Free to Choose

by Milton Friedman, Rose Friedman

Troy Shu
Troy Shu
Updated at: April 28, 2024
Free to Choose
Free to Choose

Explore the key insights from "Free to Choose" - a thought-provoking exploration of the connection between economic and political freedom. Discover the book's arguments on the power of free markets, welfare programs, and education reform. Actionable questions help you apply these learnings.

What are the big ideas?

The Magnet of Immigrants

The United States has historically attracted immigrants seeking better lives, driven by its promise of freedom and prosperity. This influx has significantly influenced U.S. cultural and economic development.

Economic and Political Freedom Nexus

The book emphasizes the intimate connection between economic freedom and political liberty, arguing that a free market system reduces political power concentration, thereby enhancing overall freedom.

Free Market Over Government Directive

The narrative credits the success of the U.S. agricultural revolution to private initiative rather than government control, illustrating the book's strong endorsement of market-driven progress over governmental interference.

Centralized Control vs. Voluntary Exchange

Contrasting central planning with the invisible hand of voluntary cooperation, the book credits the latter with promoting prosperity and innovation in societies, highlighting the efficiency of market systems over government-driven economies.

Welfare State Flaws

The book critically examines welfare programs, pointing out their inefficiencies and the unintended consequences such as economic disincentives and societal dependency, suggesting alternative systems like negative income tax for better efficiency.

Education Through Choice and Competition

Proposing a voucher system for both elementary and higher education, the book argues that increasing parental choice and competition between schools can significantly improve educational standards and outcomes.

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The Magnet of Immigrants

The United States has long been a magnet for immigrants seeking a better life. Driven by the promise of freedom and prosperity, waves of people have streamed across the Atlantic and Pacific to America's shores. This influx of immigrants has profoundly shaped the country's cultural and economic development.

From the American Revolution to the 19th century, millions arrived, lured by the opportunity to make the most of their talents through hard work, ingenuity, and luck. They did not find streets paved with gold, but they did find the freedom to pursue their dreams. As these immigrants spread across the continent, cities sprang up, land was cultivated, and the country grew more prosperous.

The success of these immigrants, who were able to realize their hopes and dreams, encouraged more friends and relatives to join them. This cycle of immigration and economic growth transformed the United States into an economic and political miracle, built on the principles of individual liberty and voluntary cooperation enshrined in the Declaration of Independence and the writings of Adam Smith.

Here are examples from the context that support the key insight that the United States has historically attracted immigrants seeking better lives, driven by its promise of freedom and prosperity, which has significantly influenced U.S. cultural and economic development:

  • The context states that "Ever since the first settlement of Europeans in the New World America has been a magnet for people seeking adventure, fleeing from tyranny, or simply trying to make a better life for themselves and their children."

  • It notes that "When they arrived, they did not find streets paved with gold; they did not find an easy life. They did find freedom and an opportunity to make the most of their talents. Through hard work, ingenuity, thrift, and luck, most of them succeeded in realizing enough of their hopes and dreams to encourage friends and relatives to join them."

  • The context describes how "Immigrants kept coming. The early ones might have been fooled, but it is inconceivable that millions kept coming to the United States decade after decade to be exploited. They came because the hopes of those who had preceded them were largely realized."

  • It explains how "The newcomers spread from east to west. As they spread, cities sprang up, ever more land was brought into cultivation. The country grew more prosperous and more productive, and the immigrants shared in the prosperity."

  • The context also highlights the "flowering of charitable activity in the United States in the nineteenth century" and the "burst of cultural activity" that arose as a result of this influx of immigrants.

So in summary, the context provides numerous examples of how the influx of immigrants seeking freedom and opportunity has been a key driver of the United States' cultural, economic, and social development over time.

Economic and Political Freedom Nexus

Economic and political freedom are inextricably linked. When people are free to engage in voluntary economic transactions without government coercion, it reduces the concentration of political power. This decentralization of power is essential for preserving individual liberty.

The free market acts as an offset to any consolidation of political authority. When economic and political power are combined, it inevitably leads to tyranny. Conversely, the separation of these two forms of power fosters a golden age of prosperity and freedom, as seen in 19th century Britain and the United States.

This dynamic is exemplified by the remarkable growth in American agriculture. Freed from government interference, private initiative and a free market system unleashed a revolution in agricultural productivity. This stands in stark contrast to centrally-planned economies that struggle to feed their own people.

The Founders of the United States recognized this fundamental truth. They sought to limit government power and protect individual rights through the Constitution and Bill of Rights. They viewed the role of government as an umpire, not an active participant in the economy and society.

Ultimately, the prosperity generated by economic freedom can ironically reduce its appeal, as people become complacent about the dangers of concentrated government power. This has led to a shift towards more expansive government, which now threatens to undermine the very freedoms that produced such remarkable progress. Reclaiming the principles of economic and political liberty is essential to securing a future of continued human flourishing.

