A beautiful essay. Here’s the “nut graf”:
Markets are the essence of a market economy in the same sense that lemons are the essence of lemonade. Pure lemon juice is barely drinkable. To make good lemonade, you need to mix it with water and sugar. Of course, if you put too much water in the mix, you ruin the lemonade, just as too much government meddling can make markets dysfunctional. The trick is not to discard the water and the sugar, but to get the proportions right.
I read Capitalism and Freedom when I was about sixteen and couldn’t believe how stupid it was. I reread it again a few years ago and was astonished at how little the old man had learned in forty years. As a technical economist, Friedman made major contributions, and as a policy analyst he had some excellent ideas along with some silly ones. But as a social theorist he was neither especially intelligent nor intellectually honest.
Here’s a sample. Karl Marx pointed out that capital in the form of factories and machines is itself the product of prior labor, and (somewhat fancifully to my mind) contrasted the “living labor” of human beings with the inanimate (“dead”) labor embodied in the machine. That allowed him to write the following gorgeous piece of social satire (produced at a period when limiting the hours of child labor to sixty per week was considered a dangerously radical proposal):
The capitalist has bought the labour-power at its day-rate. To him its use-value belongs during one working-day. He has thus acquired the right to make the labourer work for him during one day. But, what is a working-day?
At all events, less than a natural day. By how much? The capitalist has his own views of … the necessary limit of the working-day. As capitalist, he is only capital personified. His soul is the soul of capital. But capital has one single life impulse, the tendency to create value and surplus-value, to make its constant factor, the means of production, absorb the greatest possible amount of surplus-labour.
Capital is dead labour, that, vampire-like, only lives by sucking living labour, and lives the more, the more labour it sucks.
Only a first-rate mind could have produced that passage. And only a third-rate mind, consumed with envy and ideological hatred, could have produced this nonsensical commentary
Marx argued that labor was exploited. Why? Because labor produced the whole of the product but got only part of it; the rest is Marx’s “surplus value.” Even if the statements of fact implicit in this assertion were accepted, the value judgment follows only if one accepts the capitalist ethic. Labor is “exploited” only if labor is entitled to what it produces. If one accepts instead the socialist premise, “to each according to his need- from each according to his ability” – whatever that may mean – it is necessary to compare what labor produces, not with what it gets but with its “ability”, and to compare what labor gets, not with what it produces but with its “need.”
Of course, the Marxist argument is invalid on other grounds as well. There is, first, the confusion between the total product of all co-operating resources and the amount added to product – in the economist’s jargon, marginal product. Even more striking, there is an unstated change in the meaning of “labor” in passing from the premise to the conclusion. Marx recognized the role of capital in producing the product but regarded capital as embodied labor. Hence, written out in full, the premises of the Marxist syllogism would run: “Present and past labor produce the whole of the product. Present labor gets only part of the product.” The logical conclusion is presumably “Past labor is exploited,” and the inference for action is that past labor should get more of the product, though it is by no means clear how, unless it be in elegant tombstones.
Hard to tell whether Friedman was really literal-minded enough to misunderstand Marx’s point so thoroughly, or whether he was only pretending to be obtuse to take polemical advantage of a writer his audience was certain not to have read. But it’s easy to tell that Friedman was, by profession, a peddler of claptrap.