3 Discussions, 1 full pages each due in 12 hrs must be original

Joshua Preiss*

Milton Friedman on Freedom
and the Negative Income Tax

DOI 10.1515/bis-2015-0008

Abstract: In addition to his Noble Prize-winning work in economics, Milton
Friedman produced some of the most influential philosophical work on the role
of government in a free society. Despite his great influence, there remains a dearth
of scholarship on Friedman’s social and political philosophy. This paper helps to fill
this large void by providing a conceptual analysis of Friedman’s theory of freedom.
In addition, I argue that a careful reading of his arguments for freedom ought to
lead Friedman, and like-minded liberals and libertarians, to give absolute priority
to his negative income tax proposal. A substantial basic income furthers effective
economic freedom (on Friedman’s own understanding), redeems his central claim
that markets enable cooperation without coercion, and enables him to address his
lifelong interlocutors by mitigating concerns for the ways in which economic
dependence and inequality undermine both freedom and democratic legitimacy.

Keywords: negative income tax, freedom, ethics and economics, liberalism,
republicanism

1 Introduction

After John Maynard Keynes, Milton Friedman is arguably the most influential
economist of the twentieth century. Friedman did not restrict his writing to
technical questions in economic theory. Instead, he produced some of the most
influential philosophical work on the role of government in a free society. This
work, perhaps more than any other, provides the central and agenda-setting
talking points for so-called neo-liberal political and economic reforms cham-
pioned by the Republican party in the U.S., the Conservative Party from the
time of Thatcher in the United Kingdom (Childs, 2006; Reitan, 2003),1 and

Corresponding author: Joshua Preiss, Department of Philosophy, Minnesota State University,
Armstrong Hall, Mankato, MN 56001, USA, E-mail: [email protected]

1 See also http://www.telegraph.co.uk/news/uknews/1534387/Thatcher-praises-Friedman-her-free
dom-fighter.html. The work of F.A. Hayek and others, of course, has also been quite influential in
these contexts. More on Hayek below.

Basic Income Stud. 2015; aop

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http://www.telegraph.co.uk/news/uknews/1534387/Thatcher-praises-Friedman-her-freedom-fighter.html

http://www.telegraph.co.uk/news/uknews/1534387/Thatcher-praises-Friedman-her-freedom-fighter.html

throughout the world, even by agencies, such as the IMF, that Friedman himself
opposed.2 Despite this influence, there remains a dearth of scholarship on
Friedman’s social and political philosophy, particularly among philosophers
and political theorists. Friedman’s work on freedom is worth engaging for a
number of reasons. First, Friedman has a contribution to make to philosophical
debates on freedom, and the link between political and economic freedom. He
wisely and astutely challenges philosophers, economists, and policy-makers who
treat the ethics and politics of political and democratic institutions in isolation
from economic institutions. Second, his arguments are not merely empirical. He
makes a number of conceptual distinctions, and relies upon controversial notions
of freedom, that open his claims up to criticism, even in the event that he is
largely correct on the economic facts of the matter. Those who utilize Friedman’s
arguments (or parallel arguments) in good faith – to convince those not already
committed to Friedman’s policy prescriptions – must grapple with these issues, to
avoid the charge that their use of Friedman’s arguments is just a cynical appro-
priation of the rhetorical cache that Friedman’s economic credentials provide.

