Prof. Mankiw of
Harvard has written two worldly popular textbooks in economics: Principles of
Economics and Macroeconomics. There are many universities and professors who
use his textbooks in classrooms. In my university, Kobe University, his textbooks
are popular for undergraduate and graduate levels. I enormously like his books,
and that is where I got to know the book Free to Choose.
In his note on his further reading at the end of the Principles,
Mankiw put it as something like How market economy improves society. This
description of him did not catch my attention that much. However, the title Free
to Choose did catch my attention. What does it mean by free, and choose
what?
Smart people who make themselves easily understandable are
admirable. Milton Friedman, a Nobel Laureate in economics science, is also a brilliant
writer. This book is fun to read, coherent and stick to the point. His main
idea is simple: as long as you are free to choose, the society is prosperous
and the economy keeps growing. This principle is loud and clear. All examples throughout
this book follow this principle except one (see Conundrum below).
His ideas in the book largely were built upon those of Adam
Smith and Bastiat. To put it in two simple sentences: voluntary cooperation
between individuals in the society is the main engine of prosperity and
justice. Government role in the society is to facilitate those voluntary
cooperation. Did I just say Justice? Friedman is in the school of thought that
postulate that voluntary cooperation is a just action. (For more on justice,
see Justice: What’s the Right Thing to Do, by Michael Sandel, not yet
reviewed here).
The most important parts of this book, to me, are the prefaces
and the first chapter The Power of Market. The power of market is
exemplified by that fact that people from East Germany risked their lives
crossing the Berlin Wall to find opportunities, to where they can freely choose
and make the decisions they think are right and not the decisions imposed on
them by people in the government in the name of love.
The most eye-opening examples the authors used that make
readers (including Nobel Laureate Gary Becker) see how relevant economics in
the society is choice in education: What’s Wrong with Our Schools? Have
you ever asked who should run a school? Is it not ubiquitous that schools are run
by the government? People also take for granted that good schools are run by
government, and to be a prestigious schools, they have to be run by a
government. Cambodians would look at examples of prestigious universities in
Singapore, for instance the National University of Singapore. People in Japan are
also in a similar situation where they see national universities such as The
University of Tokyo, Osaka University etc. as the prime examples of superiority
of state-run universities over private-run ones such Waseda University and Keio
University. If you think so, I challenge you to read this book. If you are an
educational reformer who have no specific idea in mind yet, this book is best for
you as well. Friedman popularized the concept of school choice, or voucher
school.
Because the authors explained how economy works and people
cooperate in societies in plain language, various Third World leaders were
thankful to the book, for instance, Estonian Prime Minister Mart Laar.
The Conundrum
There are two main opponents of Keynes: Milton Friedman and
F.A Hayek. As a student, however, Friedman was a Keynesian. Every one tended to
be one in his time. As a matter of fact, he later won the Nobel Prize in
Economic Science by disproving Keynesian fiscal policy. Keynes postulated that
consumers consider their current income before making decision to spend.
Friedman, in contrast, theoretically and empirically proved that people make
decisions on how much to spend basing on their expected long-term income (Permanent
Income Hypothesis). Thus, according to Friedman, a tax cut to increase spending
is ineffective.
Another debate is with regard to monetary policy. Instead of
discretionary monetary policy, he favored rule-based policy. The reason is the
market is stronger that government and so complicated that government can
manipulate it with its monetary tool. Thus, supplying money basing on expected
economic growth is the safest measure. For example, if the economy is expected
to grow 2 % next year, the central should just supply money 2% more, not less
to impede growth, not more to induce inflation.
One point that people tend to misunderstand Friedman is with
the regard to the abolition of the Fed. Milton Friedman was for the abolition
of the Fed. He agreed with Hayek that market can supply money more effectively and
efficiently to meet their own needs of money than the government can. Because the
possibility of the abolition of the Fed was too slim, he postulated the
above-mentioned Monetarism. This is where Friedman did not focus on
freedom to choose. Is freedom to choose who to supply your notes good for the
society?
My Intervention
There are many providers of phone service around you. Why do
you think we need many providers? Why not ask government to keep only one?
Competition is favorable to the economy, you may say. Decentralized management,
i.e. two companies managing it instead of one big company, is more efficient,
you continue. You name it. So why government allows only one money supplier,
namely itself?
Economists divide functions of money into three: unit of
account- what you use to count how much a goods is, store of value- for what
you save, and medium of exchange- you can use money instead of changing a book
for a tire of a bike. These functions make money special that require central
control. I agree with this description (cause I am the one who wrote it here!).
However, it is not enough to restrict the supply to only government. No king
wants an opposition party!!!
Full title: Free to Choose: A Personal Statement Paperback – November 26, 1990
Authors:
Publisher: Mariner Books; LATER PRINTING edition (November 26, 1990)My rating: 5/5
This book is complimented by another book of Friedman: Capitalism and Freedom.
See also:
PBS TV series: Free to Choose (1980) and Free to Choose TV (www.freetochoose.tv/)
