Milton was a pre-eminent American Economist who earned accolades for his free-market economic theory (407). A free market economy is a system in which the prices of goods and services are determined purely by the demand and supply in the market. There is no government intervention to determine such prices. Milton regarded himself as a liberal economist since he strongly advocated for minimal or no government intervention in determining such prices (407).
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This paper is written to analyze the similarities and differences between Friedman’s theory and other economic postulations. The paper discusses his theory in comparison to that of other scholars such as John Maynard Keynes, John Stuart Mill, Bruce Scott, Stephen Marglin and George Lodge (“Keynesian Economics and Economists’ Views on the State” 1). The discussion centers on the postulated role of the state in economic planning and concludes that the scholars are fundamentally divided on this issue.
Friedman and Keynesian Economics
Milton’s theory has similarities and differences with the Keynesian economics that was prevalent before the 1960s (407). Keynes proposed two types of government control of the economy. These are monetary and fiscal policies. Monetary policy involves a reduction in interest rates on loans. Since many economic activities rely on loans to finance them, a reduced interest rate stimulates growth owing to an increased uptake of loans. Fiscal policy involves government reducing taxation or injecting more money into the economy through investment, mostly in infrastructure. The government can also undertake both measures at the same time to stimulate growth.
Milton was, however, a strong advocate for the free market economy in which growth is basically a function of the markets, without government intervention (407). He postulated that factors such as economic growth, employment, price equilibrium and stagnation are mainly functions of demand and supply (Milton 407). For instance, if certain goods are produced in excess, the price will fall. This will in turn influence reduction in production and the goods will subsequently increase in price until market equilibrium is achieved. Keynes did acknowledge the role of demand and supply in determining the value of products in the market. However, where he advocated for government intervention in situations such as depression, Friedman was opposed to that kind of approach.
Comparison with John Stuart Mill
Friedman and John Start Mill agreed in principle on the issue of free markets (“Freedom, Prescription Drugs, and Social Irrationality” 44). However, Mill pointed out that government intervention is necessary in some cases (“Freedom, Prescription Drugs, and Social Irrationality” 44). He argued that for utilitarian purposes, there may arise a need to tax such things as alcohol and cigarettes for the purpose of environmental conservation. He said that such interventions would control certain lower pleasures of the individual for the benefit of the majority (“Freedom, Prescription Drugs, and Social Irrationality” 44). This is where Milton differed, since he believed that such interventions eventually affect the natural economic equilibrium of the markets (407).
Another point of departure between the two economists is on the issue of economic democracy. Mill believed that even in a capitalist system, workers should be able to choose the managers they are working under, and dismiss them accordingly (“Freedom, Prescription Drugs, and Social Irrationality” 46). This would mean that the overall directors remain the same, but the unit managers are frequently changed by the workers. This is different from what Milton advocated for, which is that the market will determine which people get employment and which people do not get employed (407). He saw over employment as a direct means to inflation and thus did not put much premium on employee’s rights. So whereas Mill tried to stabilize the employment situation, Milton advocated for it to remain unstable (407).
Due to this approach, Milton is viewed by some as a conservative mind rather than the liberal scholar he claims to be (407). He is seen as an advocate of conservative governance who does not encourage the state to solve prevailing economic problems. This hands-off approach leaves the markets and the citizens to their own devices, while the government sits pretty. This has been seen by some as a conservative line.
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Bruce Scott’s Visible Hand
Scott viewed the economy as controlled by both the invisible and visible hand (63). The invisible hand consists of the pricing mechanism determined by the market. The visible hand refers to government control and intervention (Scott 63). The government according to him has the dual role of market administrator and innovator. As an administrator, its role is to enforce pre-existing laws governing operations, while as an innovator, it has to come up with measures that improve prevailing economic conditions (Scott 64).
It is this visible hand of government that Milton was opposed to (407). He argued that such interventions would not serve to improve the market, but would unnecessarily destabilize it (Milton 407). On this, there is clearly no agreement between the two scholars.
Stephen Marglin on Markets
Marglin argued that markets have undermined everything that is good in society (14). He said that the role of the boss in the workplace is perpetuated by interested social classes, who monopolize knowledge to justify the existence of the top executive (Marglin 14). He postulated that top executives played no significant role in the workplace rather than to control the people with the real skills. In other words, bosses are not as important to the workplace as they have made the masses to believe. They are also the dominant class determining what happens in the economic market. Thus they deliberately undermined societal values for their selfish benefits (Marglin 15). This view is completely different from Milton’s unwavering belief in the markets (407).
George Lodge’s Need for Ideological Consciousness
Lodge believes that there is a direct correlation between ideology and economic performance (81). He argues that ideologies pursued by America directly affect other nations across the globe, not just politically, but economically as well. He, therefore, calls for the need to know this direct correlation so as to influence positive policies (Lodge 81). Milton does not necessarily agree since all he wants is for government to keep off the economy (407).
There are many issues on which Milton clearly does not agree with other economists (407). Government intervention is an underlying difference between him and the other economists discussed in this paper. What most of the other scholars tend to agree on is that the government has an important role to play in the economy of a country, in terms of market intervention. Marglin however questions the veracity of the whole idea of a market (26). They clearly do not agree, but each brings a valuable addition to the study of Economics.
Friedman, Milton. Capitalism and Freedom. Chicago: University of Chicago Press, 1962. Print.
Lodge, George. “The Need for Ideological Consciousness.” Challenge, vol. 53, no. 2, Apr. 2010, pp. 76-89. Print.
Marglin, Stephen. “Why Thinking Like an Economist Can Be Harmful to the Community.” Challenge, vol. 51, no. 2, Apr. 2008, pp.13-26. Print.
Scott, Bruce. “Capitalism: The Indirect Economic Governance of a Visible Hand.” Challenge, vol. 55, no. 4, Aug. 2012, pp. 5-23. Print.
Wisman, Jon D. “Freedom, Prescription Drugs, and Social Irrationality.” Huffington Post, 18 Aug. 2015, pp. 44-46. Print.
Wisman, Jon D. “Keynesian Economics and Economists’ Views on the State.” Forum for Social Economics, 16, 1986, pp. 1-15. Print.