Here are examples from the context that support the key insight about the intimate connection between economic freedom and political liberty:

  • The Founders of the United States, "steeped in history and greatly influenced by the current of opinion in Britain," drafted the Constitution with the aim of "limiting government power, keeping power decentralized, and reserving to individuals control over their own lives." This is evident in the Bill of Rights, which protects key freedoms like freedom of speech, religion, and the right to bear arms.

  • The "combination of economic and political freedom produced a golden age in both Great Britain and the United States in the nineteenth century." This demonstrates how economic and political freedom reinforce each other.

  • The context explains how economic freedom through a free market system "reduces the area over which political power is exercised" and "provides an offset to whatever concentration of political power may arise." This dispersion of power prevents the "combination of economic and political power in the same hands" which is "a sure recipe for tyranny."

  • The rapid growth of US agriculture is attributed to "private initiative operating in a free market open to all" rather than "central direction by government." This shows how economic freedom enables prosperity and reduces the need for expansive government power.

  • The context contrasts the different outcomes in Japan and India, where the former's focus on economic freedom led to greater personal liberty, while the latter's collectivist economic policies "continue to undermine the large measure of individual freedom and political liberty." This illustrates the close relationship between economic and political freedom.

Free Market Over Government Directive

The narrative strongly endorses the power of the free market over government directive. It credits the remarkable success of the U.S. agricultural revolution to the unleashing of private initiative, rather than top-down control by the government.

When the government played a minimal role, allowing people to freely cooperate, experiment, and reap the rewards of their efforts, agricultural productivity skyrocketed. Millions of immigrants were able to work for themselves or others on mutually agreed terms, driving rapid innovation and growth. In contrast, nations relying on central government planning struggled to feed their populations.

The narrative argues that this principle extends beyond agriculture. Allowing the free market to operate, with limited government interference, is the surest path to prosperity and human flourishing. Excessive government regulation, no matter how well-intentioned, often backfires and causes more problems than it solves. The key is to establish broad rules that constrain government power, akin to the protections of the First Amendment, rather than constantly fighting individual government interventions.

Here are the key examples from the context that support the insight that free markets are more effective than government control:

  • The agricultural revolution in the United States was driven by "private initiative operating in a free market open to all" rather than government direction. This allowed for experimentation, risk-taking, and innovation that led to massive increases in agricultural productivity.
  • In contrast, "nations like Russia and its satellites, mainland China, Yugoslavia, and India that today rely on central direction employ from one-quarter to one-half of their workers in agriculture, yet frequently rely on U.S. agriculture to avoid mass starvation."
  • The text states that "during most of the period of rapid agricultural expansion in the United States the government played a negligible role. Land was made available—but it was land that had been unproductive before."
  • It was only later, "during and after the Great Depression of the 1930s" that "Government started playing a major role in agriculture" by "act[ing] primarily to restrict output in order to keep prices artificially high."
  • The narrative contrasts this with the earlier period of rapid agricultural growth, where "the main source of the agricultural revolution was private initiative operating in a free market open to all."

The key insight is that the success of the U.S. agricultural revolution is credited to the power of free markets and private initiative, rather than government control and direction. This illustrates the book's broader argument in favor of free markets over government intervention.

Centralized Control vs. Voluntary Exchange

The power of voluntary exchange is a central theme of this work. When individuals are free to pursue their own interests and cooperate voluntarily, a complex and sophisticated economic and social order emerges - one that is far more efficient and innovative than systems controlled by central authorities.

In contrast, centralized control and command economies stifle individual initiative and creativity. They fail to transmit information effectively or organize production efficiently. Examples abound of communist and socialist countries that have struggled economically despite their efforts to plan and direct economic activity.

The author argues that voluntary exchange, not government planning, is the key to prosperity and freedom. Language, science, culture, and even economic systems all develop organically through the free interactions of individuals, not through top-down decree. This decentralized, evolutionary process allows for diversity and innovation in ways that centralized control cannot.

The role of government, then, should be limited. Its primary function should be to protect individual liberty and enforce the "laws of justice" to enable a "system of natural liberty" to flourish. Excessive government intervention, whether through regulations, taxes, or direct ownership, undermines the power of voluntary cooperation to generate social and economic progress.

Here are examples from the context that support the key insight of centralized control vs. voluntary exchange:

  • The story of "I, Pencil" illustrates how voluntary exchange enables millions of people to cooperate with one another to produce a simple pencil, without any central planning or coordination. The pencil is made by "untold thousands of persons" who each contribute a small part, driven by their own self-interest, yet the end result is a complex, functional product.

