Finances & Money Taxes

Milton Friedman on the Rise of Socialism in the U.S.

Since I grew up during the Cold War with Russia, I couldn’t help but hear anti-communist remarks almost daily. Communism was, and still is, regarded as nothing short of evil. But I never did any more research into it outside of what I heard from others. I just assumed Communism was contained to government and didn’t affect me as long as we didn’t elect someone from the Socialist party.

Call me naive, but it took me decades to learn that Socialism affects MUCH more than just the government; it affects our way of life through ownership rules and market constraint. I won’t go into a diatribe against socialism until I understand more, but I do want to highlight an article recently posted at the NY Times by author Milton Friedman. You may have heard his name from books like “Capitalism and Freedom“, which is on my to-read list.

Milton prefaces his argument against socialist by stating that “Socialism is a failure” and “Capitalism is a success” and following up with a definition of socialism and some stats from 1989 (when this article was first posted):

What is socialism? In its purest form, socialism is government ownership and control of the means of production. Ownership of anything implies the right to the income produced by that thing.

All means of production in the United States – people, land, machines, buildings, etc. – produce our national income. Spending by government currently amounts to about 45 percent of national income. By that test, government owns 45 percent of the means of production that produce the national income. The U.S. is now 45 percent socialist.

Friedman goes on to add that ownership implies rights to the output of the use of these resources. In 1989, and today, the federal government imposes ownership rights on industry and property:

It prohibits certain uses (to deliver first class mail, to sell some drugs at all, to sell others without prescription, etc.); it controls other uses through laws governing wages, hours and working conditions, rent control and in other ways.

But the two paragraphs with the most impact were the following. They describe in more detail what the author identifies as inefficient government control and use of resources and industry:

Socialism has proved no more efficient at home than abroad. What are our most technologically backward areas? The delivery of first class mail, the schools, the judiciary, the legislative system – all mired in outdated technology. No doubt we need socialism for the judicial and legislative systems. We do not for mail or schools, as has been shown by Federal Express and others, and by the ability of many private schools to provide superior education to underprivileged youngsters at half the cost of government schooling.

Airlines have had no difficulty in acquiring the planes and personnel to handle the increased traffic produced by deregulation. What has been the bottleneck? Airports. Why? Because they are government owned and operated.

While you might say that “FedEx costs so much more than the post office, why would we want to get rid of the USPS?”, be reminded that the feds prop up the USPS through subsidies and by restricting who can deliver first-class mail to only the post office. Heck, FedEx and UPS aren’t even allowed to place parcels into your mailbox as it’s reserved only for the USPS! In private industry, we would call that a monopoly.

So for anyone voting for a candidate because he says he will spend more for education or roads, or use government funds to stabilize the economy, look a little deeper into their agenda (both Democrats and Republicans are guilty of these statements). Think about Friedman’s final thoughts:

Yet what are the loudest complaints? Government should be doing more; government is strapped for funds; taxes should be raised; more regulations should be imposed; build more prisons to house more criminals created by socialist legislation. Child care? Program trading? Earthquakes? Pass a law. And every law comes with a price tag and is cited as a reason for higher taxes.

Can we learn only from our own mistakes? Or not even from them?

Oh, and remember that contractors are running the government anyway 🙂

About the author

Clever Dude


  • i would like to disagree and say capitalism is a failure, and socialism is a success.
    (my fire-retardant suit is on) (thanks mike for the perfect op-piece for me to dissect)

    gordon gekko said “greed is good”. look where it has got us, tons of financial institutions falling apart. we, the “normals” are the ones who has hurt us the most.

    (pre-comment….me and cd are a month apart, with him being the elder)

    This article was written in 1989, during the change from ronnie to george sr. those were great times…not really. savings and loan bailouts…chrystler…few others

    (side note)…we don’t own anything. we pay taxes on stuff we re-sell. we pay taxes on money we have in the bank. we pay taxes on stuff we inherent from relatives and friends. and worst of all, we pay taxes on our property each and every year (and some people pay taxes on cars they own)…if we truly owned anything, we wouldn’t pay taxes ….so if anyone wants my old undies, which i don’t think i pay taxes on anymore…you are welcome to them.

