I Agree with Milton Friedman!

By James Kwak

In Capitalism and Freedom, Milton Friedman asks what types of inequality are ethically justifiable. In particular (pp. 164–66):

“Inequality resulting from differences in personal capacities, or from differences in wealth accumulated by the individual in question, are considered appropriate, or at least not so clearly inappropriate as differences resulting from inherited wealth.

“This distinction is untenable. Is there any greater ethical justification for the high returns to the individual who inherits from his parents a peculiar voice for which there is a great demand than for the high returns to the individual who inherits property? …

“Most differences of status or position or wealth can be regarded as the product of chance at a far enough remove. The man who is hard working and thrifty is to be regarded as ‘deserving’; yet these qualities owe much to the genes he was fortunate (or fortunate?) enough to inherit.”

I think Friedman is correct here. This is basically the same point that I made in my earlier post: the money that you make because you are smart and hard working is the product of good fortune just as much as the money that you inherit directly from your parents.

Read more at Medium.

10 thoughts on “I Agree with Milton Friedman!”

  1. But outcomes are path dependent. If my hard work is valuable because a drug lord values my services, then one could argue that my income is not morally justified. Similarly, if capital is distributed the way it is because of generations of unlevel playing fields, different sets of rules, criminal behavior etc, and capital dictates the value of various types of hard work, I think similar logic applies. (If people like me controlled all wealth, there would be no Wall Street and no hedge fund managers to complain about)

  2. If you unpick the chain of causality, very little difference in income ends up being attributable to a difference of preferences between leisure and work. Differences in disposition between, say, artistry and banking would be more significant but does that justify a difference in reward? Perhaps selfishness makes you rich, is that a good thing?

    In the end almost no differences in wealth is a matter of free choice. Right-wing people would say it’s all preference between industry and idleness.

    Differences in income would be much better justified as different power to allocate resources than different license to consume. If I started a bakery, tech startup, etc. maybe it’s fair that I get to control how that thing evolves. Control as reward for success seems fair and efficient. Consumption as reward for success much less so.

  4. I see such distinctions as getting lost in the weeds and thus meaningless.

    The problems of our economy do not stem from the differentials of merit between different kinds of wealth acquisition. The problems with our economy stem from the inherent class conflict in the Capitalist system. You have one class of owners/decision makers and another of workers. Instead of a system that all of us have influence over and work hard to improve, we have a system which concentrates wealth in fewer and fewer hands, and thus tends to the same kind of structure as in the moribund, totalitarian systems it is said to be superior to.

    This is not even remotely complicated. Those of us in the middle classes however are so desperate to justify our relative positions of comfort and privilege with the myth of meritocracy that we lose sight of the real world around us. The most essential work is the least paid. The higher paid work is important only to an increasingly smaller group of people.

    Until we have a society in which workers, owners, and directors of enterprise are 100% integrated (meaning that when there is no separation between workers and capitalists) it will never be even close to a meritocracy in the long run, and we will be less and less capable of directing our labor toward things that we actually need to be doing. Instead we are busy working to make the rich richer and anything that doesn’t help the rich in the short term is sacrificed by those making the decisions. And while in theory Capitalism embraces market structures which are supposed to distribute decision making, the concentration of wealth and power renders the market impotent int his regard.

    In short: Capitalism over time becomes less and less capable of directing the economy to work of any merit to the majority of the population because its basic structure ensures the concentration of wealth and centralization of control in the hands of the few who are not properly motivated to care or even be particularly good at managing the wider economy. (In fact they are particularly bad at it)

    It would be much better to have all enterprises run, owned and directed by the workers with no capitalists as we know them today involved at all. Capital is thus decentralized (rather than dominated by a wealthy individual or a state run bureaucracy), and individuals running the enterprise are not motivated to acquire wealth at the expense of the enterprise and other workers.

  5. Have y’all actually read real history? myth of meritocracy? while there is a difference between working hard and working smart, I have lifted myself out of the low end and can now pay for many others comfortable lives via the taxes I pay. In my case, meritocracy has worked really well to reward behavior that pushes all of society forward.

    No other system in the history of the world has done more to lift the average Joe than this system. It’s not perfect. But, it is by far the best one yet. At least if results matter at all.

  6. Your comment is awaiting moderation.

    I want a divorce, “Ron the Jew”.

    Sure, I had the “right” to make my life less miserable through honest work, I just wasn’t allowed to own anything that I worked to create to make me less miserable – like food clothing shelter and the company of good people living with the same values – the “rule of law”.

  7. It is not money as a thing but the ancillary byproducts – education, connections, influence, etc. With money I can buy the expertise of someone when I have no inherent expertise or abilities of my own. I get as many chances as I want but you don’t. In fact, I would have a greater ability to be criminal and immoral without consequence, so you could legitimately ask of wealth concentration by inheritance actually sets back all of humanity by granting greater control to people with those type of personality characteristics.

  8. No. Inherited money is 100% due to your parents. Money earned thanks to good genes, good education, and work is due to your parents to an extent of 0<=x<=1. x=1 is a special case, and no one can reasonably claim it is always true. Given that at least sometimes, x<1, the distinction holds.

  9. Inheritance was designed to be contoled by the institutions once they lost the ability to stay on the gold standard, the hard line approach and competition for insanity ruled the day, and it still does, for a short while longer.

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