  • The passage contrasts this with centralized control, noting that "No one sitting in a central office gave orders to these thousands of people. No military police enforced the orders that were not given." Yet the pencil was still produced through the spontaneous cooperation of individuals pursuing their own interests.

  • The passage states that voluntary exchange has the "potential to promote both prosperity and human freedom", in contrast to authoritarian societies organized by command elements, which may "creak along and even achieve some progress" but cannot undermine the underlying "tyranny."

  • The example of the environmental regulations imposed by the EPA is used to illustrate how government intervention, even with good intentions, can lead to "government failure" that is worse than the original "market failure" it was meant to address, due to the difficulty of the government identifying and addressing the specific costs and benefits.

Welfare State Flaws

The book critically examines the flaws of the welfare state. It points out the inefficiencies of current welfare programs and the unintended consequences they create, such as economic disincentives and societal dependency.

As an alternative, the book suggests a negative income tax system. This would provide a guaranteed minimum income to all, while better preserving individual responsibility and work incentives. The negative income tax aims to achieve welfare goals more efficiently and humanely than the current patchwork of programs.

The book argues that the welfare state has failed to deliver on its promises. Spending on healthcare, education, and integration programs has skyrocketed, yet outcomes have often declined. Fundamental reform is needed to address these shortcomings and create a more effective, sustainable system of social support.

Here are examples from the context that support the key insight about the flaws of the welfare state:

  • The existence of vested interests in current welfare programs, including the recipients of benefits, state and local officials, and the welfare bureaucracy that administers them, makes radical welfare reform politically difficult.

  • The conflict among the objectives that advocates of welfare reform seek to achieve - providing a decent level of support, creating strong incentives to work, and keeping reasonable costs - makes it impossible to achieve all three simultaneously.

  • The $6,000 "typical" figure for welfare benefits for a family of four requires a subsidy rate of 83.3%, which would seriously undermine the incentive to work and add enormously to the cost. This is a "vicious circle" with no easy solution.

  • The massive bureaucracy that administers the current host of welfare programs is demoralizing and creates a division of the population into "those who pay and those who are supported on public funds".

  • The current welfare system undermines and destroys the family and poisons the springs of private charitable activity.

The book suggests the negative income tax as an alternative that would be directed specifically at the problem of poverty, provide help in the form most useful to the recipient (cash), and integrate the subsidy system with the tax system to reduce bureaucracy and costs.

Education Through Choice and Competition

A voucher system allows parents to choose the schools their children attend, rather than being limited to their local public school. This promotes competition between schools, as they must attract students to receive funding. When schools compete for students, they are incentivized to improve educational quality and outcomes to satisfy parents.

The authors argue that this choice and competition would have a transformative effect, especially for disadvantaged students in underperforming urban schools. Vouchers would give low-income families access to a wider range of educational options, dramatically improving the schooling available to them. Even the poorest parents could supplement the voucher amount to send their children to better schools.

In contrast, the current public school system often traps underprivileged students in low-quality schools, with little recourse. Allowing parents to choose schools based on quality, rather than geography, would disrupt this pattern and drive broad improvements in the education system. Competition would force all schools, public and private, to raise their standards to attract students.

The authors acknowledge concerns about "economic segregation" if wealthier families supplement vouchers, but argue this is outweighed by the benefits to disadvantaged students. They believe a truly free market in education, enabled by an unrestricted voucher system, would be the most effective way to reform a failing system and provide equal educational opportunity.

Here are some examples from the context that support the key insight about how increasing parental choice and competition between schools can improve educational standards and outcomes:

  • The book discusses a parochial school, St. John Chrysostom's, in a poor neighborhood in New York City's Bronx. Despite having lower costs per student than public schools, the children at this school are on average two grades ahead of their peers in public school. This is because "teachers and parents are free to choose how the children shall be taught" and "private money has replaced tax money. Control has been taken away from bureaucrats and put back where it belongs."

  • The book also describes "storefront schools" set up by concerned parents and teachers in Harlem in the 1960s, such as Harlem Prep. Though lacking in physical facilities and teacher certifications, these schools were "phenomenally successful" in helping many students who had previously been "misfits and dropouts" go on to college, including some of the leading colleges. However, the school was eventually taken over by the Board of Education, and the book notes that "a school like Harlem Prep would certainly die, and not prosper, under the rigid bureaucracy of a Board of Education."

  • The book argues that parental choice and competition between schools would lead to better discipline and order, as "Violence of the kind that has been rising in public schools is possible only because the victims are compelled to attend the schools that they do. Give them effective freedom to choose and students—black and white, poor and rich, North and South—would desert schools that could not maintain order."


Let's take a look at some key quotes from "Free to Choose" that resonated with readers.