For critics, philosophical ignorance, in this case, entails political impo-
tence. Philosophical work is essential to engaging and redirecting a public
debate that revolves around Friedman’s empirical authority, rather than the
conceptual foundations of the views that he uses his empirical work to bolster.
In the conclusion of Free to Choose, Friedman writes “fortunately, the tide is
turning,” back to “the tide of opinion toward economic freedom and limited
government that Adam Smith and Thomas Jefferson did so much to promote,”
and which “flowed strongly until late into the nineteenth century.” As such,
those who propose further government intervention “can no longer arouse
enthusiasm among the young who now find the ideas of Adam Smith and
Karl Marx far more exciting than Fabian socialism or New Deal liberalism”
(Friedman & Friedman, 1980, p. 284). Twenty-two years later, in the preface to
the Fortieth Anniversary Edition of Capitalism and Freedom, Friedman has
turned from cautiously optimistic to positively triumphant, as the ideas he
championed have taken hold not only in “the United States and Great
Britain” but also “the other Western advanced countries … In all of these
countries pressure today is toward giving markets a greater role and govern-
ment a smaller one … and the change of opinion has had an even more

2 Such reforms include financial deregulation, opposition to the minimum wage, the privatization of
national industries and public goods, the elimination social security and other forms of social
insurance, tax cuts, opposition to “redistributive” policies, and more generally institutional attempts
to promote greater economic equality. http://www.wsj.com/articles/SB116369744597625238 See
Harvey (2007) for a critical history and analysis of neoliberalism.

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http://www.wsj.com/articles/SB116369744597625238

dramatic effect in the formerly underdeveloped world” (Friedman, 2002, p. viii).
Friedman does not oversell the impact of these changes.

Given this impact, it is imperative to critically examine the philosophical
justification provided by arguably the most prominent proponent of these
changes. This paper provides such a conceptual analysis of Friedman’s theory of
freedom. This work is essential to any debate concerning what ways, and under
what conditions, Friedman’s influential proposals actually further the freedom of
individuals whose choices are structured by these new “rules of the game.”
Finally, a careful reading of his arguments, I contend, ought to lead Friedman
to give absolute priority to his negative income tax proposal. A substantial nega-
tive income tax furthers effective economic freedom, and helps to redeem
Friedman’s central claim that markets enable cooperation without coercion.
Perhaps most importantly, it enables Friedman to address many of the concerns
of his lifelong interlocutors, allowing like-minded liberals and libertarians to make
their compelling case for freedom as economic non-interference in a way that
mitigates (rather than simply ignores) liberal, republican, and democratic con-
cerns for the ways in which economic dependence and inequality undermine both
freedom and legitimacy.

2 Effective freedom vs. freedom as
non-interference

The primary targets for Friedman’s philosophy of freedom are so-called liber-
als, progressives, deliberative democrats, and “democratic socialists” who,
while they value democratic and political freedoms, don’t see these cherished
freedoms as in any way related to economic freedom. In response to these
targets, Friedman argues that capitalism is a necessary, but not sufficient,
condition for political freedom. Not every capitalist society has political free-
dom, but every democratic society with substantial political freedom is capi-
talist. Friedman’s arguments for these claims are both conceptual and
historical. “History speaks with one voice,” he reasons, “on the relation
between political freedom and free markets” (Friedman, 1962, p. 10). From
this history, the United States and Great Britain in the nineteenth Century are
Friedman’s exemplars. He writes,

The combination of economic freedom and political freedom produced a
golden age in both Great Britain and the United States in the nineteenth century.
The United States prospered even more than Britain. It started with a clean slate:
fewer vestiges of class and status; fewer government restraints; a more fertile

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field for energy, drive, and innovation; and an empty continent to conquer
(Friedman & Friedman, 1980, p. 3).