    I’ll give Friedman’s totalarian rosy glasses a pass, because well…he mentions that airlines are really solid….i guess that is why they have got numerous bailouts since then, along with them combining with each other just to make ends meet. and who makes the airplanes…companies like lockheed who got a bailout in the past…but i guess if you forgot that happend to, it makes your opinion more solid too

    He then makes a statement about 45% of the nation is now socialist…i am confused why this is a “bad thing”…i like my streets plowed during the 9 winter months. if someone wants to do this privately…more power to them, until then, i will be happy.

    he then says that the mail system is technologically backward and antiquated. now, i probably do about 80 bucks a month in mailings, and well, i have never had a complaint, and the items get back to me in relativly short periods with great accuracy. i may get an item or two every 4 months that should have been delievered elsewhere. meanwhile, using ups, it takes 3 weeks for that 7-10 day delievery. competition drives the industry, but when the industry sucks, don’t knock it till it can compete.

    (note, private school kid here)…but slamming the public school system is just plain stupid. now, i want to see a private school work at the same rate of funds in compton or miami as it would in shiny (insert your favorite white bread city). now, i am not comparing apples and oranges. kids are kids, on the most basic level…but if you take a kid from an affluent community, and place him in a warzone, and vise versa…well, you know where i am going with this.

    my final note…the last administration had fed govt grow exponentially, and we have had a total failure of everything due to gross incompetance…now i am not saying vote for the democrat who seems to have a great idea, no no, but if you liked seeing everything you thought was great fall apart, and liked it…vote for the republican…but if you want the last 8 years to go away, go with the democrat or look to the independants, sure, you are wasting your vote, but you will at least be able to sleep at night.

  • o yeah, don’t even get me started on deregulation…it has done wonders for competition and keeping prices low on previously regulated items and services


  • Who’d think that this would be the thing that’d break my comment cherry. 😉
    As someone that’s lives in a more socialist country (Canada), I’d like to tell you what I’ve seen.
    Companies care about one thing. Making money. They don’t care about you, they care about cutting the most corners possible while charging as much as you can stomach. They are answerable to the shareholders, and whatever government regulations may apply. Now, in most things, this isn’t an issue. Competition will mellow everyone out. If a company sells complete garbage, the customer won’t buy.
    But when it comes to essential services, they have you by the gonads and they know it. You can’t just go without if nobody feels like giving you quality, so nobody bothers.
    I can give you so many examples… the rolling blackouts and sky-rocketing prices in California after the privatization of electricity. The massive profits of the oil companies (who are again talking about dropping production because we’re actually buying gas again because *gasp* the price dropped back down to something that a year ago seemed ludicrous but now seems cheap). The complete inability for most people of modest means in the US to get to see a freaking doctor when they’re sick.
    I’m not saying the government handles it well. Governments are inefficient by their very nature. But they are, also by their nature, non-profit. And they’re responsible to *us*. If us, the consumer, are unhappy… well, we’re also the shareholders and CEO. We can fire them. A socialist system, for essential services, might not be great. Heck, sometimes it’s barely good. But it’s BETTER than letting private corporations, in my experience, handle it.
    And I’m not talking communism. But for essential services (transportation/road maintenance, electricity, water, police, fire services, health services, safety regulation), from everything I’ve seen and everything I’ve read, mandatory non-profit control (government controlled or not) is the least of all evils.
    When people talk about privatizing everything, they forget about the socialism they take for granted. Nobody wants to think about privately run police or fire for instance, for good reason. The history of Ottawa (my town) is a pictorial of why that doesn’t work.
    My $.02C, YMMV.
    On an unrelated note, I adore your blog. You were responsible for me setting up a feed reader. *grin* Nice to meet you.
    Flowers… @};-

  • Yea, Chris, socialism has worked so well. Look at Cuba, venezuela…

    Look at social security, underfunded.

    If that’s bad, look at Europe, which has massively underfunded social programs despite their high taxes.

    Monopolies are bad. Government is a monopoly. Plain. and. simple.


  • @chris, as for your last paragraph about voting for the democrat because you can’t stand what the last administration did….who had majority power in Congress? Who makes the laws? The prez can only veto or suggest legislation.

    Yes, there’s the war thing, but it’s now all “what-ifs” to say someone else would have done differently. I wish we did have the opportunity to have done it differently, but hindsight, well…

    While it’s great to argue the points of capitalism versus socialism, I don’t think there is any government that has practiced capitalism in its pure form, nor socialism. But would you like to argue that a primarily capitalist country (U.S.) is not a better form than a primarily socialist, such as Cuba, Russia, China? Those countries only improved when they allowed capitalism to make inroads (i.e. open up to the world market).