When unions get higher wages for their members by restricting entry into an occupation, those higher wages are at the expense of other workers who find their opportunities reduced. When government pays its employees higher wages, those higher wages are at the expense of the taxpayer. But when workers get higher wages and better working conditions through the free market, when they get raises by firm competing with one another for the best workers, by workers competing with one another for the best jobs, those higher wages are at nobody's expense. They can only come from higher productivity, greater capital investment, more widely diffused skills. The whole pie is bigger - there's more for the worker, but there's also more for the employer, the investor, the consumer, and even the tax collector.

That's the way the free market system distributes the fruits of economic progress among all people. That's the secret of the enormous improvements in the conditions of the working person over the past two centuries.

When workers earn higher wages and better working conditions through fair competition, it benefits everyone. This is because these gains come from increased productivity, investments, and skills, making the overall economic pie larger. As a result, workers, employers, consumers, and even governments reap the rewards of economic progress. This is the key to significant improvements in working people's lives over the past two centuries.

For example, the supporters of tariffs treat it as self-evident that the creation of jobs is a desirable end, in and of itself, regardless of what the persons employed do. That is clearly wrong. If all we want are jobs, we can create any number--for example, have people dig holes and then fill them up again, or perform other useless tasks. Work is sometimes its own reward. Mostly, however, it is the price we pay to get the things we want. Our real objective is not just jobs but productive jobs--jobs that will mean more goods and services to consume.

The focus should be on creating meaningful jobs that produce valuable goods and services, rather than just generating employment for its own sake. Simply having people work is not the ultimate goal; instead, it's a means to an end. The real objective is to have productive jobs that contribute to the overall well-being of society by providing more goods and services for people to enjoy.

The combination of economic and political power in the same hands is a sure recipe for tyranny.

When a single entity holds both economic and political control, it can lead to oppressive rule. This concentration of power allows the entity to manipulate and dominate others, stifling individual freedom and autonomy. History has shown that such unchecked power can result in authoritarian regimes, where the ruling elite exploit and suppress the masses. Ultimately, this fusion of economic and political power threatens the very foundations of liberty and democracy.

Comprehension Questions

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How well do you understand the key insights in "Free to Choose"? Find out by answering the questions below. Try to answer the question yourself before revealing the answer! Mark the questions as done once you've answered them.

1. What has primarily attracted immigrants to the United States historically?
2. How has the influx of immigrants influenced the cultural and economic development of the United States?
3. In what ways did the arriving immigrants contribute to the United States’ growth?
4. What principles influenced the transformative impact of immigrants on the United States?
5. Why did more friends and relatives of earlier immigrants decide to move to the United States over time?
6. How does the separation of economic and political power contribute to prosperity and freedom?
7. What role does the free market play in relation to political authority?
8. Why can economic freedom lead to reduced government interference in individuals' lives?
9. How does the concentration of economic and political power affect a society?
10. What historical examples illustrate the impact of separating economic from political power?
11. What is argued to be the main reason behind the success of the U.S. agricultural revolution?
12. How did free market operations contribute to agricultural productivity?
13. What negative effects did government intervention have in agriculture during and after the 1930s?
14. How do various examples of other nations contrast with the U.S. approach to agriculture?
15. What principle, regarding market and government, does the narrative suggest is applicable beyond just agriculture?
16. What advantages does voluntary exchange have over systems of centralized control?
17. How do centralized control systems impact individual creativity and economic efficiency?
18. What should be the primary role of government according to the concepts discussed in the context and why?
19. How does the spontaneous cooperation of individuals in a voluntary exchange contribute to the production of complex products like pencils?
20. What are the potential negative consequences of well-intended government interventions such as environmental regulations?
21. What are some key inefficiencies identified in current welfare programs?
22. What unintended consequences do welfare programs create according to the critique?
23. What is a negative income tax and how does it differ from traditional welfare programs?
24. How does the current welfare system undermine work incentives?
25. What reforms does the book suggest to address the flaws in the welfare state?
26. How does a voucher system affect the choice available to parents regarding their children's education?
27. What impact does competition between schools have on educational quality and outcomes?
28. Why might vouchers particularly benefit disadvantaged students in underperforming schools?
29. How might an unrestricted voucher system affect the overall education system?
30. What are the potential concerns about economic segregation with the use of vouchers, and how do the benefits outweigh these concerns?

Action Questions

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"Knowledge without application is useless," Bruce Lee said. Answer the questions below to practice applying the key insights from "Free to Choose". Mark the questions as done once you've answered them.

1. How can you contribute to making your community a more welcoming place for newcomers from diverse backgrounds?
2. In what ways can you leverage your unique multicultural experiences or knowledge to foster economic and social growth in your community?
3. How can you promote economic and political freedom in your community to ensure a balanced distribution of power?
4. How can you encourage more market-driven solutions in your community to address local issues?
5. What are some ways you can engage in voluntary exchange in your community to enhance its economic and social fabric?
6. How can you advocate for changes to the welfare system that encourage work incentives and reduce dependency within your community?
7. What are some steps you can take to promote greater educational choice in your community?

