friedman Flashcards
Classical Liberalism (4)
(19th Century)
- Emphasized freedom= ultimate goal and individual= ultimate entity in society.
- Supported laissez faire to reduce economic affairs/state power and increase role of individual.
- Protection of civil freedoms of individuals.
- “Extension of freedom is the most effective way to promote welfare and equality”
Modern Liberalism (3)
(20th Century)
- More reliance on the government
- “Welfare” and “Equality” instead of “Freedom”
- “Welfare are equality are prerequisites for freedom”
Economic Freedom vs Political Freedom
Economic freedom is a necessary condition for political freedom, but isn’t sufficient or all you need.
Democratic Socialism (3)
Belief that
1. economics and politics can be separated
2. individual freedom is a political problem
3. welfare is an economic problem.
(This is false according to Friedman.)
Monopoly
The absence of alternatives in a market, i.e. one company controlling a certain market. This inhibits freedom of exchange and often comes from government support.
Neighborhood Effects
- When the actions of individuals have effects on other individuals that it doesn’t make sense to charge or recompense them for.
- Government control is acceptable in these cases, such as for reducing pollution, controlling highways, and controlling city parks.
Fractional Reserve Banking system
- Deposits are loaned out, and only a specified “fraction” of the money is kept on hand. This means that the banks can “create money” when they give out more than they technically have to lend.
- The danger of this is a run on the banks where the banks don’t actually have all the money that people own on hand. (This can cause damage to the real economy.)
Federal Reserve (4)
- Central banking system where money supply can be adjusted by changing the reserve requirements.
- They can buy or sell government bonds on the open market and pay for them with money they create.
- In charge of controlling the stability of the monetary system.
- Friedman thinks It performs a necessary and desirable function.
liquidity crisis
- (Great Depression) when people are low on money so they all go to the bank to get their deposits back, but the bank has loaned out most of the liquid money and can’t give it to everyone.
- This causes everyone to lose money they thought was safe in the bank.
floating exchange rates
- When the exchange rates of money fluctuate depending on the market (instead of having fixed tariffs or quotas.)
- Friedman says we need these for a more competitive market.
flat tax vs. graduated tax
- Flat tax: everyone gets taxed the same % of their income
- Graduated tax: the higher your income, the higher % of your income you are taxed.
- Friedman wants a flat tax rate with exemptions below a certain income level.
education vouchers
- Parents are given the amount of money it takes to enroll their kid in the public school of their choice.
- Friedman says this will
1. Increase competition and therefore quality of education
2. Make it easier for talented kids of lower classes to get a good education.
3. Make Gov. only in charge of education standards.
principle of capitalist distribution
- “To each according to what he and his instruments produce”.
- Money is distributed according to what you produce.
- This will produce inequality, Friedman says inequality isn’t the issue- poverty is.
inheritance taxes
- When someone dies and their children are taxed on the inheritance they receive.
- Friedman: this is unjustifiable because the children have a right to that money, and it is unequal to tax them on what they have a right to own.
OASI (Old Age and Survivor’s Insurance)
- A form of welfare that Friedman disagrees with.
- It is paternalistic in the way it
1. redistributes income (people who enter the workforce later get the same amount)
2. has compelled purchasing from the government
3. requires a large class of people to buy into a certain retirement plan, even though they could provide for themselves.
