Milton Friedman’s principles

The ideas that run through everything he wrote and said, whatever the subject. Each one is stated here in plain words, then handed over to his own, then linked to the topics where it turns up. The sentence under each heading is this site's summary, not a quotation. Everything in quotation marks is verbatim and carries its source.

1. Freedom before equality, and a great measure of both

   Narrating “Created Equal,” a 1980 Free to Choose television episode, he set two ideas of equality side by side. Equality of opportunity, he said, “offers no conflict at all with the concept of freedom”; the two “reinforce one another.” The ideal that everyone should be equal in income is “clearly in conflict with” freedom, he said, “since it requires that the freedom of some be restricted in order to provide greater benefits to others.” He closed: put equality before freedom and a society “will end up with neither”; put freedom first and it “will end up with a great measure of both.”

   The society that puts equality before freedom will end up with neither. The society that puts freedom before equality will end up with a great measure of both.

   This concept of equality of opportunity offers no conflict at all with the concept of freedom. On the contrary, they reinforce one another, and it is no doubt the concept that even today is most widely held. But in the 20th century, beginning especially abroad and at a later date in this country, a very different concept, a very different ideal, has begun to emerge. That is the ideal that everyone should be equal in income, in level of living, in what he has. The idea that the economic race should be so arranged that everybody ends at the finish line at the same time, rather than that everyone starts at the beginning line at the same time. This concept raises a very serious problem for freedom. It is clearly in conflict with it, since it requires that the freedom of some be restricted in order to provide greater benefits to others.

   Where it shows up:

   • Freedom and equality
   • Fairness and life's unfairness

2. In a free market, no exchange happens unless both sides benefit

   He called that the most important single central fact about a free market, and said the free market is the only way ever discovered to get large numbers of people to cooperate voluntarily.

   The most important single central fact about a free market is that no exchange takes place unless both parties benefit.

   The only way that has ever been discovered to have a lot of people cooperate together voluntarily is through the free market. And that’s why it’s so essential to preserving individual freedom.

   Where it shows up:

   • Free markets and the price system

3. Judge a program by its results, not its intentions

   He called it one of the great mistakes to judge policies and programs by their intentions rather than their results, and described a reverse invisible hand: people meaning to serve only the public interest end up serving private ones.

   One of the great mistakes is to judge policies and programs by their intentions rather than their results.

   I say that there is a reverse invisible hand: People who intend to serve only the public interest are led by an invisible hand to serve private interests which was no part of their intention.

   Where it shows up:

   • Incentives and self-interest
   • Concentrated power and tyranny

4. Nobody spends other people’s money as carefully as their own

   He put it as a comparison, not an absolute: nobody spends somebody else’s money as carefully as his own. And he held that doing good with somebody else’s money has coercion built into it as an essential feature.

   Nobody spends somebody else's money as carefully as he spends his own. Nobody uses somebody else's resources as carefully as he uses his own.

   Equally important, you cannot spend somebody else's money unless you first get it. … So the concept of doing good with somebody else's money has force or coercion built into it as an essential feature.

   Where it shows up:

   • Spending other people's money
   • Incentives and self-interest
   • Concentrated power and tyranny

5. Concentrated benefits, dispersed costs

   Of a 1972 minimum-wage bill, he wrote that the harm to the poor is diffuse and its source misunderstood, and hence produces little political pressure, while organized groups that gain from it press for it. In 1978 he wrote that the vested interests “are you and me”: each of us is “not too strongly opposed to any one small measure that will benefit someone else.” In 1993 he called the phenomenon of concentrated benefits and dispersed costs “a valid explanation for many governmental programs,” but said he believed it “does not go far enough” to explain the situation the country was then in.

   Why would Congress do such a thing? Because the adverse effect on the poor is diffuse and its source misunderstood and hence produces little political pressure. Effective pressure is exerted by organized groups that welcome the effect of a high minimum-wage rate in strengthening unionized and skilled workers vis-a-vis nonunionized and unskilled workers and in protecting employers in high-wage areas (the North) from the competition of employers in low-wage areas (the South). These organized groups find ready allies in the liberal reformers whose lack of understanding of economics misdirects their sincere concern for the disadvantaged.