Chapter Notes


Here are the key takeaways from the chapter:

  • The United States as a Magnet for Immigrants: The United States has been a destination for people seeking adventure, fleeing tyranny, or trying to improve their lives since the first European settlement. Millions of immigrants came to the U.S. in the 19th century, driven by misery and tyranny, and attracted by the promise of freedom and affluence.

  • Two Sets of Ideas that Shaped the U.S.: Two sets of ideas, formulated in 1776, shaped the development of the United States - Adam Smith's ideas about the free market system in "The Wealth of Nations", and the principles of individual liberty and the pursuit of happiness expressed in the Declaration of Independence.

  • Economic Freedom Enables Political Freedom: Economic freedom, enabled by the free market system, is essential for political freedom. It reduces the area over which political power is exercised and provides an offset to concentrations of political power.

  • The Agricultural Revolution in the U.S.: The dramatic increase in agricultural productivity in the U.S., from requiring 19 out of 20 workers to feed the population to requiring only 1 out of 20, was driven by private initiative and the free market, not government direction.

  • Shift Away from Limited Government: Over time, there has been a shift away from the limited government envisioned by Smith and Jefferson, towards a larger, more interventionist government that seeks to regulate economic activity and redistribute wealth.

  • Unintended Consequences of Government Intervention: Government interventions, driven by good intentions, often have unintended consequences that undermine the very goals they were meant to achieve, as the "invisible hand" in the political sphere promotes private interests rather than the public good.

  • The Threat of Big Government: Continued growth of government power threatens to destroy the prosperity and human freedom that the free market and limited government have produced. There is a choice to be made between continuing down the "road to serfdom" or reasserting the principles of individual liberty and voluntary cooperation.

  • The Importance of Understanding Fundamental Principles: To make this choice wisely, it is important to understand the fundamental economic and political principles that have shaped the U.S., as well as the intimate connection between economic and political freedom.

CHAPTER 1: The Power of the Market

Here are the key takeaways from the chapter:

  • The Price System Coordinates Economic Activity: The price system, where prices emerge from voluntary transactions between buyers and sellers, can coordinate the activities of millions of people, each pursuing their own interests, in a way that makes everyone better off. Prices transmit information, provide incentives, and determine the distribution of income.

  • Voluntary Cooperation and the Invisible Hand: Voluntary cooperation and exchange, rather than central planning or command, is the dominant principle of organization in prosperous and free societies. This "invisible hand" of voluntary cooperation can be seen not just in economic activity, but also in the development of language, scientific knowledge, culture, and social conventions.

  • The Limited Role of Government: According to Adam Smith, the primary duties of government in a free society are: 1) protecting the society from violence and invasion, 2) protecting members from injustice and oppression, and 3) providing certain public works and institutions that are not profitable for individuals to provide. Government intervention beyond these limited duties can lead to unintended consequences and "government failure."

  • Historical Examples of Limited Government: Historical examples of societies with limited government and reliance on voluntary exchange include 19th century Britain, the United States, and more recently, Hong Kong. These societies achieved rapid economic growth and rising living standards with government spending a relatively small fraction of national income.

  • The Myth of Robber Barons: The common myth of 19th century America as an era of "robber barons" exploiting the poor is false. In reality, immigrants flocked to America because the opportunities for hard work and enterprise allowed them to prosper, and a vibrant civil society of private charitable and cultural institutions flourished.

  • The Adaptability of Voluntary Exchange: Voluntary exchange can adapt to a wide range of circumstances, from sparse 19th century America to the densely populated modern economy of Hong Kong. The success of limited government and reliance on voluntary cooperation is not limited by physical or human characteristics, but rather by our ability to shape our institutions accordingly.

CHAPTER 2: The Tyranny of Controls

  • Free Trade Benefits Consumers: The chapter argues that free trade, where individuals and countries can buy and sell goods to whomever they choose at mutually agreeable terms, is in the best interest of consumers and the economy as a whole. Tariffs and other trade restrictions, on the other hand, end up exploiting consumers for the benefit of special interests like producers and manufacturers.

  • Comparative Advantage and Specialization: Even if a country is more efficient at producing everything compared to another country, it is still better off specializing in the things it is relatively most efficient at and trading for the rest. This principle of comparative advantage leads to greater overall productivity and higher standards of living.

  • Fallacies in Protectionist Arguments: The chapter debunks common arguments used to justify protectionist policies, such as the need to protect high-wage workers, national security, and the "infant industry" argument. It shows how these arguments are often rationalizations for special interests rather than valid economic reasons.

