Why Economic Freedom Is the Foundation of All Freedom? Part 2

After what we discussed in the first part of the blog, the book then turns to a key question: Why should economic freedom be connected to political freedom at all? Friedman proposes two explanations, one direct and one indirect. He begins by showing that markets themselves directly embody freedom, and then explains how they indirectly support political liberty.

Freedom, he notes, only has meaning within relationships among people, it does not apply to someone isolated, like Robinson Crusoe on his island. In society, freedom is about ensuring that no person coerces another. Liberals therefore see freedom not as a moral rule about how individuals should use their liberty, but as a social principle that prevents coercion. Each individual must be left to decide moral matters for themselves.

Because human beings are imperfect, social organisation must be structured to prevent harm from “bad” actors while allowing “good” actions to flourish, always recognizing that “good” and “bad” are subjective terms. The central problem of any society, Friedman explains, is how to coordinate the economic activities of millions of people. Even in simple economies, this coordination is necessary, and it becomes far more complex in modern societies dependent on the division of labor and technology.

There are two fundamental ways to achieve this coordination:

1. Central direction and coercion—the method of armies and totalitarian states.

2. Voluntary cooperation—the method of the marketplace.

   
   

Markets work because voluntary, informed transactions benefit both parties. Through exchange, people coordinate their actions peacefully, without force. A competitive capitalist system, composed of independent households and individuals trading goods and services, embodies this voluntary cooperation. Thanks to specialization and the division of labor, people can produce far more collectively than they could in isolation. No exchange takes place unless both sides gain, this is the essence of non-coercive coordination.

However, Friedman stresses that this does not make government unnecessary. The state’s role is to set and enforce the rules of the game, ensuring that voluntary transactions remain fair and protected.

Markets, by dispersing economic power and keeping it separate from political authority, protect both economic and political freedom. Freedom, in its political sense, means the absence of coercion by others. The greatest danger to freedom comes from concentrated power whether held by a dictator, an oligarchy, a monarch, or even a democratic majority. To preserve liberty, power must be checked and balanced at every level.

Economic power, unlike political power, can be widely distributed. A society may have thousands of wealthy entrepreneurs or successful businesses, but it cannot have thousands of equally powerful political rulers. When economic and political power are combined, the result is inevitably tyranny. When kept separate, economic power acts as a counterbalance to political authority.

Friedman illustrates this idea through the example of free speech. In capitalist societies, individuals can freely advocate socialism, funded and supported by independent economic resources. But in socialist societies, where the state controls all jobs, industries, and materials, people cannot freely advocate capitalism. Their survival depends on the very authority they wish to criticize. This makes dissent nearly impossible.

In capitalist systems, inequality of wealth can actually help preserve political freedom. Wealthy individuals or independent publishers can fund new or controversial ideas. Even radical causes find support, whether from sympathetic donors or investors who simply believe the ideas will sell. This diversity of funding sources prevents dependence on the state and keeps pluralism alive.

In contrast, in socialist economies where the state owns all means of production, dissenters cannot independently raise funds, print material, or distribute ideas. Even if the government attempted to allow opposition voices by subsidising them, it would face two problems: overwhelming demand for such subsidies and a fundamental contradiction, true freedom requires risk and independence, not government permission.

Moreover, even if dissidents somehow had money in a socialist state, they would still rely on state-controlled facilities, from paper suppliers and printing presses to postal services and event venues. Under such conditions, genuine independence becomes impossible.

Friedman concludes that many people fail to recognise how markets protect them from the biases of their fellow countrymen. They often blame the market for discrimination that actually survives despite it. In reality, capitalism’s profit motive often overrides personal prejudice. A printer, publisher, or service provider does not have to share a customer’s beliefs, only see the potential for profit. This economic self-interest ensures that diverse, even unpopular, ideas can survive. In this way, capitalism not only fosters prosperity, it also preserves creativity and freedom of thought and expression.