The Shock of It All — Part II
By docapple | August 11, 2008
The second meaning of the shock doctrine is one that is profoundly theoretical and ideological. It focuses on the work of Milton Friedman and the cadre of his followers who were created at The University of Chicago’s School of Economics, initially in the 1950s, but extending to the present. This cadre is also known as the Chicago Boys.
Milton Friedman might reasonably be called the Godfather of Disaster Capitalism and economic Shock Therapy. Friedman virtually laid claim to the title in the 1982 Foreword to Capitalism and Freedom.
Only a crisis—actual or perceived—produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available and to keep them around until the politically impossible becomes the politically inevitable. (p. xiv)
In his landmark treatise Capitalism and Freedom, the master of modern free market philosophy and theory argued that unbridled capitalism is a necessary means to achieving political and economic freedom.
Economic arrangements play a dual role in the promotion of a free society. On the one hand, freedom in economic arrangements is itself a component of freedom broadly understood, so economic freedom is an end in itself. In the second place, economic freedom is also an indispensable means toward the achievement of political freedom. (p. 
Friedman argues that while “government is necessary to preserve our freedoms; yet by concentrating power in political hands, it is also a threat to freedom.” (p. 2) He thus places government in a special role for a free society.
First, the scope of government must be limited. Its major function must be to protect our freedom both from the enemies outside our gates and from our fellow citizens: to preserve law and order, to enforce private contracts, to foster competitive markets. Beyond this major function, government may enable us at times to accomplish jointly what we would find it more difficult or expensive to accomplish severally. However, any use of government is fraught with danger. (p. 2)
In a lecture delivered in 1991, Friedman revised his earlier dichotomous view of freedom to what he termed as a trichotomy, namely, economic, human, and political. He notes that it was the example of Hong Kong that caused him to revise his system of freedom. This island city, he argues, has a “completely free economy” and a “great deal of human freedom.” While he does not clearly define either political or human freedom, a quasi definition can be inferred from his comments. He notes, for example, that the people of Hong Kong have a great deal of human freedom and he adds that ”I have never seen any evidence of suppression of freedom of speech, freedom of the press, or any other human freedom that we regard as important.” I do not know what textbook of political theory he read, but where I come from those examples would be considered as examples of our First Amendment rights of political freedom. When he discusses this latter form of freedom his remarks become extremely problematic for his approach to freedom. I will include two quotations that I believe illustrate this difficulty.
However, in one respect Hong Kong has no freedom whatsoever. It has no political freedom. The Chinese who came to Hong Kong were not free people. They were refugees from the communist regime and they themselves had been citizens of a regime that was very far from a free society. They did not choose freedom; it was imposed on them by outside forces.
Quotation #2:
To come back to Hong Kong, the only reason it did not get its political freedom is because the local people did not want political freedom. They knew very well that that meant the Chinese communists would take them over. . . . Hong Kong is by no means unique. Where the market plays a significant role, whether you have political freedom or not, human freedoms are more widespread and more extensive than where the market does not play any role.
Holy Cow!!! Where to begin?! First, the people who fled communist China did so in pursuit of freedom. It was not imposed. Second, it is absurd to even suggest that the people did not want political freedom. How arrogant!! However, it is this philosophical arrogance that has helped Friedman to tap dance around his moral responsibility as he has assisted a number of brutal dictatorships in his quest to install free market economies around the globe. I will treat this in more detail in part 3 of this series. Third, the only human freedom that is extensive without political freedom is the freedom to consume. In this sense, he is helping to bring about the future described in Aldous Huxley’s Brave New World and analyzed by the author in Brave New World Revisited, in which people are given no political freedom but are encouraged to consume through a world in which there is constant advertising and government sanctioned drug use. However, since he never defines what he means by either political or human freedom, I guess he can dance around such absurdities with ease.
According to Klein, in 1980 Friedman found a comfortable situation in Communist China when the government of Deng Xiaoping invited him in to tutor many members of the government, etc. on free market theory.
Friedman’s definition of freedom, in which political freedoms were incidental, even unnecessary, compared with the freedom of unrestricted commerce, conformed nicely with the vision taking shape in the Chinese Politburo. The party wanted to open the economy to private ownership and consumerism while maintaining its own grip on power–a plan that ensured that once the assets of the state were auctioned off, party officials and their relatives would snap up the best deals and be first in line for the biggest profits. . . . .The model the Chinese government intended to emulate was not the United States but something much closer to Chile under Pinochet: free market combined with authoritarian political control, enforced by iron-fisted repression. (185)
Friedman’s economic theory is an extension of Adam Smith’s famous or infamous approach to laissez faire capitalism. I recall studying this in both high school and college, but it was during the 1960s when the collectivist thinking of Keynes was still on the ascendant that Smith was held in disrepute. I will come back to this point later, but it is worth noting for a personal point of context. In any event, Friedman claims that all markets must be entirely free and self-regulating, controlled only by the forces of the market and by wise monetary policy. Friedman was a co-founder of what has become knows as the Chicago School of Economics which held that its system of thought was one that was not open to modification according the Klein’s analysis.
Frank Knight, one of the founders of the Chicago School of economics, thought professors would “inculcate” in their students the belief that each economic theory is “a sacred feature of the system.,” not a debatable hypothesis. The core of such sacred teachings was that the economic forces of supply, demand, inflation and unemployment were like the forces of nature, fixed and unchanging. In the truly free market imagined in Chicago classes and texts, these forces existed in perfect equilibrium, supply communicating with demand the way the moon pulls the tides. If economies suffered from high inflation, it was, according to Friedman’s strict theory of monetarism, invariably because misguided policy makers had allowed too much money to enter the system, rather than letting the market find its balance. (p. 50)
Such monolithic tendencies in building any system of human activity produces a closed system that cannot learn from its experience and ultimately brings it down.
Friedman thus limits the role of government to three essential functions: defense, law enforcement, and the fostering of competitive markets. It is this third function that I believe results in an inescapable paradox for Friedman and his followers, namely, that government must intervene to foster competitive markets, except that according to him, any government intervention results in a distortion of the market. How can you have a totally free market as Friedman and his School desire and yet allow for the “fostering of competitive markets?” The implication, for me, is that Friedman is open to pro-corporation government policy but opposed to anything that might get in the way of free operation.
According to Klein, Friedman and the Chicago School favor an approach to spreading the word of the laissez-faire free market that involves taking advantage of a crisis—real or imagined—so that they can de-pattern a country’s economic system (see my earlier post on Shock Doctrine Part I) and then force it to adopt radical policies of the unrestricted free market.
I will end this post on the theory of Milton Friedman with a comment on one of his articles that one observer describes as “one of the most cited and attacked—and defended—articles in the history of economics: On the Methodology of Positive Economics (1953, 1-43).” Friedman contends that economics can be a science much like the natural sciences if its theories can produce a body of positive, empirical predictions about the data observed. “The ultimate goal of a positive science is the development of “theory” or “hypothesis” that yields valid and meaningful (i.e., not truistic) predictions about phenomena not yet observed.” From my experience, I have yet to encounter any economic theory with the power of prediction. This is why economies fail, stock markets crash, and no one can predict what the free market or any other market will be like next year. Thus, economic theory is, for the most part, a body of assumptions and contentions freely competing with each other. Unfortunately, average, real people must pay the price for the failings of these pseudo-scientific theories.
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