    Now keep in mind that Friedman does allow for some government intervention and control even in a capitalist country, but is against the type of control and intervention that takes away the capability of the market to choose the best option. There’s a reason the big car makers have been bailed out so many times: their cars suck (oh, and all those benefits they gave to workers). If Lockheed would have failed, then someone else would have taken their market share. So on and so forth.

    Both economy and government types have their merits, but ultimately look at the success of the countries in which they’ve been used. Look at the lower and middle classes of Russia, Cuba and China for the last 40-50 years, and compare them to the U.S., or even Canada if you like. Socialism doesn’t work in practice because the market is given no choice and their only option is what the few government leaders decide is best for them. It’s a monopoly over ALL industries and you have NO choice.

    I’m tired of typing and need an ice cream sandwich now. Pick that comment apart if you like.

  • well, it was republican based congress and house for 6 out of 8 years…so that is a moot point.

    but as for socialism in america being a “new thing” we talked about this before, but it is not a new thing…right now it is being used as a panic tactic for a certain group because they have nothing else to bank on.

    (btw, vanilla or chocolate on the ice cream sammich)

    as for the china/russia thing…they are only succeeding because of capitalism here, because our own greed led to outsourcing of everything, hence costing americans jobs and good rates of pay.

    here’s what you forget with the bailing out…why bail out anyone? like you said, if lockheed would have failed, someone else would have taken over…which is truth. imagine if the govt tried to bail out horse and buggy carriages when car companies came around…bailouts are a joke.

    give me individual socialism anyday of the week over business socialism…bailing out a company doesn’t help it workers, it just makes the fat cats richer

    to recap: “I mean, say what you will about the tenants of National Socialism, Dude — at least it’s an ethos”

  • I think i have to agree with Chris for about 80%. But 100 % Socialism is not possible, it just looks good on books. Not to offend you in any way clever dude but i think u have a bad impression about democrats may be on different issues but i think it time to see the big picture.
    I still love your blog….

  • @Terry, I think you misunderstand my statement about Democrats because I was just responding to Chris’ argument. I’m not a Republican, nor a Democrat. I’m unaffliated. I recognize that both parties have their pros and cons, and neither party is immune to socialist ideas (both parties approved the recent bailouts).

    Ultimately, though, my argument against socialism is that it dilutes the hard work of individuals and makes it easier for slackers to, well, slack. While I won’t argue that there are many Americans who are simply unable to work due to physical or mental illness, I think the vast majority of us CAN work, and should. If Americans begin to feel comfortable that their government will just clean up our mistakes, then what motivation is there to work harder or decide more carefully? Bailouts and government intervention will just promote more laziness, idleness and even risky behaviors.

    On the converse, no society can be 100% capitalist because it also “just looks good on books”. I recognize that there must be a mix of social and entrepreneurial efforts to make the best society, but then again, we will never please everyone. But what we can do is enable everyone to have a chance to change their life’s circumstances for the better.

  • and for the record, i am not “pro socialist”…what i am is against this new version of capitalism which has thrown our hard working laborers to the side and the villianification of helping out your fellow man, which is what socialism in its purest tenants is.

    the nice thing is, me and cd’s views are basically the same…it is just looking at it from different angles.

  • The comment about bailouts vs. allowing failures is absolutely right on.

    The problem is, that government got involved…whenever government gets involved (i.e. a bailout), it doesn’t allow the survival of the fittest.

    Why are we constantly bailing out the auto industry. We aren’t giving Toyota or Nissan, etc big bailouts? GM, Chrysler and Ford need to get their acts together. Their products suck.

    Socialism is bad. It takes away the risks of failure, but it also kills the rewards of success.

    Why has this country/world become more and more stagnant in terms of breakthroughs? It seems like everything “new” is just a rehash/rebranding of something old. There is no true innovation going on. And, you can almost undoubtedly blame that on the shift of every major country towards socialism.

    Countries is Europe are much more socialist than we are. Yeah, they provide universal healthcare (doesn’t work), but they have some of the highest taxes. In turn, they have a much higher unemployment rate than here in the US.