In order to assess this central claim, it is necessary to know which societies
Friedman counts as capitalist (as opposed to socialist, or some other form of
economy). Such assessments also depend upon what he means by “political
freedom.” In truth, he isn’t always clear about what he means by political free-
dom, or which political freedoms capitalism protects. Friedman endorses freedom
of association (Friedman, 1962, p. 115) and, citing Jefferson, democratic freedom
and “widespread participation in government” (Friedman & Friedman, 1980, p.
130). The one example he discusses in detail is the relationship between capitalist
political economy and freedom of speech and freedom of the press. His argument
runs as follows. As both Friedman and his interlocutors grant, political freedom,
and a well-functioning democracy, require the ability of criticize existing institu-
tions. Friedman adds that critics need to be able to have their voices heard, which
requires that one have access to the media. This is not a problem in capitalist
societies because private individuals own the media. In short, two things are
essential for freedom of speech: (1) having access to the media and (2) being
able to express one’s views without losing one’s ability to earn a living. He claims
that under socialism, where the state controls the media and all jobs, the govern-
ment can deny critics access to the media and it can intimidate critics by threaten-
ing to fire them. Under capitalism, the government doesn’t control the media and
can’t deny you access to the media. Even unpopular causes, he continues, can
find rich patrons who can finance media time for these unpopular causes so that
they can be heard. In addition, the government can’t intimidate you by threaten-
ing to make you unemployed, because you have many different employers to
choose from and you also have the option to be self-employed (Friedman, 1962,
Chapter 1). The diffusion of power and authority under capitalism protects peo-
ple’s ability to express themselves. More generally, it allows them to shape (and
thereby check) government’s impact on their day-to-day lives.

Friedman’s account of freedom of speech differs from the more rights-
oriented accounts of freedom expressed by libertarians like Robert Nozick.
Nozick famously understands rights as side-constraints on the actions of others.
They set limits on what other agents (including agents of the government) can
do to an individual, even in the pursuit of valuable goals such as social justice
or economic growth (Nozick, 1974). With respect to a right to speech, this means
that the government doesn’t arrest those who speak their mind. Friedman does
not deny, however, that citizens in a socialist society might have a political or
constitutional right to freedom of speech. He argues that such a right would be
meaningless without the means to make your views widely known. The mean-
ingful exercise of freedom of expression requires access to the media. Also,

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substantive or effective freedom of speech is necessary as a check on govern-
ment power. For economic freedom to be a check on political power, citizens
must not only not be interfered with for speaking their mind.3 They must also
have the resources to make use of their political right to freedom of speech.4

This argument also distinguishes Freidman’s understanding of freedom from
F.A. Hayek’s. Hayek argues that among the many “confusions of individual
liberty with different concepts denoted by the same word” the most dangerous
is the “use of ‘liberty’ to describe the ‘physical ability to do what I want,’ the
power to satisfy our wishes, or the extent of the choice of our alternatives”
(Hayek, 1960, p. 65). For Hayek, freedom is fundamentally about “social rela-
tions,” as opposed to freedom from natural or physical obstacles. Nonetheless,
his arguments suggest that Hayek, in direct opposition to Friedman, does not
see great differences in power between those in society as a threat to individual
liberty. In fact, this “identification of liberty with power” will cause “no end to
the tricks by which people can be exhorted in the name of liberty to give up their
liberty” (Hayek, 1960, pp. 65–66). For Friedman, on the other hand, freedom of
speech requires the economic power to make such speech be heard. It is this
way that the economic power of individuals in a capitalist society can serve a
check on government’s attempt to limit our political liberty.

Friedman’s account of freedom of expression has much more in common
with Amartya Sen than with Hayek or Nozick. Sen urges us to see development
as the “process of overcoming unfreedoms” (Sen, 1999, p. 33). This orientation
forces us to distinguish welfare from freedom, and to distinguish process free-
dom from opportunity freedom. Freedom involves both the processes that allow
freedom of actions and decisions, and the actual opportunities that people have,
that is, their “ability to achieve … what they value or have reason to value” given
their personal and social circumstances (Sen, 2002, p. 585). Unfreedom can arise
either through inadequate processes (such as the violation of voting privileges
and other political or civil rights) or through a lack of opportunities to achieve
what people minimally would like to achieve (including the absence of such
elementary opportunities as the capability to escape premature mortality of
preventable morbidity or involuntary starvation) (Sen, 1999, 2002, 2009).