  • Central Planning vs. Free Markets: The chapter contrasts the experiences of countries that relied on central economic planning (e.g. India) versus those that embraced free markets (e.g. Japan, West Germany). It shows how central planning stifles initiative, innovation, and economic progress, while free markets unleash human potential and prosperity.

  • Economic Freedom and Human Freedom: Restrictions on economic freedom, such as occupational licensing, price controls, and government ownership, inevitably lead to a loss of broader personal freedoms like freedom of speech, religion, and association. Economic freedom and human freedom are inextricably linked.

CHAPTER 3: Anatomy of the Great Depression

Here are the key takeaways from the chapter:

  • The Great Depression was a catastrophic event for the United States and the world. The U.S. national income was cut in half, total output fell by a third, and unemployment reached 25% of the workforce. The depression also had far-reaching political consequences, contributing to the rise of Hitler in Germany and the communists in China.

  • The public and the economics profession lost faith in capitalism and the free market. The depression persuaded the public that capitalism was an unstable system, and led to a shift in favor of greater government intervention and regulation. The depression also shattered the belief that monetary policy was an effective tool for promoting economic stability.

  • The Federal Reserve System was established in 1913 to prevent banking panics, but failed to do so during the Great Depression. The 1907 banking panic was a key catalyst for the creation of the Federal Reserve, which was intended to serve as a "lender of last resort" to commercial banks during crises. However, the Federal Reserve failed to use its powers effectively to prevent the series of banking crises that occurred during the early 1930s.

  • The Federal Reserve's inaction and contractionary policies exacerbated the monetary collapse during the Great Depression. The Federal Reserve allowed the money supply to decline sharply in 1930, contributing to the severity of the recession. It also failed to engage in large-scale open market operations to provide liquidity to the banking system, and even raised interest rates in 1931 in a misguided attempt to defend the gold standard.

  • The Great Depression originated in the United States and spread to the rest of the world through the international gold standard system. The inflow of gold into the U.S. in the early years of the depression is evidence that the U.S. was the epicenter, not the recipient, of the deflationary forces. The Federal Reserve's failure to expand the money supply in response to the gold inflows was a key policy mistake.

  • The Federal Reserve's failure during the Great Depression led to a significant increase in its power and prestige, but not to an improvement in its performance. The Federal Reserve Board was able to consolidate its control over the regional Federal Reserve Banks after the depression, but has continued to contribute to economic instability through its swings between inflationary and deflationary policies.

CHAPTER 4: Franklin Delano Roosevelt's New Deal

Here are the key takeaways from the chapter:

  • The New Deal and Expansion of Government: The 1932 presidential election marked a major shift in the public's perception of the role of government, leading to a significant expansion of government spending and involvement in the economy. This was driven by the belief that active government intervention was the appropriate remedy to the Great Depression.

  • Emergence of the Modern Welfare State: The modern welfare state emerged in Germany under Bismarck, and later in Britain and Sweden, with the introduction of social security measures like old-age pensions and unemployment insurance. These programs were driven by a paternalistic philosophy of centralized rule and promoting the "general welfare."

  • Disappointing Results of Welfare Programs: Despite noble intentions, welfare programs in the U.S. have been disappointing, leading to growing dissatisfaction. Programs have been plagued by fraud, waste, and unintended consequences like weakening the family, reducing work incentives, and limiting freedom.

  • Flaws of Welfare Spending: Welfare programs involve spending someone else's money on someone else (Category IV spending), leading to lack of incentives to economize or maximize value for the recipient. This results in waste, ineffectiveness, and corruption as people try to divert the funds to themselves.

  • Proposal for Welfare Reform: The authors propose replacing the current welfare system with a negative income tax, which would provide a minimum income to all, while retaining work incentives and reducing bureaucracy. They also propose winding down the Social Security system while meeting current obligations.

  • Political Infeasibility of Radical Reform: The authors acknowledge that their proposed reforms are currently politically infeasible due to the existence of vested interests in the current system and the difficulty of simultaneously achieving the politically necessary conditions of providing a decent benefit level, strong work incentives, and reasonable cost.

CHAPTER 5: Created Equal: Equality and Liberty

Here are the key takeaways from the chapter:

  • Equality Before God: The Founding Fathers believed in "equality before God", where each person is precious and has unalienable rights that should not be infringed upon. This concept of personal equality is consistent with liberty, as it respects the right of individuals to pursue their own objectives.

  • Equality of Opportunity: This concept, also known as "a career open to the talents", means that no arbitrary obstacles should prevent people from achieving positions for which their abilities fit them. It is consistent with liberty and an essential component of it.

  • Equality of Outcome: This concept, which has gained ground in recent decades, seeks to ensure "fair shares for all" by having the government determine and enforce what is "fair". It is in clear conflict with liberty, as it requires the government to take from some and give to others, stifling individual incentives.