    There needs to be some govt intervention to protect consumers from abuse, but consumers are pretty good at that when given choices.

  • hey shawn,

    i am confused how you can say that there is no innovation because of socialism?

    united states’ only real source of innovation is in the medical drugs field….which is solely supported by the govt’s funding.

    if you look at our asian brother and sisters, a lot of those countries are communist, which is bastardized socialism. lots of innovation going on there.

    europe…your stats may be wrong or right…but the united states is at 6.1% 21 countries in europe are at or below that rate.

    also, evil cuba and china are below the united states 6.1 …so is canada and mexico.

  • There are clearly no economists in this argument, here, if all we can talk about is socialism and capitalism (and at that, as if each is a single entity without variation). 😉 Also, I should like to point out that it’s not good to mix up government and economic systems, even if they are very intermingled. Communism and socialism are not interchangeable concepts.

    I kind of find this argument to be pointless, in some ways. We have yet to see a *real* capitalist or socialist system at work, so it’s hard to say which is better. All we’ve ever really experienced is oligopoly. I will go out on a limb and say it kind of sucks. 🙂

    But as for Friedman’s article – he seems to be a big fan of deregulation. But yet, in which industry have we seen it successfully occur?

    I’m going to posit a different theory. Inefficiencies are not due to the type of economic system, but to problems of scale. Some things work better at the state-level than the national level.

    Oh, and USPS is technically a quasi-independent service, not a government agency…

  • CD:

    “who had majority power in Congress? Who makes the laws? The prez can only veto or suggest legislation.”

    Let’s not forget that the Republicans blocked more bills in this congress than any congress in the history of the US. So what policies have the Democrats pushed through that undid all the wonderful things Bush and the GOP has done for the country these last 8 years?

  • @Frank…

    The survey of economists you point to is very partisan. Just look at the politics of the economists surveyed. Of course Obama is going to get a better score than McCain in that pool.

  • yup you’re right, laissez faire capitalism is wonderful. just look at what it stands for: maximizing profits. more profits = more jobs. right?…or wait, more jobs for who? you maximize profits by laying off american workers and exporting them to asia. and you know what, laissez faire actually gives companies more incentives to do so: NO TARIFFS! so therefore you get to save money by having chinese people work for ya, and at the same time you don’t even have to pay taxes for that wonderful deed! well you know what… at least prices will be lowered since theyre paying people so much less to do the work..thats the reason they give us right? well look around my friends, whats cheap? what the fuck is cheap? so we got prices UP, Employment DOWN, wages DOWN, where is this tax cut money going to??? PROFITS. it’s NIEVE to believe in trickle-down economics, not STUPID. people, when enough companies do this, consumer demand is near non existent, because well, consumers dont have money to spend, because well, they lost their job to an asian. or because well, while wages are going down, cost of living is going up. thats why so many people are uninsured, thats why so many people are getting foreclosed on, thats why weve seen the biggest drop in retail sales in u.s. history

  • socialist or free. that’s the question. socialism is adopted as a means of controlling production and what is done with the production by means of legislation and taxation. In reading the comments here in favor of socialism it only shows how complacent we have become and that the underpinnings of socialism are so dark the not even Friedman would get into it. Friedman was agnostic and socialism is atheist. one of the reasons socialism gains any type of acceptance at all is because is seems that if you don’t mention god we can all get along. well socialism is what you do in the absence of your inalienable rights , a little something mentioned in the constitution. so in conclusion, if something denies or takes ownership of your inalienable rights its unconstitutional.

  • Correction: The USPS has not taken subsidies since 1982. It’s an indepedant agency of the executive branch. It has a board of directors appointed by the president subject to senate confirmation just like a corporation. It is not too different than your average corporation nowadays.

  • America needs to de-urbanize. Our urban centers are too large, and as a result compatition is harder for small companies, because there are more of them. If we produced more crops and became less dependent on foriegn crops we would see a rise in our economy. Crops are a renewable recorce that can be left unregulated fairley safely.

    And on the socialism-capitolism debate: in Russia in 1920 there was the worst famine in European history. Lennon enacted the “New Economic Policy” which de-socialized the farms of Russia. By 1927 Russia was the 5th largest EXPORTER of crops in the world. Let’s learn from history.
    P.S.: Stalin actually killed all of the Russian farmers a fee years later because they were too “independent minded”.

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