3 See (Lomasky, 1987) for a libertarian account of basic rights that prioritizes freedom as non-
interference.
4 In fact, at times Friedman understands property rights themselves in terms of their instru-
mental value. Unlike other monopolies, he reasons, “in both patents and copyrights there is
clearly a strong prima facie case for establishing property rights” (Friedman, 1962, p. 127). The
length of such property rights, however, “are not a matter of principle. They are matters of
expediency to be determined by practical considerations” (Friedman, 1962, p. 128). Clearly
Friedman is a very different sort of libertarian than Robert Nozick.

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In Sen’s terms, the ability to influence public opinion through use of the media
would count as opportunity freedom. As Friedman argues, even if a socialist
state granted citizens the process freedom of expression (via a constitutional
right) such freedom would be meaningless if an individual either lacked assess
to media (which was government owned)5 or, lacking other possibilities,
depended upon the government as their employer. Friedman does not argue,
as Sen does, that governments and international organizations ought to under-
stand effective freedom as the primary goal of development. Nonetheless, in his
only detailed discussion of this central claim, that economic freedom protects
and enables political freedom, he affirms a positive or effective understanding of
freedom that distinguishes him from theorists who conceive of freedom primar-
ily in terms of non-interference. A capitalist society, according to his reasoning,
should be favored precisely because it safeguards such effective freedom in both
the economic and the political sphere.

Moving from freedom of expression to economic freedom, notice also that
many monopolies don’t threaten economic freedom as non-interference.6 Due to
economies of scale, monopolies may arise according to processes that libertarians
such as Nozick would label perfectly just. Friedman steadfastly opposes mono-
polies, however,7 arguing that “exchange is truly voluntary only when nearly
equivalent options exist. Monopoly implies the absence of alternatives and
thereby inhibits the effective freedom of individuals” (Friedman, 1962, p. 28).
Once again, Friedman stands in direct opposition to Hayek, who claims that
among the greatest threats to freedom is to confuse it with “the extent of the
choice of our alternatives” (Hayek, 1960, p. 65). While Hayek’s arguments for
freedom (like Friedman’s) are primarily consequentialist, and his consequential-
ism also provides a basis for opposing monopolies (as they are likely to lead to
market failures), he rejects any attempt to understand economic freedom either in
terms of an individual’s ability to achieve or acquire what she desires or in terms
of the number of options from which she is able to choose. Such understandings
represent dangerous confusions of liberty with other concepts that use the same
word. According to this reasoning, monopolies may hinder welfare, but they do
not do so because they make individuals less free. By contrast, political freedom
and economic freedom, for Friedman, concern not only what Isaiah Berlin (1958,

5 See also Friedman’s criticism of the BBC (Friedman, 1962).
6 Patents protected by legal sanction, however, clearly do threaten economic freedom as non-
interference.
7 With the exception of natural or technical monopolies (Friedman, 1962, pp. 28–30). In point of
fact, Friedman, citing colleagues Nutter (1951) and Stigler (1949), believes that monopolies are
relatively rare and ineffectual in the United States. More on freedom and monopoly below.

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1969) calls issues of negative liberty or what Nozick calls side-constraints on
interference, but also substantive or effective freedom. In the case of freedom of
speech, effective political freedom requires the resources to make your speech
heard. In the case of consumer choice, effective economic freedom requires the
availability of a number of “nearly equivalent” options. Friedman shares Sen’s
concern for both opportunity freedom and process freedom.

3 Democratic freedom and inequality

Like his democratic interlocutors, Friedman recognizes that an essential freedom
that all individual citizens possess is the freedom to shape the laws and institu-
tions that structure our collective and individual lives. Friedman forcefully argues,
in addition, that economic liberty safeguards our political liberty, including the
liberty to participate in a democracy. Such freedom is essential since, as he notes,
citizens should not and cannot avoid collectively using government to accomplish
things we are unable to accomplish as individuals (Friedman, 1962). More often
than not, however, Friedman’s discussion of important democratic freedoms is
paired with the fear that “any such use is fraught with danger” that government
will become a “Frankenstein that will destroy the very freedom we establish it to
protect” (Friedman, 1962, p. 2). For this reason, the use of government should
generally be avoided.8 He reasons that,

By relying primarily on voluntary co-operation and private enterprise, in
both economic and other activities, we can insure that the private sector is a
check on the powers of the governmental sector and an effective protection of
freedom of speech, of religion, and of thought (Friedman, 1962, pp. 2–3).