  • Consequences of Egalitarian Policies: Attempts to enforce equality of outcome, as seen in countries like Britain, have failed to achieve their objectives. Instead, they have led to the creation of new privileged classes, a rise in criminality, and a negative impact on productivity and efficiency.

  • Capitalism and Equality: Contrary to the myth that free market capitalism increases inequalities, it is in fact the societies that do not permit free markets to operate that have the widest gaps between the rich and the poor. The great achievements of Western capitalism have primarily benefited the ordinary person, rather than the wealthy.

  • Conflict Between Equality and Liberty: A society that prioritizes equality of outcome over freedom will end up with neither equality nor freedom, as the use of force to achieve equality will destroy freedom. In contrast, a society that puts freedom first will, as a byproduct, end up with greater equality as well.

CHAPTER 6: What's Wrong with Our Schools?

Here are the key takeaways from the chapter:

  • Decline in Quality of Public Schooling: The quality of public schooling, especially in inner cities, has declined significantly in recent years, with problems such as declining test scores, increasing crime and violence, and a poor learning environment.

  • Centralization and Bureaucratization of Public Schools: Over time, public schools have become increasingly centralized and bureaucratized, with power shifting away from local communities and parents towards professional educators and administrators.

  • Negative Effects of Centralization: The centralization and bureaucratization of public schools has led to a decline in production and efficiency, with increases in spending not matched by improvements in educational outcomes.

  • Lack of Parental Choice in Public Schools: The centralization of public schools has reduced the ability of parents to choose the type of schooling their children receive, limiting their control and voice.

  • Voucher System for Elementary and Secondary Education: A voucher system, where parents receive government-provided vouchers that they can use to send their children to the school of their choice (public or private), could improve the quality of schooling by increasing competition and parental choice.

  • Inequitable Financing of Higher Education: Government subsidies for higher education disproportionately benefit students from higher-income families, leading to a regressive redistribution of resources.

  • Contingent-Repayment Financing for Higher Education: An "Educational Opportunity Bank" or similar program that provides loans for higher education with repayment contingent on future earnings could promote equality of opportunity while eliminating the regressive subsidies of the current system.

  • Voucher System for Higher Education: A voucher system for higher education, where the government provides vouchers that students can use at any accredited institution, public or private, could improve the quality and equity of higher education.

  • Resistance from the Educational Establishment: The educational establishment, including teachers' unions and administrators, has strongly opposed reforms such as voucher systems that would reduce their power and control over the education system.

  • Importance of Parental Choice and Voluntary Cooperation: The chapter argues that greater parental choice and voluntary cooperation, rather than centralized government control, are key to improving the quality and equity of the education system.

CHAPTER 7: Who Protects the Consumer?

Here are the key takeaways from the chapter:

  • Government Intervention in the Marketplace: The chapter argues that government intervention in the marketplace, whether to protect consumers against high prices or shoddy goods, to promote their safety, or to preserve the environment, often has unintended consequences that are worse than the original problem it was trying to solve.

  • The Natural History of Government Intervention: The chapter uses the examples of the Interstate Commerce Commission (ICC) and the Food and Drug Administration (FDA) to illustrate how government agencies often end up serving the interests of the industries they are supposed to regulate, rather than the interests of consumers.

  • Regulatory Agencies and Bureaucratic Incentives: The chapter explains how regulatory agencies like the Consumer Products Safety Commission (CPSC) and the Environmental Protection Agency (EPA) face inherent biases and incentives that lead them to make decisions that may not be in the best interests of consumers or the public.

  • The Energy Crisis and Government Intervention: The chapter argues that the energy crisis and shortages of the 1970s were largely caused by government price controls on oil and other energy sources, rather than by external factors like the OPEC embargo.

  • Market Mechanisms for Consumer Protection: The chapter argues that market competition, brand names, middlemen, and private testing organizations provide more effective consumer protection than government regulation, as long as markets are allowed to function freely.

  • The Dangers of Prohibition and Overregulation: The chapter uses the example of Prohibition to warn that excessive government efforts to protect consumers from themselves can lead to unintended consequences like the growth of black markets and organized crime.

  • The Importance of Consumer Choice: The chapter emphasizes the importance of allowing consumers to make their own choices, even if those choices involve some risk, rather than having the government try to eliminate all risk through regulation.

CHAPTER 8: Who Protects the Worker?

Here are the key takeaways from the chapter:

  • Unions are not the primary reason for the improvement in the lot of the worker over the past two centuries. Fewer than one in four workers in the U.S. are members of unions, and unions were of little importance in the U.S. for most of this period. Direct government action was also not the primary reason for this improvement.

