of my best reads of the year.