Liberals, Friedman continues, are “suspicious of assigning to government
any functions that can be performed through the market, both because this
substitutes coercion for voluntary cooperation in the area in question and
because, by giving government an increased role, it threatens other areas”
(Friedman, 1962, p. 39). Such phraseology, unfortunately, encourages readers
to identify market decisions as voluntary, regardless of how extreme the inequal-
ities and economic concentrations of power in the modern world economy get to
be. It also suggests that democratic decisions, however equally distributed
democratic power is, are fundamentally coercive.

8 Friedman’s skepticism of the efficacy of democracy parallels that of James Buchanan and
Gordon Tullock in The Calculus of Consent (Buchanan & Tullock, 1962) which, perhaps not
coincidentally, was published the same year as Capitalism and Freedom.

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Almost without exception, democratic theorists perceive large economic
inequalities as a potential threat to citizens’ democratic freedom. Proponents
of democracy do not, as Friedman frequently puts it, hold a prior normative
commitment to “equality of outcomes.” Instead, they recognize that economic
inequalities often lead to political inequalities (Bartels, 2008; Forst, 2011;
Gutmann & Thompson, 1998; Habermas, 1992). Friedman claims that a happy
bi-product of a focus on liberty will be greater equality.9 Nonetheless, Freidman
simply ignores of the link between democratic freedom and economic power,
showing little concern for the ways in which economic inequality can undermine
both freedom and legitimacy. Indeed, he opposes the progressive taxation that
the legislatures of most capitalist societies utilize to promote more equal citizen-
ship. Such taxation, he argues, hinders the effectiveness of market price in
driving efficient allocation of resources.10

9 He writes, “A society that puts equality – in the sense of equality of outcome – ahead of
freedom will end up with neither equality nor freedom. The use of force to achieve equality will
destroy freedom, and the force, introduced for good purposes, will end up in the hands of
people who use it to promote their own interests. On the other hand, a society that puts freedom
first will, as a happy by-product, end up with both greater freedom and greater equality”
(Friedman & Friedman, 1980, pp. 148–149).
10 He writes, “However we might wish it otherwise, it simply is not possible to use prices to
transmit information and provide an incentive to act on that information without using prices to
also affect, even if not completely determine, the distribution of income” (Friedman &
Friedman, 1980, p. 23). Moreover, when discussing the ways in which monopoly power may
threaten our economic freedom, he argues that,“[beyond government created monopolies] the
most important and effective step toward the reduction of monopoly power would be extensive
reform of the tax laws. The corporate tax should be abolished. Whether this is done or not,
corporations should be required to attribute to individual stockholders earnings which are paid
out as dividends … Few measures would do more to invigorate capital markets, to stimulate
enterprise, and to promote effective competition’” (Friedman, 1962, p. 132). Such tax reforms,
treating corporate profits as individual earnings, would make American markets far more
competitive, and therefore further both efficiency and economic freedom. So why haven’t
they been adopted? Friedman’s answer is progressive taxation. He continues, “of course, so
long as the individual income tax is highly graduated as it is now, there is pressure to find
devices to evade its impact. In this way as well as directly, the highly graduated income tax
constitutes a serious impediment to the efficient use of our resources” (Friedman, 1962, p. 133).
The implication that if you simply lower the top tax rates, then owners of multinational
corporations will stop trying to avoid tax is, with the benefit of the past 50 years of history,
dubious at best. Ultimately, Friedman proposes a flat tax with corresponding elimination of
loopholes (Friedman & Friedman, 1980, pp. 306–307) to be done via constitutional amendment
because of the challenges of achieving (and maintaining) such a bargain through the normal
legislative processes. Whether such a proposal would be more or less regressive than America’s
nominally progressive but loophole-ridden present tax code is a matter for debate.