   The vested interests are not some big bad people sitting on money bags; the vested interests are you and me. Each of us is strongly in favor of small measures that will benefit us and each of us is not too strongly opposed to any one small measure that will benefit someone else. We are not going to vote anybody out of office because he imposes a $3 a year burden on us. Consequently, when each measure is considered separately, there is considerable pressure to pass it.

   You cannot explain those activities of government, and there are hundreds more, as reflecting the will of "we the people." They reflect a system in which concentrated vested interests have been able to obtain great power and impose costs on a diffused consumer interest.

   The phenomenon of concentrated benefits and dispersed costs is a valid explanation for many governmental programs. However, I believe it does not go far enough to explain the kind of situation in which we now are.

   Where it shows up:

   • Politics, voting, and legislators
   • Concentrated power and tyranny
   • Wages, unions, and the minimum wage
   • Intellectuals, the press, and public opinion
   • Government spending and deficits
   • Incentives and self-interest

6. Freedom is fragile, and central control is what destroys it most

   In a 1975 talk in Chile called “The Fragility of Freedom,” as he described it in 2000, he argued that freedom is a very fragile thing and that central control destroys it more than anything else. To keep freedom you need free markets, he said, and free markets work best with political freedom. In 1992 he called limiting the scope and power of government, the problem that concerned the nation’s founders, the most unresolved problem of the day. Tyranny and restrictions on human freedom, he said, come primarily from governmental institutions we ourselves set up.

   I gave a talk at the Catholic University of Chile under the title "The Fragility of Freedom." The essence of the talk was that freedom was a very fragile thing and that what destroyed it more than anything else was central control; that in order to maintain freedom, you had to have free markets, and that free markets would work best if you had political freedom. So it was essentially an anti-totalitarian talk.

   The most unresolved problem of the day is precisely the problem that concerned the founders of this nation: how to limit the scope and power of government. Tyranny, restrictions on human freedom, come primarily from governmental institutions that we ourselves set up.

   Where it shows up:

   • The free society
   • Politics, voting, and legislators
   • Concentrated power and tyranny

7. The price system lets millions cooperate voluntarily

   In the 1973 oil crisis he saw a clear illustration of how the price system promotes both freedom and efficiency, letting millions cooperate voluntarily in their common interest, and of why the only alternative is compulsion and the use of force. Six weeks later he wrote that no one could know all the places where prices fixed by bureaucrats on arbitrary rules had created distortions and shortages. Most were hidden in a complex production system that needs market prices to adapt changing demands to changing supplies; many were overcome by people who avoided or evaded the controls.

   The oil problem offers a particularly clear illustration of how the price system promotes both freedom and efficiency, how it enables millions of us to cooperate voluntarily with one another in our common interest. It brings out equally why the only alternative to the price system is compulsion and the use of force.

   I am not enough of an expert—no one is—to know the million and one places where prices fixed by bureaucrats on the basis of arbitrary rules and accidental starting points have created distortions and shortages. … They are hidden in the interstices of an incredibly complex production system that cannot operate without the enormous efficiency of a market-price system to adapt changing demands to changing supplies. And many have been overcome by millions of citizens who found ways to avoid or evade the price controls.

   Where it shows up:

   • Free markets and the price system
   • Energy and oil
   • Voluntary exchange
   • Prices and what they do

8. He named one basic cause of inflation: money growing faster than output

   He called it the one basic cause of inflation, and said so in 1974 and again in 1977. Everything else alleged as a cause, greedy business corporations among them, he allowed only as consequences of inflation, as excuses by Washington, or as sources of temporary blips.

   There is one and only one basic cause of inflation: too high a rate of growth in the quantity of money—too much money chasing the available supply of goods and services.

   The basic source of inflation is the faster growth in the quantity of money than in output.

   All other alleged causes of inflation—trade union intransigence, greedy business corporations, spendthrift consumers, bad crops, harsh winters, OPEC cartels and so on—are either consequences of inflation, or excuses by Washington, or sources of temporary blips of inflation.

   Where it shows up:

   • Inflation
   • Monetary policy and the Federal Reserve
   • Wages, unions, and the minimum wage