  • The interests of "labor unions" are not synonymous with the interests of "labor" or workers in general. Union officials sometimes act to benefit themselves at the expense of their members, and unions often seek to benefit their members at the expense of other workers and consumers.

  • Unions have been able to raise the wages of their members primarily by restricting the number of jobs available in the occupations they control. This is done through enforcing high wage rates, often with government assistance, and restricting entry into the occupation through licensure and other means.

  • The gains that strong unions win for their members come primarily at the expense of other workers, not profits. Higher union wages for some workers result in fewer jobs and lower wages for other workers.

  • Minimum wage laws harm low-skilled workers by preventing them from offering to work for less than the minimum wage, which would allow them to gain experience and skills. This disproportionately harms young and minority workers.

  • Occupational licensure, ostensibly to protect consumers, is often used by professional associations to restrict entry into their occupations and raise the incomes of their members. This harms consumers and potential competitors.

  • Government protects the wages and working conditions of its own employees very effectively, often at the expense of taxpayers. Government bureaucracies and public sector unions have become powerful special interest groups.

  • The most reliable and effective protection for most workers is provided by the existence of many competing employers vying to hire them. Competition for workers' services, not unions or government, is the primary driver of higher wages and better working conditions.

CHAPTER 9: The Cure for Inflation

Here are the key takeaways from the chapter:

  • Inflation is a Monetary Phenomenon: Inflation is primarily caused by a more rapid increase in the quantity of money than in the quantity of goods and services available for purchase. This relationship holds across different countries and time periods.

  • Government Determines the Money Supply: In the modern world, the government is responsible for determining the quantity of money, and thus is the primary driver of inflation through its control over the money supply.

  • Curing Inflation Requires Reducing Money Growth: The only cure for inflation is to slow the rate of increase in the quantity of money. This is a simple solution, but difficult to implement due to political pressures.

  • Curing Inflation Takes Time: It takes years, not months, for the effects of slowing money growth to work through the economy and reduce inflation. This delay leads to unavoidable side effects in the interim.

  • Unavoidable Side Effects of Curing Inflation: Slowing money growth to cure inflation will inevitably lead to a period of lower economic growth and higher unemployment, as the economy adjusts to the new monetary conditions. These side effects cannot be avoided, only mitigated.

  • Escalator Clauses Can Ease Transition: Indexing wages, rents, and other contracts to inflation can help shorten the adjustment period and reduce the severity of the side effects when transitioning to a lower inflation environment.

  • Price and Wage Controls are Counterproductive: Attempts to impose price and wage controls are often used as a substitute for monetary restraint, and tend to exacerbate rather than alleviate the problems caused by inflation.

  • Japan's Experience Illustrates Successful Cure: Japan's experience in the 1970s provides a model for how to successfully cure inflation through a gradual, sustained reduction in money growth, despite the temporary side effects.

  • US Has Repeatedly Failed to Sustain Monetary Restraint: The US has repeatedly failed to maintain monetary restraint long enough to fully cure inflation, instead reverting to expansionary policies that perpetuate the cycle of inflation and recession.

CHAPTER 10: The Tide Is Turning

Here are the key takeaways from the chapter:

  • Reaction against big government: There has been a widespread reaction against big government, as evidenced by the election of leaders like Margaret Thatcher in the UK and the tax revolt in the US, symbolized by Proposition 13 in California.

  • Inflation as a hidden tax: Governments have resorted to financing spending through inflation, a "hidden tax" that can be imposed without being voted on, as it has become politically less attractive to raise taxes to pay for higher spending.

  • Importance of intellectual climate of opinion: The intellectual climate of opinion, which shapes the unthinking preconceptions of people and their leaders, has a significant impact on the policies adopted by governments, as seen in the contrasting approaches of Japan and India.

  • Concentrated vs. diffuse interests: The political system tends to give undue power to small groups with highly concentrated interests, while the general public with diffuse interests is less able to effectively oppose such measures.

  • Bureaucracy and the growth of government: The expansion of government functions and the growth of the bureaucracy have made it increasingly difficult for the public to exercise effective control over the government, leading to the dominance of special interests.

  • Limitations on government power: The authors propose the adoption of a constitutional "economic Bill of Rights" to limit government power, similar to the original Bill of Rights, as a way to reverse the trend towards ever-bigger government.

  • Tax and spending limitations: The authors highlight the movement to adopt constitutional amendments to limit government taxes and spending, both at the state and federal levels, as a promising approach to addressing the problem of big government.

  • Other potential constitutional provisions: The authors suggest additional constitutional amendments to limit government power in areas such as international trade, wage and price controls, occupational licensure, taxation, and monetary policy.

  • Importance of intellectual climate and public opinion: The authors emphasize that for any constitutional changes to be effective, they must be supported by a shift in the intellectual climate of opinion and the values of the public at large.


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