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Friedman is correct that both Adam Smith and Thomas Jefferson saw con-
centrated government power as a potential, and potentially great, danger
(Friedman & Friedman, 1980, p. 4).11 However, it is not only government power
that presents such danger. Indeed, Friedman himself clearly recognizes the link
between individual liberty and concentrations of power, writing that “the greatest
threat to human freedom is the concentration of power, whether in the hands of
government or anyone else” (Friedman & Friedman, 1980, p. 309). His analysis,
however, wholly ignores non-governmental sources of power. All of his examples,
including the oil executive who feels uncomfortable questioning environmental
policy, concern the concentration of power in the hands of government. After
noting the official corporate tax rate of 48%,12 Friedman uses this fact to explain
why corporate power, unlike government power, is not something the liberal
ought to fear. In the first episode of the PBS series that led to the publication of
Free to Choose, Friedman claims “there was a time when corporations were
powerful,” but they are “now a beleagured minority.”

The one exception is the case of monopoly, which Friedman argues under-
mines our effective economic freedom. Perhaps for this reason, his discussion of
corporate power is limited to concerns that corporations will attain an enterprise
monopoly of a given market. Unlike government and government-supported
monopoly and, to a lesser (but still significant) extent the monopoly of labor
markets by unions and guilds, corporate power is not to be feared. Why? Because
in practice it is difficult for firms to monopolize a given industry or collude to fix
prices for more than a very short period (Friedman, 1962, pp. 119–125). While “the
governmentally operated or supervised sector has of course grown greatly over the
past half-century or so,” he writes, “within the private sector … there appears not
to have been any tendency for the scope of monopoly to have increased and it
may well have decreased” (Friedman, 1962, p. 122). Friedman may or not be
correct on the difficulty for a given firm or group of firms to exert monopolistic
power in a given market, or to collude to set prices. None of this speculation,
however, says anything about the ability and willingness of representatives of
corporations to reconfigure markets and public policy to the benefit of managers
and primary shareholders of corporations.

What, if anything, justifies this omission? Friedman’s best defense is to
point to his picture of an ideal society. In a 1978 lecture at Kansas State
University, Friedman proposes, “to dream an ideal, a constitutional amendment

11 More on Smith and Jefferson below.
12 The United States corporate tax code is now 35%, nominally among the highest rates in the
world. However, it has become so ridden with loopholes that it fails to provide the sort of
revenues that it has in the past (Leonhardt, 2011).

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that forbids Congress from imposing tariffs” and “similar measures to keep
down the size and scope of government.” Such an ideal, he argues, would
keep “special interests” from dominating political discourse (Friedman &
Friedman, 1980, pp. 290–294). In Friedman’s ideal society, on this reasoning,
massive democratic inequality would in fact be unproblematic. In a society
where the government is small, and largely isolated from the economic arena,
the rich and powerful would have little reason to interfere with the democratic
process.

On this issue, Friedmanite liberals, like their Rawlsian counterparts, face the
challenge of connecting this theory of an ideal society with the less-than-ideal
status quo. To be clear, the point is not that Friedman is an ideal theorist in the
Rawlsian sense. Instead, it is essential to highlight that even if this vision of a
state with little government intervention in the economy is a worthwhile ideal,
Friedman and his supporters need to grapple with the ways in which economic
inequality leads to democratic inequality in the less than ideal state (on his
terms) in which government is more involved in our social and economic lives.
In the context of the United States,13 where wealth and corporate ownership are
very highly concentrated (Alverado, Atkinson, Piketty, & Saez, …

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